mutual funds working

PRESENTED TO : MR. ARUN MAHAJAN

PRESENTED BY : SHVETA BHAN CHASHNEET KAUR MANISHA SINGH JEFIN EAPEN ANKIT VERMA

INTRODUCTION• A mutual fund is a mechanism that pools the money of

many investors to invest in a variety of different securities.

• Investments may be in stocks, bonds, money market securities or some combination of these.

• Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio entitled to any profits when the securities are sold, but subject to any losses in value as well.

FEATURES OF MUTUAL FUNDS PROFESSIONAL MANAGEMENT

LIQUIDITY

DIVERSIFICATION

CONVENIENT

RETURN POTENTIAL

KEY TERMINOLOGIESNFO (NEW FUND OFFER) : It is the offer made

during the initial period when the new scheme is launched.

NAV(NET ASSET VALUE): It is the total asset value per unit of the fund which is calculated at the end of every business day.

NAV = Asset Value / Number of Outstanding Units

Classification

MUTUAL FUND

MARKET CLASSIFICATIO

N

STRUCTURE

INVESTMENT OBJECTIVES

Based on structure

OPEN ENDED : At any time during the scheme period, investors can enter and exits the fund scheme by buying and selling funds units at its NAV (Net Asset Value).

CLOSE ENDED : Redemption can take place only after maturity or at regular pre stipulated intervals. However funds are listed on the stock exchange and investors can buy and sell units from the secondary markets.

Based on market classification

LARGE CAP : Funds are invested in only large companies and perceived to be less risky and more liquid in the markets.

MID CAP : Funds are invested in mid-sized companies and are perceived to be moderately risky and less liquid in the markets.

SMALL CAP : Funds are invested in small sized-companies and are perceived to be very risky and comparatively illiquid in the event of correction.

Based on investment objective

1. GROWTH / EQUITY FUND :

DIVERSIFIED EQUITY : Funds that invest solely in equity shares of companies. Since equities as an asset class fluctuates widely, the NAV of these funds is also subjected to these fluctuations.

SECTORAL FUND : These funds invest in a particular business sector or industry. The diversification of risk is very limited in this, making the scheme extremely risky.

Eg. : Auto sector funds which invest only in Automobile sector.

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ELSS (Equity Limited Saving Scheme) : These are special equity funds that invest at least 80 percent of its corpus in equity and the investments are locked for at least 3 years.

2. DEBT FUND :

INCOME FUND : Investment is made in income bearing instruments like bonds, debentures, government securities and commercial paper.

GILT FUND : Funds are invested in Government securities and Treasury bills.

FIXED MATURITY PLAN (FMP) : these are close ended funds which mature after a certain period. They invest in securities matching the maturity profile of the fund.

3. HYBRID FUND :

BALANCED FUND : They have an equity exposure of 60-70 percent and the balance is invested in debt instruments.

MONTHLY INCOME PLAN (MIP) : They have equity exposure of 10-15 percent and rest is invested in debt instruments. MIP’s provide monthly income to the investors by way of dividends.

Flow of funds

How fund is created ?The mutual funds in India are regulated by SEBI MF Regulations,1996. A mutual fund comprises four separate entities, namely 1. Sponsor 2. Mutual fund trust 3. AMC (Asset Management Company) and 4. Custodian. Mutual Funds are formed as trusts in India. The pooled money is kept in the name of the trustees under an agreement of trust which is known as trust deed. The trustees manage the trust property (pooled money) for the benefit of investors, who are the legal beneficiaries of the trust. The trustees, appoint, a professional company called “ the Asset Management Company (AMC)” to invest the money in eligible market securities. This AMC reports to the trustees. Another element is- The Custodian.

Fund entities

Board of directors:Independent director investment advisorAdministratorsPrincipal underwriterCustodianTransfer agent

STRUCTURE OF MUTUAL FUND

SHAREHOLDERS

Voting rightsIssued prospectus that inform them

regarding the performance of funds.Elect directors

Charges of mutual fund

Type of expense

One time

expenseRecurring

expenses

NET ASSET VALUEPrice per share at which it is

redeemed.NAV= current market value –

liabilities / total number of outstanding share

Calculated each dayDetermined on market quotation

for the securities

Pricing of mutual fund

ROUTES OF INVESTMENTSIP (SYSTEMATIC INVESTMENT PLAN): - salaried employees - fixed amount periodically - Less risky - Low profit - based on rupee cost averaging

LUMP SUM: - Involve huge risk - High profit

CONCLUSIONMutual funds: pooling of fundsProfit earned through brokerage.Pricing are charged NAVVarious entities are involved in

flow of fundsComplex process but involve

huge profit and low risk

Any question

s ?