COMPERHENSIVE OUTLOOK OF

INDIAN FINANCIAL MARKET

Basics of Investment
Investment :Investment
is putting your money in a
Financial Instrument with
the view of earning a
desired return out of that
Investment

OBJECTIVE OF INVESTMENT

Objective of investment can vary according to

the needs and requirement of the individual.
1) Retirement Planning:
A person having a view to build up a retirement
Corpus could invest in a financial Asset.
Generally these investment are of a longer term
in a nature and Mutual Fund is the most
popular instrument to invest for the retirement
planning

Children Future Planning: Every parent has

a dream that their children must live a happy
and successful life. So either for the childs
marriage,education,or Business an individual
takes up an Investment Route
o)

o)

Tax Planning: Now a days when many

investment are allowed in the tax free Section
of Income tax Act in India. Almost every tax
paying person wishes to invest somewhere for
the dual purpose of Investment and tax
planning . Generally Insurance and Mutual
funds are the most common investment
instrument here

o)

Speculation/ Trading:
Speculation and Trading means to invest
with a purpose of Short term Earning and
speculating on a particular Asset. Equity
and commodity Markets are the most
common place where the trader can found.

o)

Business Needs:
Mutual fund ,Insurance Companies , Banks ,
Financial Institutions, Corporate who have a
professional reason for investing in the
Financial Markets as this is their primary
business. They generally invest in large
corpus.

6) Additional Earnings:
Sometimes the investors do not have any fixed
reason for investing they invest only because
they have some additional Income with them.
In India , they generally invest in Fixed Deposits

Understanding
The Indian Financial
market

WHAT IS FINANCIAL MARKET?

Financial Market like any other market is a System where

Trading in Financial Instrument takes place. This System is
now completely Automated through Electronic Interfaces and
consists of many Buyers and Sellers with their individual
objectives of entering in Financial Markets. This system of
trading is a Government Recognized System.

FUNCTIONS OF FINANCIAL MARKETS

1.
2.
3.

Price Discovery
Liquidity to financial assets
Reduce cost of transacting

Financial
On the
Debt
Equity
Money
Capital
Primary
Secondary
Cash
Forward
Futures
Exchange
OTC
Markets
basis
Market
orMarket
Market
Market
Market
Spot
of
Market
Traded
Time
Nature
Maturity
Seasoning
Organizational
Market
Market
ofMarket
of
Delivery
ofClaim
Claim
of Claim
structure

Classification
of Financial
Markets

EQUITY

It is a High Risk-High Return Asset Class

Preferred for Longer term investment with high Volatility in short
term cycles which makes it preferred for Traders.
Returns are linked to the Performance of the Company.
The returns are not Fixed and depend on the Industrys
performance, Economic, Political & other Macro Environment
features.
Can be issued by Government, Private or an MNC Company.

COMMODITY

Trading in Physical Commodities like Gold, Silver, Crude Oil, Agri

Products like Wheat, Sugar, etc takes place.
The Dynamics of the trading system is identical to the physical
trading system in the Domestic & International Markets.
These are shorter period investments and find a place in a trader
or speculators portfolio.

DEBT & FIXED INTEREST BEARING INSTRUMENTS

It has a Low Risk- Low Return.

Comprise of Govt. Bonds, Debenture of Companies, Fixed
Deposits, Commercial Papers, etc whose returns are fixed and
are known at the time of Investments.
Most common place of investments in developing countries as
they have a very low chance of losing Principal Amount and are
generally with the Banks.

PARTICIPANTS IN FINANCIAL MARKETS

1.
2.
3.
4.

Regulators
Exchanges
Brokers/Intermediaries
Clients

REGULATORS

Regulator is a body which regulates and

overlook the smooth functioning of Financial
market Systems, they do recognize, allow,
disallow other Financial intermediaries for
working in financial markets, redressal for
the Investors, creates/modifies rules and
regulations in the financial markets.

TYPES OF REGULATORS
1.
2.
3.

Ministry of Finance Top most office in the country as far as

financial matters are concerned. Headed by Mr. Arun Jately.
SEBI Big Boss of the Financial Market and the main regulator in
the Capital Markets. Headed by Mr. UK Sinha.
RBI Controls the Banking and monetary systems in the country.
Headed by Mr. Raghuram Rajan.

TYPES OF REGULATORS
4. AMFI(association of mutual funds in india)
Organization regulates, licenses and works for the
up liftment of the Mutual Fund Industry in India.
Headed by Mr. Sandeep Sikka.
5. IRDA(insurance reglatory & development
authority) It regulates and looks after the
licensing and development of all the Insurance
Companies in India. Headed by Mr T.S Vijayan.

MAJOR INDIAN EXCHANGES

Exchange
Equity
NSE

Exchange provides the

facility of trading in financial
products in India, these are
two exchanges for equity
Trading and two exchanges
for Commodity Trading.

BROKERS/ INTERMEDIARIES

They are the bodies which act as an interface

between the Client and the Financial
System and facilitate the proper trading in
Financial Products.
Eg.- Swastika Investmart, JM Financial, ICICI
Prudential, Bajaj Capital, etc.

CLIENTS

It includes all the Investors and Traders like All the

Indian Retail Investors, HNIs, Institutional Investors,
FIIs.

FINANCIAL PRODUCTS
1.

2.

3.

Equity & Direct Equity Related Products Equity Shares of

Private, Public and MNCs trading in Indian Security Markets.
Mutual Funds A collective fund that is distributed by the different
investors & managed by an organization on behalf of the investors.
PMS It is the Portfolio Management Services where a Portfolio
trades on account of an investor on the name and behalf of
Investor.

FINANCIAL PRODUCTS
4. Commodity Electronic trading in Agricultural and Metal
Commodities through recognized Stock Exchanges in India.
5. Insurance An organization which insures lives and/or goods of a
particular Individual or an Organization by charging a calculated
Premium on it.

PRIMARY
MARKET

WHAT IS PRIMARY MARKET??

CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

Primary market refers to the part of the capital market in which

promoter group offers shares to public or public groups for the purpose
of rising fund for the company.
When capital requirement for expansion and working capital becomes
necessary, equity raising option called primary mkt

Wherein the co. invites public to become shareholder of the company and invest
in company in turn of benefits which the owner has like dividend, voting right
etc.
To look from the investors point of view ,if one is buying the business then
actually he is involved with the vision and thought of the company.
OPTIONS WITH PROMOTERS FOR CAPITAL REQUIREMENT

DEBT financing

EQUITY financing

In this case,
company either
takes loan or
issue
DEBENTURES.

Company sells
equity to
public through
PUBLIC ISSUE

Features of primary markets

This is the market for new long term equity capital. The
primary market is
the market where the securities
are sold for the first time. Therefore it is also called the
new issue market (NIM).
In a primary issue, the securities are issued by the
company directly to investors.
The company receives the money and issues new
security certificates to the investors.
Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing
the existing business.

The primary market performs the crucial function of facilitating capital

formation in the economy.
The new issue market does not include certain other sources of new
long term external finance, such as loans from financial institutions.
Borrowers in the new issue market may be raising capital for converting
private capital into public capital; this is
known as "going public."The financial
assets sold can only be redeemed by
The original holder.

ADVANTAGES & DISADVANTAGES

OF IPO
Advantages:
Disadvantages

No cost of capital
Huge amt can be
raised
Brand value
Correction valuation

Disclosure of
information
Decisions takes time
Cost of IPO

PARTIES TO IPO

Registrar
Lead manager
Underwriter
Merchant Banker
Promoter

ROLE OF REGISTRAR

Typically the Registrar of Companies is responsible for keeping

records of filings that corporations tend to make. This would
include annual reports, applications for incorporation, and
company changes that may be made.

It is the most important piece of legislation that empowers the

Central Government to regulate the formation, financing,
functioning and winding up of companies. The Act contains the
mechanism regarding organisational, financial, managerial and
all the relevant aspects of a company. It provides for the powers
and responsibilities of the directors and managers, raising of
capital, holding of company meetings, maintenance and audit of
company accounts, powers of inspection, etc.

ROLE OF LEAD MANAGERS

Lead managers are independent financial institution

appointed by the company going public. Companies
appoint more then one lead manager to manage big IPO's.
They are known as Book Running Lead Manager and Co
Book Running Lead Managers.

Their main responsibilities are to initiate the IPO

processing, help company in road shows, creating draft
offer document and get it approve by SEBI and stock
exchanges and helping company to list shares at stock
market & dispatch of refunds of bidders.

ROLE OF UNDERWRITERS

Underwriters are those persons who, in a public issue, agree to take up shares
or debentures which are not fully subscribed. They make a commitment to get
the issue subscribed either by others or by themselves. When a company decides
to go public, it needs an assurance that if its securities are not fully subscribed
by the public, there would be someone to subscribe to those securities. And the
underwriter does this job very effectively. He enters into an agreement with the
issuer company that in the occurrence of such an event, it would subscribe to,
by itself or by others, the securities that remain unsubscribed. For performing
this job, he receives a certain amount from the issuer company, known as the
underwriting commission. Apart from this amount, he can also earn profits by
selling these securities in the market.

An underwriter can be any person, whether a body corporate or otherwise. Even

an individual can be an underwriter. The only requirement for an underwriter is
that he needs to have adequate financial resources, which enables him to
perform his job in an efficient and effective manner.

ROLE OF MERCHANT BANKER

Instrument designing
Pricing the issue
Registration of offer document
Underwriting support
Marketing of the issue
Allotment & refund
Listing on stock exchanges

ROLE OF PROMOTERS

Promoters are the people, who, for themselves or on

behalf of others, organize a corporation. They issue a
prospectus, obtain stock subscriptions, and secure a
charter. Promoters stand in a fiduciary relationship to
the proposed company and must act inGood Faithin all
their dealings for the proposed corporation.

Discovery of a business idea

Detailed investigation
Assembling the factors of production
Entering into preliminary contracts

EQUITY CAPITAL & ITS CLASSIFICATION

ISSUED
AUTHORISED
EQUITY
PAID
UP CAPITAL
CAPITAL
SUBSCRIBED
CAPITAL

Equity capital is ownership capital. Equity shareholders are the final

owners of the company.

CLASSIFICATION OF EQUITY SHARES

BLUE CHIP SHARES : Shares of large, well-established, and financially strong
companies with an impressive record of earnings and dividends.
GROWTH SHARES : Shares of companies that have a fairly entrenched position in a
growing market and which enjoy an above average rate of growth as well as profitability.
INCOME SHARES: Shares of companies that have fairly stable operations, relatively
limited growth opportunities, and high dividend payout ratios.
CYCLICAL SHARES: Shares of companies that have a pronounced cyclicality in their
operations.

 DEFENSIVE SHARES:
Shares of companies that are relatively unaffected by the ups and downs
in general business conditions.
SPECULATIVE SHARES:
Shares that tend to fluctuate widely because there is a lot of speculative
trading in them.
EQUITY SHARES CAN BE ISSUED BY A COMPANY AT ANY
OF THE FOLLOWING PRICES :
At par,
At premium or
At discount.

DIFFERENT TYPES OF ISSUES

INITIAL PUBLIC OFFER (IPO) :
It is referred to simply as an "offering" or "flotation", when a company (called the issuer) issues common
stock or shares to the public for the first time.
FOLLOW ON PUBLIC OFFER (FURTHER ISSUE) :
The basic difference between Initial Public Offer (IPO) and Follow on Public Offer (FPO) is as the names
suggest as FPO is for the companies which have already listed on exchange but want to raise funds by
issuing some more equity shares.
RIGHTS ISSUE :
With the issued rights, existing shareholders have the privilege to buy a specified number of new shares
from the firm at a specified price within a specified time

PREFERENTIAL ISSUE :
The preferential issue of equity shares/ Fully Convertible
Debentures (FCDs) / Partly Convertible Debentures
(PCDs) or any other financial instruments which would be
converted into or exchanged with equity shares at a later
date, by listed companies whose equity share capital is
listed on any stock exchange, to any select group of
persons under section 81(1A) of the Companies Act 1956
on private placement basis.

INITIALPUBLIC OFFER (IPO)

VARIOUS INTERMEDIARIES.

Book running lead managers

Bankers to the issue
Registrars to the issue
Underwriters .

TYPES OF PRIMARY ISSUES :

Fixed price :
An issuer company is allowed to freely price the issue. The basis of issue
price is disclosed in the offer document where the issuer discloses in detail
about the qualitative and quantitative factors justifying the issue price.

BOOK BUILDING
Book building is a process of price discovery. Hence, the
Red Herring prospectus does not contain a price. Instead,
the red herring prospectus contains either the floor price of
the securities offered through it or a price band along with
the range within which the bids can move. The applicants
bid for the shares quoting the price and the quantity that
they would like to bid at. Only the retail investors have the
option of bidding at cut-off. After the bidding process is
complete, the cut-off price is arrived at on the lines of
auction. The basis of Allotment is then finalized and letters
allotment/refund is undertaken.

What is a Red Herring Prospectus?

Red Herring Prospectus is a prospectus, which does not have details of
either price or number of shares being offered, or the amount of issue. This
means that in case price is not disclosed, the number of shares and the upper
and lower price bands are disclosed. On the other hand, an issuer can state
the issue size and the number of shares are determined later.
What is a price band?
The red herring prospectus may contain either the floor price for the
securities or a price band within which the investors can bid. The spread
between the floor and the cap of the price band shall not be more than 20%.
In other words, it means that the cap should not be more than 120% of the
floor price.

CATEGORY OF INVESTORS
QUALIFIED INTITUTIONAL INVESTORS
banks, mutual funds, insurance companies, FIIs etc. maximum reserve kept for
them is 50% (out of which 5% for mutual funds).
NON INSTITUTIONAL INVESTORS
HUFs, HNIs, companies, corporate bodies, NRIs, societies etc. reserve kept for
them is 15%. (application size > 1 lakh).
RETAIL INVESTORS
Individuals , HUFs. reserve kept for them is 35%. (application size < 1 lakh).

BIDDING PROCESS

DURING THE IPO

Distributing forms to investors by brokers. Investors fill up the form and
submit along with cheque and a copy of pan card to broker.

Bidding of shares through a specialized software i.e. NEAT software .The

IPO market timings are 10 am to 5 pm.

POST THE IPO : applications cheques are sent to banker for clearing of
cheques & application forms are sent to registrar for final checking of forms
and allotment.

FOR INVESTORS
INDUSTRY ANALYSIS :
overall performance of particular industry/sector in which the company lies. Last
performance of 3 to 5 yrs can be seen.
COMPANY ANALYSIS :
it includes the promoters of the company , their background in case of IPO and if it is
FPO then see to performance of co. preceding last 3 yrs.
PEER GROUP COMPARISON : performance of peer group companies of that
sector.
ECONOMY ANALYSIS : depends on the economy of the country and political
situations. Global situation is also considered.

INTRODUCTION Secondary Market

Place where the trading of stocks of the company
takes place second time.
Buyer and sellers are the investors.
Here ownership is in publics domain.
Secondary market is a synonym to stock exchanges.

STOCK EXCHANGES
A mutual organization which provides facilities for stock
brokers to trade stocks and securities.
Also provides facilities for the issue and redemption of
securities.
Capital events like payment of income and dividend take
place .

Functions Of A Stock Exchange

Providing trading mechanism online.
Collection ,display and distribution of data and information.
To provide listing facilities.
To provide protection to the investors and regulate broker and participant.
Effective and efficient settlement of transaction.

Simple mechanism

Investment cycle

Return

Pass back to

Pool their money

Generates
Securities

Investor

Invests in

Fund
Manager

Systems used by Exchanges

BOLT: System provided by BSE only for trading on Bombay stock
exchange.
NEAT: National Exchange for Automated Trading System is provided by
NSE only for trading on NSE.
ODIN: Open Dealer integrated Network, developed by Financial
Technologies. Mutually used for all the exchanges.

Market timings
Both in NSE and BSE timings are following:
Pre opening session: 9-9:15am
Normal market session: 9:15am to 3:30pm
Post closing session: 3:40 to 4pm

Circuit Breakers
Circuit breakers are important because:
Sometimes the movement of stock prices can beat all logic and
move tremendously in any direction.
Circuit Breaker is a system to sustain sanity of the stock
market in such situations. For example, the BSE Sensex
moved up by 2110.79 points on May 18, 2009 after the
Parliament election results were announced.

Kinds of circuit breakers

For index:

Movement

Time

Close period

10 %

Before 1.00 pm

1 hour

1.00pm to 2.30pm

hour

After 2.30pm

Does not close

Before 1.00 pm

2 hour

1.00pm to 2.30pm

1 hour

After 2.30pm

Close for the rest of the

day

Any time

Close for the rest of the

day

15%

20%

Continued.
For stocks:
Daily price band of 2%( either way)
Daily price band of 5%( either way)
Daily price band of 10%( either way)
No price band : Scripts on derivative products are available
Price band of 20%( either way) on all remaining scripts

Settlements in market
Rolling settlement

SECONDARY MARKET
OVERVIEW

STOCK INDICES

A stock market index is a method of measuring a

section of the Stock Market . Many indices are cited
by news or financial services firms and are used as
benchmarks, to measure the performance of
portfolios such as mutual funds.

IISL

India Index Services & Products Ltd. (IISL) is a joint

venture between the National Stock Exchange of India Ltd.
(NSE) and CRISIL Ltd. (formerly the Credit Rating
Information Services of India Limited). IISL has been
formed with the objective of providing a variety of indices
and index related services and products for the capital
markets.
IISL has a consulting and licensing agreement with Standard
& Poor's (S&P), for co-branding IISL's equity indices.

TYPES OF INDIAN INDICES

Market indices

S&P CNX Nifty

BSE Sensex
Nifty Jr.

Sectoral Indices
BSE 200

BSE FMCG

BSE Auto

BSE 500

BSE CD

BSE MCX.

BSE TECK

BSE Metal

BSE REALTY

BSE IT

BSE PSU

BSE Pharma

BSE small cap BSE mid-cap

GLOBAL INDICES
USA

EUROPEAN
INDICES

ASIAN MARKET INDICES

Dow Jones

FTSE (London)

NIKKEI (Japan)

NASDAQ

DAX (Germany)

HANG SENG (Hong Kong)

S&P 500

CAC (France)

KOSPI (South Korea)

PARTICIPANTS IN MARKET
Trader
Hedger/speculator
Jobber
Day

This are known to

be active players of
secondary market
and having
prevalent influence
over market
movements.

trader
Investor
Domestic financial
institution (DII)
FII
Arbitrageur
Depositories
Broker
Mutual

fund

TRANSACTION CYCLES

SETTLEMENT PROCESS

Determination of obligations- NSCCL determine what counter party owe, and what
counter party are due to recieve on the settlement date.
Pay-in of funds and securities The members bring in their funds/securities to the NSCCL.
They make available required securities in designated account with depositories by the
prescribed pay-in time. Then depositories moves the securities available in the accounts
of member to the account of NSCCL.
Pay out of funds and securities- after processing for shortages of funds/securities and
arranging for movement of funds from surplus banks to deficit bank through RBI clearing,
the NSCCL sends electronic instructions to the depositories/clearing banks to release
payout of securities/funds.
Risk Management- A sound risk management system is integral to an efficient settlement
system. NSCCL has put in place a comprehensive risk management system, which is
constantly monitored and upgraded to preempt market failure.

SETTLEMENT AGENCIES

NSCCL- it clears all trades determines obligations

of members, arranges for pay-in of
funds/securities, receive funds/securities,
processes for shortages in funds/securities,
arranges for pay-out of funds/securities to
members, guarantees settlements, and collects
and maintains margins

SETTLEMENT AGENCIES

Clearing Members- They are responsible for settling their obligation as

determined by the NSCCL. They have to make available funds and/or
securities in the designated accounts with clearing banks/depository
participant as the case may be.
Custodians- Its a person who holds for safekeeping the documentary
evidence of the title to the property belonging like share certificates,
etc.

 Clearing

Banks- They are a key link between the clearing members

and NSCCL for funds settlement. Every clearing member is required
to open a dedicated settlement account with one of the clearing
banks.
Depositories- its an entity where the securities of an investor are
held in electronic form. The person who holds a Demat account is a
beneficiary owner.
Professional clearing member- NSCCL admits special category of
members namely ,professional clearing member. PCM may clear and
settle trades executed for their clients (individuals, institutions
etc.). In such an event, the functions and responsibilities of the
PCM would be similar to custodians. PCMs may also undertake
clearing and settlement responsibilities for trading members.

SETTLEMENT PROCESS IN CM
SEGMENT OF NSE
NSE
1

Deposit
ories

8
6

NSCCL
2

5
1
0

Clearing
Banks

Custodia
ns / CMs

4
1
1

EXPLANATIONS
1.
2.

3.
4.
5.
6.

Trade details from exchange to NSSCL (Real time and end of day trade file).
NSCCL notifies the consummated trade details to CMs/custodians who affirm
back. Based on the affirmation NSCCL applies multilateral netting and
determine obligations.
Download of obligation and pay-in advice of funds/securities.
Instructions to clearing banks to make funds available by pay-in time.
Instructions to depositories to make securities available by payin time.
Pay- in of securities (NSCCL advices depositories to debit pool account of
custodians/CMs and credit its account and depository does it).

7- Pay-in of funds (NSCCL advices clearing banks to debit account of

custodians/CMs and credit its account an clearing bank does it).
8- Pay-out of securities(NSCCL advices depository to credit pool account of
custodians/CMs and debit its account and depository does it).
9- Pay-out of funds (NSCCL advises clearing Banks to credit account of
custodians/CMs and debit its account a clearing bank does it).
10- Depository informs custodians/CMs through DPs.
11- Clearing Banks inform custodians/CMs.

SETTLEMENT CYCLE FOR ROLLING SETTLEMENT

Activity

Day

Trading
Clearing

Rolling Settlement Trading

Custodial Confirmation
Delivery Generation

T
T+1 working days
T+1 working days

Settlement

Securities and Funds pay in

Securities and Funds pay out

T+2 working day

T+2 working day

Valuation Debit

T+2 working day

Auction
Bad Delivery Reporting

T+3 working day

T+4 working day

Auction settlement

T+5 working day

Post Settlement

AN
INTRODUCTION TO
FINANCIAL DERIVATIVES

MEANING AND DEFINITION OF DERIVATIVES

MEANING : Derivative is a financial instrument whereby two parties

come in to a contract and transfer there risk, value of which is derived
from the value of underlying asset.
DEFINITION : Derivative is a bilateral contract whereby parties agrees to
transfer their risk, and value of the contract is derived from the value of
underlying asset. The underlying asset includes stocks, commodities,
interest rates, currencies, bonds etc.

TYPES OF DERIVATIVES PRODUCTS

FORWARDS
FUTURES
OPTIONS
SWAPS
WARRANTS
LEAPS

FORWARDS

In a forward contracts, one party agrees to buy, and the

counterparty to sell, a physical asset or a security at a specific
price on a specific date in the future. Thus a forward contract is a
customized contract.

FUTURES

A future contract is a forward contract that is standardized and

exchange traded. The main difference with forwards are that
futures are traded in an active secondary market, are regulated,
backed by the clearing house, and require a daily settlement of
gains and losses.

OPTIONS

An option contract gives its owner the right, but not the legal
obligation, to conduct a transaction involving an underlying
asset at a predetermined future date and at a predetermined
price (exercise price).
Options are of two types
A) Call option
B) Put option

CALL AND PUT OPTIONS

CALL OPTION : Call option gives the owner the right , but not the
obligation to buy an underlying asset at predefine price in any
future date.
PUT OPTION : Put option gives the owner the right, but not
obligation to sell an underlying asset at predefine price in any
future date.

SWAPS

A swap is a series of forward contracts. In the

simplest swap, one party agrees to pay the short term
(floating) rate of interest on some principal amount,
the counterparty agrees to pay a certain (fixed) rate
of interest in return.

WARRANTS

Options generally have lives of up to one year, the majority of

options traded on exchanges having a maximum maturity of nine
months. Longer dated options are called warrants and are
generally traded over the counter.

LEAPS

The acronym LEAPS means Long-Term Equity Anticipated

Securities. These are options having a maturity of up to three
years.

DIFFERENCE BETWEEN FORWARDS AND

FUTURES

A)
B)
C)
D)

FORWARDS
Customized
Traded OTC
No margin req.
Settlement on
last date

FUTURES
Standardized
On exchange
Margin req.
On daily basis

CONCLUSION

Hence, it can be concluded that derivatives are risk management

instrument which minimizes the risk, or some time eliminate the
risk associated with securities, bonds, commodities, interest rates,
currencies etc.. And are largely traded contracts, thus provide high
liquidity to market floor.

MUTUAL FUNDS AND OTHER INVESTMENT

COMPANIES

MUTUAL FUNDS

Pooling of assets is the key idea.

ADVANTAGES OF MUTUAL FUNDS

Low Transaction costs.

DISADVANTAGES OF MUTUAL FUND

No choice of securities.

NET ASSET VALUE

Value of each share is called the net asset v

NET ASSET VALUE

Calculation

TYPES OF INVESTMENT COMPANIES

CLASSIFICATION OF MUTUAL FUNDS

On the basis of structure

Open ended
close ended

On the basis of Investment Objective

Growth

funds
Income funds
Balanced funds
Money market funds

OPEN ENDED VS. CLOSE ENDED

OPEN ENDED VS. CLOSE ENDED

BASIS

OPEN ENDED

CLOSE ENDED

Buying of shares

Directly through fund

Stock exchanges

Sales Price

NAV

Market Price

Shares outstanding

Variable

Fixed

Investment option

Highly marketable sec

Less marketable sec

Redemption

Any time the investor wants

At the time of maturity

COMMINGLED FUND
A normally illegal practice in which a

INVESTMENT POLICIES
Money
Debt
International
Balanced
Asset
Index
funds
funds
allocation
market
& income
funds
funds
& flexible
funds funds

COSTS OF INVESTING IN MUTUAL

FUNDS
Front end
Back
Operating
end or
load
expenses
exit load

EXCHANGE TRADED FUNDS

A security that tracks an index, a commodity or a basket of assets like an index fu

ETF
Potential disadvantages

INFORMATION ON MUTUAL FUNDS

Morningstar (

Queries are invited.

MUTUAL FUNDS
Mutual Funs is a pool of money in which
the investor invest their money to generate
returns out of them.
In India the mutual fund launched in the
year 1963 with the setting of UTI. Public
sector Bank and financial Institutions were
allowed to establish mutual fund in the year
1987. Since 1993 private sector and
foreign institution were permitted to set up
Mutual fund.

AMFI: Association of Mutual fund Industry

take care about the rules and regulations of
MF industry & also work
For the investors Protection

Types of Mutual fund by entry and Exit

options:
1) Open ended Funds:
2) An open end fund is one that is available
for subscription always. They do not
have fixed maturity. Investors can
conveniently buy and sell units at NAV
related price. The key feature of open
end scheme is its any time liquidity.
3) Close Ended Fund: A close end fund has
a stipulated maturity period which
generally ranging from 3 to 15 years .
The fund is open for subscription only
during a specific period . Investor can
invest in the scheme at the time of NFO
( New fund offer) they can be liquidate at
the time of maturity or after lock in
period.

3) Interval Scheme: Interval scheme are

those scheme ,which combines the
features of open ended and closed ended
schemes. The units may be traded on the
stock exchange or may be open for sale or
redemption during pre detemined interval
at NAV related prices.
NAV: Net Asset Value is the value of a unit
of a mutual fund. It is the value of a
schemes asset less the value of its
liabilities.
NAV=(Asset- Liabilities)
------------------No. of out standing units

BY Nature:
1) Equity Fund: These fund invest a
maximum part of their corpus into equity
holdings. The structure of the fund may
vary different for different scheme and
the fund manager outlook on different
schemes.
a) Diversified equity Funds
b) Sector specific fund
c) Tax Saving Funds(ELSS)
d) Mid cap Funds

Debt Fund:
The objective of this fund to invest in debt
instruments of Govt. authorities , Private
Companies and Banks By investing in debt
instrument these fund ensures low risk and
provide stable income to the investors.

Balanced Fund:
As the name suggest they are a mix of
both equity and debt funds. They invest in
both equities and debt instruments. Equity
part provide growth and debt part provide
stablity in returns.

Advantages of Mutual Funds:

1) Professional Management:
You avail the services of experienced and
skilled professionals who are backed by
a dedicated research team. Which
analyses the performance and prospects
of the companies and acheive the
objective of the scheme.

Low cost:
Mutual funds are relatively less expensive
way to invest comparing to invest in directly
in the capital Markets because the benifits
of scale in brokerage and other fees
translate into lower cost for investors

Liquidity and transparency:

Just like an individual stock ,mutual fund
also allows investors to liquidate their
holding as and when they want. You get
regular information on the value of your
investment and the portfolio of your mutual
fund scheme.

Flexibility:
Through feature such as Systematic
Investment Plan , you can systematically
invest or withdraw fund according to your
needs and convenience.

Net asset Value:

Net Asset Value ( NAV) is the value of a
unit of a mutual fund. It is the value of a
schemes asset value less the value of
liabilities:
(Asset- Liabilities)
NAV=------------------------------------------No. of outstanding Units