formation of mutual funds, types, calculation of NAV and mutual fund vis-a-vis exchange traded fund

1. Mutual Funds Chapter 11

2. Meaning and Definition Praveen N. Shroff defines a Mutual Fund as, ”a portfolio of stock market shares and other financial instruments built with funds collected from small investors, whose primary concern is security of investment”

3. Formation and Management Established under Indian Trust Act, 1882 Registered under Securities Exchange Board of India (Mutual Funds Regulations), 1996 Promoter is called the Sponsor Sponsor appoints a Board of Trustees Board of Trustees enter into an agreement with an Asset Management Company and a Custodian

4. Parties to a Mutual Fund A. Sponsor B. Trustees C. Asset Management Company D. Custodians Other Functionaries

5. A. Sponsor: Activities/Functions Promotion Appointment of Board of Trustees Track Record of Operating in Financial Markets for the last five years At least 3 years of profit making Should contribute a minimum of 40% of capital of Asset management Company

6. B. Trustees Board of Trustee is in charge of day to day management through the powers obtained from the Trust Deed executed by the Sponsor Protection of Interest of Investors Appointment of others like Custodian, Asset Management Company and Other Functionaries Supervision of AMC AMC should obtain the permission of Board of Trustees before Launching any new Scheme

7. C. Asset Management Company: Features Registered as a Private Limited Company Registered with SEBI Capital Provided by Sponsors, Associates and Joint Venture Partners Rs.10 Crore , Minimum Networth AMC for only one Fund AMC can not undertake any other business AMC signing an Investment Management Agreement with the Trustees A Fee is charged All Operational Decisions are made by an AMC

8. D. Custodian Maintaining Securities in the Physical Form Operate the Demat Account for the shares received in the Electronic Form Ensuring that the securities bought by AMC are credited to the Demat Account Issue the Delivery Order for the securities sold Receive Dividend and interest on the Investment Responding to Corporate Action as per the instruction of the AMC

9. Other Functionaries Registrar & Transfer Agents Brokers Selling Agents & Distributors Depository Participant Bankers Legal Advisors Auditors

10. Types of Mutual Funds A. Classification on the Basis of Structure B. Classification on the Basis of Investment Objectives

11. A. Classification on the Basis of Objectives Open-End Schemes Close-Ended Scheme Interval Scheme

12. B. Classification on the Basis of Investment Objectives Growth Scheme Income Scheme Balanced Scheme ELSS Index Fund Gilt Funds MMMF Fund of Funds Contra Fund Inverse Index Fund Emerging Opportunities Fund Theme Funds Other Funds

13. Net Asset Value NAV= Market Value of Investment + Current Assets + Other assets + Accrued Income - Current Liabilities - Other Liabilities - Accrued Expenses

14. Benefits of Mutual Funds Suitability for Small Investors Risk Management For Corporates, Lesser Administrative Expenses Investor Education Investment Research Liquidity of Stock Market Development of Money Market Savings Mobilisation

15. Mutual Fund & Exchange Traded Fund Mutual Fund ETF 1.Investor pays cash 2.Less Trading Expenses 3. No cash in Hand 4.Close-Ended are Listed 5. Portfolio Flexibility 6. NAV at regular interval 1.Investor may pay cash or surrender underlying asset 2. More Trading Expenses 3. A lot of cash in hand 4. All Schemes are listed 5. Fixed Portfolio 6. Continuous Valuation

16. Mutual Funds in India Unit Trust of India Banks Term Lending Institutions Insurance Companies Private Sector Foreign Funds

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