MUTUAL FUNDS

Agenda or Summary Layout

1 2
AMC
Concept, Origin and growth of Mutual funds

Consitution & Management

Sponsors, trustees, AMC and Custodian

3
4

Classification of MF schemes
Advantages and Disadvantages of MF

NAV & Pricing of Mutual fund Units

Concept
Form

of trust that pools the funds of a whole lot of investors to make more money by investing in an array of financial instruments.
A

vehicle for investing in stocks and bonds.

Owner

of a mutual fund unit gets a proportional share of the funds gains, losses, income and expenses.

Mutual Fund Functioning

Investors

Pooling

Returns

Mutual fund

Investment

Returns

Financial Markets

Types of Funds
Open

ended funds Close ended funds Interval funds Actively Managed Funds Passive funds Debt, Equity and Hybrid funds International funds (Feeder fund and host fund) Exchange traded funds

Types of Equity funds

Diversified

Equity Funds Sector funds Thematic Funds ELSS Dividend Yield schemes Arbitrage funds

Types of Debt funds

Gilt

funds Diversified debt funds Junk bond schemes Fixed maturity plans Floating rate funds Liquid schemes

Types of Hybrid funds

Monthly

income plans Capital protected schemes

Advantages/ Disadvantages
ADVANTAGES
Professional

DISADVANTAGES
Lack

Management Affordable Portfolio Diversification Economies of scale Liquidity Tax Deferral Convenient options Investment comfort Regulatory comfort Systematic approach to investment

of portfolio customization Choice Overload No control over costs

History of Indian MF
Started

in 1963 (UTI, initiative of GOI & RBI) Phase 1 (1964-87)

In 1978, UTI was de-linked from RBI and IDBI took the regulatory control.

Phase

2 (1987-93) 3 (1993-2003)

1987 marked the entry of non-UTI, public sector banks, LIC and GIC Entry of private sector Mutual funds

Phase

Phase

4 (Since 2003)

UTI Act,1963 bifurcated into specified undertaking of UTI and sponsored UTI.

How MF schemes operate?

Announcement of NFO

Money collection: Open or close ended

Units are allotted to investors

Scheme earns interest or dividend

Redeem Units: after calculating valuation gains or losses

Profitability Metric Interest Income

+ Dividend Income
+ Realized Capital Gain + Valuation Gains Realized capital losses Valuation losses Scheme Expenses

When this metric is positive, true worth of unit goes up and vice-versa

Terminology
NAV NFO AUM Net Asset Value New Fund Offer Assets under Management

Sale Price
Re-purchase Price Redemption Price Sales Load

Price at which you purchase Units

Price at which you sell Units back to fund Price at which mutual fund redeem units at closure date. Charge collected by scheme.

Organisation of Mutual Funds

Constitution of Mutual Fund

Sponsors

Trustee
AMC RTA

Custodian Auditors

Distributors Collective

Bankers

Sponsors
Applies to Sebi and invest in AMC.
The

sponsors should have sound record and reputation of fairness

and integrity in all business transactions.

Should

be carrying on business in financial services for 5 years.

Latest

net worth should be more than the amount that sponsors

contributes to the capital of AMC.

They

should have earned profits after providing for depreciation

and interest, in three of previous five years, including latest year.

Sponsors
Applies to Sebi and invest in AMC.
He

should be fit and proper person for this kind of operation.

They

need to have minimum 40% share holding in capital of AMC.

Offer Documents
NFO

(New fund Offer) SID (Scheme information documents) SAI (Statement of additional information) KIM (Key information memorandum)

SID
Prepared in prescribed format by SEBI. It is a public document, available for viewing in SEBIs website for 21 working days. Final SID is hosted on AMFIs website two days before the issue.
Cover

page:

Scheme

structure (Open, close, interval) Nature of scheme (Equity, balanced, debt) Face value Units offered Dates of NFO SID Date Name & address of mutual fund

SID
Table

of contents Highlights Risk factors Scheme specific

Provisions regarding minimum number of investors in scheme Any other special consideration

Definitions
Due diligence certificate

Information

about scheme Fees & Expenses Rights of unit holders Penalties, litigation

Contents of SAI
Information

about sponsors, AMC, Trustee company (including contact information, shareholding pattern, responsibilities, names of directors and their contact information) Profiles of key personnel with contact information Condensed financial information How to apply Rights of unit-holders Investment valuation norms Tax, legal and general information

KIM

Summary of SID and SAI

Name

of AMC, Mutual funs, trustee, fund manager and scheme Dates of issue opening, closing and re-opening Plans and options under scheme Risk profile of scheme Prices, minimum amount to purchase, Dividend policy Performance of scheme for last 5 years Loads & expenses Contact information of registrar for taking up investor grievances