Mutual

funds
Over View of Mutual Fund
Ø What is Mutual Fund?
Ø History of Mutual Fund.
Ø Advantages of Mutual Fund.
Ø Drawbacks of Mutual fund.
Ø Types of Mutual Fund.
Ø Fund Structure.
Ø Net Assets Value
Ø Why Measure Fund Performance
Ø Evaluating The AMC
 What is Mutual Fund
A mutual fund is a professionally managed type of collective
investment scheme that pools money from many investors and
invests it in stocks, bonds, short-term money market instruments,
and/or other securities.
 Operation flow of Mutual Fund
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 History of Mutual Fund
qFirst phase (1964 to1987)
 Unit Trust Of India was established in 1963 by the act of Parliament. It was set up by the RBI and
functioned under the regulatory and administrative control of the RBI.
 In 1978 UTI was de linked from the RBI and the Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in the place of RBI.
qSecond Phase (1987 to 1993)
Entry of the Public Sector Bank and Financial Institution (LIC, GIC, SBI mutual fund, PNB mutual fund)


qThird Phase (1993 to 2003)

 Entry of the Private Sector fund and first Mutual Fund regulation came into being under which all
mutual funds except UTI were to be registered and governed.
qFourth Phase (since February 2003)
 Investor friendly regulatory measures have been taken both by SEBI to protect the investor, and by the
government to enhance investor’s returns through tax benefits.
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Advantages of Mutual
Fund
ØPortfolio diversification
ØProfessional management
ØReduction/Diversification of Risks
ØWide Choice to suit risk-return profile
ØConvenience and Flexibility
ØLiquidity
Mutual fund drawbacks
vMutual fund depending on market risk
vNo guarantee of Returns/Profit.
vNo control over costs.
vTax consequence can be disadvantage.
 Types of Mutual Fund
By Structure…
ü Open - Ended Schemes
ü Close - Ended Schemes
qBy Income Distribution…
 Dividend Pay Out Option
 Growth Option
 Re-Investment Option
By Risk weighted…
ü An Equity fund (Ex:- Industry specific funds, Index fund, ELSS etc)
ü A Debt Fund (Ex:- Liquid and Money market funds, Monthly Income Fund)
ü Balance Fund (Ex:- 60:40)
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ü
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 Fund Structure
Fund Sponsor


Trustees

Asset Management Company

Depository Agent
Custodian
Ø Fund Sponsor:-
 Any person or corporate body that establishes the Fund and registers it with SEBI.
 Appoints Custodian and Asset Management Company either directly
or through Trust, in accordance with SEBI regulations.
 SEBI regulations also define that a sponsor must contribute at least 40% to the net worth
of the asset management company.
Ø Trustees :-
 Created through a document called the Trust Deed that is executed by the Fund Sponsor
and registered with SEBI.
Ø Asset Management Company:-
 Acts as an invest manager of the Trust under the Board Supervision and direction of the
Trustees.
 Will float and manage the different investment schemes in the name of Trust and in
accordance with SEBI regulations.
Ø Custodian:-
 Has the responsibility of physical handling and safe keeping of the securities.
Ø Depository:-
 Will hold the dematerialized security holdings of the Mutual Fund.
Ø
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Net Assets Value (NAV)
Ø NAV represents a fund's per share market value. This is the price at
which investors buy ("bid price") fund shares from a fund company
and sell them ("redemption price") to a fund company.
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 NAV= (Market Value Of Assets – Liabilities )/ Number of Outstanding share.

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 The factors affecting the NAV are as following:-

Ø Capital Gains or Losses on the sale or purchase of the Investment securities.
Ø Dividend and income earned on the assets.
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Evaluating the AMC
 While every fund is exposed to market risks, good funds should at least match
major market indices. An AMC or the fund managers must be evaluated on
the following criteria:-
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ü Operate with long-term perspective.

ü Do not indulge in excessive trading that generates high transaction costs and in turn
reduce the NAV/risk of loss.
ü Turns out a more consistent performance rather than a one time high and otherwise
volatile performance record.
ü Team of managers with successful records as against fund that are managed by one
individual.
ü The reliability and track record of the sponsors.
ü Performance record against competing managers running similar funds.
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 Why Measure Fund
Performance
vThe Investor Perspective:-
- To make intelligent decisions on whether he should continue with the
investment or not.
- He needs the basic knowledge of fund evaluation to judge the performance of
the fund.


vThe Advisor’s Perspective:-

- The potential investors would expect the advisor to give them a proper advise
on which funds have good performance.
- In order to compare different funds, the advisor must have the correct
knowledge and appropriate measures of evaluating the fund performance.
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Thanking you….


 Dip Kumar Dey