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Introduction

A mutual fund is a financial intermediary that

pools the savings of investors for collective

investment in a diversified portfolio of

securities. A fund is mutual as all of its

returns, minus its expenses, are shared by the

funds investors.


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Definition

-The SEBI of India (Mutual Fund) regulations 1996


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Advantages

Professional management

Portfolio diversification

Reduction in transaction cost

Liquidity


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Tax benefits

Transparency

Stability to the stock market Equity research


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Convenience

Flexibility

Protection of interest of investors Promoting, industrial development of the

country


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Limitation of Mutual Funds

Market risk

Misappropriation of funds

Political risk


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Mutual fund investors

Resident Indian individuals

Indian companies

Indian trusts/charitable institutions

Banks

Non-banking finance companies

Insurance companies

Provident funds

Non-residents, including Non-resident Indians

Foreign entities(FIIs)


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Organization of a mutual

fund The Sponsor

The Mutual Fund trust

The Asset Management Company

Other Administrative Entities


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Sponsor

The sponsor is similar to the promoter of a

company as he gets the fund registered with

the SEBI. Criterias required are

Sound track and general reputation for

minimum 5 years

Not have been found of guilty of fraud


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He forms trust and appointsa board of trustees

Also appoints AMC as fund managers

And appoints a custodian to hold the fund

assets.

The sponsored is required to contribute at

least 40% of the min net worth of the asset

management company


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A mutual fund is sponsored by

Banks

Financial institutions

Companies(Indian orforeign or joint venture)


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Out of 39 mutual funds

4 by bank

1 by LIC

16 by Indian entities 5 by foreign entities

Remaining are joint ventures


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Mutual fund trust

A mutual fund is a trust that pools the savings

of investors and invests these savings in

capital market/money market instruments.

The duty of the trust is to review the

performance of the fund and thereby

safeguarding the interest of the investors.


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contd

A mutual fund in India is constituted in the

form of a public trust created under the Indian

Trusts Act,1882.

The trust is formed by sponsor and registerd

with SEBI

The fund sponsors act as the settler of the

trust, contributes to initial capital and

appoints trustees


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Collected funds are managed by board of

trustees,who are independent body and acts

as a protector of the unit holders interest.

At least 2/3 of the trustees are independent

trustees

eg: HDFC Trustee Company Limited for HDFC

mutual fund


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Asset Management Company

Asset management company manages the

funds by investing in various securities. It acts

like the investment manager of the trust.

The success or failure of the mutual fund

depends upon the efficiency of AMC


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AMC is a company formed and registered undercompanies act,1956.

They charge a fee for the service rendered to

mutual fund trust. Investment manager

Manages the different investment schemes as perthe SEBI regulation and the trust deed.

AMC should be registered with the SEBI

Net worth of atleast Rs.10 crore the form of cash


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Most AMCs in India are private limited

companies

Eg:HDFC asset management company limited

for HDFC mutual fund


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Other Administrative Entities

Custodian :A custodian is responsible for safekeeping of cash securities gold or gold related

instruments or real estate mutual fund

instruments.

A custodian also participates in the clearing

system through approved depository.

Registrar and transfer agents is a vital

communication link between the unit holder

and mutual fund.


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FIXEDD DEPOSITS MUTUAL FUND SCHEMES

Investment for a fixed period No fixed tenure in open ended schemes

Assured return on fixed deposits No assurance for either returns of capital

growth

Low returns High returns

High safety in banks Safety depends upon the investment

objective

Objective is to earn income Objective is to earn income and capital

growth


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Types of Mutual Fund Schemes

Functional Investment

classification

Portfolio

classification

Geographical Other

Open-

endedschemes

Equity fund Income Domestic P/E ratio fund

Close-

ended

schemes

Debt fund Growth Off shore Exchange

traded funds

Interval

schemes

Hybrid fund Balanced Gold exchange

traded funds

Real estate

mutual funds


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Functional classification

Open-ended schemes

Close-ended schemes

Interval schemes


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Portfolio classification

Income funds

Growth funds

Balanced funds


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Geographical classification

Domestic funds

Off shore funds


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Equity fund

Debt fund

Hybrid fund

Investment classification


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Investment classification

Equity fund

Diversified

Value Special

Sectoral

Derivatives arbritage

Tax savings


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Debt funds

Money market mutual funds

Short term bond Long term

Gilt

Floating maturity plans

Fixed maturity plans

Capital protection Schemes


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Other classification

P/E ratio fund

Exchange traded funds

Gold exchange traded funds Real estate mutual funds


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Conclusion

In India, mutual funds have a potential to

grow. Mutual fund companies have to create

and market innovative products and frame

distinct marketing strategies.

They have coma a long way, but a lot more

can be done.


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Bibliography

Info: THE INDIAN FINANCIAL SYSTEMby Bharati V Pathak

Images: Google


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Thank you

Documents

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