2. SCOPE:
* Scope of Mutual Fund Automatic
diversification at various levels.
Access to financial markets
worldwide. Access to all major asset
classes. A broad selection of fund
types. A diversity of investing styles.
Professional management. Elimination
of the need for individuals to perform
detailed and ongoing securities
analysis. The option of making
3. OVERVIEW OF MUTUAL FUND
•A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal. The money thus
collected is then invested in capital market instruments such as
shares, debentures and other securities.
•The income earned through these investments and the capital
appreciation realized is shared by its unit holders in proportion to
the number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.
4. HISTORY OF MUTUAL FUND
• First Phase – 1964-87 -Unit Trust of India (UTI) was established on 1963 by
an Act of Parliament. . The first scheme launched by UTI was Unit Scheme
1964. At the end of 1988 UTI had Rs.6, 700 crores of assets under
management.
• Second Phase – 1987-1993 (Entry of Public Sector Funds) -SBI Mutual Fund
was the first non- UTI Mutual Fund established in June 1987 followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92
5. CONT….
• Third Phase – 1993-2003 (Entry of Private Sector
Funds) Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund registered
in July 1993. As at the end of January 2003, there were 33
mutual funds with total assets of Rs. 1, 21,805 crores.
• Fourth Phase – since February 2003 -In February 2003,
following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities.
6. ADVANTAGES OF INVESTING IN A MUTUAL FUND
• Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares,
etc. depending upon the investment objective of the scheme. An
investor can buy in to a portfolio of equities, which would otherwise
be extremely expensive. Each unit holder thus gets an exposure to
such portfolios with an investment as modest as Rs.5000/-.
• Diversification
We must spread our investment across different securities (stocks,
bonds, money market instruments, real estate, fixed deposits etc.)
and different sectors (auto, textile, information technology etc.).
• Variety
Mutual funds offer a tremendous variety of schemes.
• Professional Management
Qualified investment professionals who seek to maximize returns
and minimize risk monitor investor's money.
7. •Transparency
Being under a regulatory framework, mutual funds have to disclose
their holdings, investment pattern and all the information that can be
considered as material, before all investors. SEBI acts as a watchdog
and safeguards investors’ interests
• Liquidity
A distinct advantage of a mutual fund over other investments is that
there is always a market for its unit/ shares. It's easy to get one’s
money out of a mutual fund. Redemptions can be made by filling a
form attached with the account statement of an investor.
8. RISKS ASSOCIATED WITH MUTUAL FUNDS
Professional Management- Some funds don’t perform in the market,
as their management is not dynamic enough to explore the available opportunity
in the market.
Costs – The biggest source of AMC income is generally from the entry & exit
load which they charge from investors, at the time of purchase. The mutual fund
industries are thus charging extra cost under layers of jargon.
Dilution - Because funds have small holdings across different companies,
high returns from a few investments often don't make much difference on the
overall return.
Taxes - when making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager sells a
security, a capital-gain tax is triggered, which affects how profitable the individual
is from the sale.
9. TAXING IN MUTUAL FUND
• Since, April 1, 2003, all dividends, declared
by debt-oriented mutual funds (i.e. mutual
funds with less than 50% of assets in
equities), are tax-free in the hands of the
investor. A dividend distribution tax of 12.5%
(including surcharge) is to be paid by the
mutual fund on the dividends declared by the
fund. Long-term debt funds, government
securities funds (G-sec/gilt funds), monthly
income plans (MIPs) are examples of debt-
oriented funds.
10. • Section 2(42A):
Under Section 2(42A) of the Act, a unit of a mutual fund is
treated as short-term capital asset if the same is held for less
than 12 months.
• Section 10(38):
Under Section 10(38) of the Act, long term capital gains
arising from transfer of a unit of mutual fund is exempt from
tax if the said transaction is undertaken after October 1, 2004
and the securities transaction tax is paid to the appropriate
authority. Short-term capital gains on equity-oriented funds
are chargeable to tax @10%, Long-term capital gains on
debt-oriented funds are subject to tax @20% of capital gain
after allowing indexation benefit or at 10% flat without
indexation benefit, whichever is less.
11. • Section 112: Under Section 112 of the Act,
capital gains, not covered by the exemption
under Section 10(38), chargeable on transfer
of long-term capital assets are subject to
following rates of tax:
• Resident Individual & HUF -- 20% plus
surcharge, education cess.
• Partnership firms & Indian companies -- 20%
plus surcharge.
• Foreign companies -- 20% (no surcharge).
Capital gains will be computed after taking
into account the cost of acquisition as
adjusted by Cost Inflation Index, notified by
the central government.
12. BANKING
INSTITUTIONS:
Banking institutions form an indispensable
part of modern country. They perform
varied functions to meet the demands in
various sections of the society.
13. TYPES OF BANKING INSTITUTIONS:
01.Commercial banks
02.Investmet banks
03.Exchange banks
04.Cooperative banks
05.Land development
bank
06.Saving bank
07.Central bank
14. 1. Commercial Banks:
The banks, which perform all kinds of banking business and
generally finance trade and commerce, are called commercial
banks. Since their deposits are for a short period, these banks
normally advance short-term loans to the businessmen and
traders and avoid medium-term and long-term lending.
2. Industrial Banks:
Industrial banks, also known as investment banks, mainly
meet the medium-term and long-term financial needs of the
industries. Such long-term needs cannot be met by the
commercial banks, which generally deal with short-term
lending.
The main functions of the industrial banks are:
(a) They accept long-term deposits.
(b) They grant long-term loans to the industrialists to enable
them to purchase land, construct factory building, purchase
heavy machines
15. 4. Exchange Banks:
Exchange banks deal in foreign exchange and specialise
in financing foreign trade. They facilitate international
payments through the sale, purchase of bills of
exchange, and thus play an important role in promoting
foreign trade.
05. Cooperative Banks:
Cooperative banks are operated on the cooperative lines. In
India, coopera-tive credit institutions are organised under the
cooperative societies law and play an important role in meeting
financial needs in the rural areas.
06. Saving Banks:
The main purpose of saving banks is to promote saving habits
among the general public and mobilise their small savings. In
India, postal saving banks do this job. They open accounts and
issue postal cash certificates.
16. 6. Central Bank:
Central bank is the apex institution, which controls, regulates and
supervises the monetary and credit system of the country.
Important functions of the central bank are:
(a) It has the monopoly of note issue;
(b) It acts as the banker, agent and financial adviser to the state;
(c) It functions as the bank of central clearance, settlement and
transfer; and
(d) It acts as the controller of credit. Besides these functions,
India's central bank, i.e., the Reserve Bank of India, also performs
many developmental functions to promote economic development
in the country.
17. NON BANKING SECTOR
Non banking Financial Residuary Non-banking Non-banking
company(NBFC) company(RNBC Non-financial company
Insurance, Stock broking 01.Equipment leasing.
Housing Finance 02.Hire-purchase.
03.Loan company.
04.Mutual benefit company i.e. Nidhi
company
05.Miscellaneous
06.Non-banking company, i.e. chit fund
company
18. FINANCIAL
INSTITUTIONS
A non-bank financial institution (NBFI) is a
financial institution that does not have a full
banking license or is not supervised by a national
or international banking regulatory agency..
NBFIs facilitate bank-related financial services,
such as investment, risk pooling, contractual
savings, and market brokering. Examples of these
include insurance firms, pawn shops, cashier's
check issuers, check cashing locations, payday
lending, currency exchanges, and microloan
19. CONTENTS:
1 Role in Financial System
1 Growth
2.Stability
2. Types of Non-Bank Financial
Institutions
1. Risk Pooling Institutions
2. Contractual Savings Institutions
3. Market Makers
4. Specialized Sectoral Financiers
20. CONT:
NBFIs supplement banks by providing the
infrastructure to allocate surplus resources to
individuals and companies with deficits. Additionally,
NBFIs also introduces competition in the provision of
financial services. While banks may offer a set of
financial services as a packaged deal, NBFIs
unbundle and tailor these service to meet the needs
of specific clients. Additionally, individual NBFIs may
specialize in one particular sector and develop an
informational advantage. Through the process of
unbundling, targeting, and specializing, NBFIs
enhances competition within the financial services
industry.
Editor's Notes
TYPES OF BANKING INSTITUTIONS:
01.Equipment leasing.02.Hire-purchase.03.Loan company.04.Mutual bnifit company i.e Nidhi company05.Miscellaneous06.Non-banking company, i.e chit fund company