Presentation by; JASMINE.

S S3 MBA(Finance)

Definition:
A mutual fund is a financial service organization that receives money from the shareholders, invest it, earns returns on it, attempts to make it grow and agrees to pay the shareholder cash on demand for the current value of his investment. Mutual Fund Fact Book

The Securities and Exchange Board of India (Mutual Funds) Regulations,1993 defines a mutual fund as a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations.

Evolution of mutual fund

Mutual funds originated in Belgium, in 1882 under the name of Societe de Belgiue ,a Co. to finance investments in national industries. The Foreign and Colonial Govt. Trust in 1868 is considered to be the forerunner of the concept of mutual fund. The history of mutual funds started in USA from the beginning of the 20th century. Massachusetts Investors Trust, State Street Investment Corporation and U.S and Foreign Securities Corporations are organized. The Canadian Investment Fund was the 1st mutual fund set up in Canada in 1932. In India , the Unit Trust of India set up in 1964.

Mutual funds in India

Phase 1: Unit Trust of India in 1964. launching a no: of open as well as close ended schemes. Phase 2: UTIs monopoly end in 1987. amended Banking Regulations Act, permits commercial banks in the public sector to set up mutual funds. 1st non UTI mutual fund was launched by SBI in Nov1987. first scheme Magnum Regular Income Scheme . Canbank Mutual Fund in Dec 1987- 2 schemes . Canstock (income) ,Canshare ( growth). LIC mutual fund .

 Phase 3: entry of private sector in mutual fund industry. Twentieth Century M.F, Taurus M.F, Morgan Stanley M.F, HDFC M.F. Phase 4: SEBI(Mutual Funds) Regulations, 1996 . set uniform standards for all m.fs & safeguard the interest of the investors. Phase 5: consolidation phase , mergers & acquisitions common. eg., Birla Sun Life M Fs acquisition of schemes of Alliance MF , Principal MFs acquisition of Sun F&C and PNB MF. international mutual fund players like Fidelity , Franklin Templeton MF.

Organisation of mutual fund :1.Sponsor :

Responsible for setting up & establishing the mutual fund trust. as a promoter of a company. obtain license from SEBI. appoints trustees , an asset management company and custodians in compliance with the regulations. Eg, the sponsor of ICICI Prudential mutual fund are Prudential Plc & ICICI Bank.

2.Trustees :
persons who hold the property of the mutual fund in trust for the benefit of the unit holders. information to unit holders as well as to SEBI about the mutual fund scheme. present an annual report to the investors. monitor the Asset Management Company.

3.Custodians:
An agency that keeps custody of the securities that are bought by the mutual fund managers under the various schemes is called the custodians. the custodian who is so appointed should in no way be associated with AMC and cannot act as sponsor or trustee to any mutual fund. A custodian is supposed to act only for a single mutual fund unless otherwise approved by SEBI. eg., the custodian of ICICI Prudential fund is HDFC Bank Ltd.

4. Asset Management Company:

The investment manager of a mutual fund is technically known as the AMC. appointed by the sponsor or trustees. responsible for operating all the schemes of the fund. It takes all responsible steps to ensure that investment of funds pertaining to any scheme is not contrary to SEBIs regulations and trust deed.

eg., the AMC of ICICI Prudential Fund is Prudential ICICI Asset Management Company.

Types of mutual fund:-

Mutual fund

On the basis of execution and operation

On the basis of yield and investment pattern

Open ended fund

Close ended Income Growth Balance Taxation Specialised M fund fund fund fund M fund fund MF

1. (a) Open ended scheme:

when a fund is accepted and liquidated on a continuous basis by a mutual fund manager, it is called open ended scheme.
(b) Close- ended scheme: when units of a scheme are liquidated (repurchased) only after the expiry of a specified period.

Feature Subscription

Open -ended Open for public subscription throughout the currency of the scheme. The fund raised from the public keeps varying.

Close ended Open for subscription only for a limited period. The corpus of the scheme is fixed for all time to come.

Corpus

Exit
Liquidation

Easy & convenient exit , any time.

Units can be cancelled anytime.

No exit possible till the closure of the scheme.

No exit possible till the closure of the scheme.

Maturity Listing
Liquidity

No maturity period. No listing & hence not traded in stock exchange.

Through repurchase by MF at NAV or at any other price as may be determined.

Fixed maturity period. Listed in stock exchange & traded.

Through trading in a stock exchange at the current market price.

2.(a) Income fund scheme: fund aims at generating & distributing regular income to the members on a periodical basis. based on regular dividends, not on capital appreciation. pattern of investment is oriented towards high and fixed income yielding securities like debentures ,bonds , etc. short run gains only.

(b) Growth funds(Pure growth funds): Nest Eggs or long hauls investments.
fund may declare dividend, but principal objective is only capital appreciation. investing on risk bearing equities, high growth equity shares. suited to salaried and business people . long run gains.

(c) Balanced funds: income-cum-growth fund.

aims at distributing regular income as well as capital appreciation. is achieved by balancing the investments b/w high growth equity shares and fixed income earning securities.

(d) Specialised funds:

offer special schemes for specific categories of people like pensioners ,widows. door for foreign investors to invest on the domestic securities of countries. eg., Japan fund, South Korea fund etc. sector specific funds: funds confined to one particular sector or industry . high risk. eg., Petroleum Industry Funds in USA.

(e) Money Market Mutual Funds(MMMFs):

suited to institutional investors like banks, and other financial institutions. open ended mutual funds. they invest in highly liquid and safe securities like commercial paper, bankers acceptances, certificates of deposits, treasury bills, etc in money market instruments. they take place of shares, debentures and bonds in capital market.

(f) Taxation funds:

offers tax rebate to the investors either in the domestic or foreign capital markets. suitable for salaried people. eg., for domestic type-Tax Savings Magnum of SBI Capital Market Ltd. eg., for foreign type- UTIs US$60 million India Fund ,based in USA.

Other classification:
Leveraged funds: borrowed funds, since they are used primarily to increase the size of the value of portfolio of a mutual fund. gains increases, the earning capacity of the fund also increases. Dual funds: special kind of close ended fund. single investment opportunity for 2 kinds of investors. sells 2 types of investment stocks- income shares & capital shares. investors who purchase income shares receives all interest & dividend, guaranteed a minimum annual dividend payment. investors of capital shares receive capital gains , not entitled to receive dividend.

 Index funds: funds where portfolios designed that reflect the composition of broad based market index. involves less administrative expenses, lower transaction costs, less number of portfolio managers , fewer purchases & sales of securities takes place.

Bond funds: funds have portfolios consisting of fixed income securities like bonds. main trust is on income rather than capital gains. Aggressive growth funds: funds are capital gains oriented. funds are invested in speculative stocks. use specialised investment techniques like short-term trading, option writing etc.

 Offshore mutual funds:

non residential investors, source of investments from abroad. facilitate flow of fund across different countries, with free and efficient movement of capital for investment. does not allow foreign domination over host countrys corporate sector.

Property fund:
real estate mutual fund: buys, develops, manages & sells real estate assets. investment also includes shares/bonds of companies involved in real estate and mortgage-backed companies.

Fund-of fund: scheme that invests in other mutual fund scheme.

mostly relevant abroad.

 Real Estate Mutual Fund: direct or indirect investment in real estate property.
Gold Exchange Traded Fund: exchange listed mutual fund representing some units of gold. can be bought and sold at any time during a trading day. listed in NSE & BSE.