Mutual Fund Seminar 2

MUTUAL FUND
CHAPTER 1 – INTRODUCTION TO INDUSTRY
1.1 Background & Origin
The mutual fund was born from a financial crisis that staggered Europe in the early
1770s.
The British East India Company had borrowed heavily during the preceding boom years
to support its ambitious colonial interests, particularly in North America where unrest
would culminate in revolution in a few short years.
As expenses increased and revenue from colonial adventures fell, the East India
Company sought a bailout in 1772 from the already-stressed British treasury. It was the
“original too big to fail corporation” and the repercussions were felt across the continent
and indeed around the world.
At the same time, the Dutch were facing their own challenges, expanding and exploring
like the British and taking “copy-cat risks” in a pattern that has drawn parallels to the
banking crisis of 2008.
Historians are uncertain of the origins of investment funds. Some cite the closed-end
investment companies launched in the Netherlands in 1822 by King William I as the first
mutual funds, while others point to a Dutch merchant named Adriaan van Ketwich
whose earlier investment trust created in 1774 may have given the king the idea. Van
Ketwich probably theorized that diversification would increase the appeal of investments
to smaller investors with minimal capital. The name of van Ketwich's fund, Eendragt
Maakt Magt, translates to "unity creates strength." The next wave of near-mutual funds
included an investment trust launched in Switzerland in 1849, followed by similar
vehicles created in Scotland in the 1880s.
The idea of pooling resources and spreading risk using closed-end investments soon took
root in Great Britain and France, making its way to the United States in the 1890s. The
Boston Personal Property Trust, formed in 1893, was the first closed-end fund in the U.S.
The creation of the Alexander Fund in Philadelphia in 1907 was an important step in the
evolution toward what we know as the modern mutual fund. The Alexander Fund
featured semiannual issues and allowed investors to make withdrawals on demand.
DR.AIT DEPT.OF MBA Page 1

MUTUAL FUND
1.2 History of its origin in India
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. The
objective then was to attract small investors and introduce them to market investments. Since
then, the history of mutual funds in India can be broadly divided into six distinct phases.
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. Operationally, UTI was set up by the Reserve Bank
of India (RBI), but was later delinked from the RBI. The first scheme, and for long one of the
largest launched by UTI, was Unit Scheme 1964.
Later in the 1970s and 80s, UTI started innovating and offering different schemes to suit the
needs of different classes of investors. Unit Linked Insurance Plan (ULIP) was launched in
1971 The first Indian offshore fund, India Fund was launched in August 1986. In absolute
terms, the investible funds corpus of UTI was about Rs 600 crores in 1984. By 1987-88, the
assets under management (AUM) of UTI had grown 10 times to Rs 6,700 crores.
Phase II (1987-93): Entry of Public Sector Funds:

The year 1987 marked the entry of other public sector mutual funds. With the opening up of
the economy, many public sector banks and institutions were allowed to establish mutual
funds. The State Bank of India established the first non-UTI Mutual Fund, SBI Mutual Fund
in November 1987. This was followed by Canbank Mutual Fund,LIC Mutual Fund, Indian
Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
From 1987-88 to 1992-93, the AUM increased from Rs 6,700 crores to Rs 47,004 crores,
nearly seven times. During this period, investors showed a marked interest in mutual funds,
allocating a larger part of their savings to investments in the funds.
Phase III (1993-96): Emergence of Private Funds:

A new era in the mutual fund industry began in 1993 with the permission granted for the
entry of private sector funds. This gave the Indian investors a broader choice of 'fund
families' and increasing competition to the existing public sector funds. Quite significantly

MUTUAL FUND
foreign fund management companies were also allowed to operate mutual funds, most of
them coming into India through their joint ventures with Indian promoters.
The private funds have brought in with them latest product innovations, investment
management techniques and investor-servicing technologies. During the year 1993-94, five
private sector fund houses launched their schemes followed by six others in 1994-95.
Phase IV (1996-99): Growth And SEBI Regulation:

Since 1996, the mutual fund industry scaled newer heights in terms of mobilization of funds
and number of players. Deregulation and liberalization of the Indian economy had introduced
competition and provided impetus to the growth of the industry.
A comprehensive set of regulations for all mutual funds operating in India was introduced
with SEBI (Mutual Fund) Regulations, 1996. These regulations set uniform standards for all
funds. Erstwhile UTI voluntarily adopted SEBI guidelines for its new schemes. Similarly, the
budget of the Union government in 1999 took a big step in exempting all mutual fund
dividends from income tax in the hands of the investors. During this phase, 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:
The year 1999 marked the beginning of a new phase in the history of the mutual fund
industry in India, a phase of significant growth in terms of both amount mobilized from
investors and assets under management. In February 2003, the UTI Act was repealed. UTI no
longer has a special legal status as a trust established by an act of Parliament. Instead it has
adopted the same structure as any other fund in India - a trust and an AMC.
UTI Mutual Fund is the present name of the erstwhile Unit Trust of India (UTI). While UTI
functioned under a separate law of the Indian Parliament earlier, UTI Mutual Fund is now
under the SEBI's (Mutual Funds) Regulations, 1996 like all other mutual funds in India.

MUTUAL FUND
1.3 Nature of Business

1. An outstanding long term return for the past 5, 10, and 20 years. We are investing for
the long term, or you should be if you are considering mutual funds. So look at a fund’s long
term record. Do not get wrapped up in this year’s or even last year’s rates of return. What
has the mutual fund done over the past several years? Are they consistent?
2. Low expenses / Low turn over rate.
A fund that buys and sells the stocks rapidly racks up brokerage commissions just like we
would when we buy individual stocks. All of those $7 per trade commissions add up for us,
just imagine selling millions of shares everyday. Low expenses mean that you keep more of
the mutual funds profits in your pocket instead of paying salaries, commissions,
administrative fees, etc.
3. A specific and published investment strategy.
Mutual funds and their managers have a specific game plan when it comes to their investing
style and strategy. They should always state what that plan is and stick to it. Be leery of
funds that change styles or strategies without a good reason. The fund you invest in should
fit into your overall diversification strategy. If the fund manager changes his investment
style, it could throw your own diversification off.
4. No loads. In most cases, you should stick to no load mutual funds. Unless the mutual fund
is simply outstanding, fees paid to the mutual fund company that runs the fund, either up
front or in the end when you sell your shares, will just eat into your profits.
5. Fund managers with outstanding record. When you find a good mutual fund with an
excellent 10 and 20 year historic returns, you want to make sure that the current fund
managers are the ones who were actually responsible for those great returns and not just a
new guy taking over where a great manager left off.
6. High ethical standards and reputation. In 2003, several mutual funds were charged in
scandals involving late trading, market timing, and other unethical behavior. There is no

MUTUAL FUND
excuse for a company to behave poorly, and I refuse to invest in one that does. I would even
go so far as to transfer all of my investments away from an unethical company.
7. Not too big. Be careful of investing in popular mutual funds that manage a large pool of
assets. The better a mutual fund performs in the short term usually brings the quasi-curse of
more money to invest. As more investors pump money into mutual funds with high recent
returns, it is hard for the fund’s managers to find bargains to invest in. It isn’t always
something to totally sweat over, but it is definitely something to consider.
1.4 Categories or groups of product & services
1. Money market funds
These funds invest in short-term fixed income securities such as government bonds, treasury
bills, bankers’ acceptances, commercial paper and certificates of deposit. They are generally
a safer investment, but with a lower potential return then other types of mutual funds.
Canadian money market funds try to keep their net asset value (NAV) stable at $10 per
security.
2. Fixed income funds
These funds buy investments that pay a fixed rate of return like government bonds,
investment-grade corporate bonds and high-yield corporate bonds. They aim to have money
coming into the fund on a regular basis, mostly through interest that the fund earns. High-
yield corporate bond funds are generally riskier than funds that hold government and
investment-grade bonds.
3. Equity funds
These funds invest in stocks. These funds aim to grow faster than money market or fixed
income funds, so there is usually a higher risk that you could lose money. You can choose
from different types of equity funds including those that specialize in growth stocks (which
don’t usually pay dividends), income funds (which hold stocks that pay large dividends),
value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or combinations of these.

MUTUAL FUND
4. Balanced funds
These funds invest in a mix of equities and fixed income securities. They try to balance the
aim of achieving higher returns against the risk of losing money. Most of these funds follow a
formula to split money among the different types of investments. They tend to have more risk
than fixed income funds, but less risk than pure equity funds. Aggressive funds hold more
equities and fewer bonds, while conservative funds hold fewer equities relative to bonds.
5. Index funds
These funds aim to track the performance of a specific index such as the S&P/TSX
Composite Index. The value of the mutual fund will go up or down as the index goes up or
down. Index funds typically have lower costs than actively managed mutual funds because
the portfolio manager doesn’t have to do as much research or make as many investment
decisions.
6. Specialty funds
These funds focus on specialized mandates such as real estate, commodities or socially
responsible investing. For example, a socially responsible fund may invest in companies that
support environmental stewardship, human rights and diversity, and may avoid companies
involved in alcohol, tobacco, gambling, weapons and the military.
7. Fund-of-funds
These funds invest in other funds. Similar to balanced funds, they try to make asset allocation
and diversification easier for the investor. The MER for fund-of-funds tend to be higher than
stand-alone mutual funds.
Investing in mutual funds is normally a long term commitment of funds. Hence you
need to follow the due process to invest. When you invest in mutual funds, there are
two levels of process flow that you must go through. First there is the normal
regulatory process and the second is a more managerial approach, which is to protect
the value of your own portfolio.

MUTUAL FUND
1.5 Turnover & net worth of the Industry

Mutual fund turnover is calculated as the value of all transactions (buying, selling) divided
by two, then divided by a fund's total holdings. Essentially, mutual fund turnover typically
measures the replacement of holdings in a mutual fund and is commonly presented to
investors as a percentage over a one year period. If a fund has 100% turnover, the fund
replaces all of its holdings over a 12-month period.
You may discover that your mutual fund turnover rate is much higher than you expected.
According to Michael Laske, research manager at Morningstar, the average turnover ratio for
managed domestic stock funds is 63%, as of Feb. 28, 2019.
1.6 Input Materials & process
Basic Process to Follow for Investing in Mutual Funds
 The first step before investing in mutual funds is to get your KYC completed. The
Know Your Client (KYC) is meant to ensure that you understand the risks and rewards
of investing in mutual funds as also to keep a tab on the colour of the money coming
into the fund.
 There are two ways to do you KYC. You can either do a physical KYC at the branch
office of the fund or at the registrar office. Alternatively, you can also do e -KYC with
your Aadhar card that is mapped to your PAN number. Mutual funds also insist on an
In Person Verification (IPV) before completing your KYC.
 Once your KYC is completed, you are good to invest. You can either go through a
broker or you can go to the office of the mutual fund and give a Direct Application.
When you give a Direct Application, you pay lower Total Expense Ratio (TER) and
hence your NAV will be higher. However, when you go through the broker, you have
the added advantage of getting advisory services on fund selection. You must opt for
the Direct Plan only if you are confident of managing your entire mutual fund
investments on your own without any expert assistance.
 If you do not want to go through physical mode, you can also opt for the online
purchase of mutual funds. You can either purchase these funds at the website of the

MUTUAL FUND
mutual fund or from the registrars or from other fund aggregators. Here funds are
allocated an ISIN number and you can hold mutual funds in your demat account along
with your equity shares and other similar assets.
Secondary Process to Follow for Investing in Mutual Funds
 The primary process for mutual fund investments is more to facilitate the process and
help you become a mutual fund investor. The second step is to apply more customized
filters so that you are able to invest in the right fund.
 Ensure that the fund suits your risk appetite. The best way is to start off with a long
term financial plan and then work backwards to see how much you need to allocate to
each specific asset class. That is how your portfolio should be built.
 The second step is to take a call between lump-sum investment and SIP. When it
comes to long term wealth creation, Systematic Investment Plans (SIP) is a lot more
useful. In fact, even if you have a lump-sum available with you, you can convert that
into a SIP via a systematic transfer plan.
 You need to zero down very carefully on the specific fund house and the funds that
you want to invest in. It predicates on the performance of the fund, the risk of the fund
and the stability of the fund management team. All these factors need to be
considered.
 Finally, do a complete review of the fund factsheet before the final investment in the
fund. What should you look for in the factsheet? There are five basic things you need
to look at. Firstly, in case of equity and debt funds look at the consistency of the
returns generated over time. More than the quantum of returns, it is consistency that
matters. Secondly, look at risk adjusted returns. A return of 14% with 10% volatility
is far better than 16% returns with 30% volatility. Thirdly, check the portfolio mix. Be
it an equity fund or a debt fund; watch out for portfolio concentration risk and asset
quality risks as they are the key to long term performance. Fourthly, look at the Total
Expense Ratio (TER). In a competitive market, it is tough to generate alpha. The basic
thing you want is for funds to save costs for you. Lastly, you invest in equity funds to
beat the index. Benchmark the fund performance to the Total Returns Index (TRI) of
the index. That is a better measure of outperformance as TRI also factors dividends.
Your mutual fund investment process must be a combination of the regulatory process
and the analytical process. That is a good start to your investment journey.

MUTUAL FUND
Chapter-2 Role in the economy

2.1 Achievements & Milestones
Milestones of BSE Mutual fund
1st October BSE launches its commodity derivatives segment making it India's 1st
2018 Universal Exchange
21st July 2017 BSE wins Business World Digital Leadership and CIO Award
23rd March BSE crosses another milestone of raising Rs.200,111 Crore via the
2017 Debt online platforms
9th Jun, 2016 BSE announces commencement of trading of Sovereign Gold Bonds
18th May 2015 BSE introduces overnight investment product
22th Oct 2014 BSE inks strategic partnership with YES BANK
13th Mar 2012 Launch of BSE - SME Exchange Platform
15th Jan 2011 Co-location facility at BSE - tie up with Netmagic
10th Dec 2010 Launch of SIP
14th Dec 2009 Marathi website launched
9th Jul 2001 Stock options launched
12th May 1997 Trade Guarantee Fund (TGF) introduced
10th Jul 1987 Investor's Protection Fund (IPF) introduced
Achievements of BSE Mutual fund
At par with international standards, BSE Ltd. has been a pioneer in several areas over
the decades and has many firsts and key achievements to its credit.
BSE is the first exchange in India to
 Launch a special platform for trading in SME securities

 Introduce Equity Derivatives
 Launch a Free Float Index - S&P BSE SENSEX

MUTUAL FUND
 Launch Exchange Enabled Internet Trading Platform

 Obtain ISO certification for a stock exchange
 Exclusive facility for financial training – BSE Institute Ltd.
 Launch its website in Hindi and regional languages
 Host the popular opening-bell ceremony in Indian capital markets
 Launch mobile-based trading in India in Sept 2010
Besides the above, BSE has taken large strides in product and service innovation for the
benefit of its members and investors, notable ones being
 Launch of a reporting platform for corporate bonds

 Launch of the S&P BSE IPO index and S&P BSE PSU website
 Revamp of its website with wide range of new investor-friendly features
 Launch of trading in S&P BSE SENSEX futures on EUREX and leading exchanges of
the BRICS nation bloc
 Launched Smart Order Routing for members and investors
 Introduced SACT (SMS alert & Complaint Tracking system)
 Launched co-location facility at BSE premises in November 2010
 Reduction in membership fees to Rs. 10 lakh for new memberships to promote financial
access and inclusion
 Launch of web-based mutual fund trading platform for investors
2.2 Contributions to the economy expressed in terms of key economic

indicators
Each month, the Investment Company Institute publishes its “Trends in Mutual Fund
Investing” which is the only statistical release on fund flows based on actual industry data.
The ICI is a non-profit organization whose members are the majority of investment
companies registered with the Securities and Exchange Commission (SEC). The organization
samples more than 8,000 mutual funds, closed-end funds,exchange-traded funds(ETFs)
and unit investment trusts(UITs).

MUTUAL FUND
2.3 Concentration/Localization
The placement, in terms of which account, taxable or tax-advantaged, is an important

investment decision that has a significant impact on an investor's taxes and thus the net return
after taxes.
Many investors have two basic types of investment accounts: 1) A regular brokerage account
that can either be individual or joint and 2) A tax-deferred account, such as an IRA or 401(k).
Many of these same investors have never given any thought as to what investment types are
best to place in these accounts.
Understanding the Taxation on Mutual Funds Helps Determine Location
Remember that investments held in a brokerage account are taxed on capital gains and on
interest income (dividends). For example, if you sell a mutual fund at a price (NAV) higher
than the price you purchased it, you will have a capital gain for which you will owe a tax.
Also, any interest income (dividends) earned on investments in a brokerage account is taxed
as ordinary income, just as if are when receiving payment from an employer.
Taxation is significantly different in tax-deferred accounts than in brokerage
accounts. Selling mutual funds in a tax-deferred account, such as an IRA or 401(k), will not
generate capital gains taxes. In fact, selling funds generates no taxes at all (although other
mutual fund fees may apply). Also, income from dividends is not taxed in IRAs or 401(k)s
until withdrawn at a later time, such as retirement.

MUTUAL FUND
2.4 Institutions & funding agencies supporting the industry
 Axis Asset Management Company Ltd.
 Aditya Birla Sun Life AMC Limited.
 Baroda Asset Management India Limited.
 BNP Paribas Asset Management India Private Limited.
 BOI AXA Investment Managers Private Limited.
 Canara Robeco Asset Management Company Limited.

MUTUAL FUND
Chapter 3- Government policies
3.1 Industrial policy initiatives
The Government of India has taken several initiatives in various sectors to improve the
overall economic condition in the country. Some of these are:
 In February 2019, the Government of India approved the National Policy on Software
Products – 2019, to develop the country as a software hub.
 The National Mineral Policy 2019, National Electronics Policy 2019 and Faster
Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME II) have also
been approved by the Government of India in 2019.
 In November 2018, the Government of India launched a support and outreach
programme for the Micro, Small and Medium Enterprises (MSME) sector. It involves
12 key initiatives which will help the growth, expansion and facilitation of MSMEs
across the country.
 In September 2018, the National Digital Communications Policy (NDCP) has been
approved by Government of India with the objectives of attracting US$ 100 billion in
investments, improved broadband connectivity and generation of four million jobs in
the telecom sector.
 Securities and Exchange Board of India (SEBI) doubled the maximum investment by
angel funds in venture capital undertakings to Rs 10 crore (US$ 1.37 million).
 The Government of India has decided to invest Rs 2.1 trillion (US$ 28.8 billion) to
recapitalise public sector banks over the next two years and Rs 7 trillion (US$ 95.9
billion) for construction of new roads and highways over the next five years.
 India and Japan have joined hands for infrastructure development in India's north-
eastern states and are also setting up an India-Japan Coordination Forum for
Development of North East to undertake strategic infrastructure projects in the
northeast.
 Union Ministry of Shipping plans to raise US$ 15.8 billion in dollar equivalents at the
interest rate of three per cent, for developing ships, building ports and improving
inland waterways.
 Ministry of environment and forests has granted environment clearance for 35-km
coastal road connecting south and north Mumbai. The coastal road project is part of

MUTUAL FUND
the US$ 9.52 billion transport infrastructure projects being undertaken by the state
government and is expected to require an investment of US$ 1.34 billion.
 The Government of India will provide soft loan of US$ 1 billion to sugar mills to help
them clear part of their US$ 3.33 billion dues to farmers. The money shall be directly
credited to the farmer’s bank accounts through the Pradhan Mantri Jan-Dhan Yojana.
The Association of Mutual Funds in India (AMFI) is targeting nearly five-fold growth in
assets under management (AUM) to Rs 95 lakh crore (US$ 1.30 trillion) and a more than
three times growth in investor accounts to 130 million by 2025.
India’s GDP is expected to grow 7.5 per cent in 2019-20. This is on account of India’s
attempt to implement reforms to unlock the country's investment potential to improve the
business environment, liberalised FDI policies, quick solution to the corporate disputes,
simplified tax structure, and a boost in both public and private expenditure.
Exchange Rate Used: INR 1 = US$ 0.0145 as on March 29, 2019
3.2 Tax laws pertaining to the industry
1.Mutual Funds Holding Period
We all invest to earn income on our investments in the form of interest, dividends or capital
gains. And where there is income, there is income tax. The tax you need to pay on capital
gains largely depends on the time for which you stay invested in the respective schemes. This
is holding period of mutual funds.
2. Types of holding periods
a. Long-term holding period
The holding period of mutual fund units can be short-term or long-term. In case of equity
mutual funds and balanced mutual funds, a holding period of 12 months or more is regarded
as long-term. So, long-term capital gains tax or LTCG applies to those
investments. A holding period of 36 months or more is regarded as long-term for debt funds.

MUTUAL FUND
b. Short-term holding period
A holding period of less than 36 months for debt funds and less than 12 months for equity
and balanced funds is defined as short-term. Therefore, short-term capital gains tax applies to
income made from any scheme held for less than 36 months or 3 years. Some examples for
short-term schemes include treasury bill, 91-day bonds etc.
The following table gives a glimpse of holding period classification of mutual funds:
Funds Short-term Long-term
Equity funds Less than 12 months 12 months and more
Balanced funds Less than 12 months 12 months and more
Debt funds Less than 36 months 36 months and more
Now let’s have a look at the taxation of short-term gains and long-term capital gains on
different types of mutual funds.
3. Taxation on Mutual Funds
a. Tax-Saving Equity Funds
Equity-Linked Saving Scheme (ELSS) are the most efficient tax-saving instruments under
Section 80C. These diversified equity funds invest in equity shares of companies across
market capitalization.
ELSS comes up with a lock-in period of 3 years. This means, you cannot redeem your units
before expiration of 3 years. After redemption, the long-term capital gains (LTCG) up to Rs 1
lakh are tax-free in your hands. LTCG in excess of Rs 1 lakh is taxable at the rate of 10%
without the benefit of indexation.

MUTUAL FUND
Invest in top-performing ELSS funds in a paperless and hassle-free manner on ClearTax
b. Non-tax Saving Equity Funds
Long-term capital gains (LTCG) on non-tax saving equity funds of up to Rs 1 lakh are tax-
free in your hands. LTCG in excess of Rs 1 lakh is taxable at the rate of 10% without the
benefit of indexation. Government introduced this in Budget 2018
3.3 Corporate Governance- Specific laws guiding them
The rules of mutual funds are extensive, but the key regulations include:
 The Investment Company Act of 1940. This act regulates mutual funds, as well as
other companies. It focuses on disclosures and information about investment
objectives, investment company structure, and operations.
 The Securities Act of 1933. This act requires that investors receive certain significant
information pertaining to securities that are offered for sale in the public markets. It
also prohibits fraud and misrepresentations in the sale of securities.
 The Securities Exchange Act of 1934. The Act of 1934 created the SEC. It
empowers the SEC with authority over the securities industry.
3.5 foreign policy
Investments/ developments
India emerged as the top recipient of greenfield FDI Inflows from the Commonwealth, as per
a trade review released by The Commonwealth in 2018.
Some of the recent significant FDI announcements are as follows:
 In October 2018, VMware, a leading software innovating enterprise of US has

announced investment of US$ 2 billion in India between by 2023.
 In August 2018, Bharti Airtel received approval of the Government of India for sale
of 20 per cent stake in its DTH arm to an America based private equity firm, Warburg
Pincus, for around $350 million.

MUTUAL FUND
 In June 2018, Idea’s appeal for 100 per cent FDI was approved by Department of
Telecommunication (DoT) followed by its Indian merger with Vodafone making
Vodafone Idea the largest telecom operator in India
 In May 2018, Walmart acquired a 77 per cent stake in Flipkart for a consideration of
US$ 16 billion.
 In February 2018, Ikea announced its plans to invest up to Rs 4,000 crore (US$ 612
million) in the state of Maharashtra to set up multi-format stores and experience
centres.
 Kathmandu based conglomerate, CG Group is looking to invest Rs 1,000 crore (US$
155.97 million) in India by 2020 in its food and beverage business, stated Mr Varun
Choudhary, Executive Director, CG Corp Global.
 International Finance Corporation (IFC), the investment arm of the World Bank
Group, is planning to invest about US$ 6 billion through 2022 in several sustainable
and renewable energy programmes in India.
3.6 Trade associations & Chambers
A mutual fund is a pool of money managed by a professional Fund Manager.

It is a trust that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instruments and/or other
securities. And the income / gains generated from this collective investment is distributed
proportionately amongst the investors after deducting applicable expenses and levies, by
calculating a scheme’s “Net Asset Value” or NAV. Simply put, the money pooled in by a
large number of investors is what makes up a Mutual Fund.
India has one of the highest savings rate globally. This penchant for wealth creation makes it
necessary for Indian investors to look beyond the traditionally favoured bank FDs and gold
towards mutual funds. However, lack of awareness has made mutual funds a less preferred
investment avenue.
Mutual funds offer multiple product choices for investment across the financial spectrum. As
investment goals vary – post-retirement expenses, money for children’s education or
marriage, house purchase, etc. – the products required to achieve these goals vary too. The

MUTUAL FUND
Indian mutual fund industry offers a plethora of schemes and caters to all types of investor
needs.

MUTUAL FUND
CHAPTER-4 Human Capital & Social Policy
4.1 Labor class & skill set
Using the value that a mutual fund extracts from capital markets as the measure of skill, we
find that the average mutual fund has used this skill to generate about $3.2 million per year.
We document large cross-sectional differences in skill that persist for as long as 10 years. We
further document that investors recognize this skill and reward it by investing more capital
with better funds. Better funds earn higher aggregate fees, and there is a strong positive
correlation between current compensation and future performance. The cross-sectional
distribution of managerial skill is predominantly reflected in the cross-sectional distribution
of fund size rather than gross alpha.
4.2 Causes of social issues & steps to overcome them
The social sector plays a vital role in supporting various social and economic needs in India
through a field-based approach. In the context of India, where economic growth has not been
able to cross the last mile and with socio-economic disparities widening, the social sector has
now started to explore the market-based approach to tackle the challenges of inclusive growth
and sustainable development.
Problems With Mutual Funds

1. Expenses
Mutual funds can be your friend and your enemy when it comes to expenses. On the plus
side, some mutual funds do not have transaction fee making it a perfect investment vehicle
for someone that contribute a small amount on a regular basis — i.e., automatic
investment. On the down side, mutual funds charges annual expense ratio on the entire
investment. For example, if a fund has an expense ratio of 1% and you have $10,000 in
investment, the annual expense is $100. This is not too bad. However, if you have $250,000,
the annual expense is $2,500 — that’s a lot of money!
2. Sub-Optimal Purchases
Mutual funds manager cannot hoard cash. When investors buy shares of a mutual fund, the
fund manager must turn around and buy shares of stocks that fit within certain guideline

MUTUAL FUND
specified by the prospectus. For example, if it’s a “Small Value Fund”, the manager cannot
buy a “Large Growth” stock even if it represents a better buying opportunity. Additionally, if
there are not enough good buying opportunities to choose from, the fund manager is forced to
buy stocks that are less desirable.
3.Over Diversification
Either by design, or as a consequence of the problem explained above, many mutual funds
suffer from over diversification. Basically, the fund has so much cash that it is forced to own
hundreds of stocks within its classification. Consequentially, its impossible for the fund
manager to focus on the high potential stocks and the mutual fund becomes a closet index
fund — i.e., simply reflecting the average within that particular group.
4. Forced Redemption
Similarly, fund manager is forced to sell stocks when investors sell shares of mutual fund and
the fund doesn’t have enough cash reserve to meet the demand. Since rushes of redemption
usually happen when the market decline sharply — i.e., a correction or a bear market — this
is usually the worst time to sell stocks. However, the fund manager has no choice and has to
sell underlying stocks even if it’s not the best financial decision to do so.
5. Tax Consequences
Lastly, mutual funds have a strange characteristic when it comes to taxes. You could owe tax
even if the value of your investment is going down! When a fund sells a stock for a profit —
whether it’s by design or forced — it passes the tax bill on to you in the form of annual
capital gains distribution. If your timing is bad, for example, you buy just before the fund
makes its capital gains distribution or you buy during the year that the fund manager is taking
a lot of profit, you could end up paying a very big tax bill for no good reason.
4.3 Environment conditions in the industry- overall working conditions
The Indian population is largely under-banked with a very low level of financial inclusion
leaving room for further penetration. The extent of under-penetration in the market is a sore
point with the banking and financial services industry, with a large amount of savings being
channelised into gold and real estate rather than the capital market.

MUTUAL FUND
Comparing India to other countries, we realize how financial inclusion is yet to be achieved.
While the UK and the US have 25.5 and 35.7 branches per 0.1 million adults and developing
countries such as Brazil have 13.8 branches per 0.1 million adults, India is at a staggeringly
low figure of 10.9 branches per 0.1 million adults. For savings to be streamlined into the
capital market, investors need to first and foremost be made aware of avenues and
opportunities.
The mutual fund industry is yet to spread its reach beyond Tier I cities. Penetration in the top
five cities increased, whereas for cities beyond the top five, penetration has decreased. One of
the prime areas the industry is focusing on is developing the penetration ratio and increasing
its presence in other cities.
4.4 Corporate social responsibility (CSR) activity
The issue of corporate social responsibility is discussed often in business and literature. It has
become more important in recent years due to the dramatic growth of financial institutes,
funds and academic literature which encourage companies to improve their performance on
the field of corporate social responsibility according to (El Ghoul, Guedhami et al. 2011).
Corporate social responsibility can be defined as continuous implementing social and
environmental concerns as well as other concerns by society into a company’s strategy and
behaviour. This can occur both voluntarily and under pressure of governmental fines or
damage to a company’s image as found by (Dahlsrud 2006).
4.5 Employment generation
 Investment Analysts
 Associate Mutual Fund Analyst
 Mutual Fund and Investment Commentary Writer
 Fund Operations Specialist
 Derivative Trading Director
 Investment Compliance Consultant

MUTUAL FUND
CHAPTER 5- Comparisons & Conclusions
5.1 SWOT Analysis
Strengths
 The most critical strength for a mutual fund is its performance. If a fund is
outperforming the market, and particularly if it is at the top of its benchmark, that is a
big selling point. If the fund is part of a well-established company with a track record
of success and a family of high-performing products, that brand name and historical
record may also be a strength.
 A best-in-class research department or methodology that has a track record of picking
winners is a huge asset as well.
 Different financial metrics may be depending on your investment style and the fund
involved: dividend yield may be the key for one investor, total return over a 10-year
period for another.
Weaknesses
 One weakness to look at is your fund‟s fees. A high expense ratio is a weakness even
if it pays for an active management currently beating the market with its returns.
 Even in good times, expenses are a drag on investor return, and they will be more
difficult to accept if the performance declines. Size can be a weakness as well, since
bigger isn‟t always better.
 As a small-cap fund gets bigger, for example, it will have a hard time finding growth
opportunities for all of its assets and may have to close or expand outside of its stated
objective.
 Risk may be a weakness for some investors looking for a smaller beta or standard
deviation.
Opportunities
 Investors

MUTUAL FUND
Penetration and awareness (through on-ground investor engagement campaigns by

AMFI, AMCs and distributors) in Tier II, Tier III (B-15 cities6) and rural markets is
expected to increase, leading to expansion of the retail investor base and hence, a
greater share of the AUM from the retail segments HNIs and the Mass Affluent
segment is expected to dominate the retail segment Institutional segment is likely to
witness emergence of new categories of Small and Medium Enterprises (SMEs)
seeking investments in MFs.
 Products
Going by trends in other Asian economies and matured economies like the U.S.,
share of mutual funds products as an investment alternative should grow Traditional
debt and equity oriented products could continue to dominate the market with AMCs
and distributors pushing high margin products. New product launches could witness a
gradual decline till the time Indian investors become more financially sophisticated.
 Channels
Structural shift from “transaction-led” pricing model to an “advisory-led” pricing
model has been initiated by the regulator; tiered pricing models based on the
relationship value are likely to evolve further. Emerging distribution channels based
on online and mobile platform are expected to gain further prominence Effective
strategic alliances or partnerships in distribution model has become very crucial.
 Competition
The industry is likely to witness a wave of consolidation as shrinking revenues and
escalating costs would put pressure on the existing small and medium sized players.
Additionally, regulatory landscape is skewing towards additional capital investment
for AMCs.
Threats
 To some extent, many funds move along with general economic news.
 Some types of funds do better in a recession while others track well in boom times --
those funds are particularly threatened by a sudden change in the unemployment rate

MUTUAL FUND
that undermines consumer confidence or a stimulus plan that gets people spending
again.
 In addition, if a fund is dependent on a superstar manager, make sure you have a plan
in place if that manager suddenly decides to leave.
5.2 Comparison with other similar industry
Point of Difference Mutual fund Stocks/shares

Meaning Mutual fund is a Stock is basically the collection of
professionally managed shares held by an investor which
investment fund that pools represents his/her proportion of
money from many ownership in the company
investors to purchase
securities
Ownership In case of mutual fund Through investment in stock one
investors does not really gets ownership in the company
own a stake.
Form of investment Indirect Direct
Voting Rights No such rights are It provides right to vote on
provided in case of mutual company’s decisions.
funds.
Value Net Asset Value Price per share

MUTUAL FUND
5.3 Impact of business cycle
Economic cycle
Economies of all nations go through a cycle. This economic cycle fluctuates between an
economy witnessing growth and going through recessions. A look at the graph below will
give you a basic idea about an economic cycle.
An economic expansion, whose rapid version is called an economic boom, is associated with
economic growth that’s faster than a country’s potential growth. Signals of an economy in
rapid expansion include a falling rate of unemployment and high real wages. These lead to a
higher disposable income in the hands of more people.
The result is a surge in household, or consumer, spending with demand of goods rising across
the spectrum, from FMCG (fast moving consumer goods) to autos and real estate. Good
times for regional and national companies like Casey’s General Stores (CASY), Burlington
Stores (BURL), and Advance Auto Parts (AAP).
Apart from consumer spending, business investment also picks up as companies expand their
operations due to higher demand. This further pushes the unemployment rate down, and due

MUTUAL FUND
to wider job opportunities, workers are in a better position to negotiate wages, thus leading to
a further rise in real wages.
Credit is abound as banks are willing to lend to consumers and businesses alike.
All that goes up…
All that goes up must come down. And this applies to economic cycles as well. No boom
lasts forever, and all economies experience a slowdown. In a slowdown, while an economy
continues to rise, its pace slows.
If available credit, which out-volumes real money, dries up further due to an overly rapid
growth that leads to an unrealistic rise in asset prices, it can lead an economy into a state
known as a recession. Unlike a slowdown, a recession sees a fall in economic output and is
signaled by the reverse of everything that’s associated with an expansion, or a boom.
How are mutual funds impacted?
Stock market mutual funds focused on a particular geography, like the Hennessy Japan
Investor ETF (HJPNX) or the Columbia European Equity Fund – Class A (AXEAX), can
behave a bit differently than direct equities and ETFs.
Mutual fund houses generally adopt a bottom-up approach to investing. That is, they focus
more on individual stocks than on specific industries or a geography as a whole. It’s
important to know, though, that some fund managers do look at macro factors as well before
constructing a portfolio.
Due to their active nature, timely ahead-of-the-curve investment decisions by portfolio

managers can lead to them selling off their holdings in case of an impending recession and
hold cash in their portfolio until they find conditions good enough to invest again.
Before moving to specific examples, let’s first look at the importance of spending to an
economy, using the example of the United States.

MUTUAL FUND
5.4 Major players & Leaders
Players in mutual fund
A mutual fund is set up either in the form of a trust or an investment company. The trust is
established by the Asset Management Company (AMC). The trustee holds the property of the
trust for the benefit of its unit holders. Whereas, under the investment company structure, the
mutual fund is established as a public listed company. The AMC, as sponsor of the mutual
fund, appoints its board of directors to manage its affairs, and a custodian for holding all the
assets of the investment company. An AMC is licensed by the SECP and is eligible to operate
the mutual fund and manage its investments.
Asset Management Company
An Asset Management Company is a Non-Banking Finance Company licensed by the SECP

for the management of mutual fund and for the benefit of the unit holders.
Participants
Participants are the ones investing in a mutual fund and anyone holding valid Pakistani
computerized national identity card is eligible to become participant to a mutual fund.
Trustee
A trustee in the case of Mutual funds is a holding service who has administrative power for
managing the money, property or assets used in mutual funds. The trustee can be an
individual person, member of the board of directors, a company or a bank appointed with the
approval of the SECP. They are trusted to make decisions in the beneficiary’s best interest.
Custodian
A custodian generally acts as a caretaker or watchdog mainly responsible for monitoring the
operations of the mutual fund and actions of the fund manager and other parties related to the
mutual fund. A custodian ensures that a mutual fund is being managed in accordance with the
requirements stipulated under the regulatory framework and the constitutive documents of the
mutual fund.

MUTUAL FUND
Registrar
A registrar of a mutual fund may be an individual or a firm / company. The AMC may itself
act as a registrar, or appoint the registrar to perform following functions:
1. Periodically maintaining and updating the Register of unit holders;

2. Dealing with requests for transfer, transmission, issue, and redemption of units as well
as keeping a record of changes in particulars/information/data with regard to the unit
holders;
3. Issuing account statements and certificates to unit holders;
4. Issuing income distribution warrants and units to unit holders over re-investment of
dividends;
5. Maintaining archives of lien/ pledge/ change on units, transfer/ switching of units,
Zakat; and
6. Keeping a record of changes of address/ other particulars of the unit holders.
5.5 Issues & Future Prospects
Mutual funds industry in India has emerged as one of the major constituents of Indian
financial system. It has completed more than forty five years of its presence. In this short
period, it grew fast and also suffered from equally fast decline. It became sick in its formative
years. It has witnessed noticeable structural transformation, quantitative growth, qualitative
and quantitative decline and perhaps the revival, which may put the industry back on track.
The decline in mutual funds industry had been attributed to the factors such as
a) Prolonged bearish trends and scams in Indian stock market that killed the investors’
interest in equities and units
b) The fall of UTI broke the investors’ faith and confidence

MUTUAL FUND
c) Unattractive returns on mutual fund schemes. Although, good performance of debt funds
helped the industry for some time, the continuous reduction in interest rates in the economy
has adversely affected the growth momentous of mutual funds industry again
d) Sluggish trends and sicknessin corporate sector after 1980s e) Inefficiency and
corruptibility in mutual funds management
f) Withdrawal of tax benefits under Section 80 M of Income Tax Act
g) Poor performance of mutual fund schemes
h) Series of crisis, scandals and frauds. The above-mentioned factors have created
supplementary flaws and setbacks for the mutual funds industry at various points of time and
have been among the major causes of the decline in mutual funds industry
Low Level of Awareness
The awareness of investors determines the success of mutual funds industry. In India, low
investors awareness/ information level and financial literacy have been causing biggest
threats to mutual funds industry in channelising the household savings into mutual funds.
Regulatory Problems
A strong regulatory framework is the key to success for any business environment and so is
the case for Indian mutual funds industry. The level of competition in the industry has
continuously been going up. So, it needs to perform a more dynamic and vibrant role to meet
the tests of time. We have observed some areas in mutual fund regulations which are to be
addressed soon so as to make it more competitive and transparent.
Low Participation and Penetration :- Low retail participation is the biggest challenge
posed before the Ithe Indian mutual funds industry regardless the availability of favourable
retail environment and ample growth opportunities in the Indian economy.
Other Problems

MUTUAL FUND
1. Financial Literacy and Single Lingual Mechanism – The low level of financial literacy
causes many problems to mutual funds investors. SEBI and mutual fund companies have
recently taken a number of steps to educate the investors.
2. More Focus on Short-term Growth Strategy - Mutual fund companies in India are
following short-term growth strategies by concentrating more on heavy advertising and high
selling practices leaving sideways the performance, product innovation and customer
services.
3. Herding Behaviour - Herding behaviour keeps investors unaware of the existing market
trends and also creates hype and rumours among them regarding other good mutual funds.
This has become one of the most serious problems of the mutual funds industry now.
4. Secrecy in Documents – The documents of mutual funds are often not sound and their
operations are characterised by secrecy, lack of accountability, unwillingness to furnish
required information and so on. Notwithstanding many guidelines of SEBI, mutual funds are
following little transparency in their working.
Future Prospects
The prospects of mutual funds industry in India is closely linked to the performance of
economy in future. So, before discussing the prospects of mutual funds industry, we will
underline the future prospects of Indian economy in brief.
Future Directions of the Mutual Fund Industry In India
1. Increase the distribution strength

Compared to the insurance sales force, the strength of the mutual fund network appears to
be dismal. Quoting an industry CEO, “there are over 0.3 million insurance agents in
India, while only 16,000 distributors for mutual funds.” This data implies that investors
are likely to meet insurance agents much more frequently than mutual fund distributors
and hence likely to park their surplus funds in insurance policies rather than mutual fund
products.
2. Alternative distribution model

MUTUAL FUND
The mutual fund industry needs to explore an alternative mode of distribution, for
expansion and growth. The option of a tied distribution model could be explored, where
the agent is tied to a particular institution. Although this model has worked in some
countries it leans towards a closed architecture model, restricting the choice of the
investor. The viability of its success in India needs to be measured. Fund houses can also
look at the possibility of investing in an active salesforce. The online channel of
distribution also exists, although its full potential has not been exploited as
3. Need to upgrade distribution networks

In the current scenario, the industry needs willingness from asset management
companies to invest more in the distributor community. The smaller asset
management companies due to lack of funds, find it more challenging to invest in the
distribution channel. Training and educating the distributors are integral to increasing
penetration of mutual fund product.
4. New cadre of distributor
To take the industry forward The new cadre of distributors such as postal agents,
retired officials and school teachers, etc will likely rake in inflows from smaller
towns and cities. This cadre of distributors will be crucial in mobilising the savings of
the smaller towns and directing these savings towards mutual fund investments.
5. Product design
Mutual fund products need to be simplified if they have be sold to the masses through
a public sector bank channel. The product needs to mimic a fixed deposit, and
provide a predictable income. Also, these products need to be solution oriented. In
the past, some fund houses launched similar schemes with minor differences. The
SEBI has directed a move towards a consolidation of schemes to make the process
simpler for investors. If the right product or solution is not available to be sold to
customers, it will be difficult to create a „pull‟ factor.
6. Technology mix
To overcome operational challenges, measures need to be taken to improve the existing
infrastructure and to bring in more efficiency while increasing the scale of operations.
This is not possible without the back-up of a good technology mix. It is also a key
facilitator to break down underpenetrated markets.

MUTUAL FUND
Conclusion
We can in effect conclude by saying that all efforts at the moment are being synchronized
towards attaining the objective of financial inclusion. The drive to expand reach beyond Tier
1 cities and make mutual fund offerings available to people in smaller towns and cities has
indeed taken up the attention of the industry. However, several components of such an
initiative, like investor awareness, broadening investor participation and product innovation,
need to be aligned in order to fully establish inclusive growth. The industry needs to give due
emphasis on the above factors, drawing out an efficient business and operating model to
ensure that the inherent challenges that the industry is facing is efficiently dealt with.
Designing a competent and all pervasive business model has all the more become important
in the current scenario of changing business and regulatory legislations. At a time when
amendments to key regulations are being analyzed in terms of impact on the business of the
industry, it remains to be seen, how the pace and pattern of growth of the industry takes
shape.

MUTUAL FUND

Mutual Fund Seminar 2

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Mutual Fund Seminar 2

Загружено:

Авторское право:

Доступные форматы

MUTUAL FUND

CHAPTER 1 – INTRODUCTION TO INDUSTRY

1.1 Background & Origin

DR.AIT DEPT.OF MBA Page 1

1.2 History of its origin in India

THE MUTUAL FUND INDUSTRY IN INDIA:

Phase I (1964-87): Growth Of UTI:

Phase II (1987-93): Entry of Public Sector Funds:

Phase III (1993-96): Emergence of Private Funds:

DR.AIT DEPT.OF MBA Page 2

Phase IV (1996-99): Growth And SEBI Regulation:

Phase V (1999-2004): Emergence of a Large and Uniform Industry:

DR.AIT DEPT.OF MBA Page 3

1.3 Nature of Business

3. A specific and published investment strategy.

DR.AIT DEPT.OF MBA Page 4

1.4 Categories or groups of product & services

1. Money market funds

2. Fixed income funds

DR.AIT DEPT.OF MBA Page 5

DR.AIT DEPT.OF MBA Page 6

1.5 Turnover & net worth of the Industry

1.6 Input Materials & process

Basic Process to Follow for Investing in Mutual Funds

DR.AIT DEPT.OF MBA Page 7

DR.AIT DEPT.OF MBA Page 8

Chapter-2 Role in the economy

18th May 2015 BSE introduces overnight investment product

13th Mar 2012 Launch of BSE - SME Exchange Platform

15th Jan 2011 Co-location facility at BSE - tie up with Netmagic

10th Dec 2010 Launch of SIP

14th Dec 2009 Marathi website launched

9th Jul 2001 Stock options launched

12th May 1997 Trade Guarantee Fund (TGF) introduced

10th Jul 1987 Investor's Protection Fund (IPF) introduced

Achievements of BSE Mutual fund

 Launch a special platform for trading in SME securities

DR.AIT DEPT.OF MBA Page 9

 Launch Exchange Enabled Internet Trading Platform

 Launch of a reporting platform for corporate bonds

2.2 Contributions to the economy expressed in terms of key economic

DR.AIT DEPT.OF MBA Page 10

The placement, in terms of which account, taxable or tax-advantaged, is an important

Understanding the Taxation on Mutual Funds Helps Determine Location

Taxation is significantly different in tax-deferred accounts than in brokerage

DR.AIT DEPT.OF MBA Page 11

2.4 Institutions & funding agencies supporting the industry

 Axis Asset Management Company Ltd.

 Aditya Birla Sun Life AMC Limited.

 Baroda Asset Management India Limited.

 BNP Paribas Asset Management India Private Limited.

 BOI AXA Investment Managers Private Limited.

 Canara Robeco Asset Management Company Limited.

DR.AIT DEPT.OF MBA Page 12

Chapter 3- Government policies

3.1 Industrial policy initiatives

DR.AIT DEPT.OF MBA Page 13

3.2 Tax laws pertaining to the industry

1.Mutual Funds Holding Period

2. Types of holding periods

a. Long-term holding period

DR.AIT DEPT.OF MBA Page 14

b. Short-term holding period

Funds Short-term Long-term