M U TU AL FU N D S

Vishnu
Thankachan
S3 MBA
N0: 29

 A Mutual Fund is a trust that pools the savings of a number of

investors who share a common financial goal.
The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities.
The income earned through these investments and the capital
appreciation realised are shared by its unit holders in proportion
to the number of units owned by them.

M u tu al Fu n d O p eration
Flow C h art

Given back to

Investo
rs

Return

That generates

Pool their money

in

Fund

Securiti
es

Which is invested in

TY P ES O F M U TU A L FU N D S
Type of
Mutual Fund
Schemes

Structure

Investment
Objective

Special
Schemes

Open Ended
Funds

Growth Funds

Industry Specific
Schemes

Close Ended
Funds

Income Funds

Index
Schemes

Balanced Funds

Sectoral
Schemes

Money Market
Funds

O n th e b asis of S tru ctu re

Open ended Schemes

Closed ended Schemes.

O P EN EN D ED S C H EM ES

Open ended Schemes are schemes which offers unit for sale
without specifying any duration for redemption.
They sell and repurchase schemes on a continuous basis.
The main feature of such kind of scheme is liquidity

C LO S ED EN D ED S C H EM ES

These are the schemes in which redemption period is specified.

Once the units are sold by mutual funds, then any transaction
takes place in secondary market only i.e stock exchange.
Price is determined by forces of market.

O n th e b asis of g row th ob jective

Growth funds
Income funds
Balanced Funds
Money Market funds

G R O W TH FU N D

The aim of growth funds is to provide capital appreciation over

the medium to long- term.
Such schemes normally invest a major part of their corpus in
equities.
Such funds have comparatively high risks

IN C O M E FU N D S

Funds that invest in medium to long-term debt instruments

issued by private companies, banks, financial institutions,
governments and other entities belonging to various sectors
(like infrastructure companies etc.) are known as Debt / Income
Funds

B A LA N C ED FU N D

These funds provide both growth and regular income as these

schemes invest in debt and equity.
The NAV of these schemes is less volatile as compared pure
equity funds.

M O N EY M A R K ET FU N D S

Money market / liquid funds invest in short-term (maturing within

one year) interest bearing debt instruments.
These securities are highly liquid and provide safety of
investment, thus making money market / liquid funds the safest
investment option when compared with other mutual fund types.

O n th e b asis of S p ecial S ch em es

Industry Specific Schemes

Index Schemes
Sectoral Schemes.

IN D U S TR Y S P EC IFIC S C H EM ES

Industry Specific Schemes invest only in the industries specified

in the offer document.
The investment of these funds is limited to specific industries
like Info tech, FMCG, Pharmaceuticals etc

IN D EX S C H EM ES

In this schemes, the funds collected by mutual funds are

invested in shares forming the Stock Exchange Index.
Example- Nifty Index Scheme of UTI Mutual Fund and Sensex
Index Scheme of Tata Mutual Fund.

S EC TO R A L S C H EM ES

Sectoral funds are those mutual funds which invest in a

particular sector of the market, e.g. banking, information
technology etc.
Sector funds are riskier than equity diversified funds since they
invest in shares belonging to a particular sector which gives
them fewer diversification opportunities

O TH ER S C H EM ES

Gilt Security Schemes

Funds of Funds
Domestic Funds
Tax Saving Schemes.

The structure of a m utualfund

Sponsor
Board of
trustees

Mutual funds

AMC

Custodian

Holds units
holder enters
compliant to
SEBI

Floats &
manages
new scheme

Custodian
services

M U TU A L FU N D S IN IN D IA N C A P ITA L
M A R K ET

Phase I 1964 87:

In 1963, UTI was set up by Parliament
under UTI act and given a monopoly. The first equity fund
was launched in 1986.
Phase II 1987 93:
Non-UTI, Public Sector mutual funds.

 Phase III 1993 96:

Introducing private sector funds. As well as openend funds.
Phase IV 1996:
Investor friendly regulatory measures Action taken
by SEBI to protect the investor, and To enhance investors returns
through tax benefits.

A d van tag es of M u tu al Fu n d s
Portfolio diversification:
It enables him to hold a diversified investment portfolio even
with a small amount of investment like Rs. 2000/-.
Professional management:
The investment management skills, along with the needed
research into available investment options, ensure a much better return as
compared to what an investor can manage on his own.
Reduction/Diversification of Risks:
The potential losses are also shared with other investors.
Reduction of transaction costs:
The investor has the benefit of economies of scale; the funds
pay lesser costs because of larger volumes and it is passed on to the
investors.

 Wide Choice to suit risk-return profile:

Investors can chose the fund based on
their risk tolerance and expected returns.
Liquidity:
Investors may be unable to sell shares
directly, easily and quickly. When they invest in mutual
funds, they can cash their investment any time by selling
the units to the fund if it is open-ended and get the
intrinsic value. Investors can sell the units in the market if
it is closed-ended fund.

 Convenience and Flexibility:

Investors can easily transfer their holdings
from one scheme to other, get updated market information
and so on. Funds also offer additional benefits like regular
investment and regular withdrawal options.
Transparency:
Fund gives regular information to its
investors on the value of the investments in addition to
disclosure of portfolio held by their scheme, the proportion
invested in each class of assets and the fund manager's
investment strategy and outlook

S EB I R EG U LA TIO N O F A M C

SEBI Regulations require that mutual funds be managed

by a separate body corporate called Asset Management
Company

Eligibility criteria for appointment of AMC

AMC should have sound track record, general reputation
Professionally experienced directors
At least 50% of Board of Directors of AMC has no association with
the sponsor , trustee or subsidiary
Chairman of AMC is not a trustee of any mutual fund
AMC should have a networth of not less than 10 crore

 Terms & Conditions of AMC

No appointment of a director of AMC shall be made without prior approval of
trustees

Restriction on business activities of AMC

AMC is not allowed to undertake any other business activity except
management of pension funds, VCF, insurance funds, financial consultancy

AMC shall file with trustees and board

Detailed bio data of directors
Any change in directors
Statement of holdings in securities of director

General aspects
AMC shall launch no scheme unless it is approved by trustee
AMC shall publish their unaudited financial results before the expiry of one
month from close of each half year

thank
uuuuuu