Prepared by

Kaushal Mandalia
MBA (Finance),CPFA, AFP, Pursuing PhD
kaushal@insightHR.co.in , +919825300447

CHAPTER 1 – CONCEPT AND ROLE OF MUTUAL FUND

 MODULE 1 : CONCEPT AND ROLE OF MF
What is Mutual Fund?

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 MODULE 1 : CONCEPT AND ROLE OF MF
Why Mutual Fund?

From Different
Mobilize Investments Investors

Who Owns Mutual fund?

Scheme Investors

Invested as Common Common Objective

Pool

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 MODULE 1 : CONCEPT AND ROLE OF MF
How Mutual Fund Operates?

MF scheme announce its investment objective and seek investment from public.

Investor Invest Money – Which is converted into Units, No of Units X Unit

Value = Unit Capital

Scheme earns interest income or dividend income, have capital gain or

capital loss (realized capital gain or realized capital loss). It can also have
valuation gain or valuation loss

Running the scheme have operating expense, (expense ratio). NAV factors all
expenses

When scheme is launched first time its called NFO

Relative size of MF company is assessed by their AUM

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 MODULE 1 : CONCEPT AND ROLE OF MF
Advantages of Mutual Fund

Affordable
Professional Economies of
Portfolio
Management Scale
Diversification

Liquidity Tax Benefit Convenience

Systematic
Investment Regulatory
Approach to
Comfort Comfort
Investment

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 MODULE 1 : CONCEPT AND ROLE OF MF
Limitation of MF

Lack of
Choice
Portfolio
Overload
Customization

No Control
Over Cost

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 MODULE 1 : CONCEPT AND ROLE OF MF
Types of Fund

Investment Nature of Investment

Structure
Objective Investment Type

Open Ended Growth Actively

Debt
Funds Funds Managed

Close Ended Income Passive

Equity
Funds Funds Funds

Interval Balance
Hybrid
Funds Funds

Money
Market
Funds

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 MODULE 1 : CONCEPT AND ROLE OF MF
Types of Fund

Equity Hybrid Other

Debt Funds Gold Funds
Funds Funds Funds

Diversified Real Estate

Gilt Funds MIP Gold Funds
Equity Funds Funds

Capital
Diversified Commodity
Sector Funds Protected Gold ETF
Debt Funds Funds
Schemes

Junk Bonds Thematic International

Hybrid
Schemes Funds Funds

FMP ELSS Fund of Funds

Equity Income
Floating Rate Exchange
/ Dividend
Funds Traded Funds
Yield Funds

Arbitrage
Liquid Funds
Funds

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 Summary

MODULE 1 : CONCEPT AND ROLE OF MF

Type of Fund Where do they Invest Any Special Remarks
Gilt Fund T Bills and Govt Securities -
Diversified Debt Fund Mixture of Govt and Non Govt Debt -
Securities
Junk Bond Schemes Companies that are of poor credit -
quality
FMP Debt Market Investment Portfolio is closely aligned to
maturity of the scheme
Floating Rate Fund Floating Rate Debt Securities
Liquid Scheme Debt Securities less than 91 days
Diversified Equity Fund Mix of Equity Securities across sectors -
Sector Fund Specific Sector (like banking etc)
Thematic Fund Investment Theme Its more broad based than sector fund,
narrower than a diversified equity fund
ELSS Equity Securities Tax Advantage (u/s 80C)
Equity Income / Shares than fluctuates less, pay higher
Dividend Yield Scheme dividends
MIP It declares dividend every month
Capital Protected Close ended – Principal back to investor
Gold Funds Gold or Gold Related Securities Can be structured as gold fund or gold ETF
Real Estate Fund Real Estate Companies
Commodity Funds Invest in asset classes like food crops,
fibers, industrial metals, energy etc.
International Fund International Securities
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Fund of Funds Funds
 MODULE 1 : CONCEPT AND ROLE OF MF
Key Development Over the years

1964 1987 1993 2009+

Formation Entry of Entry of Phase
of UTI Public Private dedicated
Sector Sector to retail
Funds Funds investor

As of Feb 2010, MF AUM touched 7,66,969 Crore

from 832 Schemes

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 END OF MODULE 1

Prepared by
Kaushal Mandalia
MBA (Finance),CPFA, AFP, Pursuing PhD
kaushal@insightHR.co.in
(C) Insight HR and Training Consultants, 2011 11
+919825300447