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MUTUAL FUNDS

Introduction
A mutual fund is a financial
intermediary that pools the savings
of investors for collective investment
in a diversified portfolio of securities.
A fund is mutual as all of its returns,
minus its expenses, are shared by
the funds investors.

Definition
a fund established in the
form of a trust to raise money
through the sale of units to
the public or a section of the
public under one or more
schemes, for investing in
securities, including money
market instruments or gold or
gold related instruments or

Advantages

Professional management
Portfolio diversification
Reduction in transaction cost
Liquidity

Tax benefits
Transparency
Stability to the stock market
Equity research

Convenience
Flexibility
Protection of interest of investors
Promoting, industrial development of
the country

Limitation of Mutual Funds


Market risk
Misappropriation of funds
Political risk

Mutual fund investors

Resident Indian individuals


Indian companies
Indian trusts/charitable institutions
Banks
Non-banking finance companies
Insurance companies
Provident funds
Non-residents, including Non-resident Indians
Foreign entities(FIIs)

Organization of a
mutual fund

The Sponsor
The Mutual Fund trust
The Asset Management Company
Other Administrative Entities

Sponsor
The sponsor is similar to the
promoter of a company as he gets
the fund registered with the SEBI.
Criterias required are
Sound track and general reputation
for minimum 5 years
Not have been found of guilty of
fraud

He forms trust and appoints


a board of trustees
Also appoints AMC as fund managers
And appoints a custodian to hold the
fund assets.
The sponsored is required to
contribute at least 40% of the min
net worth of the asset management
company

A mutual fund is
sponsored by

Banks
Financial institutions
Companies(Indian or
foreign or joint
venture)

Out of 39 mutual funds

4 by bank
1 by LIC
16 by Indian entities
5 by foreign entities
Remaining are joint ventures

Mutual fund trust


A mutual fund is a trust that pools
the savings of investors and invests
these savings in capital
market/money market instruments.
The duty of the trust is to review the
performance of the fund and thereby
safeguarding the interest of the
investors.

contd
A mutual fund in India is constituted
in the form of a public trust created
under the Indian Trusts Act,1882.
The trust is formed by sponsor and
registerd with SEBI
The fund sponsors act as the settler
of the trust, contributes to initial
capital and appoints trustees

Collected funds are managed by


board of trustees,who are
independent body and acts as a
protector of the unit holders interest.
At least 2/3 of the trustees are
independent trustees
eg: HDFC Trustee Company Limited
for HDFC mutual fund

Asset Management
Company
Asset management company
manages the funds by investing in
various securities. It acts like the
investment manager of the trust.
The success or failure of the mutual
fund depends upon the efficiency of
AMC

AMC is a company formed and registered


under companies act,1956.
They charge a fee for the service rendered to
mutual fund trust.
Investment manager
Manages the different investment schemes
as per the SEBI regulation and the trust deed.
AMC should be registered with the SEBI
Net worth of atleast Rs.10 crore the form of
cash

Most AMCs in India are private


limited companies
Eg:HDFC asset management
company limited for HDFC mutual
fund

Other Administrative
Entities
Custodian :A custodian is responsible for
safe keeping of cash securities gold or
gold related instruments or real estate
mutual fund instruments.
A custodian also participates in the
clearing system through approved
depository.
Registrar and transfer agents is a vital
communication link between the unit
holder and mutual fund.

FIXEDD DEPOSITS

MUTUAL FUND SCHEMES

Investment for a fixed period

No fixed tenure in open ended


schemes

Assured return on fixed deposits

No assurance for either returns of


capital growth

Low returns

High returns

High safety in banks

Safety depends upon the


investment objective

Objective is to earn income

Objective is to earn income and


capital growth

Types of Mutual Fund


Schemes
Functional

Investmen
t
classificati
on

Portfolio
classificati
on

Geographi
cal

Other

Openended
schemes

Equity fund

Income

Domestic

P/E ratio
fund

Closeended
schemes

Debt fund

Growth

Off shore

Exchange
traded funds

Interval
schemes

Hybrid fund Balanced

Gold
exchange
traded funds
Real estate
mutual
funds

Functional classification
Open-ended schemes
Close-ended schemes
Interval schemes

Portfolio classification
Income funds
Growth funds
Balanced funds

Geographical classification
Domestic funds
Off shore funds

Investment classification
Equity fund
Debt fund
Hybrid fund

Investment classification
Equity fund
Diversified
Value
Special
Sectoral
Derivatives arbritage
Tax savings

Debt funds
Money market mutual funds
Short term bond
Long term
Gilt
Floating maturity plans
Fixed maturity plans
Capital protection Schemes

Other classification

P/E ratio fund


Exchange traded funds
Gold exchange traded funds
Real estate mutual funds

Conclusion
In India, mutual funds have a
potential to grow. Mutual fund
companies have to create and
market innovative products and
frame distinct marketing strategies.
They have coma a long way, but a lot
more can be done.

Bibliography
Info: THE INDIAN FINANCIAL SYSTEM
by Bharati V Pathak

Images: Google

Thank you