Mutual Fund

Mutual Fund

What is a Mutual Fund? A mutual fund is a collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc The objective and the risk level are outlined in a document called a prospectus. The prospectus provides detailed guidelines for the types of investments the manager can purchase.

Net Asset Value (NAV) NAV Total value of Assets Total No. of Units .Calculates at the end of the day ,taking the closing price . Criteria to judge the performance of the MF

Benefits of purchasing a mutual fund 1 2 3 Easy to Invest Professional Touch Diversification :each unit purchased is made up of many different investments. 4 Liquidity: Mutual funds can be sold anytime, and easily 5 Flexibility:Mutual funds allow you to purchase as much or as little as you want, and offer a variety of purchase plans. 6 Low Operating Cost 7 Convenience 8 Security : No chance of insolvency, Annual Audit 9 Tax Advantage: ( Sec 80 C) 10 Disclosure: NAV

THE MUTUAL FUND INDUSTRY IN INDIA The mutual fund industry in India started in 1963 with the formation of Unit Trust of India (UTI) at the initiative of the Reserve Bank of India (RBI) and the Government of India. Phase I (1964-87): Growth Of UTI In 1963, UTI was established by an Act of Parliament. As it was the only entity offering mutual funds in India, it had a monopoly. (US 64,ULIP-1971,Childrens Gift Growth Fund1986 Master share -1987) Phase II (1987-93): Entry of Public Sector Funds SBI Mutual Fund in November 1987. Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, GIC

Phase III (1993-96): Emergence of Private Funds (Zurich, Kothari Pioneer,Franklin Templeton) Phase IV (1996-99): Growth And SEBI Regulation introduction of SEBI (Mutual Fund) Regulations, 1996.both SEBI and Association of Mutual Funds of India (AMFI) launched Investor Awareness Programme, aimed at educating the investors about investing through MFs Phase V (1999-2004): Emergence of a Large and Uniform Industry In February 2003, the UTI Act was repealed,Availed a Special Legal Status Phase VI (From 2004 Onwards): Consolidation and Growth mergers and acquisitions, Allianz Mutual Fund by Birla Sun Life, Zurich Ltd . By HDFC Gold man by Reliance

CLASSIFICATION OF MUTUAL FUNDS I ACCORDING TO OWNERSHIP 1. Public Sector Mutual Funds 2. Private Sector Mutual Funds II ACCORDING TO SCHEME OF OPERATION 1.Open ended Scheme: No Fixed Maturity , Provide better Liquidity, Purchase and redeem at any time. 2.Close ended Scheme: Period of Maturity is specified. Can purchase directly at the initial issue, then listed in SE. 3.Interval Scheme: Open for specific interval ,after that it operates as a close scheme.

III ACCORDING TO OBJECTIVES ORPORTFOLIO 1 .Money Market Funds 6. Income Fund 2.Bond Funds 7. Growth Fund 3.Balanced Funds 8. Gold Fund 4.Equity Funds 9. SIP 5. Specialty Funds

Money Market Fund This type of fund's main objective is to hold investment instruments that are liquid and secure. This type of fund is usually held on a shortterm basis and invests in money market securities. Examples: Treasury bills, banker's acceptances, and short term notes. These funds are NOT guaranteed like a Fixed deposit, and hold NO fixed return, but are of low risk.

Bond Fund This type of fund's main objective is to provide a steady stream of income, and holds bonds issued by either governments or corporations. The risk level of this type of fund will be determined by the guidelines in the prospectus, which will, in turn, determine what type of "rating" and term (years to maturity) of bond the manager is allowed to purchase.

Balanced Fund This type of fund's main objective is to hold an optimal mix of investments among cash, equities, and income-producing securities. This type of fund usually has several managers who specialize in a specific area. This type of investment is ideal for someone who wants a better return than a fixed income, but also wants less risk than equity.

Equity Fund This type of fund's main objective is to provide long-term growth through equity/stock investments. Different types of equity funds: Diversified Equity Funds 2.Sector specific Funds 3.Index Funds 4.Mid Cap/ Large Cap Funds 5.International Equity Funds 1

Specialty Fund This type of fund's main objective is to concentrate its holdings in one particular sector, geographic region, or in one capital market. Examples: telecommunications, health care, technology, financial services, European markets or Japan. * As you specialize, you minimize diversification, and that results in increased risk.

Systematic Investment Plan ( SIP) It is a way to invest in Mutual Funds regularly. It is similar to a recurring deposit. Investor can invest Rs. 500 or Rs. 1000 on a regular basis. It allows the investor to buy units on a given date every month.

Mutual Funds - Organisation

Limitations of Mutual Funds No Insurance Inadequate Research Inadequate Disclosure Liquidity Crisis Loss of Control :Fund Managers decide every thing Does not guarantee future performance Fees and Expenses (1% to 15% per year) Lack of Thrill

SEBI GUIDELINES ON MUTUA FUNDS MF shall be constituted in the form of trust The sponsor should have sound track record The sponsor shall appoint an AMC The MF shall not advance any loans MF shall appoint a custodian Every MF shall compute the NAV, and publish in 2 daily newspapers. SEBI empowered to appoint Inspecting Authority SEBI has power to suspend registration of MFs.

Association of Mutual Funds in India(AMFI) Incorporated on August 22,1995 Objectives To maintain high professional and ethical standards To promote a code of conduct To represent to SEBI ,regarding the functions of MF industry To represent to the Govt., RBI , and other official bodies. To conduct nation wide investor awareness programs

Some facts for the growth of mutual funds in India Huge growth in the last 6 years. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are concentrating on the 'A' class cities. Soon they will find scope in the growing cities. SEBI allowing the MF's to launch commodity mutual funds. Emphasis on better corporate governance. Introduction of Financial Planners who can provide need based advice