Mutual fund


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Mutual fund

  1. 1. Sudhansu Sekhar patro Dhruva college of management
  2. 2. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities.
  3. 3. Mutual fund in India is having different stages• Phase-1 (1964-87)(mf in India with the setting up UTI in 1963) • Phase-2(1987-92)(in 1987, SBI mutual funds and bank mutual fund were set up as trust under the India trust act, 1882 and SEBI maintain the rule relation between sponsor and asset management) • Phase-3(1992-97)(SEBI issued the mutual fund regulation in January 1993) • Phase-4(beyond 1997)(mutual fund can invest money mobilized under any or its scheme only in securites,money market instrument, gold
  4. 4.       Professional management- lack of knowledge in investments. MF are managed by professional manager to make a investment strategy for individual investors. Portfolio diversification- MF lets investments in different companies so that the risk is less. Reduction in transaction cost- compared to direct investing in the capital market, investing through the funds is relatively less expensive as the benefit of economics of scale is passed on the investors. Liquidity- investors cannot sell the securities easily, while MF can easily raise the money by selling units to public in case of open ended. And in case of close ended they sell in stock exchange directly . Convenience – investing in MF reduces paperwork, saves time and make investment easy Tax benefits- MF investors enjoy the tax benefits. Dividend received from mutual fund and debt scheme are exempted up to 1,00,000 u/s 80 C of the income tax.
  5. 5. In function point of viewopen-ended schemes close-ended schemes interval schemes in investment point of viewequity income debt others index fund
  6. 6.   Open ended scheme- open-ended schemes are those schemes where investors can redeem and buy new units all throughout the year as per their convenience at NAV – related price. Investors can enter and exit the scheme any time during the life of the fund . Open ended schemes do not have a fixed corpus. The corpus of fund increases or decreases , depending on the purchase or redemption of units by investors. Close-ended scheme- close ended schemes are open for subscription only for a specified period and have a fixed corpus and a stipulated maturity period ranging between 2 years to 5 years. investors in close ended schemes can buy units only from the market, once initial subscription are over and thereafter the units are listed on the stock exchange where they can be bought and sold. Close ended funds give an option of selling back the units to mutual fund through periodic re-purchase at NAV related price . The NAV closeended fund schemes are disclosed on weekly basis.
  7. 7. Interval scheme- interval scheme combines the features of open-ended scheme and close-ended schemes. They are open for sale at NAV- related price. In investment point of view Equity fund- if fund of a particular scheme are invested in equity shares , then it is an equity fund. Equity fund are riskier.  Debt fund- if fund of a particular scheme are invested in debt instrument , then it is a debt fund.  Income fund- this fund provide safety investments and regular income to investors. Instruments are bonds, debentures, government securities. Others  Index fund- Index fund is a mutual fund which invests in securities in the index on which it is based- BSE sensex or S&P CNX Nifty . 
  8. 8.  • • •  The Fund Sponsor Any person or corporate body that establishes the Fund and registers it with SEBI. Form a Trust and appoint a Board of Trustees. Appoints Custodian and Asset Management Company either directly or through Trust, in accordance with SEBI regulations. SEBI regulations also define that a sponsor must contribute at least 40% to the net worth of the asset management company.
  9. 9.      A mutual fund in India is constituted in the form of a public trust created under the Indian trust Act, 1882. The sponsor form the trust and registers it with the SEBI. The fund sponsor acts as the settler of the trust, contributing the capital and appoints a trustee. The trust deed deal with the establishment of the trust , the authority and responsibility of the trustee towards the AMC.(asset management company ) Example- Reliance mutual fund has been established as a trust under the Indian trust Act,1882. , with Reliance Capital Limited as the sponsor and Reliance capital trustee as the trustee.
  10. 10.        The trustee appoint the asset management company with the prior approval of the SEBI. The AMC registered under company Act, 1956 Investment management agreement is executed between the trustee and AMC to manage the mutual fund. It charges fee for the services it render to the mutual fund trust. It act as a investment manager to the trust under the supervision and direction of the trustee. The AMC of a MF must have a netwoth of at least Rs 10 crore at all times and this net worth should be in the form of cash . It cannot act as a trustee of any other MF. It required to disclose the scheme particular and base of calculation of NAV Examples- HDFC asset management company limited act as a asset management company for the HDFC mutual fund .
  11. 11. Custodian • Has the responsibility of physical handling and safe keeping of the securities. • Should be independent of the sponsors and registered with SEBI. Depositories • Indian capital markets are moving away from physical certificates for securities to ‘dematerialized’ form with a Depository. • Will hold the dematerialized security holdings of the Mutual Fund.  Agents - Agents Is a broker between the fund and the investor and acts on behalf of the principal. He is not exclusive to the fund and also sells other financial services. This in a way helps him to act as a financial advisor