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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