An old Axiom :

“It is not wise to put

all eggs into one
basket”

……… was probably

in the minds of those who
MUTUAL FUND

Presented by:
Richi Shrivastava
Amit Mukherjee
Keshri N.Tripathi
Kanhaiya Gupta
 Cont ent

Concept Regulations

Organization of Mutual Fund Types of Schemes

Investment strategy Risk Management

Portfolio Management MF Comparison with U.S.

Expenses of MF What MFs are not?

Reference Websites
 Co nce pt
• 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.
Or ganiz ation al Struct ure of MF
SEBI (mutual fund) Regulation,1996
Structure of MF in India
Sponsor
• Akin to the Promoter of the company,
• Contribute min 40% of net worth of AMC,
• Posses sound financial record over five
years period,
• Establishes the Fund,
• Gets it registered with the SEBI,
• Forms a trust, & appoints Board of trustee.

Trustees
• Holds assets on behalf of unit holders in
trust.
• Two third of the trustees shall be
independent persons (not associated with
the sponsor).

• Trustees ensure that the system,

processes & personnel are in place.

• Resolves unit holders GRIEVANCES.

• Appoint AMC & Custodian, & ensure that

all activities are accordance with the SEBI
regulation.
Custodian
• Holds the fund’s securities in safekeeping,
• Settles securities transaction for the fund,
• Collects interest & dividends paid on
securities,
• Records information on corporate actions.
Examples of custodian

HDFC CITY BANK

ABN AMRO IIT CORPORATE SERVICES

SBI INDIA STANDARD CHARTRED

SHCIL DEUTSCHE BANK

Asset Management Company
• Floats schemes & manages according to
SEBI.
• Can not undertake any other business
activity, other than portfolio mgmt
services.
• 75% of unit holders can jointly terminate
appointment of AMC.
• At least 50% of independent directors.
• Examples
Chairmanof AMC
of AMC can not be a trustee of
UTI ICICI Prudential Reliance
any MF.
SBI Canbank ING Vysya
Stanchart Taurus HSBC
Distributor / Agents
• Sell units on the behalf of the fund.
• It can be bank, NBFCs, individuals.

Banker
• Facilitates financial transactions,
• Provides remittance facilities.

Registrar & Transfer Agent

• Maintains records of unit holders’ accounts
& transactions
• Disburses & receives funds from unit holder
transactions,
• Prepares & distributes a/c settlements,
• Tax information, handles unit holder
communication,
• Provides unit holder transaction services.

Examples of R & T Agents

CAMS KARVY
MCS Ltd Datamatics
MN Dastoor & Co IIT Corporate Services
Computeronics TCS
ICICI Infotec UTI ISL
 Regu la tory Aspe ct
• SEBI (MF), 1996 as regulator of MF.
Provisions of SEBI IMPACT
Legal character of •MF can be set up only as TRUST.
MF •MF can’t invest in Gold, silver & real asset.
•Unit holder can’t challenge trustees.

Structure of MF •Arms-length relationship b/w various

constituents.
•Independent custodian.
Registration of MF •Must fulfill eligibility criteria u/s 7.
•AMC have min net worth of 10 cr.

Operation of MFs •Disclosure of information.

•Advertisements.
•Daily pricing.
•Risk management system.
 Ro le o f AMF I

• Incorporated on 22 August, 1995.

• Apex body of all the registered AMCs.
• All AMCs are its member.
• Objective to maintain high ethical &
professional standard.
• Provide certificate to Agents to sell MF
• Best practice guidelines.
• Code of ethics.
MFI Cl ass ifica tion o f MF sche me

Fund schemes Portfolio objectives

Growth & Income High Risk & High Return

Balanced Moderate Risk & Return

Liquid & Money Fixed Return

Market
Gilt Zero Risk

ELSS Tax Saving

Fund of funds Additional diversification

Each category is classified into more sub-

the r classif ic at ion o f M F sche me
• By Structure
– Open-Ended – anytime enter/exit
– Close-Ended Schemes – listed on exchange, redemption
after period of scheme is over.
• 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 (including gilt) – Short-term Money
Market (Govt.)
– Balanced/Hybrid – Stocks + Fixed Income Securities (1-3
years)

• Other Schemes
– Tax Saving Schemes
 What ar e ET Fs

• Exchange traded funds are Mix of

stocks & MFs.
• Like MF, they comprise a set of specific
stocks- e.g. an index like Nifty/ Sensex or
commodity like gold, or Real estate .
• Like equity they are traded on stock
exchange on real time basis.
• There have been a couple of ETFs from
Prudential ICICI AMC and UTI AMC.
isk –Re turn of dif ferent s che mes
 Invest men t Strate gy
• Systematic Investment Plan (SIP)
– Invest a fixed sum every month. (6 months to 10
years)
– Fewer units when the share prices are high, and
more units when the share prices are low. Average
cost price tends to fall below the average NAV.
– Nowadays ,Insurance is free with SIP.
• Systematic Transfer Plan (STP)
– Invest in debt oriented fund and give instructions
to transfer a fixed sum, at a fixed interval, to an
equity scheme of the same mutual fund.

• Systematic Withdrawal Plan (SWP)

• Flexi Withdrawal Plan (FWP)
Po rtfolio M anagement Proce ss
Fun d M anagement Proce ss

Expected Return

Volatility & Portfolio Optimal

Correlation Optimizati Portfolio
Estimates on

Constraints on
Investor objective
Portfolio choice
u nd m ana ger ’s I nv est men t J udgm ent
Return Risk

market Beta or Market Risk

Extra market co-

Group /Industry
variance
Growth Cyclical
Or
stable
Group /Industry Risk

Individual Stock Specific Risk

Active Passive
Strateg Strateg
y y
 Risk Ma nage ment

Risk management is defined as the:

“Overall process of identifying & understanding

the full spectrum of an organization’s risk &
taking informed action to help it achieve its
strategic objectives, reduce the likelihood of
failure & decrease the uncertainty of overall
business performance”
• Risk Management function.
Risk category Risk factors
Fund management Volatility in performance, portfolio
concentration,
Interest rate movement, liquidity risk &
credit risk.
Operations Deal error, settlement problem, NAV & fund
pricing error, inaccurate financial reporting,
fraud.
Customer Error in deal processing, fraud .

Marketing & New product development, selling &

distribution distribution
Other business risk Critical knowledge loss, skills shortage,
third party risk

• Disaster recovery & business

contingency plans.
• Insurance against third party loss
(R&TA), arising from error &
Com pari son with US mark et

• An Overview
• Developed market
• Low cost countries (LCC) having total expense
(.3%), (.59%), even less than one.
• Organizational structure is different from India.
• Vast product variety e.g. diamond, currency,
metal ETFs, small cap MF, macro cap MF, bear
market MF, kids MF, commodity MF, donor
advised MF(tax exemption)etc.
• Vast variety of different countries equity & debt
fund
 Exp en se s of MF
Accounted for in FUND Not included in FUND
RETURN RETURN
Management fee* Front end sales load

Group fee* Back end sales load

Performance fee* Transaction fee

Administrative fee* Redemption fee

12(b)-1 fee* Account maintenance fee

Brokerage costs Bid ask spreads

Interest costs
•(An asterisk indicates fee is included in a fund’s expense
ratio)
•As per SEBI Rule expense ratio should be 2.5% for equity &
2.25% for debt fund of fund value.
 What MFs are not……..

• MFs are not ‘get rich quick

investments’
• MFs are not ‘risk free investment’
• MFs are not ‘assured return
investment’
• MFs are not ‘a universal solution
to all
investment needs’
 Re fere nces
WEBsites
• http://news.moneycontrol.com/mf/glossary.php

• http://www.investopedia.com/university/mutualfunds/default.asp

• http://www.valueresearchonline.com

• http://www.amfiindia.com/

• http://www.mutualfundsindia.com/resourcecentre.asp

books
• Mutual fund industry in India- ICFAI university press.
• Mutual fund product & services- Taxman (IIFB).
• Security analysis-Taxman (IIFB).
THANK