MUTUAL FUNDS

MUTUAL FUNDS: STRUCTURE &

IMPORTANT
REGULATIONS W.R.T. MFS, ADVANTAGES OF
INVESTMENTS THROUGH MFS, TYPES OF MFS
& INVESTMENT OPTIONS, THE PRESENT
STATUS
OF MF INDUSTRY IN INDIA AND ITS
POTENTIAL.
 Definition

 A Mutual Fund is an investment vehicle that

pools the money of several investors and
invests it in different securities.
 Important points

1. Shares of mutual funds can be bought and sold directly

through the companies that manage the funds, or through
discount or full-service brokers.

2. You should never be charged a transaction fee when you

deal directly with a company that manages a fund.
3. You may have to pay a small transaction fee if you trade
through a discount broker.
4. You will pay a full commission if you trade through a full-
service broker.

5. Automatic investments and withdrawals are an option

available with many fund companies.
 Frequently Used Terms

 Net Asset Value (NAV)

Net Asset Value is the market value of the assets of
the scheme minus its liabilities. The per unit NAV is
the net asset value of the scheme divided by the
number of units outstanding on the Valuation Date.
 Advantages of Mutual Funds

 Professional Management
 Diversification
 Convenient Administration
 Return Potential
 Low Costs
 Liquidity
 Transparency
 Flexibility
 Choice of schemes
 Tax benefits
 Well regulated
 Disadvantages of Mutual fund:-

1. Costs Control Not in the Hands of an Investor

2. No Customized Portfolios
3. Difficulty in Selecting a Suitable Fund scheme
 TYPES of Mutual funds :Based on assets

 EQUITY
 DEBT
 MONEY MARKET FUND
 BALANCED
 SECTOR
 TAX SAVING
 FUND OF FUND
Open-ended Fund:- Structure

1. Available for subscription and repurchase on a

continuous basis.
2. Do not have a fixed maturity period.
3. Investors can conveniently buy and sell units at Net
Asset Value (NAV) related prices which are
declared on a daily basis.
4. Income generation
5. Price near to NAV
 Close-ended Fund

1. Stipulated maturity period

2. The fund is open for subscription only during a
specified period at the time of launch of the
scheme.
3. Investors can invest in the scheme at the time of
the initial public issue
4. Capital formulation
5. Price below NAV
 By Investment Objective

Equity (Growth) – only in Stocks – Long Term (3 years or

more)
Debt (Income) – only in Fixed Income Securities (3-10
months)
Liquid/Money Market – Short-term Money Market
(Govt.)
 Regulatory Aspects

• 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
• 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, newspapers

– Half-yearly results, annual reports

– Select Benchmark depending on scheme and compare

Structure of mutual fund
 Sponsor:
 Sponsor is basically a promoter of the fund.
 The fund sponsor raises money from public, who
become fund shareholders.
 The pooled money is invested in the securities.
Sponsor appoints trustees.
 Trustees:

 Two third of the trustees are independent

professionals who own the fund and supervises the
activities of the AMC.
 It has the authority to sack AMC employees for non-
adherence to the rules of the regulator.
 It safeguards the interests of the investors.
 They are legally appointed i.e. approved by SEBI.
 AMC:

 Asset Management Company (AMC) is a set of

financial professionals who manage the fund.
 It takes decisions on when and where to invest the
money.
 It doesn’t own the money.
 Custodian:

 A Custodian keeps safe custody of the investments

(related documents of securities invested).
 A custodian should be a registered entity with SEBI.
 Transfer Agents:

 Transfer Agent Company interfaces with the

customers, issue a fund’s units, help investors while
redeeming units.
 Provides balance statements and fund performance
fact sheets to the investors.