Mutual Funds

Presented by : Group No 3 C52 Shrikant Samleti

Meaning and Definition

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Legal & Regulatory Framework

The structure of mutual funds in India is governed by SEBI(Mutual Fund)Regulations, 1996. It is mandatory to have a three tier structure of :Sponsor:- The Sponsor is the promoter and he appoints the Trustees Trustee:- who are responsible to the investors of the fund.
Asset Management Company:- AMC is the business face of the mutual fund as it manages all the affairs of the fund.

Regulations
Governed by SEBI (Mutual Fund) Regulation 1996 All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882) Bank operated MFs supervised by RBI too

AMC registered as Companies registered under Companies Act, 1956

SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc. NAV to be declared everyday for open-ended, every week for closed ended Disclose on website, AMFI, newspapers Half-yearly results, annual reports Select Benchmark depending on scheme and compare

Important Regulations
Formation
At least 40% of Contribution to the AMC by the Sponsor Relationship between Trustees, Fund Manager & Custodians Secure the right of Investors Track Records of the Sponsor and integrity in business transactions and financial soundness In February 1993, SEBI cleared six private sector mutual funds viz. 20th Century Finance Corporation, Industrial Credit & Investment Corporation of India, Tata Sons, Credit Capital Finance Corporation, Ceat Financial Services and Apple Industries

Registration

DOCUMENTS
REQUIRE TO BE VITTED BY THE SEBI STANDARD FORMAT OF PROSPECTUS

ASSURANCE OF RETURNS
12% RETURN FOR 1YEAR APPLICABLE ONLY FOR THOSE MFS WHICH HAVE BEEN IN MARKET FOR AT LEAST 5YEARS. BE READY TO BEAR THE RISK OF LOSS IN CAPITAL MARKET

MINIMUM CORPUS
MINIMUM RS.50CRORE FOR A OPEN-ENDED SCHEME & 20CRORE FOR CLOSED-ENDED SCHEME

INVESTMENT OF FUNDS MOBILIZED

SIX MONTHS TO NINE MONTHS WITHIN WHICH THE MUTUAL FUNDS HAVE TO INVEST RESOURCES RAISED FROM THE LATEST TAX SAVING SCHEMES

INVESTMENT IN MONEY MARKET

MAX INVESTMENT IS 25% IN MONEY MARKET FOR FIRST 6M & 15% AFTER 6M

INSPECTION
SEBI INSPECT AND MONITOR MFS EVERY YEAR TO ENSURE
COMPLIANCE WITH THE REGULATIONS

UNDERWRITING
IN JULY 1994, SEBI PERMITTED MFS FOR PRIMARY ISSUES

CONDUCT
IN SEPT 1994, MFS SHOULD NOT OFFER BUY BACK SCHEME OR
ASSURED RETURNS TO CORPORATE INVESTORS

VOTING RIGHTS IN SEPT 1993, SEBI ALLOWED TO EXERCISE VOTING RIGHTS TO MFS