mutual funds- mofs

7/30/2019 Mutual Funds- MOFS

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IntroductionA mutual fund is a financial intermediary that

pools the savings of investors for collectiveinvestment in a diversified portfolio of securities. A fund is mutual as all of itsreturns, minus its expenses, are shared by thefunds investors.


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Advantages

Professional management Portfolio diversification Reduction in transaction cost Liquidity Tax benefits Transparency Stability to the stock market

Equity research


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Convenience Flexibility

Protection of interest of investors Promoting, industrial development of the

country


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Limitation of Mutual Funds Market risk Misappropriation of funds

Political risk Biasness of fund manager


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Mutual fund investors Resident Indian individuals Indian companies Indian trusts/charitable institutions

Banks Non-banking finance companies Insurance companies Provident funds Non-residents, including Non-resident Indians Foreign entities(FIIs)


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Organization of a mutualfund

The Sponsor The trustees The Asset Management Company


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Sponsor The sponsor is similar to the promoter of a

company as he gets the fund registered withthe SEBI.

Sound track and general reputation forminimum 5 years

Not have been found of guilty of fraud


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He forms trust and appointsa board of trustees

Also appoints AMC as fund managers And appoints a custodian to hold the fund

assets. The sponsored is required to contribute at

least 40% of the min net worth of the assetmanagement company


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A mutual fund is sponsored by Banks Financial institutions

Companies(Indian orforeign or joint venture)


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Out of 39 mutual funds 4 by bank 1 by LIC

16 by Indian entities 5 by foreign entities Remaining are joint ventures


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The trustees A mutual fund is a trust that pools the savings

of investors and invests these savings incapital market/money market instruments.

The duty of the trust is to review theperformance of the fund and therebysafeguarding the interest of the investors.


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Cont

A mutual fund in India is constituted in theform of a public trust created under the IndianTrusts Act,1882.

The trust is formed by sponsor and registeredwith SEBI

The fund sponsors act as the settler of thetrust, contributes to initial capital andappoints trustees


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Cont

Collected funds are managed by board of trustees, who are independent body and actsas a protector of the unit holders interest.

At least 2/3 of the trustees are independenttrustees


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Asset Management Company Asset management company manages the

funds by investing in various securities. It actslike the investment manager of the trust.

The success or failure of the mutual funddepends upon the efficiency of AMC

AMC is a company formed and registered

under companies act,1956. They charge a fee for the service rendered to

mutual fund trust.


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Manages the different investment schemes asper the SEBI regulation and the trust deed.

AMC should be registered with the SEBI Net worth of at least Rs.10 crore in the form

of cash Most AMCs in India are private limited

companies


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Other Administrative Entities

Custodian :A custodian is responsible for safekeeping of cash securities gold or gold relatedinstruments or real estate mutual fundinstruments.A custodian also participates in the clearingsystem through approved depository.

Registrar and transfer agents is a vitalcommunication link between the unit holderand mutual fund.


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FIXED DEPOSITS MUTUAL FUND SCHEMES

Investment for a fixed period No fixed tenure in open ended schemes

Assured return on fixed deposits No assurance for either returns of capitalgrowth

Low returns High returns

High safety in banks Safety depends upon the investmentobjective

Objective is to earn income Objective is to earn income and capitalgrowth


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Types of Mutual Fund SchemesFunctional Investment

classificationPortfolioclassification

Geographical Other

Open-

endedschemes

Equity fund Income Domestic P/E ratio fund

Close-endedschemes

Debt fund Growth Off shore Exchangetraded funds

Intervalschemes

Hybrid fund Balanced Gold exchangetraded funds Real estatemutual funds


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Investment classificationEquity fund

Diversified

Value Special Sectoral Derivatives arbitrage Tax savings


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Debt funds Money market mutual funds Short term bond Long term bond Gilt Floating maturity plans

Fixed maturity plans Capital protection Schemes


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Other classification P/E ratio fund Exchange traded funds

Gold exchange traded funds Real estate mutual funds


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Useful Terminology NAV KIM OD Tracking error Entry and Exit load Expense ratio SIP STP SWP


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mutual funds- mofs

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