unit-3 mutual funds[1]

7/29/2019 Unit-3 Mutual Funds[1]

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Unit - 4

Mutual Funds

credit rating


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a fund established in the form of a trust by a sponsor, to raisemonies by the trustees through the sales of units to the public,

under one or more schemes, for investing in securities in

accordance with the regulations

Definition of Mutual Funds

Meaning of Mutual Funds

Collect the saving from small investors, invest them in government and other

corporate securities and earn income through interest and dividends,

besides capital gains

Form of trust that pool the funds of a whole lot of investors to makemore money by investing in an array of financial instruments.

A small drops of water make a big ocean


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History of MF

1964-UTI

1987- Public Sector banks, Insurance Companies

SBI, Canbank, PNB LIC, GIC

1993- Private Sector

Kothari Pioneer ( later merged with Franklin Templeton), J

P Morgan, Morgan Stanley, George Soros and CapitalInternational


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Mutual Fund Operations


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Important characteristics of a Mutual Fund

The ownership is in the hands of the investors who have

pooled in their funds.

It is managed by a team of investment professionals and

other service providers.

The pool of funds is invested in a portfolio of marketableinvestments.

The investors share is denominated by units whose

value is called as Net Asset Value (NAV) which changes

everyday. The investment portfolio is created according to the

stated investment objectives of the fund.


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Advantages & Disadvantages of Mutual Funds

Professional Management

Diversification

Convenient Administration Return Potential

Low Costs

Liquidity

Transparency

Flexibility

Choice of schemes

Tax benefits Well regulated

No control over the costs. Regulators limit the expenses of Mutual Funds. Fees arepaid as percentage of the value of investment.

No tailor made portfolios.

Managing a portfolio of funds. ( Investor has to hold a portfolio for funds for different

objectives ).

( All these disadvantages can also be treated as advantages of direct equity over

Mutual Funds)


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Types of Mutual Fund

On the basis of

execution &

operation

On the basis of yield & investment pattern

Closed

Ended

Open

Ended

GROWTH FUND

BALANCE FUND

SPECIALISED FUND

MONEY MARKET MUTUAL FUND

TAXATION FUND

INCOME FUND

LEVERAGED FUND

DUAL FUNDS

INDEX FUND

BOND FUNDS

AGGRESSIVE GROWTH FUND

OFF-SHORE MUTUAL FUNDS

PROPERTY FUND

FUND OF FUNDS


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CREDIT RATING

MEANING

ratings are designed exclusively for the purpose of

grading bonds according to their investment qualities

credit rating is an unbiased and independent opinion as

to issuers capacity to meet its financial obligations. It

does not constitute a recommendation to buy/sell orhold a particular security


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Functions of credit rating

Superior information

Low cost information Basis for a proper risk-return trade off

Healthy discipline on corporate borrowers

Formulation of public policy guidelines on institutional investment

Benefits of credit rating Sources of additional certification

Increase the investors population

Forewarns risks

Encourages financial discipline

Merchant bankers job made easy Foreign collaborations made easy

Benefits the industry as a whole

Low cost of borrowing

Rating as a marketing tool


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Credit Rating Agencies in India Credit Rating Information Service Limited - CRISIL

Investment Information And Credit Rating Agency Of India - ICRA

Credit Analysis And Research - CARE Duff Phelps Credit Rating Private Limited - DCR India

Onida Individual Credit Rating Agency Limited - ONICRA

Credit Rating symbol

High investment gradesAAA (Triple A) - Highest Safety

AA (Double A) - High Safety

Investment Grades

A - Adequate Safety

BBB (Trible B) - Moderate SafetySpecualative Grades

BB (Double B) - Inadequate Safety

B - High Risk

c _ Substantial Risk

D - Default

unit-3 mutual funds[1]

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