|
 |


|
  
 
 Index
1. The Concept and Role of Mutual Funds.
2. Funds Structure and Constituents.
3. Legal and Regulatory Framework.
4. The Offer Document.
5. Fund Distribution and Sales Practices.
6. Accounting, Valuation & Taxation.
7. Investor Services.
8. Investment Management.

?

R . Measuring and Evaluating Mutual Fund Performance.
1R. Helping Investors with financial planning.
11. Recommending Financial Planning Strategies to Investors.
12. Selecting the right Investment Products for Investors.
13. Helping Investors understand Risks in Fund Investing.
14. Recommending Model Portfolios and selecting the right Fund.
15. Business Ethics in Mutual Fund.

?

 þ  !$

þ ! 

" !
#
 Š !# !
%

 It is a pool of money, collected from investors, and is invested

according to certain investment objectives

 The ownership of the fund is thus joint or mutual, the fund

belongs to all investors.

A mutual funds business is to invest the funds thus

collected, according to the the wishes of the investors who
created the pool

An equity fund will invest in Equity shares, Preference

Shares , Warrants etc.
A Debt Fund will invest in Debt Instruments only.

?

 & !! !#!#" !
%
 The ownership is in the hands of the investors who have pooled in
their funds.
 It is managed by a team of investment professionals and other
service providers.
 The pool of funds is invested in a portfolio of marketable investments.
 The investors share is denominated by µunits¶ whose value is called
as Net Asset Value (NAV) which changes everyday.
 The investment portfolio is created according to the stated investment
objectives of the fund.
 Mutual Funds are also known as Financial Intermediaries
 In India, Mutual Funds are constituted as TRUSTS.

?

 |'!#" !
#!'#!#%
 Portfolio diversification
 Professional Management
 Reduction in Risk
 Reduction in Transaction costs
 Liquidity
 Convenience and Flexibility
 Safety ± Well regulated by SEBI

?

 Š !! #'!#"'#!
!   !
#%
 No control over the costs. Regulators limit the
expenses of Mutual Funds. Fees are paid as percentage
of the value of investment.

 No tailor made portfolios.

 Managing a portfolio of funds. ( Investor has to hold a

portfolio for funds for different objectives ).

?

 Evolution of Mutual Funds in India

 Phase I ± ( 1 64 ± 1 87)- Growth of UTI

UTI sole player in the industry, created by an Act of Parliament ,1 63
UTI launches first product Unit Scheme 1 64
UTI creates products such as MIP's, children plans ,offshore funds etc
| (|  #!'#")!*'#!&! &+
INDIA Fund ± Ist indian offshore fund lauched in August 1 6.

 Phase 2 ± ( 1 87 ± 1 3)- Entry of Public Sector Funds

In 1 87 Public Sector Banks and FI's got permission to set up MF.
,&!"-#! "#!.&!"
In 1 3, Mutual Fund Industry was open to private players.
SEBI got its regulatory powers in 1 2

?

 Phase 3 ± ( 1 3-1 6) ± Emergence of Private Funds
In 1 3, Mutual Fund Industry was open to private players.
SEBI's first set of regulations for the industry formulated in 1 3
Significant innovations, mostly initiated by private players
Phase 4 ± ( 1 6-1 ) ± Growth and SEBI Regulation
Implementation of new SEBI regulations led to rapid growth
Bank mutual funds were recast as per SEBI guidelines
UTI came under voluntary SEBI supervision.
Dividends made tax free in 1 .
Mutual funds assets in mid-2RR2 were appx. 1,RR,RRR crores
| /*"0 1+ $234#
During this phase, both SEBI and AMFI launched investor awareness
programmes.
|
# /# /5!!!6 5 !
#-5"*
  '#!#789

?

 Phase 5 ± (1 -2RR4) ± Emergence of a large and
uniform industry
± Uti Act Repealed in February 2RR3.
± UTI mutual fund came under SEBI¶s regulations
1 6.
Rapid growth, significant increase in corpus of private players
Tax break offered created arbitrage opportunities
Bond funds and liquid funds registered highest growth
Phase 6 ± From 2RR4 onwards : Consolidation and
Growth
Mergers and Acquisitions witnessed
Alliance MF acquired by Birla Sunlife
Sun F&C by Principal PNB Mutual fund.

?

 &""&#!*
 UTI Act repealed in 2RR3.
 UTI now does not have a special status.( now under
SEBI)
 Size of industry was 15RRRR crore in 2RR5.
 Merger and Acquisitions happening.
 Fidelity, Largest MF has entered.
 As on March 2RR6- 2 Funds.

?

!
þ##"!#

?

 Š ! ."#%

 In an open ended fund, investors can buy and sell units of

the fund, at NAV related prices, at any time, directly from
the fund.
 Open ended scheme are offered for sale at a pre-
specified price, say Rs. 1R, in the initial offer period. After a
pre-specified period say 3R days, the fund is declared open
for further sales and repurchases
 Investors receive account statements of their holdings,
 The number of outstanding units goes up and down
 The unit capital is not fixed but variable.
the corpus of an Open-ended scheme changes everyday

?

 Š !#"#%

 A closed -end fund is open for sale to investors for a

specified period, after which further sales are closed.
 Any further transactions happen in the secondary market
where closed-end funds are listed.

 The price at which the units are sold or redeemed depends

on the market prices, which are fundamentally linked to the
NAV.

 The corpus of closed ended funds remains unchanged.

The unit capital is fixed, one time sale.

?

 Load and No Load Funds

 Load is the one time fee payable by the investor to allow

the fund to meet initial issue expenses including
brokers/agents¶/distributors¶ commissions, advertising
and marketing expenses.
 Funds that charge front end( entry) load, back end( exit),
or deferred loads are called LOAD funds.
 IF the investors¶ objective is to get the benefit of
compounding his initial investment by reinvesting and
holding his investment for a very long term, then , a no
front load fund is preferable.

?

 Tax Exempt Vs. Non Tax Exempt Funds

 When a fund invests in tax exempt securities, it is called

a tax exempt fund.
 In India any income received by mutual fund is tax free.
 After 1 budget, all dividend income received from
MF is tax free in hands of the investor. But all funds
other than open ended equity funds have to pay a
dividend distribution tax.
 So in india, open end equity oriented mutual fund
schemes are tax exempt investment avenue, while other
funds are taxable for distributable income.

?

 „

    


)!* /! * 5!

)!*
#
1& * 5!

1
#
# !
#
!
# 8
#

,
# )
#

?

 Š !)!*"#%
 Predominantly invest in equity shares of the company.
þ #)!*"#+
 Aggressive Growth Funds
 Growth Funds
 Specialty Funds
 Sector Funds
 Foreign Securities Fund ( investment in shares of
different countries to make it more diversified)
 Mid cap or Small cap Equity funds
 Option Income Funds
Diversified Equity Funds
Equity Index Funds
Value Funds
Equity Income or Dividend yield funds

?

 Š !)&*&5!
"#%
 These debt funds invest only in instruments with
maturities less than a year.
 The investment portfolio is very liquid and enables
investors to hold their investments for very short
horizons of a day or more.
What are Gilt Funds?
 It invests only in securities that are issued by the Government and therefore do
not carry any credit risk
 8'&!  #   # ! #!# #+
 It invests in both long-term and short-term government papers.
 Ideal for institutional investors who have to invest in Govt. Securities
 Enables retail Participation

?

 )!*5#'# &

 3 year lock in period

 Minimum investment of R
in equity markets at all
times
 So ELSS investment automatically leads to investment
in equity shares.
 Open or closed ended.
 Eligible under Section 8R C upto Rs.1 lakh allowed
 Dividends are tax free.
 Benefit of Long term Capital gain taxation.

?

 Fixed Term Plan Series-

 FTPs are closed ended in nature.

 AMC issues a fixed number of units for each series only
once and closes the issue after an initial offering period.
 Fixed Term plan are usually for shorter term ± less than
a year.
 They are not listed on a stock exchange.
 FTP series are likely to be an Income scheme.
 Good alternate of Bank deposits/ corporate deposits.

?

(-"#""!!&#"! #5
"%

!  # (  " !  ! #   "#5!

 ! # !# & !  ###5 !  ! "#

   
: #!  !- "!
5! #

?

Important points

 IN USA, a MF is constituted as an investment company

and an investor buys the share of the fund.
 In USA, all mutual funds are open ended.
 In USA, funds are also classified as Tax Exempt and
Non Tax Exempt Funds
 In India, classified as Open ± Closed ended, Load and
No Load Funds.
 Mutual Fund is NOT a company, it can be called as a
portfolio of stocks, bonds and other securites or it can be
called as pool of funds used to purchase securities on
behalf of investors or a collective investment vehicle.

?

 Very Important Points to Remember
 An Open Ended Fund offers repurchase facility unconditionally at all
times.( But It is not obliged to keep selling new units at all times.)
 A Gilt Fund is a special type of Fund that invests in Dated Securities
only.
 Units from an Open ended fund are bought from Agencies
appointed by AMC ( Distributors, Banks, Post offices, brokers etc.)
 The Unit Capital of a closed Ended Fund is fixed. Also the number
of units are also fixed.
 Each unit holder of a mutual Fund is part owner of the asset of that
Mutual fund ( he is not a creditor, not a debtor and not a trustee of
that mutual fund).
 Units from an Open Ended fund are bought from the Fund Itself
( not from the amfi, stock exchange, distributors or the banks).

?

 þ  !

!!
þ#!!!#
 (-# !
-5%


Ô
 
„  
 
 
  




„
Ô 




?

  „   

 Fund Sponsor.

 Mutual Fund as Trust.

 Asset Management Company.

 Other fund constituents.

 Custodian and Depositories.
 Bankers.
 Transfer Agent.
 Distributors.

?

Š !#! !*#!!"
%

 „  
 
 ?
 
 

? 
 
+

 It is mandatory to have a three tier structure of

Sponsor-Trustee-Asset Management Company.

 The Sponsor is the promoter and he appoints the

Trustees who are responsible to the investors of the
fund.

 AMC is the business face of the mutual fund as it

manages all the affairs of the fund

?

Š /!  #%Š !#!  #%
 The sponsor establishes the mutual fund and registers
the same with SEBI
 Sponsor appoints the Trustees, custodians and the AMC
with prior approval of SEBI and in accordance with SEBI
Regulations
 Sponsor must have a 5-year track record of business
interest in the financial markets

 Sponsor must have been profit making in at least 3 of the

above 5 years.
 Sponsor must contribute at least 4R
of the net worth of
the AMC
 Sponsor could be a bank (SBI, PNB, ICICI) a financial institution (Fidelity,
Franklin Templeton) or a Corporate (Reliance, Birla, Tata etc.)

?

 (- !
#!!%

 In India Mutual fund is the form of a Public Trust created

under the Indian trust Act. 1882.
 The fund sponsor acts as the Settler of trust, contributes
the initial capital and appoints the trustees to hold the
trust for the benefit of the unit holders.

 In India, Mutual funds are organized as trusts. The trust is

either managed by a Board of Trustees, or by a trustee
company.
  !#!# ! ! #&*
"* !*+ */#!! #

 ##4! '#!#! /"-#

"'#!&!#+
?

 There must be at least 4 members in the Board of
Trustees and at least 2/3 of the members of the board of
trustees must be independent.

 Trustee of one mutual fund can not be a trustee of

another mutual fund.

?

 Š !!  !#"! #!#%

 Trustees appoint the AMC, in consultation with the

sponsor and according to SEBI Regulations
 All Mutual Fund Schemes floated by the AMC have to be
approved by the Trustees
 Trustees can seek information from the AMC regarding
the Operations and compliance of the mutual fund.
 Trustees can seek remedial actions from AMC, and in
cases dismiss the AMC
 Trustees review and ensure that net worth of the AMC is
according to stipulated norms, every quarter

?

 Š !! /!#"! #!#%
 Trustees must ensure that the transactions of the mutual
fund are in accordance with the trust deed
 Trustees must ensure that the AMC has systems and
procedures in place, and that all the fund constituents are
appointed
 Trustees must ensure due diligence on the part of AMC in
the appointment of constituents and business associates
 Trustees must furnish to the SEBI, on half yearly basis a
report on the activities of the AMC
 Trustees must ensure compliance with SEBI regulations
 The board of trustees are required to meet at least 4 times in a year to review
the AMC

?

 !*)&!#"! | þ%
 Only SEBI registered AMC can be appointed as investment
managers of mutual funds
 | þ&#! '&&&!-! " #+$þ+4!
!&#
 An AMC cannot be an AMC or Trustee, of another Mutual Fund
 AMC¶ s cannot indulge in any other business, other than that
of asset management
 At least half of the members of the Board of an AMC, have to
be independent
 The 4th Schedule of SEBI regulations spells out rights and
obligations of both trustees and AMC¶s
  &!/!-! #!#! | þ#
5-#'#!&! &!|&!+
?

Š  !#! | þ"#!#"!#%

 The trustees, on the advice of the sponsors usually

appoint the AMC

 The AMC is usually a private limited co., in which the

sponsors and their associates or JV partners ,are
shareholders

 The AMC has to be a SEBI registered entity, with a

minimum net worth of Rs. 1R Cr.

 The trustees sign an investment management agreement

with the AMC, which spells out the functions of the AMC

?

 (-&!"##%

 Though the trust is the mutual fund, the AMC is its

operational face

 The AMC is the first functionary to be appointed and is

involved in the appointment of all other functionaries

 The AMC structures the mutual fund products, markets

them and mobilises the funds, manages the funds and
services the investors

 All the functionaries are required to report to the trustees

who lay down the ground rules and monitor their working

?

 Š !! #!!#! | þ%

 AMC¶ s cannot launch a scheme without the prior approval

of the trustees

 AMC¶ s have to provide full details of investments by

employees and Board members in all cases where the
investment exceeds Rs.1 Lakh

 AMC¶ s cannot take up any activity that is in conflict with

the activities of the mutual fund

?

Š !!  #!#"|!#%
They are responsible for investor servicing functions
 Process investor applications
 Record details of Investors
 Send information to Investors
 Process dividend payout
 Incorporate changes in investor information
 eeping Investor information up to date

?

 Š !#! ",5#&!"%
 Enable investment managers to buy sell securities

 Brokers are registered members of the stock exchange

 They charge a commission for their services.

 In some cases provide investment managers with

research reports

 Act as an important source of market information.

 Limit of 5
per broker

?

 Š !#! "##!/!
!#%

 Selling agents bring investors funds for a commission

 Distributors appoint agents and other mechanisms to

mobilize funds from investors

 Banks and post offices also act as distributors

 The commission received by the distributors is split into

initial ( Upfront) commission which is paid on mobilization
of funds and trail commission which is paid depending on
the time the investor stays with the fund

?

 Š !! "!#"! #!#%
 Responsible for the securities held in the mutual fund¶s
portfolio
 eep an investment record of the mutual fund

 Collect dividends and investment payments due on the

mutual funds investment

 Track corporate actions like bonus issues, right offers, offer

for sale, buy back and open offers for acquisition

  #!# #!/! #&!!*

  #!#! "! "###!#"'#!#

?


#
&#"
 #5'#

 Merger of AMC to become a single entity

( Example : HB Mutual and Taurus Mutual )

 AMC takeover by sponsors ( Example : ITC

Threadneedle and 2Rth century taken over by Zurich)
( ITI by Franklin Templeton)

 Scheme take over (Apple¶s scheme taken over by Birla

AMC ) and ( Zurich¶s Scheme Takeover by HDFC
Mutual Fund)

?

 Š !! !#-  !-| þ7#
/&%

SEBI regulations require the following :

 SEBI and Trustees of both funds must approve of the

merger

 ! ## /!""! &4

'!  !!1!!|
4-! ! #
" "##2;#!#)

 High Court approval is required as AMC¶s are companies.

?

 - !!#| þ/
!5'/*! # #%
 SEBI approval is required of the change of ownership and
unit holders have to be informed of the takeover
 '#!# '!/"&/!(8(þ!
 '!)

What is scheme take over?

 If an existing mutual fund scheme is taken over by another
AMC, it is called as scheme take over. The two mutual
funds continue to exist.Trustee and SEBI approval and
notification of unit holders are required for scheme
takeovers

?

 & !! !#

 In USA, the regulatory body is known as Securities

Exchange Commission.
 The sponsor may be compared to promoter of a
company
 Issuing units and redeeming units is the role of Transfer
Agent
 The appointment of AMC can be terminated by Majority
of directors of trustees.

&## #/""!#"! 
"#7 !"-! ,+

?

 A sponsor of a mutual fund can act as the distributor of
the Mutual fund.
 Sponsor can contribute to the initial corpus of the trust.
 Sponsor can contribute to the capital of the AMC.
 Sponsor can invest in his own fund¶s schemes.
  #!!##!" !"+
  #!!#þ#!"!  !



?

 þ  !3

 !*
&-5
 Regulating Agencies of Mutual Fund
 SEBI ( Established in 1 2 by an act of parliament)
 Mutual Funds are regulated by SEBI (Mutual Funds) Regulations, 1 6
 SEBI regulates all funds, except offshore funds i.e. those schemes offered in a foreign
country
 ,5.# #&!"#<!*!/*, ,
 SEBI and RBI are under the purview of Ministry of Finance
 RBI regulates the money and government securities market where the mutual funds
invest
 )"#-  '#!&*&5!#!&!#-'/*
,+  * 5! !
#-!/*,
 If a bank-sponsored mutual fund offers a guarantees, it requires RBI permission
 All schemes of UTI are now under UTIMF, are managed by a UTI AMC and under
purview of the SEBI
 /!#  #!#4þ#!#4 !
#4!51 #
# /5#+,!!#!!,5
& #+

?

 Š !#! !*<#!" ,
'&!"#%
 RBI is the monetary authority and the regulator of the
banking system

 Bank sponsored mutual funds were under the dual control

of RBI and SEBI

 Presently RBI is only the regulator of the sponsors of bank

sponsored mutual funds. SEBI is the regulator of all mutual
funds

 Mutual funds are affected by the RBI stipulations on

structure, issuance, pricing & trading of Govt. Securities

?

 Š !#! " #!*"

&!"!#%

 The finance ministry is the supervisor of both the RBI

and SEBI

 Aggrieved parties can make appeals to the MoF on the

SEBI rulings relating to mutual funds

 AMCs has to file its annual statements with Registrar of

Companies ( RoC)

?

 Š !#"!*#!#  7#%

 Stock exchanges are Self-Regulatory Organizations

(SROs)
 SROs are the second-tier in the regulatory structure
 SROs get their powers from the apex regulating agency
and act on their instructions
 SROs cannot do legislation of their own
 SROs regulate only their own members in limited
manner

?

 Š !! /<!'#"|
%
AMFI is an industry association, incorporated in 1 5, is
not an SRO, so it can just issue guidelines to members. It
cannot enforce regulations.
/<!'#
 To promote the interests of mutual funds and unit holders.
 To set ethical, commercial and professional standards in
the industry.
 To increase public awareness of the mutual fund industry.
 To develop a cadre of well trained distributors
AMFI is governed by a board of directors elected from
mutual funds and is headed by a full time chairman.

?

 Š !!  !#"! '#!## !"
#'#!#! !! *1 !"&
#%
1. Investors are entitled to receive dividends declared in a scheme within 30 days
2. Redemption proceeds have to be sent to investors within 10 days
v







 
















 








v














 



v








  







v

4. Mutual funds have to allot units within 30 days of the IPO an dalso open the
scheme for redemption, if it is an open -ended scheme
5. Mutual funds have to publish their half yearly results in at least one national daily
and publish their entire portfolios, at least once in 6 months . Such disclosure should
be done within 30 days from 6 monthly account closing dates of the fund
6. Trustees will have to ensure that any information having a material impact on the
unit holders investments should be made publicby the mututal fund
7. If 75% of the unit holders so decide, 1)The scheme can be wound up 2)Meeting of
unit holders can be called 3)Appointment of the AMC of the mutual fund can be
terminated

























 













 






 














?

9. Unit holders have the right to inspect certain documents
 Š !! &!!#!'#!# !%

 Investors cannot sue the trust as they are not distinct from
the trust
 Investors cannot lodge complaints against the
trustees (with the Registrar of Public Trusts) or the
AMC (with the CLB).
 Investors can lodge complaints with SEBI for non-
compliance.
 Investors cannot be compensated if the performance
of the fund is below expectations.
 There are not legal remedies for to a prospective
investor

?

 & !! !#

 Sebi does entertain complaints against MF and intervenes with

fund managements to help the investor.
 Sebi requires that sponsors of a new scheme should appoint a
compliance officer who must issue a Due Diligence Certificate to
the effect that all regulations have been complied with by the fund
and sponsors.
 Unitholders have right to timely service, right to information, right to
approve changes in fundamental attributes, right to wind up a
scheme, right to terminate the AMC.
 IIIrd Schedule of SEBI (MF) regulations 1 6 specifies the contents
of the Trust Deed.
 The body to which investors may address their complaints is SEBI.

?

 þ  !0

""&!
 Offer Document is the most important source of information about a
mutual fund scheme for investors
 An abridged (summary) version of the OD is ey Information
Memorandum ( IM)
 Investors are required to read and understand the OD
 '#!##! "&#!!! !! * '! +
##'/!'#!#"!! =
 The cover page of OD contains details of scheme being offered, the
name of the sponsor, trustee, AMC etc
 Mandatory disclaimer clause of SEBI should also be on the cover
page of the OD
 The format and contents of the OD must be as per SEBI guidelines
 The OD is issued by the AMC on behalf of the trustees
 The AMC is responsible for the information in the OD

?

 þ#."###!! !&"!  
 Open-ended funds have to update OD at least once in 2 years
 Trustees approve the contents of the OD and IM
 = #& #*&'/-! '* !"&
 SEBI does not approve or certify the contents of the OD
 Investor¶s rights are stated in the OD
 The OD contains detailed info, while IM is the summary document
 "*"&!#!! '#!4!-/"
/! = +
+!#"!4"! # &#
##!# &

?

 the OD must contain a due diligence certificate signed by a compliance
officer, an AMC employee
± The due diligence certificate states that:
- Information in the OD is according to SEBI formats
- Information is verified and is true and a fair representation of facts
- All constituents of the fund are SEBI registered
 The following information would be available in the OD:
± Category of Investors eligible to apply, viz. Individual, HUF, FI, Trust,
Society, Corporate, Association of Persons, NRI, PIO, OCB etc
± "&!1#!# &#"#&&*!/
'"3*#
± "&!!#!#-! ##!& #!/
'" #!3*#
± If any expense incurred in a past scheme is higher than what was
stated in OD, explanations should be given

?

 ± Investor¶s rights are stated in the OD
± 3 year track record of investor¶s complaints and redressal
should be disclosed
± Any pending cases or penalties against sponsor or AMC
± The borrowing restrictions on the mutual fund should be
disclosed, including the purpose and limit of borrowings
± #"!# &4&"!4! 
!-!  #! "&"##!# &#
 The name and addresses of trustee and AMC directors will be
found in IM, but the details of their role, responsibilities and duties
will be found in OD
  #"&!/!! &!"#4! 
"&! +& #! "&
"! &!"##"
 The OD and IM will not contain names of securities in which the
fund plans to invest, only broad asset allocation will be given.

?

 Fundamental attributes of a scheme are its basic
features. For eg. open or close ended, lock-in period,
fund objectives, asset allocation, loads and charges etc.
 For any change in fundamental attributes, SEBI and
Trustee approval is required.
 Investor approval is not needed. However, each investor
must be informed through a communication and given
the option to exit without exit load.

?

Š !! &!*###!/&
! '  
! "! %
 Name of the mutual fund.
 Name of the scheme.
 Type of scheme.
 Major Objective
 Name of the AMC.
 Classes of units offered for sale.
 Price of units plus applicable load.
 Name of the guarantor in case of assured return
schemes.
 Opening , closing and earliest closing date of offer.
 Mandatory statements.
 !"!# /!#+
?

 Š !! #!#5"!#%

 Mutual fund and securities are subject to market risk and

there is no assurance that the objective will be achieved
 NAV of units issued under the scheme can go up or down
depending on factors and forces affecting capital markets.
 Past performance of the sponsor/AMC/ Mutual fund does
not indicate the future performance of the scheme.
 The name of the scheme does not in any manner indicate
any either the quality of the scheme or the future
performance of the scheme

?

 Š !# &# "#5#%

 Risk arising from investment objective, investment

strategy and asset allocation of the scheme

 Risk arising from non ±diversification , if any

 If a scheme offers assured returns, the scheme must state

that the assurance is on the basis of the guarantees
provided by the sponsor/AMC

 If the AMC has no previous experience in managing a

mutual fund, a disclosure to the at effect should be made

?

 & !! !#=

 In USA, the OD is known as prospectus

 The first time investor should read detailed offer
document, once he has gained familiarity with the AMC,
he can just refer to IM
 The OD do not contain the address of the Trustees of
MF
 The offer document is issued by the AMC / Trustees

?

 Important Points

 IM is available at various distribution points such as banks,

distributors and brokers
 AMC must confirm that a due diligence certificate signed by
Complicance officer / CEO / MD has been submitted to SEBI.
 If a scheme¶s name implies that it will invest primarily in a particular
type of security or in certain industry, then it will invest atleast 65

of the value of its assets in the indicated type of security/ industry.
 The OD must disclose minumum amount to be raised as per SEBI
Regulations, and the maximum target amount in case of assured
return schemes.
 OD must contain brief description of investors¶ complaint history for
the last 3 Fiscal years of existing schemes.

?

 þ  !2

Fund distribution and Sales

Practices

?

Š !! !#"'#!#/!
/*
!#%
 Resident Individuals
 Indian Companies
 Indian trusts and charitable institutions
 Banks
 NBFC¶s
 Insurance companies
 Provident funds
 Non-resident Indians / PIO
 OCB¶s
 SEBI registered FII¶s

?

 & !! !
 Distributor should look up the offer document to see which category
of investors are allowed to invest in any particular scheme of the
fund, as it is possible that some categories are not allowed to invest
in some schemes.
 For example, charitable trusts are not allowed to invest in some
category of schemes in some funds. So in this case distributor
should refer offer document.
 Any investor who becomes a foreign citizen after investing in a
fund, has to compulsorily redeem the units after obtaining foreign
citizenship
 FIIs can invest in Mutual Funds through their Non Resident Rupee
Account
 RBI has granted a blanket permission to NRI, OCB and FIIs; every
investment does not require RBI approval.

?

 #!/!þ #
 Individual Agents- A person has to sign an agreement with a fund
on non judicial stamp paper. He has to be AMFI certified also to sell
Mutual Fund products.
 Only exemption is distributors abvoe 5R years of age and with at
least 5 years of experience as on Sep 3R, 2RR3. Such exempted
distributors were required to complete AMFI¶s refresher course by
Sep 3R, 2RR4.
 UTI MF requires its agents to have atleast passed the level of
matriculation and also to provide 2 references.
 Distribution Companies
 Banks and NBFCs
 Post Offices
 Direct Marketing
- CURRENTLY 4 837 are amfi certified and 3RR28 have
taken the ARN numbers ( as on 31/3/2RR5)

?

 Š !! |
&&/#!
!#"&!"!#%
1. Agents m st be fully aware and informed about the features of the
products that they offer to the investors
2.Agents should be highly familiar with the profile of the investors, in terms
of return expectations, requirements and risk tolerance
3. Agents must strive to cultivate disciplined approach to investing and a
regular investment habit among clients
4. Agents must have a thorough understanding of the needs of their
investors
5. Agents must be able to help investors to choose from alterntative
investment products, and enable an appropriate asset allocation
6. Agents should seek from investors the commitment to invest to enable
which they may assist the client with the forms and procedures for
investing

?

 What is SEBI¶s advertising code?
'


 

 
 









 
 





 






 

±

      
 
       
   
 
  

       
    
             
     
   
          
 

 
      

?

 What is the AMFI Code of Ethics?

 Management of the fund ought to be in the interest of unit

holders
 High standards of service are expected from the fund.
 Adequate disclosures by the funds ought to be made to the
unit holders and trustees.
 Funds are urged to adopt the use of professional selling
practices.
 Management of funds collected has to be in accordance with
stated investment objective
 Funds should avoid conflicts of interest in dealings by
directors, officers and employees.
 Funds have to refrain from unethical market practices.

?

 What is the commission structure for mutual fund
agents?

 The commission consists of two components

Initial ( Upfront )commission - Paid as a fixed percentage of
amount mobilised by agents
Trail commission - it is paid periodically on the funds that
remain invested in the scheme. Trail is an effective way to
restrict the practice of rebating, and link commissions

 „

 






 




 







?

 Fundamental Attributes of a Scheme
 Type of Scheme, Investment Objective and Terms of the
issue, Investment Pattern, Fees and Expenses,
Valuation norms and Investment Restrictions.
 Any change in Fundamental Attributes, Trust, Fees and
expenses payable and other changes which affect unit
holders interest have to be informed to investors either
in writing or newspaper advertisement( one in English
daily and other in a paper published in the language of
the region where the HO of a MF is situated)
 The unit holders are given option to redeem their
holdings in the fund without any exit if anything in above
is changed.

?

 #
 # !'#!- ! '#!/*#&#!#+!
# &*#!&!! 1 ##!!##!/!
"!#
 Load charged on sale of units is entry load. It increases the price above the
NAV for new investor.
 Load charged on redemption is exit load. It reduces price.
 1&&!*1!#;+ 
 
#
 Max. Entry or Exit load for closed ended funds is 5

 CDSC is Contingent Deferred Sales Charges.
 þþ#1!! !'#-!   +!###"
'#!#- #!*#! "+
 Load is an amount which is recovered from the investor.
 |
#-  ! !##1 ##!
 !! '#!#+

?

 þ  !>

Accounting Valuation and Taxation

 What are net assets of a mutual fund ?

The net assets represent the market value of assets which

belong to the investors, on a given date.

Net assets are calculated as:

Market value of investments

Plus(+) current assets and other assets
Plus(+) accrued income
Less(-) current liabilities and other liabilities
Less(-) accrued expenses

?

 How frequently is the NAV calculated ?

 All mutual funds have to disclose their NAVs daily, by

posting it on the AMFI web site by 8.RR p.m.

 Open ±ended funds have to compute and disclose NAVs

everyday; closed end funds can compute NAVs every
week, but disclosures have to be made everyday.

 Closed end schemes not mandatorily listed on the stock

exchange can publish NAV according to the periodicity of 1
month or 3 months, as permitted by SEBI.

?

 What are the initial issue expenses ?
Expenses that are incurred in the launch of the fund are
called as initial issue expenses.

· The costs of registration and fund formation

· Legal and advisory expenses
· Costs of launching the scheme
· Advertisement and promotion expenses
· Distribution costs
· Commissions to selling agents

SEBI imposes a ceiling of 6
on these expenses.

?

 Can the Fund be launched without bearing any
initial issue expenses ?

m Yes

m Such funds are called as no load funds

m AMCs can charge an investment management fee, which

is 1
higher than the statutory limit, in this case.

?

 Latest changes on Initial Issue Expenses

 IIE will be permitted for closed ended schemes only and

such scheme will not charge Entry load
 IN CES, IIE shall be amortized on a weekly basis over
the period of scheme.
 IN OES, the sales, marketing and other expenses of
sales should be met from the entry load and not IIE

?

 What are the expenses incurred by a mutual fund?
Investment management fees to the AMC
Ú Custodian¶s fees
Ú Trustee fees
Ú Registrar and transfer agent fees
Ú Marketing and distribution expenses
Ú Operating expenses
Ú Audit fees
Ú Legal expenses
Ú Cost of mandatory advertisements & communications to
investors

?

 Can the AMC charge all the expenses that it
incurs, to the income of the fund ?
Ú No. There are two levels of restrictions
Ú At the first level only certain kinds of expenses, that are
identified as having been incurred for the conduct of the
business of the fund, can be charged to the fund.
Ú The second level of regulation refers to the limit on the total
expenses, that can be charged to the fund
p


 
 




p
  
 
 
p

 
 
p

 
 

p

 

  
 
 

?

 What are the fees charged by the AMC ?

The fees are regulated by SEBI as follows:

 For the first Rs.1RR Cr. Of net assets: 1.25

 For the net assets exceeding Rs. 1RR Crore: 1.RR

 If the AMC does not charge any of the initial issue

expenses to the fund, it can charge the scheme a
management fee, that is 1
higher than the above rates

?

 &
 Weekly Net average asset=14RR Cr.
 What could be the maximum ongoing expenses.

 On 1st 1RR cr. 2.5
i.e. 2.5 Cr.

 On next 3RR Cr. 2.25
i.e. 6.75cr.
 On next 3RR Cr. 2
i.e. 6 Cr.
 On Rest of the WNAS
 (7RR cr.) 1.75
i.e. 12.25 Cr.

 ! +2þ+

?

 1& ! !
#

 Income earned by any mutual fund registered with SEBI

is exempt from tax.( It is a trust) Under section 1R(23 D)
 The dividends are tax free in the hands of unitholders by
it is liable to dividend distribution tax in case of closed
ended fund and debt funds( equity <5R
)
 No TDS on any income distribution by MF
 The earning on selling units is known as Capital Gain
± If units are held for not more than 12 months--- STCG
± Else the earnings is known as LTCG.

?

 þ !81!
 The difference between sale and purchase price is known as capital gain /
loss.
 The sale and purchase of units in equity oriented scheme of MF is subject
to STT at the prescribed rate
 Under Section 111 A of the IT ACT, STCG on sale of equity oriented
scheme is taxed at the rate specified by the govt. ( currently1R
). LTCG
 LTCG if equity oriented scheme of MF is exempt from tax.
 Tax on other scheme is 1R
for LTCG ( without indexation) and 2R
with
indexation.
 under section 54 of Income Tax Act, LTCG are exempt from tax if invested
in specified bonds (54EC) issued by NABARD, NHAI, REC or specified
equity (54ED) within 6 months of transfer of units
 the bonds must be held for minimum 3 years and no loan be taken against
these bonds and the equity must be held for minimum 1 year

?

 !  !#

 Section 8R C ± Individual and HUF are entitled to deduction upto

Rs. 1 lakh in respect of payment out of taxable income towards
certain instruments which includes ELSS of Mutual funds.
 Dividend Stripping ± ( Section 4(7) ± If investor buy units within 3
months prior to record date of dividend and sells those units within
3 months of record date, then the loss if any, shall be ignored.
 Units are not considered under wealth tax
 Section 1 5 ± 2R
TDS for LTCG and 3R
TDS on STCG if unit
holder is a NRI. 48
TDS if unit holder is foreign company.

?

 &

 An investor purchased units in an apporved Mutual

Fund on Jan. 1, 1 8 for Rs.5RRRRR/-. He sold the units
on December 1, 1 for Rs. 75RRRR/-. Calculate the
capital gain taxes paid by him. ( Ignore indexation).

 Answer :
± Long term capital gain = 25RRRR/
± So Tax on LTCG = 25RRRRR 1R
= Rs. 25RRR/-

?

 Valuation of Securities

Non Performing Assets (NPA)

An asset shall be classified as an NPA, if the interest
and/or principal amount have not been received or have
remained outstanding for )!, from the day
such income/installment has fallen due.
Such assets will be classified as NPAs, soon after the
lapse of a quarter from the date on which payments
were due.

?

 Valuation of Equity Securities

 Closing price on valuation date

 Selected stock exchange
 Use of alternate stock exchange quote
 On the basis of earliest previous quote (not more than
3R days prior to valuation date).
 If trading is suspended up to 3R days, last quoted price;
if it is suspended for more than 3R days, AMC/Trustee
decide valuation norms and document such norms.

?

 Thinly traded Equity Securities
 Equity and equity related security
 Rs. 5 lakhs or less OR less than 5RRRR shares in a
month
 For unlisted: AMC need to make its own judgement and
guideline - which need to be documented
 Aggregate of illiquid securities - non traded, thinly
traded, and unlisted equity shares should not exceed
15
if the total assets of the scheme and any assets
above that limit will be valued at zero.
 If no Trade done during the past thirty days then has to
be treated as non traded security and the Valuation is
done on basis of ³Good Faith

?

 Valuation of Thinly Traded Equity
 Networth per share

 Earnings capitalisation value

± Discount the industry P/E by 75

 Average of the two methods

± 1R
discount for illiquidity

 Earning capitalisation is zero if

± EPS if negative

± Accounts not available for months after closing date.

 If illiquid securities are more than 5
of the portfolio, independent

valuation to be done

?

 Valuation of Debt Securities
 Valuation of a Thinly Traded Security (<182 Days)
For example, if a security was issued at Rs. R and
redeemable at Rs. 1RR, after 364 days, the accrued
interest for each day is
= 1R/364
= R.R2747
The value of the security is increased by 2.747 paise every
day, so that the security is worth Rs. 1RR on the date of
maturity.
If it has to be valued 2RR days after issuance, its value is
R+(R.R27472RR) = 5.4 4

?

 Unit Capital is found in the Liability side of scheme¶s balance sheet.
 The ³Capital´ of a scheme includes Unit Capital, Reserves and
Borrowings. It does not include the Networth of the AMC.
 In Mutual Fund investors¶ subscriptions are accounted for as Unit
Capital.
 Investment made by Mutual fund on behalf of investors are
accounted as Assets.
 Liabilities in Balance sheet of mutual fund are strictely short term in
nature.
 The Day on which NAV is calculated is known as Valuation Date.

?

 þ  !

Investor Plans and Services

 '#!&! #

 Broadly 2 options- Growth option and Dividend Option

 Automatic Reinvestment Plans± Reinvestment of amount of
dividend made by fund in the same fund and receive additional
units. It gives Benefit of Power of Compounding.
 Systematic Investment Plans( SIP) ± For regular investment
 Systematic Withdrawal Plan ( SWP) ± For regular income ( it is not
similar to MIP)
 Systematic Transfer Plan ( STP) ± Transfer on a periodic basis a
specified amount from one scheme to another within the same fund
family.

?

 SIP and VAP

 SIP is investing a fixed sum periodically in a disciplined

manner for long term. It gives benefit of Rupee Cost
averaging ( Discussed in later half of presentation).

 VAP is modified version of SIP. It is Voluntary

Accumulation Plan. It allows the investor flexibility with
respect to the amount and frequency of investment.
 In VAP, investor has to impose voluntary self discipline.

?

 Other Investment Services

 Telephone / Internet Transactions.

 Cheque writing ± usually for liquid funds.
 Periodic statements and Tax Information
 ##!!#
8
|
/!/5#'#!!# /*! +
 Nomination and Transfer by unit holders.

?

 þ  !?

Investment Management
 )!* !" &!

 Equity funds can invest into equity shares, preference

shares, warrants or convertible debentures.
 As on march 2RR4, indian stock exchanges have over
4RR listed companies.
 BSE has 72RR listed and 26RR of them are actively
traded securities.
 Mutual Fund¶s total sales and purchase exceeded Rs.
7RRRR crores during 2RR3-2RR4.

?

 Š !. #& # #%

The size of a company in the equity markets is determined

by market capitalisation= (no. of shares issued  market
price/share)

›
    

ark et c apitalis ation hi h ark et apitalis ation o

reater iquidity oor iquidity
om parati ely s m aller returns om parati ely hi her returns
os t of trans ac tion lo os t of trans ac tion hi h

?

 Equity stocks can be classified as large cap, mid cap and small cap
 Market cap = Market Price per share X No of shares outstanding
 Large cap stocks are traded everyday in large volumes; hence
highly liquid but these are established companies offering normal
profit potential
 Small cap stocks provide higher return potential but are generally
not very liquid
 Cyclical stocks are those whose performance is closely linked to
macro economic factors; eg. cement stocks which are linked to
infrastructure development in the country
 The P/E ratio (Market Price Per Share / Earnings Per Share)
indicates the price the market is willing to pay per rupee of
company¶s earnings (or potential earnings)
 Higher P/E ratio indicates growth stock; value stocks have generally
lower P/E ratios
 P/E ratio reflects overvaluation and under valuation

?

 Š !#'*%

 Dividend paid is usually a percentage of face value of the

share
 Dividend Yield= dividend paid/market price of a share

What is the relationship between dividend yield?

 Both the measures are sensitive to market price per share

 If market prices are higher, P/E multiple will be higher, but
dividend yield will be lower and vice versa

?

 þ##"!#"!5#

 þ     


 

  






!



"
  
 
 #
 Growth Stocks ± Stocks having potential for higher
earnings. High PE and low Dividend yields
 Value stocks ± Companies in mature industries and are
expected to yield low growth in earnings. Good assets
value. Currently under valued but can yield superior
returns later.

?

 Š !#!')!*"&&!
 Fund manager tends to look at specific attributes in selecting stocks.
 Active fund manager believes, that his ability to buy right stock at the
right time, can translate into superior performance for his portfolio.

What are the basic active equity fund management style?

 Growth Investment style ± ( objective is to capital appreciation,

look for companies that are expected to give above average
earnings growth, The shares are more risky and thus expected to
offer higher returns over a long investment horizons.
 Value Investment Style ± Look for companies that are currently
undervalued but whose worth will be recongnized eventually. ( eg.
Privatization/buy back)

?

 Š !# ##')!*"&&!%

 Fund manager believes, that holding a well diversified

portfolio is the cost efficient way ,to better returns, he would
tend to mimic the market index.
 It requires limited research and monitoring costs and is
therefore cheaper.( The Expenses are low)
 Fund manager may choose to mimic a index, or a subset
of the index or choose a basket of shares from multiple
indices.
 A passive fund manager has to rebalance his portfolio
every time changes are made in the index.

?

What is the types of equity research done in MF?
 Fundamental analysis ± Future earnings and risk
profile considered ( whether to buy or not) Fundamental
Analysis is the analysis of the profit potential of a company, based on
numbers relating to its products, sales, costs, profits and management of
the company

 Technical analysis ± Study of historic data on the

company¶s share price movements and volume (WHEN
TO BUY) Technical Analysis is the analysis of the market prices and
trading volumes data to identify clues to market assessment of a stock


uantitative analysis ± Equity valuation and evaluate

the market as a whole

?

& !! !#/! !"
&!

 Investments only in Market Traded Instruments ( Not in

loans as done by banks)
 Instruments with maturity less than a year called Money
Market Securities.
 Instruments with maturity above 1 year are called debt
securities.
 Zero Coupon Bonds( discounted securities) do not pay
regular interest at intervals but are bought discount to
their face value.

?

 Important
 Debt instruments are issued by government, corporate
or banks
 Debt instruments have fixed interest, floating interest or
zero interest or coupon i.e. on a discounted basis
 Debt markets are wholesale markets and investors are
large institutional investors, such as banks, insurance
companies, mutual funds and corporate due to large
ticket sizes
 More than R
of trading in debt markets is in
government securities

?

 #!&!#/! 5!

 Certificate of Deposit ± Issued by Commercial banks

and maturity of 1 days to 1 year.
 Commercial Paper ± Issued by corporate bodies and
maturity varies between 3 months and 1 year
 Corporate Debentures
 Floating Rate Bonds
 Govt. Securities.
 Treasury Bills ± Issued through RBI by GOI. Tenure is
1 days and 364 days.
 Bonds

?

 Š !#!&!%

 Nominal rate of interest is the rate that is paid to us by the

borrower
 The real rate is the nominal rate less the rate of inflation.

 Yield is the term used to signify the actual rate earned on

an investment.
 Current yield is the ratio of coupon amount to market price
of a bond. If coupon = 8
, Market Price = 1R5, then current
yield of bond is 8/1R5 = 7.62
.

?

 & !! !#
± Principal or Par or Face Value ± the amount representing the
principal borrowed and the rate of interest is calculated on this
sum. This is the amount payable on redemption
± Coupon ± the interest paid periodically to the investor
± Maturity ± the date on which the bond is redeemed. Term to
maturity or tenor is the period remaining for the bond to mature
± Put option ± refers to the option given to the investor to sell
(redeem) the bond before maturity; investor may exercise the
option when interest rates go up, above coupon in the market
± Call option ± refers to the option to the borrower to buyback
(repurchase) before maturity; issuer may exercise the option
when interest rates fall below the coupon rate

?

 #",@#
 Current yield ± Coupon Rate / Current Market Price
 Yield to Maturity( YTM) ± It is also known as bond¶s IRR.
It is annual rate of return an investor would realize if he
bought a bond at a particular price, received all the
coupon payments, reinvested the coupon at same YTM
and received the principal at maturity.
 There is inverse relationship between price and YTM of
a bond.
 Yield Curve ± Graph showing yields for bonds of various
maturities, using a benchmark group of bonds. Also
known as TSIR ( term structure of interest rates). The
curve is usually upward sloping because longer
maturities generally offer higher yields.

?

 #5#'#!,#

 Interest Rate Risk

 Reinvestment Risk
 Call Risk ( The issuer may call back)
 Default Risk
 Inflation Risk
 Liquidity Risk

?

 @ #

 Yield Spread = Yield of benchmark security ± yield of a

particular bond
 It is the risk premium paid by the bond to induce investor
 !

 
$ 


 



 #

 %   
$

 #
   

 Term to Maturity ± It is period until the bonds maturity

?

 !
 It is a more accurate measure of the portfolio maturity
profile.
 It measure the percentage change in bond¶s price with a
change in yield of 1

 „
& 
 
$
'
#
(
 # 
 Bonds with longer maturities have longer durations.
 


    
 #
 


 

 
##

  








?

 Š !#! !#  /!-!  
! *"! /%
 Price and Yield are inversely related.
 Changes in interest rate impact bond values in the
opposite direction.
 Yield also gets increased by downgrading of credit
rating of the bond.

Yield Curve :
Rates at which bonds of similar risk of various tenors
are traded on a given point in time, are plotted in a
graph. This is known as the Yield Curve

?

 Š !! '#!* #""1&
#!#'/!  5!%
?
 ? 
 
 
? 
? ?

    !
 
 

"
   

 
    
? ?

    !
 


"
  ) 
 #  $%&'(
?  

  ?

 
   *%     !


   ?




     !
 
+) ,- .  *% 

"
 ?  

 

"
 
 -
 %%  ?  

    "  
 
   / % ?  
  

"
 
   ?  

 !  ! / %
      

?

 #!!#

 Mutual funds can invest only in marketable securities

 All investments are on delivery basis, no squaring off.
 A MF under all its schemes cannot hold more than 1R
of the paid up
capital of a company.
 A MF scheme can invest max. 1R
of its NAV in a single company.(
Exception ± Index and Sectoral funds)
 Debt funds - single issuer not more than 15
of NAV, can be relaxed to
2R
with approval of trustees and AMC
 MF Can invest in ADR / GDRs upto a max. limit of 1R
of NA or $ 5R
million, whichever is lower.
 Funds of 1 scheme can be invested in any other MF ( Max 5
of Net
Assets)
 1&&'#!&!#!# ##$;"|
"þ#
# &#2;" # &#+

?

! &#"

 Such transfers happen on a delivery basis, at market

prices.
 Such transfers should not result in significantly altering
the investment objectives of the scheme involved.
 Such transfer should not be of illiquid securities, as
defined in the valuation norms.
 One scheme can invest in another scheme, up to 5
of
net assets, No fee is payable on these investments.

?

'#!&! #þ& *

 A mutual fund scheme cannot invest in unlisted

securities of the sponsor or an associate or group
company of the sponsor.
 A mutual fund scheme cannot invest in privately placed
securities of the sponsor or its associates.
 Investment by a scheme in listed securities of the
sponsor or associate companies cannot exceed 25
of
the net assets of the scheme

?

 - '##'#!&! *
 Minimum Number of Investors per scheme
 Purpose of MF is sharing the risks with a large number of
investors.
 SEBI requires each scheme to have a minimum number
of investors.
 So now each scheme and individual plan under the
scheme should have a minimum number of 2R investors
AND no single investor should account for more than
25
of the corpus of such scheme.
 OES are allowed three months or upto end of the
succeeding calendar quarter from the close of IPO to
ensure compliance with this requirement

?


"
# &

 A FoF invests in the schemes of other MF.

 A normal MF scheme cannot invest in any FoF scheme.
 A FoF scheme cannot invest in another FoF scheme.
 A FoF is not allowed to invest its assets other than in
schemes of MF, except to the extent of its liquidity
requirements.

?

 & !! !#

 The current market price of a
coupon bond, when

other bonds of similar maturites pay 11
will be ---
Below Par.
 Yield and price move in opposite direction

?

 Important Points

 Certificate of Deposits are issued by BAN S

 Commercial Paper are issued by Corporate.
 Corporate Debentures are issued by Manufacturing
Companies.

?

 þ  !A

Measuring And Evaluating Mutual

Fund Performance
 Earnings can be either dividend or capital gains.
 The methods for measuring mutual fund returns are:
± Percent change in NAV
± Simple total return
± ROI or total return with dividend re-investment
± CAGR Method

 Rate of Return = Income Earned 1RR/ Amount invested.

 Simple total return (STR) method includes the dividends paid to the investor
 STR = {NAV(end) ± NAV ( begin)}+ Dividend paid 1RR
NAV at beginning
 Rule of 72 is a thumb rule used in finding doubling period. If Rate = 12
, then
money will double in 72/12 = 6 years.

?

 ß"& #&!

 Change in NAV= ( NAV at end ± NAV at beg.)1RR

NAV at the beginning
 Total Return = ( Change in NAV+ Dividend) 1RR
NAV at beg.
 Return on investment or Total Return with dividend reinvested at NAV.

 Portfolio Turnover Rate ± It measures the amount of buying and selling of securities
done by the fund. It is lesser of assets purchased or sold divided by the fund¶s net
assets.
 A 1RR
turnover implies that the manager replaced his entire portfolio during the
period in question
 2RR
means portfolio changed in 6 months
 A liquid fund has the highest portfolio turnover.

?

&

 An open ended fund was purchased when its NAV was

Rs. 22. One year later, its NAV was Rs. 24. The
annualised percent NAV change is ______

 Answer
-
change in NAV = ( 24 -22) 1RR = .R

 22

?

 Purchase price Rs. 22 per Unit
 NAV at year end Rs. 23 per Unit
 Interim Div. Rs. 3
 Ex.-Div. NAV Rs. 21
 Total Return=?

 Assume investment of Rs. 1RRRR

 Step 1: Initial Units alloted =1RRRR/22=454.55
 Step 2:Total Div.=454.553=1363.65
 Step 3: Additional Units=1363.65/21=64. 4
 Step 4:Total Units=454.55+64. 4=51 .4
 Step 5:Withdral Amt. =51 .4 23=11 47.17
 Gain =11 47.17-1RRRR=1 47.17
 Gain of 1 47.17 on the investment of Rs. 1RRRR
 So that on the investment of Rs. 1RR gain is 1 .47
 Ans:1 .47

?

 Other performance measures
 The expense ratio ( Ratio of total expenses to average net assets of the
fund)- Funds with small corpus size will have a higher expense ratio
affecting investor returns. It is indicator of the Fund¶s Efficiency and
Cost Effectiveness.
 The income ratio ( It is the net investment income divided by its net
assets for the period) ± useful for debt fund
 Portfolio Turnover rate

#B &"##*!& '! 
/<!'#"##&-! &! #+
 "#/"!"&&#"#-! -1 #
!## "&&!#5#+
 Cash holdings

?

 Important Point

 Mutual Fund schemes are based on cumulative returns

over a long time period.
 The returns should be computed on an annualized
average compound rate of return from cumulative figure.
 If the fund performance data relates to a period of less
than one year, it should not be annualized, except for
liquid mutual funds which have a short investment
horizon.

?

 ,-#/* !


 A mutual fund can borrow for a maximum of 2R
of net

assets.
 For Maximum period of 6 months.
 Purpose should be to meet liquidity requirements for
paying dividend or meeting redemptions.
 It is not a permanent source of funds for the scheme.

?

 , &5

 Benchmarking should be selected by reference to ± The

asset class it invests in and the fund¶s stated investment
objective.
 35#"/ &5## !'!&5!
#- 4!'!! &!"#4
!'!! & /" !#+
 For debt funds, the benchmark should have the same
portfolio composition and the same maturity profile
 Main benchmark for debt funds is I-sec
 5 | /"1


?

 Criteria for peer group comparisons

 The investment objective and risk profiles of the two

funds should be the same.( Debt with debt and equity
with equity)
 Portfolio composition of two funds is similar. ( Gilt cannot
be compared with riskier corporate debt)
 Fund size should be comparable.( same size)
 Expense Ratios is also important factor
 Funds should be compared over the same periods only

?

 Important Point

  þ! !|*þ '!#! 

ß"& 5#!  &/*
ß"&+

?

 þ  !$

Helping Investors with financial

planning
 "!/<!'"
ß

 It is identifying all the financial needs of an individual

± Translating needs to monetarily measurable goals
± Planning financial investments that will allow
individual to provide for and satisfy his future financial
needs and achieve his life¶s goals.
The objective is to ensure that right amount of money is
available in the right hands at the right point in future
to achieve an individual¶s financial goals.

?

 Financial Planner

 A person who uses the financial planning process to

help another person determine how to meet his or her
life goals.
 Possesses detailed knowledge of wide range of
products and financial planning tools and help clients in
choosing the best products.
 He looks at all of client¶s needs including budgeting and
saving, taxes, investments, insurance and retirement
planning.
 About 25RRRR certified Financial Planners in USA.

?

 Benefits of Financial Planning

 Financial Plans are tax efficient.

 It provides direction and meaning to financial decisions.
 It allows one to understand how each financial decision one makes
affects other areas of one¶s finances.
 Benefits to Financial Planner
± Ability to establish long term relationships ( Multiple products to
one client)
- Financial Planner should ideally link his rewards and fees to
the clients financial success and achievement of the financial
goals.
± Ability to build a profitable business ( NO rebating)

?


ualities of a Good Financial Planner
 Building trust with the client
 Good knowledge of Financial products
 Familiarity with taxation and estate planning issues
 Understanding of stages of client¶s life and wealth cycle and asset
allocation
 Independent judgement and balanced thinking
 Organized way of working
 Regular contact with clients
 Clear Focus on Overall Financial Planning of client rather than on
individual transactions.
 The basis of genuine advice should be Financial planning to suit the
investor¶s advice.

?

 ! #!
ß

 Establish and define client-Planner Relationship

 Gather client data, Define client Goal
 Analyze and evaluate clients financial Status
 Develop and present financial planning
recommendations
 Implement the financial planning recommendation
 Monitor the financial planning recommendations

?

& !!# #/!#"'#!#! 
" 1#%
 Should set measurable financial goals.

 Should understand the impact of financial decisions on their cash

flows and their income.

 Should be willing to revise and re-balance their portfolios with

changing market conditions, performance and their changing needs

and changes in lifestyle or circumstances( inheritance, marriage,

birth, house purchase or change of job status)

 Investors benefit immensely by starting early and being systematic

and disciplined in their approach.

?


*& !! !#" 

 The planner can look at all the clients need including budgeting,
saving, taxes, investments, insurance and retirement planning.
 A financial planner can link his own rewards and fees to the client¶s
financial success and the achievement of their financial goals
 MUTUAL FUND IS THE MOST IMPORTANT TOOL FOR
FINANCIAL PLANNING.( CORE PRODUCT)
 Financial is not only investing. It comes before investing.
 It is relevant for all category of clients.
 It is not as same as retirement planning.
 It is not only Tax Planning.
 Financial planning is important at younger stage of life.

?

 Important points on Financial Planning

 The basis of genuine investment advice should be

financial planning to suit the investor¶s situation. It
should not be current market condition.
 Financial Planning allows a person to achieve financial
goals through proper management of finances.
 Financial planners and their clients should focus on
allocating funds to different asset classes.
 Financial planning is relevant not only to HNIs
 Financial planning works better for younger/ middle
aged client.

?

 Wealth cycle for investors
!
# '#!&! "#

Accumulation stage Investing for long term identifed Growth options and long term
financial goals products.High risk appetite
Transition Stage Near term needs for funds as Liquid and medium term investments.
pre-specified needs draw closer Lower risk appetite

Reaping Stage Higher liquidity requirements Liquid and medium term investments.
Preference for income and debt products

Long term investment of

Inter Generational Low liquidity needs.
inheritance
Ability to take risk and invest for the long
transfer
term

Sudden wealth surge Medium to long term Wealth preservation.

Preference for low risk products

?

Affluent investors ± the rich investors are of
2 types:
Wealth creators ± those who prefer
growth and are willing to take the risk
of equity investments
Wealth preservers ± those who prefer
capital safety and are risk averse; they
prefer debt investments.

?

 Chapter 11

Recommending Financial Planning

Strategies to Investors

?

 ))þ*"*)))+„,„+
 Harness the Power of Compounding ± 1
interest per month is
better than 12
yearly retrun.
 Buy and hold is most common strategy BUT most common mistake.
Ideally it should be, track your investments, discard the non
performers and keep the good performers.
 Rupee cost averageing
 Value Averaging.
 Jacob¶s Rebalancing Strategy ( Combination of RCA and Value
averaging strategies- Using a aggressive growth fund and liquid
fund of the same family.) ( putting regularly money in liquid fund and
set a target value for the equity fund)

?

 Buy and hold strategy may not be a beneficial strategy because
investors may not weed out poor performing companies and invest
in better performing companies
 Rupee Cost Averaging (RCA) is a technique that involves:
± Fixed amount invested at regular intervals
± When NAV is down, more units are bought and when price is
high, fewer units are bought
± Over a period of time, the average purchase price of the
investor¶s holdings will be lower
± Investors use the SIP or AIP to implement RCA
 Disadvantage: RCA does not tell when to sell or switch from one
scheme to another.

?

 Rupee Cost Averaging (RCA)

|&! þ&!'
"
!  '#! "!# " (
C # |
 # / ! !# #
$ $ $+ $+ $+ $4+
 $ $+2 ?+ $?+ 42+
3 $ $0+2 +$? 2+$? 342>2+
0 $ $$+2 ?2+$$ 332+? 34A3A+2>
2 $ $+2 A2+0 03+2 042+0>
> $ A+ $$$+$$ 20$+>3 04?0+>?
 $ ?+2 $$+>2 >2A+? 24>3+?>
? $ +>2 $3+ A+ >403+0?
A $ ?+? $$3+>0 A3+>3 4A2$+A
$ $ A+2 $?+$$ $4$$+0 A432?+>$
$$ $ $+ ?3+33 $4A2+ $34$0+A
$ $ $2+ >>+> $4$>$+0 $40>+$
|'þ#! $D$$>E $+33

?

 Value Averaging (VA) involves:
± A fixed amount is targeted as desired portfolio value at regular intervals
± If market has moved up, the units are sold and the target value is
restored
± If market moves down, additional units are bought at the lower prices
± Over a period of time, the average purchase price of the investor¶s
holding will be lower than if one tries to guess the market highs and
lows
 VA is superior to RCA because it enables the investor to book profits and
rebalance the portfolio
 Investors can use the systematic withdrawal and automatic withdrawal plan
to implement value averaging
 Investors can also use an equity and a money market mutual fund to
implement value averaging.

?

 Value Averaging

!
! 

" þ&!'
C # |
 # ( !#!'#! "!#
$ $ $+ $+ $+ $+
  $+2 $42+ >+ $>+
3 3 $0+2 4?+ 2+23 $+23
0 0 $$+2 403+>? $A+A 30+03
2 2 $+2 3420+0 $32+> 0>+$A
> > A+ 04?2+$ $A+0? >>>+>
  ?+2 24>>>+> $2>+?> ?3+23
? ? +>2 >43+ + $402+2
A A ?+? A4+>$ 3+ $4+3
$ $ A+2 A40>+3 2?+32 $4?$+?
$$ $$ $+ $4A+A $>0+0$ A$>+>
$ $ $2+ $342+ $$>+> ?+

?

 Some ey concepts of Financial Planning
 When to invest ± when they have money to invest
 When to cash out
± When the goals have arrived and clients need the money for the
purpose for which they have invested
± IF the overall market appears overvalued in terms of
fundamentals and historic valuations
 Start planning and investing regularly
 Have realistic expectations
 Invest Regularly
 The Strategy advisable for an investor to maximise investment
return in long run is Switch from poor performers to Good
performers.

?

 |##!|!

 Asset allocation refers to deciding the composition of the portfolio in

terms of debt, equity and money market segments
 Asset allocation differs from investor to investor and depends upon
their situation, their financial goals and risk appetite
 The asset allocation for an investor depends upon his life and
wealth cycle stage
 A model portfolio creates and ideal approach for an investor¶
situation and is a sensible way to invest.

?

 '#!# '  #F
±
1##!!
±
1/##!!

1##!!&#
± &!! #&!/!-'#& !#"!  !"
++/# 
± ./!  !"# &
± ß'-!!!
± "'")!*& !##4'#!/5# "!#

1/##!!&#
± |-!  !" "!#!4-! !/5! &
± ")!*&5! !#4!#!#    !)!*! 
/!+

?

 Asset Allocation ± The Strategic Tool

 Allocation of money between equity, debt and money

market instruments.
 Depends upon situations, financial goals and risk
appetite.
 Benjamin Graham advocates 5R/5R split between
equities and bond . But Bogle suggests different
combinations.

?

 Different Combinations suggested by Bogle

 Basic Managed Portfolio - 5R
in diversifed Equity Value Funds,

25
in a Govt. Securities Fund and 25
in High grade
Corporate Bond Fund.
 Basic Indexed Portfolio ± 5R
in Total Stock market index and
5R
in a Total Bond market portfolio
 A Simple Managed Portfolio ± 85
in Balanced fund and 15
in
medium Term bond fund
 A complex Managed Portfolio ± 2R
in Diversified Equity fund,
2R
in Aggressive Growth fund, 1R
in speciality fund, 3R
in
long term bond funds and 2R
in short term bond fund
 A readymade portfolio ± Single index fund with 6R/4R
equity/bond holdings.

?

 Š !#,7##!!##!!%

 '#!#! #!/! #F

- 5R
equity : 5R
debt

 @'#!#! #!/! #F

- 6R
equity : 4R
debt

 '#!#! &! #F

- 7R
equity : 3R
debt

 @'#!#! &! #F

- 8R
equity : 2R
debt

?

 Chapter 12

Selecting the right Investment

Products for Investors

?

 Physical Assets include gold and real estate and traditionally very popular
± Gold is not subject to value erosion on account of rupee depreciation
± Gold is perceived as a hedge against inflation
± Gold-linked unit schemes from mutual funds in India are underway
± Real estate requires a high capital investment and may not be easy to
liquidate at the appropriate price
± Some fund houses are preparing to launch Real estate mutual funds in
the near future
 Financial assets include equity, debt and money-market instruments
± Equity, debt and money market instruments are direct investments with
the borrower/ issuer of securities
± Mutual funds represent an indirect investment through an intermediary.

?

 Products by issuer:
 
#
± Offer high liquidity and perceived safety
± Low or negligible returns after factoring inflation and tax
 þ#

 Equity
± Issued publicly and listed
± Issued privately and unlisted
± Investors may acquire shares either at the time of IPO or secondary (stock) market
± Equity offers high growth potential and liquidity
± The challenge is to identify the right shares that are likely to appreciate
± Requires capital to build a diversified portfolio.
±  #!"# #!!51 ##( )!*#*!
*!#*# #+

?

 Debt
± Debentures issue a fixed rate of interest
± Debentures are secured by the assets of the borrower
± Debentures are provided rating by credit-rating agencies
± Bonds are also generally provided rating by independent
agencies
± Creditworthiness of borrower and risk of default have to be
analyzed before investing in these bonds and debentures
± Company fixed deposits carry a higher interest rate and are
unsecured
± These would also have tax implications.
± The Rate of interest paid by a company on debentures issued by
it depends on the Company¶s Credit rating.
± The most important factor to look for when investing in a
corporate fixed deposit is the Credit Rating of the deposit.

?

 +



 ß/ß'!

± $2.* !
± #5."'&!/!
±  !'#(
#
± *! &!! !!*
± ""#!1."!#!"?; ++!/! ! #+4
& #+2/"!#!?þ
±  !!-! -2;"0! */! ! *

± #!!-! -#)!*+

?

 Indira and isan Vikas Patra
± Introduced as post office scheme to tap savings in
rural India
± Very popular with urban investors also
± Current yield is 8
over 6 years, fully taxable
± IVP permits cash investment and protection of identity
± Easily transferable and liquid.

?

 RBI Relief Bonds
± Issued by RBI on behalf of the Government of India
± |2.*'#!&! !-! ?;!#!""
± Interest is currently taxable (used to be tax-free earlier)
± Free of risk of default
 Government Securities
± Long-term government paper
± Risk-free government obligation
± Low-return and define the benchmark rate of return on the yield curve
± Specially appointed Primary dealers deal in G-Secs
± Generally high ticket investments
± Best accessible to small investors through mutual funds.

?

 *


± Viewed more for investment and tax purposes than a vehicle for risk protection
± Premium qualify for deduction under section 8RC
± Important to assess need for life insurance with respect to earning potential
± A Without Profits policy offers the Sum Assured in the event of death only
± A With Profit policy pays not only the Sum Assured but also bonus declared from
time to time
± In case a policy is discontinued during its tenure, the policy¶s surrender value is
paid which is a proportionate value based on premiums paid so far
 A µconvergence¶ of insurance and mutual funds is the development of Unit-Linked
Insurance products ± which offers investors choice of asset allocation between debt
and equity.
  |&!#& * *#!! &" * #
#5-#!  | +

?

 A comparison of investment products can be done on risk, return,
volatility and liquidity
 Mutual funds combine the advantages of all investment vehicles while
doing away with their shortcomings
 The returns in a mutual fund are adjusted for market movements.

 4''#!##!!##! *
5!#!&!#+
  /#!'!"'#!&!8# #!
"!+
  /#!#'!"'#!&! #!!#( 
ß #ß+@ '!'#! &!+
  '!"/5 #!##)!*4   '#"!*
-!* +#'!#-@"!|G+

?

 Mutual Funds are more recommended option for
individual investors than direct equity.

 Direct Investment in stock market can be a better option

than investing in Mutual Funds if the investor has large
capital, knowledge and resources for research.

?

 þ  !$3

Helping Investors understand

Risks in Fund Investing
 Jacob¶s recommendations of portfolios based on
risk level of different funds

 Low Risk ( conservative) portfolio :

± 5R
Gov. sec. fund + 5R
Money market fund.
 Moderate Risk ( cautiously aggressive) portfolio:
± 4R
growth and income fund+ 3R
govt. bond fund
+ 2R
Growth fund + 1R
index funds
 High Risk( Aggressive) portfolio :
± 25
aggressive growth fund+ 25
international
funds + 25
sector funds +15
high yield bond
funds+ 1R
gold funds

?

 Evaluating the Risks of a Mutual Fund

 Š !# #5%
± Risk means the possibility of financial loss.
± ³Risk´ is thus equated with
!!*"#
 )!*ß #5
± Company Specific
± Sector Specific
± Market Level

?

 Volatility of an Equity mutual fund comes from:

 ind of stocks in the portfolio ( growth/value/big/small)

 The number of stocks ( degree of diversification)
± Smaller portfolios are more volatile than large PFs
 Fund manager¶s success at market timings
 !# !"&/"'#!#! # &+

 The Risk tolerance of an investor is dependent on his age, his

income and his job security.
 Risk Tolerance is independent of the Stock Market Movements.

?

 Evaluating the Risks of a Mutual Fund

 5!þ*#
 #5 ##
± Standard Deviation ± SD measures the fluctuations of a fund`s
returns around a mean level.
± Disadvantage of SD is that it is based on Past Returns.
± Beta Coefficient ± Beta relates a fund`s return with a market
index and measures the sensitivity of the fund`s returns to
change in market index. A beta of 1 means the fund moves with
market. A beta of less than one means the fund will less volatile
than the market.

?

 Evaluating the Risks of a Mutual Fund
 1 5#&/5-#6 .)9
± How much of a fund`s fluctuations is attributable to movements
in the overall market from R to 1RR percent.
± An index fund will have ExMarks of nearly 1RR
. Non
Diversified funds will have lower ExMarks.
± Ex Marks of an equity fund measures its Performance
 Standard Deviation is the best measure of risk.
 Beta of an equity fund measures its RIS .
 Risk Adjusted Performance
± Sharpe & Treynor Ratios

?

 Evaluating the Risks of a Mutual Fund

 | 
± Risk adjusted performance calculation is called
Alpha.
± Alpha of a fund compares the fund`s actual results
with what would have been expected given the fund`s
beta and the market index performance.

?

 Money Market Funds are low risk fund.
 Sectoral Fund are high risk fund.
 Risk is equated with Volatility of Earnings.
 Diversification reduces Company specific risk but it does
not reduce Market Risk.
 Short Term investment in Equity market is most risky.

?

 þ  !$0

Recommending Model Portfolios

and selecting the right Fund
  #! #' & !""'#!
/7#
! ß& '   !"
 Develop long term goals.

 Determine asset allocation.

 Determine sector distribution.

 Select specific fund managers and their schemes.

 '  ß!"#! &#!""!'-*#!

'#!!   !
#+

?

 /7#  !"#&&"
'#!#!! "*#!#F
 @& "###F
± 5R
in aggressive equity funds.
± 25
in high yield bond funds, growth and income funds.
± 25
in conservative money market funds.
@ -! &# F
± 1R
in money market funds.
± 3R
in aggressive equity funds.
± 25
in high yield bond funds and long term growth funds.
± 35
in municipal bond funds.

?

 Contd:

  #&F
± 3R
in short term municipal funds
± 35
in long term municipal funds
± 25
in moderately aggressive equity
± 1R
emerging growth equity

 !*! F
± 35
in conservative equity funds for capital preservation / income
± 25
in moderately aggressive equity for modest capital growth
± 4R
in money market funds

?

 Š !#! && !""
'#!#&! #%

 '#")!*F!/"#

± 65 ± 8R

 &!"#F

± 15 ± 3R

 )"#/5 #!#F
± 5

?

 Š !#! && !""'#!#
#!/! #%

 '#")!*/"#F

± 15 ± 3R

 &"#F

± 65 ± 8R

 þ# "#F
± 5

?

 Investors in the Inter-Generational Transfer Phase:
± The recommended investment strategy will depend
upon the beneficiaries

 Investors in the sudden wealth stage :

± Take into account the effect of taxes,
± eep the money in safe liquid investments and take
the time to decide what to do with the money.

?

 Selecting the right equity funds

 Look at Fund size

 Look at fund age
 Look at Portfolio¶s managers experience
 Look at cost of investing
 Portfolio characteristics like Cash position, portfolio
concentration, market capitalisation of the fund, portfolio
turnover, portfolio statictics
 BEST FUND WILL HAVE HIGHER EX MAR S,
LOWER BETA AND HIGHER GROSS DIVIDEND
YIELD

?

 Most important points.
  )!*#"'#!&!!   * 5!

#+
 |! #*#!  !"/!

#+
 |*'#!4"-! -! !4# /
'#!'#!)!*8-! 
#+
 |'*(   !"'#!&!!* #")!*"#
#'#"'#!#&! #+
  #! #"'#!7#-! *#- ! 

8#  +
 |    !"'#!&!&"##)/*
'#!##!/! #+
 !'#!## !'#!#!#-  /#5
" !#+

?

 Very Important Points on Equity Funds portfolio
Characteristics.

 |)!*
/#!/!!
-  $ #!"&! 2;"
!##!#'#!+
  #B"! &5! ""7#)!* #
#'#*  !!! '"#5##&
/*! "+  5!þ  '-#5+
 |#!* #"'#!&!#)!*"7#
!"!#/! &!!
-#!þ#!#+

?

 Debt Funds ± Important points

 Debt Schemes are popular because the returns are more

predictable. Equity returns are volatile and very less predictable.
 If an investor needs income, he should select a fund with high
current yield.
 YTM ( Yield to maturity) of debt fund¶s portfolio gives an indication
of Total Return ( Not current income).
 Longer the average duration of debt fund portfolio, greater the
interest rate risk.
 Long term Debt funds carry high interest rate risk.
 The differentiating factor among debt funds of comparable maturity
and quality is Costs.
 Running a Money Market Mutual Fund requires more of Trading
Skills.

?

 The investors should invest in Debt Fund with a Higher
Rated Portfolio and Lower Expense Ratio.
 An Ideal money market MF has lower expense Ratio.

?

 þ  !$2

Business Ethics in Mutual Fund

 ,###! #

 Business Ethics means rules of acceptable and good

conduct.
 Business must be conducted in a disciplined, organized
and fair manner.
 Ethical practice means practice in the interest of unit
holders of the scheme.
 A consumer who feels cheated will never return to buy
the product again.
 BE ensures that the customer remains a long term
buyer.

?

 ,###! #" !
,###

 MF is also a business where investors buy investment

products
 MF and sales persons are required to adopt ethical, fair
and good business practices and apply them to all those
involved in selling/ servicing activities.
 A salesperson is expected to know the product
thoroughly and describe it accurately.

?

 ,###! #" !
,###

 The conduct rules for distributors and employees are set

by the Fund trustees and directors of AMCs.
 AMFI has also set ethical standards and practices for
the industry.
 AMFI code includes specific rules of good conduct for
the AMCs and its employees and the distributors.
 SEBI also requires the development of ethical standards
and practices by all fund houses.
 As distributor, you should set your ethical standards
higher than mimimum requirement of above agencies.

?

 /<!'#",###! #

 Simply being honest, open and transparent with your

potential clients.
 Rules are needed to ensure that you deal with the
clients fairly and transparently.
 To protect the clients from being cheated or exploited.
 To ensure a level playing field among all categories of
business participants.
 To ensure fairness in dealing with investor.

?

 Areas particularly monitored by SEBI

 Fund structure and Governance

 Exercise of Voting Rights by Funds
 Fund Operations.

?

 !* )&!#
ß " 

 Separation of Functions ± No one constituent is in

control of the investors assets.( Trust, AMC, Custodian,
Registrar)
 Independence of Organisations ± Trust independent of
AMC,
 Independence of Personnel - Trustees can not serve as
Director of AMC they supervise or even any other AMC.
Independent Trustees and BOD members also.

?

 1& #"!  !#

 Insider Trading ± Buying or selling securities on the

basis of privileged information available to the funds by
persons who are seen as insiders to the company.
 Preferential Treatment to Selected investors ± Cut off
time has been introduced now to prevent late trading
abuses.
 Personal trading by fund managers and employees
 Front Running ± Fund manager buying or selling
securities ahead of doing the same transaction for the
fund

?

 !#ß#

 AMC should file with trustees a qtrly statement of

dealings in securities by the key personnel of the AMC.
 The director of AMC has be file details of tranx.in MF,
where they exceed the value of Rs.1 lakh.
 In case of Trustees, they may report only those tranx.
Which exceed the value of Rs.1 lakh
 Trustees have to certify that the personnel of AMC don¶t
indulge in front running or self dealing.

?

 !  !#

 Mandatory for the AMC to appoint a compliance officer

to monitor and ensure implementation of all laws /
regulations.
 All distributors and agents follow the code of conduct
laid down in the 5th schedule of SEBI MF regulations
1 6.
 A more detailed code called AGNI has been put into
place by AMFI for all distributors and agents.

?

 5#