PRUDENTIAL ICICI MUTUAL FUND

Definition:

A MF is a pool of money, collected from investors ,& is invested according to certain Investment Options
Characteristics of a MF :

1) Ownership of MF belongs to investors 2) MF is managed by investment professionals who earn a fee for their services from the fund 3) Pool of funds is invested in a portfolio of marketable investments. Value of portfolio is updated every day

Why Mutual Funds

To address problems faced by retail investors;

Lack

of money to obtain spread of personal expertise

Lack

Lack

of time to manage investments

Structure of MFs
Governed by SEBI (Mutual Fund) Regulations, 1996 Mandatory for MFs to have a three tier structure

Sponsor

Trustee

Asset Management Company

Sponsor: Promoter of the MF, appoints the Trustees Trustees:Responsible to the Investors in the MF,appoints AMC AMC : Business face of MF, manages affairs of MF

How Mutual Funds Work

Money Pooled from Investors

Unit Trust Fund/ Mutual Fund

Trust Deed Professional Fund Manager

Trustee*A

Portfolio of Authorised Investments

Shares Government Securities Bonds Property Liquid Assets Derivatives

A: Custodian/Depository

Mutual Funds: Advantages

Lower transaction costs due to economies of scale Tax benefit compared to most other investment options in India Professional fund management Diversification Systematic Investment Plans Regular Savings Plans

Mutual Funds - Types

Open-ended: Investors can

buy /sell units of fund,at NAV related prices,at any time directly from the fund. Rs. 10 ,in the initial offer period. After a pre-specified period, say 30 days,the fund is declared opened for further sales & repurchases

These funds are offered for sale at a pre-specified price,say

Pool of funds & units vary everyday

Close-ended:

Open for sale to investors for a specified period ,after which

further sales are closed. Any further transaction happens in the secondary market where closed end funds are listed
Pool of Funds technically constant

Advantages of Mutual Funds

Suit small or large investors.
Flexibility - option to have Income Reinvested. Professional Fund Management. Cheaper dealing than for individual. Liquidity ease of purchase and sale of holdings Diversification spread of risk. Access to international markets Tax benefits in some jurisdictions. Regulated - investor protection. Wide spectrum of fund choice 50,000 funds worldwide.

Investment Pyramid: India

Reward

Equity Funds

Income Funds Short term funds

Floating rate Funds

Liquid

Funds
Risk

Investment objective
Reward
Each fund : Stated Investment Objective Income / Growth Markets(s)
Emerging

Markets Derivatives Europe / USA Smaller Cos.

Europe / USA Blue Chips Global

Government

Securities Money Markets

Risk

Applications of Mutual Funds

Any medium to long-term investment i.e. >3 years

Investment Abroad exposure to overseas markets - appeals to both sophisticated and unsophisticated investors Retirement Income Invest while employed - take income in retirement / use capital as safety net.

Applications of Mutual Funds

Achievement of long-term goals Housing Education Investment for children Parents / Grandparents set up investment account on behalf of children / grandchildren. Unit-Linked Life Assurance Products.

Authorisation process

Submit : Trust deed (Unit Trust) Instrument of Incorporation (Investment Company) Prospectus (or equivalent) Marketing Plan Evidence of financial standing Submission Fee Formal request

Regulatory Authority
Securities Exchange Board of India

Offer Document
MFs are required to file with a SEBI the Offer Document/Prospectus, in a prescribed format that provides all information about the fund & the scheme
Legal Document in language of country Purpose Provide Investors with key information needed to make informed decisions

Details of launch e.g.

length of initial offer period what will happen if launch targets not reached.

Offer Document / Prospectus

Constitution of the fund,details of sponsor, trustee & AMC Standard & Specific risk factors Scheme attributes -Investment objective,pattern,terms with

regards to liquidity Details of the scheme being offered Loads, fee structures & expenses Unit holder rights

Key Information Memorandum

As the Offer document is very detailed, SEBI allows

MFs to summarize the key points in a summary document called as the Key Information Memorandum (KIM) It is mandatory that the KIM is made available to all investors alongwith the application forms

Launching a Mutual fund

Initial offer at fixed price Press announcements / Mailings to potential investors

- must conform to regulatory standards of jurisdiction.

Launch briefings to advisers / agents. Some jurisdictions allow direct selling off the page. Usually, fund holds subscriptions to see how much

raised before investing.