MUTUAL FUND

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Transcript of MUTUAL FUND

  • 1. MUTUAL FUND Presented by: Suhaib Azeem Khan Aligarh Muslim University A.M.U

2. MUTUAL FUNDS

  • A mutual fund is a common pool of money into whichinvestors place their contributions that are to be invested in different types of securities in accordance with the stated objective.
  • 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 realized are shared by its unit holders in proportion to the number of units owned by them.
  • Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

3. HISTORY OF MUTUAL FUND

  • Mutual fund in world
  • Uncertainty of the origin of mutual fund :
  • Some cite that the close ended investment company launched first mutual fund in the Netherland in 1822 by king William first.
  • Other point to a Dutch merchant named Adriaan Van Ketwich whose investment trust created in 1774 may have give it.
  • The Boston Personal Property Trust, formed in 1893 was the first close ended mutual fund in U.S.
  • The creation of Alexander fund in Philadelphia in 1907 was an important step in the evolution toward what we know as the modern mutual fund

4. CONTD

  • History of MFs can be discussed in two parts :
  • 1) Emergence through public players; and
  • 2) Emergence through private players

5. PHASES OF MUTUAL FUND EMERGENCE

  • History of mutual funds in India can be divided into 5 important phases:
  • Phase I . 1963-1987
  • UTI sole market player, created by an Act of parliament in 1963.
  • US 64 even today the single largest mutual fund scheme.
  • UTI created a number of products e.g. monthly income plans,
  • childrens plan,
  • Equity oriented schemes and offshore funds during this period .
  • UTI managed assets of Rs.6700 cr. at the end of this phase.

6. CONTD

  • Phase II. 1987-1993 (Entry of Public Sector Funds)
  • Public sector banks and financial institutions entered the mutual funds industry.
  • SBI mutual fund was the first non-UTI MF to be set up in 1987.
  • Significant shift from deposits to MF.
  • Most funds were growth oriented ,closed-ended funds.
  • AuM of UTI grew to Rs.38,247cr. and public sector funds Rs.8750cr .

7. CONTD

  • Phase III 1993-1996 .(Entry of Private Sector Funds)
  • In1993,themutualfundsindustry wasopentoprivatesectorplayersbothIndian and foreign.
  • SEBIs first set of regulations were formulated.
  • Regulation revised in 1996.
  • Significant innovation in servicing, product design and information disclosure.
  • Phase IV 1996-1999 (Entry of Private Sector Funds)
  • Implementation of new SEBI regulation.
  • Rapid asset growth .
  • Bank mutual funds were recast according to the SEBI recommended structure.
  • UTI came under voluntary SEBI supervision.

8. CONTD

  • Phase V 1999-2003
  • Marked by very rapid growth in MF industry.
  • Increase in market share of private players.
  • AUM crossed Rs.100,000cr.
  • Bond funds and liquid funds registered the highest growth(nearly 60% of assets).
  • UTI share dropped to nearly 50%.

9. ADVANTAGES OF MUTUAL FUNDS

  • 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.

10. DISADVANTAGES OF MUTUAL FUNDS

  • No control over costs:The investor pays investment management fees as long as he remains with the fund, even while the value of his investments are declining. He also pays for funds distribution charges which he would not incur in direct investments.
  • No tailor-made portfolios:The very high net-worth individuals or large corporate investors may find this to be a constraint as they will not be able to build their own portfolio of shares, bonds and other securities.
  • Managing a portfolio of funds:Availability of a large number of funds can actually mean too much choice for the investor. So, he may again need advice on how to select a fund to achieve his objectives.
  • Delay in redemption:It takes 3-6 days for redemption of the units and the money to flow back into the investors account.

11. CONSTITUTION OF MUTUAL FUNDS IN INDIA

  • The constitution are designed to safeguard investors, check speculative activities of mutual funds & ensuring financial discipline through transparency & fair play.
  • SEBI ( Mutual Fund ) regulation require a four tier system to organize Mutual Fund. i.e.
  • - Sponsor
  • - Trustee
  • - Asset Management Company
  • - Custodian

12. SPONSORS

  • Who thinks of starting a mutual fund. The Sponsor approaches the Securities & Exchange Board of India (SEBI), which is the market regulator and also the regulator for mutual funds.
  • SEBI checks a persons integrity , experience in the financial sector, his
  • networth etc.
  • Sponsor is to contribute 40 per cent of the net worth of AMC.
  • Mutual fund is created by sponsor as a trust under Indian Trust act 1982.
  • Sponsor appoints a trustee.

13. TRUSTEES

  • A trustee is a person who holds the property of Mutual Fund in trust for the benefit of unit holders.
  • A company is appointed as trustee to manage the mutual fund with approval of SEBI.
  • To ensure fair dealing at least 75 per cent of trustees are to be independent of the sponsors.
  • The trustee role is not to manage money. Their job is only to see , whether the money is being managed as per stated objectives.

14. CONTD

  • It is duty of trustee is to provide information to unit holders as well as to SEBI about mutual fund schemes.
  • Trustees are to appoint AMC to float the schemes.
  • It is trustees duty to observe & ensures that AMC is managing schemes in accordance with the trust deed .

15. ASSET MANAGEMENT COMPANY (AMC)

  • The sponsor or trustees appoint an AMC, also known as Investment Manager, to manage the affair of mutual fund.
  • The AMCs Board of Directors must have at least 50% of Directors who are independent directors.
  • The AMC has to be approved by SEBI. The AMC functions under the supervision of its Board of Directors, and also under the direction of the Trustees and SEBI.
  • It is the AMC, which in the name of the Trust, floats new schemes and manage these schemes by buying and selling securities.

16. CONTD

  • In order to do this the AMC needs to follow all rules and regulations prescribed by SEBI.
  • Whenever the fund intends to launch a new scheme, the AMC has to submit a Draft Offer Document to SEBI. This draft offer document, after getting SEBI approval becomes the offer document (OD) of the scheme.
  • The Compliance Officer has to sign the Due Diligence Certificate in the offer document.

17. CUSTODIANS

  • A custodians role is safe keeping ofsecurities and also keeping a tab on the corporate actions like rights, bonus and dividends declared by the companies in which the fund has invested.
  • The Custodian is appointed by the Board of Trustees.
  • SEBI requires that each mutual fund shall havea custodian whois not in any way associated with AMC.

18.

  • TYPES OF MUTUAL FUNDS
  • 1.)BY STUCTURE
  • 2.)BY NATURE
  • 3.)BY INVETSMENT OBJECTIVE
  • 4.)OTHERS SCHEMES AND PLANS

19. BY STRUCTURE:

  • 1. Open-ended Funds
  • An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.
  • 2. Closed-ended Funds
  • These schemes have a pre-