Title Page no`s

Meaning & back ground 02

Definition of Mutual Fund 05

Types of Mutual Funds 06

Advantages of Mutual Funds 17

Disadvantages of Mutual Funds 18

Functions of Mutual Funds 19

Mutual Fund:
A Mutual Fund is an institution which accepts
deposits from people for investment or lending
purpose.
Background:
Mutual Fund was first introduced in India by Unit
Trust of India in 1964. Till 1987 UTI was only
Mutual Fund in India later on SBI and Canara
Bank established their Mutual Funds and
followed by others.

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 Till 1993 there were & Mutual Funds in India which
were horded by all public sector companies. In past decade a
significance of Mutual Funds has witnessed a huge
development. After the rules passed by SEBI, private players
were also allowed to perform Mutual Fund activities.
Today Mutual Funds have started playing a positive
role in saving revolution . The growth of Mutual Funds
business can be witnessed from the following table:
Year Bought Redeemed
1999-00 13313 9189
2000-01 20208 18224
2001-02 35766 34206
2002-03 68414 67502
2003-04 128302 118126
Figures In us $ in million

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 Before knowing Mutual Funds, we
importantly need to know what are bonds. Bonds
are certain liquid instruments that are repayable
after certain period of time. Bonds carry certain
rate of interest which is payable at the time of
redemption. Bonds are clearly described as
negotiable instruments in Negotiable
Instruments Act.
This bonds have paved way to a idea of
Mutual Funds in India. The securities market of
India is the major source of investment for these
Mutual Funds.
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Definition by SEBI(Mutual Funds) regulations,1986:
“A fund established in the form of a trust by a sponsor to
raise money by the trustee through the sale of units to the public
under one or more schemes for investing in securities in
accordance with regulations.”

Definition by Weston J. Fred & Eugene:

“corporations which accept money from savers & then
use this money to buy stock, long term bonds, short term debt
instruments issued by business or government units, these
corporations pool funds & thus reduce risks by diversifications.”

Definition by English dictionary:

“ A organization that collects savings from people & uses
them as a investment for corporate sector undertakings for a
specific revenue called interest.”
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 Classification of Mutual Funds
1.Ownership 2.Schemes Basis 3.Portfolio Basis 4.Location Basis 5.others

a) Income funds a) Domestic funds a) Fund to funds

a) Public a) Open
Sector Mutual ended funds
b) Growth b) Off shore
Fund
funds funds
b) Close c) Balanced funds
b)Private ended funds
sector Mutual d) Equity funds
Fund
c) Interval e) Bond funds
funds
f) Specialized funds

g) Leverage funds

h) Taxation funds

i) Money market funds

j) Index funds
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a) Public sector Mutual Funds :
These are the Mutual Funds established by public sector
undertakings. Unit Trust of India (UTI) has been functioning
in the area of Mutual Fund business in India since 1963-64.
Other public sector units are SBI-MF, Can-Ban MF, LIC-MF,
GIC-MF etc.

b) Private sector Mutual Funds :

Mutual Funds issued by private sector corporations to
public is known as private sector Mutual Funds. Seeing the
success and growth of Mutual Funds in the Indian capital
market, the government of India allowed the private sector
corporate to join the Mutual Fund industry on February 14,
1992. These private sectors are registered and governed by
SEBI(Mutual Funds) Regulations Act,1996.

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a) Open-ended Funds :
Under this scheme, the size of the fund and
the period of fund is not predetermined. The investors
are free to buy and sell any number of units at any point
of time.
Features:
i.The fund is always ready to repurchase and sell at any
time.
ii. The fund provides liquidity by repurchasing the units at
specified price which is linked with its Net Assets Value
iii.There is a free entry and exit of investors in an open-
ended fund. There is no time limit.
iv.The main objective of this fund is income generation.
v.For open-ended schemes there is no fixed period of
maturity. They continue over time.
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b) Close-ended scheme :

The size of fund and the number of units are

determined in advance. Once the subscription reaches the
predetermined level the entry of investors is closed. After
the expiry of the fixed period the entire corpus is
disinvested and the proceeds are distributed to the various
unit holders in proportion to their holding.
Features:
i.Close ended schemes are open for public subscription for a
limited period only, say a month or two.
ii.The close ended schemes are transacted at the stock
exchanges and provide liquidity to the investors at market
prices.
iii.Close ended schemes have a definite period of life for eg.
5 or 7 years.
iv.The close ended schemes are terminated at the end of the
specified period unless the period is extended or the
scheme is rolled over.
v.The main objective of this fund is capital appreciation.
vi.Generally the prices of close ended units are quoted at a
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discount of up to 40% below their Net Assets Value .
c) Interval Funds :

An interval scheme is a scheme of Mutual Fund

which is kept open for a specific interval and after that it
operates as close scheme. Thus it combines the features
of both open-ended as well as close-ended scheme.
Interval scheme have been permitted by the SEBI in
recent year only. The scheme is open for sale or
repurchase a fixed predetermined intervals which are
disclosed in the offer document. The units of the scheme
are also traded in the stock exchanges.

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a) Income funds :
These scheme aim at providing a regular income to the
unit holders. Investment is made in the bonds, debentures
which carry a fixed, regular rate of interest.

b) Growth funds :
These scheme is meant for those investors who aim at
earning the benefits of capital appreciation, besides
regular income. funds are largely invested in the equity
shares and a small portion is kept in money market
instrument.

c) Balanced funds:
These funds are the combination of income & growth
funds. About 60% of these funds is invested in equities and
remaining in debt & money market instruments.

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d) Index funds:

These funds are basically growth funds which are linked to

specific index of share prices. These funds are relatively
dependant on the various indices of different securities of a
definite class.

e) Bond funds/Liquid funds:

These funds employ their resources in bonds. These
investments ensure fixed & regular income. Any person taking
for these shares will have to take up bonds also.

f) Equity/Stock funds:
These funds mainly invest in stock exchanges, equity in
particular . The risk of change in prices of various equities is
left to the organization than that of the individual investor.

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g) Specialised fund:

These funds are mobilized with a motto of investment

in a particular company. These funds are classified as
specialized funds as they work on the behalf of some
specialized companies.

h) Leverage funds:
These funds are also called as borrowed funds. These
funds are firstly collected with an obligation of strengthening
the Mutual Fund then they are put to use in a smarter way to
enhance the profits of investors.

i) Taxation funds:
These funds are basically tax benefit funds
which offers a rebate on investment made in such equity,
under section88 of Income Tax Act,1961.

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j) Money Market funds:

These funds are collected for investments to be

made in money market. These funds are invested in
money market instruments for a short period of time
such as treasury bills, commercial papers, call money
& notice money etc.

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a) Domestic funds:
These funds are mobilized in the domestic
market(local market). These funds are allocated to the
entrepreneurs of the same domestic market. These
funds do not go beyond the borders of the country.

b) Off-shore funds:
These funds are opposite to that of a domestic
funds. These funds are collected from international
market and are utilized some where in other parts of
the world.

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a) Fund to funds:
These funds are allocated from the public and are
invested in other Mutual Funds. These funds are
called as intermediary funds. Their function is to
collect funds & mobilize the same to a bigger Mutual
Fund.
These funds are directing the public investment in
the right place. These funds are rather could be
called as the branches of those big Mutual Funds.

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 Mobilizing savings for investment.
 Liquidity.
 Wider flexibility.
 Higher returns.
 Reduced risks.
 Transparency.
 Low operating cost.
 Diversification.
 Tax benefit.
 Investor protection.
 Stability.
 Management.
 Reducing the marketing cost of new issue.
 Expert supervision & management.
 Money market active.
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× Market risks.
× Scheme risks.
× Investment risks.
× Business risks.
× Political risks.
× Unsuitable.

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 Promote savings & investments.
Gateway to stock exchange.
Introducing systematic investment plan(sip).
Tapping off-shore funds.
Rendering professional service.
High returns with lower costs.
Providing flexible investment opportunities.
Supporting the capital market.
Sectorial development.
Accounting the transaction.
Bringing awareness about benefits of Mutual
Funds.
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