mutual funds - iipm sirish 2

8/7/2019 Mutual Funds - iipm Sirish 2

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The mutual fund industryAn overview

1. 1964 1987 UTI2. 1987-1993 banks,LIC & GIC

3. 1993 Private & Foreign sectors


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Introduction Mutual funds are one of the most important

segments of the financial system of the country

The financial system consists of financialinstitution, bank, investment bodies, the capital

market and money market intermediary instrument

used in the capital market through which money

resources are mobilized from savers of fund to

users of fund.


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Introduction Contd Mutual funds are financial intermediaries that

collect funds from public and invest on behalf of

investors. Mutual funds, thus, operate as collective

investment vehicle that pools resources by issuingunits to investors and collectively invests those

resources in a diversified portfolio comprising ofstocks, bonds or money market instruments inaccordance with objectives disclosed in the offerdocument issued for the purpose of poolingresources.


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Mutual Funds The concept of Mutual Funds was originated in

the USA and UK way back in 1930s Known asUnit Funds.

Mutual Funds started in India only in the year1960.

Mutual Funds are financial Intermediaries in theinvestment business.

In MFs, the resources of Investors are pooled andinvested to create a diversified portfolio.

Savings of investors are combined to form alargely and well diversified portfolio of funds.


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Type of Mutual Funds Portfolio classification of mutual funds

Functional classification

Geographical classification


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Portfolio classification of mutual

funds Bond funds: provide fixed rate of return for

those who require safety

Stock Funds: who are willing to accept

significant risk

Income funds: is established to maximise

returns. 2 aspects of income funds low

investment risk & constant income


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funds Specialised funds: envisages to specialize

investment in securities of firms of certain

industries or specific income producing securities.Such funds carry more risk and lack ofdiversification

Leveraged Funds: are borrowed funds in order to

increase the size of the value of the portfolio. Suchfunds are used in speculative and risky investmentinstruments like short sale to take advantage ofdeclining market.


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funds Real Estate Funds: REITs Real estate

investment trusts


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Portfolio classification of

mutual funds

Top Down Funds: are those that select stocks using thetop down approach, where the fund manager firstidentifies the sector in which he'd like to invest and then

the potential scrips within the sector. Bottom Up Funds: use the bottom up approach to

investing, where the fund manager focuses on the scrips,irrespective of what sector they come under.

Technical Funds: are those that use technical analysis to

select scrips. Small Cap Funds: focus on small cap stocks for their

investment portfolio.

Mid-Cap Funds: invest in mid cap scrips.

Large Cap Funds: are those that invest in large cap scrips.


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Functional Classification Open ended: The holders of mutual funds

can resell them to the issuing mutual fund.

They receive the NAV of the units at the

time of redemption.

These schemes influence the market prices

of the securities


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Functional Classification Close Ended MFs: The holders of mutual

funds cannot resell them to the issuing

mutual fund.


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Open Ended Close EndedSubscription On continious basis Limited period

withdrawal

Maturity No specific Maturity Fixed MaturityListing ordinarilly not listed Listed at the stock exchange

does not allow investors to withdrawalof funds as and when required

can withdraw fundsunder Repurchase


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Geographical Classification Domestic funds

Off shore Funds


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Concept


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Unit Holders

Sponsors

AMC

Custodian

Transfer

Agent

Trustees


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Sponsors The sponsors of a mutual Funds can be a

public limited or a private limited company.

Track record

General reputation.

Role of sponsors: appointment of trustees as

well as the AMC


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Trustees Mutual funds trustees are created by the

Mutual Funds trust under the Indian trust

act 1882.

Functions of trustees

Planning & formulating of schemes

Seeking SEBI approvals for schemes

Marketing of schemes


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Trustees Contd.. In the absence of such company existing

debenture trustees, banks, FI can act as

trustees

Each trustees shall file details of

transactions of dealings with MF on a

quarterly basis Submit annual report.


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Types of mutual fund

By structure

1. Open ended schemes

2. Close ended schemes

3. Interval schemes

By investment objective

1. Growth schemes

2. Income schemes3. Balanced schemes

4. Money market schemes


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Cont Other schemes

1. Tax savings schemes

2. Special schemes (sector schemes)

3. Index schemes.


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Terms in mutual fund NAV Net Asset Value

Market Value of the funds investment + Receivables +

NAV = Accrued Income Liabilities Accrued Expenses

UnitsOutstanding


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Other important terms

Entry Load / Exit Load

Expense Ratio

Rolling Returns

Annualized Return

Absolute Return


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Risk Return Grid

Risk tolerance/Return expected

Focus SuitableProduct

Benefits offered by M.F

Low Debt Bank/

company FD,

Debt Fund

Liquidity,Better Post-tax

return

Medium Partially

Debt/

Partially

Equity

Balanced

Fund,

Diversified

fund,Mix of

shares & F.D

Liquidity,Better Post-tax

return,

Better management,

Diversification

High Equity Capital

markets,

Equity Funds

Diversification, Expertise

in Stock picking ,

Liquidity, Tax free

dividends


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Benefits of Mutual Fund Number of AvailableOption

Diversification

Professional Management

Potential of Return

Liquidity

Well regulated Transparency

Flexible, Affordable and a Low cost affair


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Special Schemes ETF Exchange Traded Fund

Fund Of Funds.


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GUIDELINE FOR MUTUAL FUND

The Government of India has on Feb. 14, 1992 issueda set of comprehensive guideline applicable to public,private and joint sector mutual fund.

Mutual Funds are to be established in the form of

trust under the Indian Trust Act and are to beoperated by separate Asset Management Companies(AMC).

AMCs shall have a minimum net worth of Rs. 5crores.

AMCs and trustees of mutual fund are to be theseparate legal entities and that an AMC or its affiliatecannot act as a manager in any other fund.


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GUIDELINE FOR MUTUAL FUND Contd

Mutual funds dealing primarily in the capital marketand also partly in money market instrument one tobe regulated by the securities and exchange board ofIndia.

Mutual fund dealing primarily in the capital marketand also partly in money market instruments is to beregulated by the Reserve Bank of India.

All scheme floated by mutual fund are to beregistered with SEBI

mutual funds - iipm sirish 2

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