Mutual Fund -PPT TSM

8/11/2019 Mutual Fund -PPT TSM

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MUTUAL FUNDS


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Concept

A Mutual Fund is a trust that pools the savings of anumber of investors who share a common financial

goal.

The money thus collected is then invested in capitalmarket 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.


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Mutual Fund Operation

Flow Chart

Investors

Fund

Securities

Return

Pool their money in

Which is invested

in

That generates

Given back to


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Advantages of Mutual FundsProfessional Management

Diversification

Convenient Administration

Return Potential

Low Costs

Liquidity

Transparency

Choice of schemes

Tax benefits

Well regulated


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Mutual funds can be classified on three parameters:

1) On the basis of structure.

2) On the basis of investment objective.

3) On the basis of special schemes.


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TYPES OF MUTUAL FUNDS

Type of

Mutual Fund

Schemes

Structure InvestmentObjective

Special

Schemes

Open Ended

Funds

Close Ended

Funds

Growth Funds

Income Funds

Balanced Funds

Money Market

Funds

Industry Specific

Schemes

Index

Schemes

Sectoral

Schemes


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On the basis of Structure

Open ended Schemes

Closed ended Schemes.


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OPEN ENDED SCHEMES

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


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CLOSED ENDED SCHEMES

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.


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Open-Ended anytime enter/exit

Close-Ended Schemes redemption after

period of scheme is over, listed


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On the basis of growth objective

Growth funds

Income funds

Balanced Funds

Money Market funds


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GROWTH FUNDS

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


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INCOME FUNDS

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.)

Known as Debt / Income Funds


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BALANCED FUND

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.


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MONEY MARKET FUNDS

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.


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On the basis of Special Schemes

Industry Specific Schemes

Index Schemes


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OTHER SCHEMES

Gilt Security Schemes

Funds of Funds

Domestic Funds

Tax Saving Schemes.


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INDUSTRY SPECIFIC SCHEMES

Industry Specific Schemes invest only in the

industries specified in the offer document.

The investment of these funds is limited to

specific industries like Infotech, FMCG,

Pharmaceuticals etc.


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INDEX SCHEMES

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.


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Organizational Structure of Mutual Fund


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Trustees:

The Trust i.e. the mutual fund may be managed by a Board

of Trustees i.e. a body of individuals or a Trust Company i.e.

a corporate body.

Protector of unit holders interests.

2/3 of the trustees shall be independent persons and shall

not be associated with the sponsors.


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AMC- Asset management Company or

Fund Manager-Functions

Taking investment decisions and invest in primary marketsand Secondary Markets

Corporate actions involving declaration of dividends, etc.

to compensate investors for their investments in units.

Information for pricing the units and arriving at net asset

value (NAV), the information about the listed schemes and

the transactions of units in the secondary market.

An AMC has to give feedback to the trustees about its fund

management operations and has to maintain a perfect

information system.24


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The Trustee, as the Investment Manager of the

Mutual Fund, appoints the AMC.

The AMC is required to be approved by the

Securities and Exchange Board of India (SEBI)

to act as an asset management company of the

Mutual Fund.

At least 50% of the directors of the AMC is an

independent director who is not associated

with the Sponsor in any manner.

The AMC must have a net worth of at least 10

Crore at all times.


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Custodian The Custodian is appointed by the Board of Trustees.

Mutual funds run by the subsidiaries of the nationalized banks

have their respective sponsor banks as custodians like Canara

bank, SBI, PNB, etc.

Foreign banks with higher degree of automation in handling the

securities have assumed the role of custodians for mutual

funds.

RESPONSIBILITY OF CUSTODIANS:-

Receipt and delivery of securities, Holding of securities.

Collecting income, Holding and processing cost

Corporate actions etc

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Banker

Facilitates financial transactions,

Provides remittance facilities.

Registrar & Transfer AgentMaintains records of unit holders accounts & transactions

Disburses & receives funds from unit holder transactions,

Prepares & distributes a/c settlements, Tax information,

handles unit holder communication, Provides unit holder

transaction services.


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FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme

minus its liabilities. The per unit NAV is the net asset value of the

scheme divided by the number of units outstanding on the

Valuation Date.

Sale Price

Is the price you pay when you invest in a scheme. Also called

Offer Price. It may include a sales load.

Repurchase Price

Is the price at which units under open-ended schemes are

repurchased by the Mutual Fund. Such prices are NAV related.


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Redemption Price

Is the price at which close-ended schemes redeem their unitson maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Alsocalled, Front-end load. Schemes that do not charge a load

are called No Load schemes.

Repurchase or Back-end Load

Is a charge collected by a scheme when it buys back the units

from the unit holders.


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Net Assets Value Calculation

Net Asset Value (NAV) = (Assets Debts) / (Number ofOutstanding units)

where

Assets = Market value of the funds investments +

Receivables + Accrued Income.

Debts = Liabilities + Accrued Expenses

The market value of stocks and debentures is taken as the

closing price on the major stock exchange where it is listed.

Mutual Fund -PPT TSM

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