2. Concept of Mutual Fund (MF’s)
S Defined:- A fund that is created when a large number of investors
put in their money, and is managed by professionally qualified
persons.
S It is a vehicle for collective investment, a way of becoming part-
owner of the investment held under the scheme.
S Till 1986, UTI was only mutual fund in India, which has
outnumbered to 33 major emerged Mf’s.
3. Entities in MF’s operation
S Sponsor:- It is like promoter of a company, maybe a
bank, FI’s or a financial service company. For E.g.
sponsor for Templeton Mutual Fund is Templeton
international INC. Sponsor is responsible for setting up
and establishing the mutual fund.
S Trustee:- a corporate body appointed by sponsor. It
appoints Asset Management Company(AMC), secure
necessary approvals, periodically monitor AMC
functions.
4. Entities in MF’s continues…
S Asset Management Company(AMC):- also referred to as the
investment manager, is separate company appointed the trustees to
run the mutual fund. For E.G.: Templeton Asset Management
Pvt. Is AMC of Templeton MF.
S Custodian:- it handles investment back office operations of
MF’s. It looks after receipt and delivery of securities, collection of
income, distribution of dividends.
S Registrar & Transfer Agents:- they handle investor related
services such as sending fact sheet, annual reports. It may be
outsourced to SEBI approved agents like KARVY & CAMS.
7. Mutual funds Classified
Open ended Growth Tax saving
schemes schemes schemes
Close ended Income Index
schemes schemes schemes
Sector
Interval Balanced
specific
schemes schemes
schemes
Money
market
schemes
8. Classification Discussed…
S Open ended schemes:- is the one that an investor can buy or sell as
and when they intend to at a NAV based price.
S Close-ended schemes:- it usually issue units to investors only once,
when they launch an offer, called New Fund Offer (NFO).
Thereafter, these units are listed in stock exchanges where they are
traded on daily basis.
S Exchange Traded Funds:- is a hybrid of close-ended & open-ended
index funds. It is listed on stock exchange and like an open-ended
fund it creates and redeems units in line with rise and fall of
demand.
9. Open-ended Vs. Close-ended
Open-ended index fund Close-ended index fund
S Subscription on continuous basis. S subscription for limited period
(usually 3months).
S Permits investor to withdraw funds
on continuing basis. S Does not allow withdrawal as and
when they like.
S No fixed maturity period.
S Has a fixed maturity period(5 to 15 yrs).
S Not listed in secondary market.
S Listed on secondary market.
10. Structuring in ETF
ETF units Cash
Buy/sell
Arbitrage
ETF units
Creation in-kind Redemption in-kind cash
11. Mutual Fund Terminology
S NAV- It is actual value of a share on any business day. Its equal to
market value of the funds investment +receivable +accrued income –
liabilities-accrued expenses
Number of shares outstanding
12. Continues…
S Rate of return –It is the of money gained or lost on an investment
relative to amount of money invested. It is also called as ROI
S Repurchase price –It is the price at which the buyer of the securities is
obilized to sell back the asset to the seller in relation to repurchase
agreement
S Standard deviation- equal to the square root of mean of the squares of
the deviations from the arithmetic mean of the distribution.
13. Continues…
S BETA - beta of a fund measures its past price volatility relative to a
particular stock market index
S ALFHA- Alpha measures the extra return earned on a scheme on a risk
–adjusted basis
S Large cap- Larger companies worth $5 billion or more, like General
Electric (NYSE: GE).
S Mid cap- Medium-size companies worth $1 billion to $5 billion, like
Barnes & Noble (NYSE: BKS).
S Small cap - Smaller companies worth $250 million to $1 billion, like Hot
Topic (Nasdaq: HOTT).
14. Advantages of Mutual Funds
v Increased Diversification
v Daily Liquidity
v Professional Investment Management
v Ability to participate in investments that may be available only to larger investors
v Service & Convenience
v Government oversight
v Ease to comparison
15. Disadvantages of Mutual Funds
v Fees
v Less control over timing of recognition of gains
v Less predictable income
v No opportunity to customize
16. References of study
S http://finance.indiamart.com/india_business_information/
mutual_fund_companies.html
S www.wikipedia.com/finance
S http://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-
India
S Security Analysis & Portfolio Management – Prassana & Chandra
S Security Analysis & Portfolio Management- P. Pandian
S http://www.e-investing.in/mutual-funds/106-reliance-mutual-fund-now-indias-
largest-mf.html
