MUTUAL FUNDSChapter 11
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”
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
Parties to a Mutual Fund
A. Sponsor
B. Trustees
C. Asset Management Company
D. Custodians
Other Functionaries
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
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
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
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
Other Functionaries
Registrar & Transfer Agents Brokers Selling Agents & Distributors Depository Participant Bankers Legal Advisors Auditors
Types of Mutual Funds
A. Classification on the Basis of Structure
B. Classification on the Basis of Investment Objectives
A. Classification on the Basis of Objectives
Open-End Schemes
Close-Ended Scheme
Interval Scheme
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
Net Asset Value
NAV= Market Value of Investment + Current Assets + Other assets + Accrued Income - Current Liabilities - Other Liabilities - Accrued Expenses
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
Mutual Fund & Exchange Traded Fund
MUTUAL FUND ETF
1.Investor pays cash
2.Less Trading Expenses
3. No cash in Hand4.Close-Ended are
Listed5. Portfolio Flexibility6. NAV at regular
interval
1.Investor may pay cash or surrender underlying asset
2. More Trading Expenses
3. A lot of cash in hand4. All Schemes are
listed5. Fixed Portfolio6. Continuous Valuation
Mutual Funds in India
Unit Trust of India Banks Term Lending Institutions Insurance Companies Private Sector Foreign Funds
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