MUTUAL FUND

Concept of Mutual Fund (MFs)

S Defined:- A fund that is created when a large number of investors

put in their money, and is managed by professionally qualified persons.

S It is a vehicle for collective investment, a way of becoming part-

owner of the investment held under the scheme.

S Till 1986, UTI was only mutual fund in India, which has

outnumbered to 33 major emerged Mfs.

Entities in MFs operation

S Sponsor:- It is like promoter of a company, maybe a

bank, FIs or a financial service company. For E.g. sponsor for Templeton Mutual Fund is Templeton international INC. Sponsor is responsible for setting up and establishing the mutual fund.
S Trustee:- a corporate body appointed by sponsor. It

appoints Asset Management Company(AMC), secure necessary approvals, periodically monitor AMC functions.

Entities in MFs continues

S Asset Management Company(AMC):- also referred to as the investment manager, is separate company appointed the trustees to run the mutual fund. For E.G.: Templeton Asset Management Pvt. Is AMC of Templeton MF.

S Custodian:- it handles investment back office operations of MFs. It looks after receipt and delivery of securities, collection of income, distribution of dividends.
S Registrar & Transfer Agents:- they handle investor related services such as sending fact sheet, annual reports. It may be outsourced to SEBI approved agents like KARVY & CAMS.

MFs FLOW PATTERN

ORGANISATION OF MFs

Mutual funds Classified

Open ended schemes Close ended schemes Interval schemes

Growth schemes

Tax saving schemes

Income schemes

Index schemes Sector specific schemes

Balanced schemes Money market schemes

Classification Discussed
S Open ended schemes:- is the one that an investor can buy or sell as

and when they intend to at a NAV based price.

S Close-ended schemes:- it usually issue units to investors only once,

when they launch an offer, called New Fund Offer (NFO). Thereafter, these units are listed in stock exchanges where they are traded on daily basis.
S Exchange Traded Funds:- is a hybrid of close-ended & open-ended

index funds. It is listed on stock exchange and like an open-ended fund it creates and redeems units in line with rise and fall of demand.

Open-ended Vs. Close-ended

Open-ended index fund
S Subscription on continuous basis. S Permits investor to withdraw funds

Close-ended index fund

S subscription for limited

period(usually 3months).
S

on continuing basis.
S No fixed maturity period. S Not listed in secondary market.

Does not allow withdrawal as and when they like. Has a fixed maturity period(5 to 15 yrs). Listed on secondary market.

S S

Structuring in ETF

Buy/sell Arbitrage Creation in-kind Redemption in-kind

ETF units

Cash

ETF units

cash

Mutual Fund Terminology

S NAV- It is actual value of a share on any business day. Its equal to

market value of the funds investment +receivable +accrued income liabilities-accrued expenses
Number of shares outstanding

Continues

S Rate of return It is the of money gained or lost on an investment

relative to amount of money invested. It is also called as ROI

S Repurchase price It is the price at which the buyer of the securities is

obilized to sell back the asset to the seller in relation to repurchase agreement
S Standard deviation- equal to the square root of mean of the squares of

the deviations from the arithmetic mean of the distribution.

Continues
S BETA - beta of a fund measures its past price volatility relative to a

particular stock market index

S ALFHA- Alpha measures the extra return earned on a scheme on a risk

adjusted basis
S Large cap- Larger companies worth $5 billion or more, like General

Electric (NYSE: GE).

S Mid cap- Medium-size companies worth $1 billion to $5 billion, like

Barnes & Noble (NYSE: BKS).

S Small cap - Smaller companies worth $250 million to $1 billion, like Hot

Topic (Nasdaq: HOTT).

Advantages of Mutual Funds

Increased Diversification Daily Liquidity Professional Investment Management Ability to participate in investments that may be available only to larger investors Service & Convenience

Government oversight
Ease to comparison

Disadvantages of Mutual Funds

Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize

References of study
S http://finance.indiamart.com/india_business_information/mutual_fu

nd_companies.html
S www.wikipedia.com/finance S http://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-

India
S Security Analysis & Portfolio Management Prassana & Chandra S Security Analysis & Portfolio Management- P. Pandian S http://www.e-investing.in/mutual-funds/106-reliance-mutual-fund-now-indias-

largest-mf.html

AMIT KUMAR ROY VIVEK SINGH NITIN VERMA PARITOSH JAIN