INDEX Mutual fund

Flow Chart

Myths of mutual fund

History of mutual fund

Types of mutual fund

Organization of mutual fund

SEBI Guidelines

Advantage of mutual fund

Disadvantage of mutual fund

Reason to invest

How to invest

NAV

WHAT IS MUTUAL FUND ?A Mutual Fund is a trust that pools the savings of a

number of investors who share a common financial goals.

The money thus collected is then invested in capital market instruments ( shares, debentures and other securities)

Anybody with an investible surplus can invest in Mutual funds.

MYTHS OF MUTUAL FUND

Mutual funds invest in shares.

Mutual funds are prone to very high risk/ actively traded.

Mutual funds are very new in the financial market.

It is for short term and long term.

One need a large sum to invest in mutual fund.

The good thing about mutual funds is that don't need to pay attention to them.

HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India at the initiative of the government of India and reserve bank.

The mutual fund industry can be broadly put into four phases according to the development of the sector.

Phases of Mutual FundsFirst Phase – 1963-1987Unit Trust of India (UTI) was established in 1963 by an Act of

Parliament. It was set up by the RBI and functioned under the Regulatory and administrative control of the RBI.

Second Phase – 1987- 1993 (Entry of Public Sector funds)

SBI Mutual Fund was the first followed by Canbank Mutual fund (Dec 1987), Punjab National Bank Mutual Fund (Aug 1989), Indian Bank Mutual Fund (nov 1989), Bank of India (june 1990), Bank of Baroda Mutual Fund (Oct 1992).

The LIC established its mutual fund in 1989 and GIC in 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs. 47,004 crorescrores

CONTINUED...................................Third Phase – (1993-2003) Entry of Private Sector

Funds)

In 1993, with the creation of SEBI and better regulation, transparency and liberalization of capital markets (which included the creation of the NSE and the NSDL), the private sector was allowed to enter the mutual fund industry.

Kothari Pioneer Mutual Fund (now merged into Franklin Templeton Investment) was the first private sector mutual fund to be registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised in 1996. The industry now functions under the SEBI ( Mutual fund) Regulations 1996.

Continued.....................................

Fourth Phase – Since February 2003UTI was bifurcated into two seperate entities. One is the

“Specified Undertaking of the Unit Trust of India “ with Rs. 29,835 crores.

The second is the UTI Mutual Fund Ltd, sponsored by SBI,PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.

*** As the end of September, 2004, there were 29 funds, which manage assets of Rs. 153108 crores under 421 schemes.

TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE Open – Ended Schemes

Close – Ended Scheme

BY INVESTMENT OBJECTIVE Growth Schemes

Income Schemes

Balanced Schemes

OTHER SCHEMES Money Market Schemes

Tax Saving Schemes

Special Schemes

Index Schemes

ON THE BASIS OF STRUCTURE

i) Open – Ended SchemesOpen – ended schemes allows investors to buy or sell units at any point

in time. This does not have a fixed maturity date.

ii) Close – Ended Schemes

Close – ended schemes issue the Mutual Funds under many restrictions. The fund is open for subscription only during a specified period at the time of launch of the scheme.

ON THE BASIS OF INVESTMENT OBJECTIVE

i) Growth Schemes:In the growth Scheme, all profits made by the fund are re-invested into the

scheme. This money increases the Net Asset Value (NAV). This scheme is not good one for the investor who wishes to receive regular cash payouts from his/her investments.

ii) Income or Dividend SchemesThe dividend option does not re- invest the profits made by the fund through its

investments. Instead, it is given to the investor from time to time.

iii ) Balanced SchemesThe aim of Balanced schemes is to provide both growth and regular

income. Such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents.

Other Mutual Funds Schemes

i) Money Market SchemesIt is open ended mutual funds whose amount will be only invested in

money market. These funds invest in short term ( one day to one year) debt obligation such as Treasury bills, certificates of deposit, and commercial paper.

ii) Tax Saving SchemesTax Saving schemes of mutual funds which saves the tax of investors.

Tax benefits to be mentioned under the “objects of the offering” column.

Continued.............................

iii) Special Schemes

This is the mutual funds which has something special and mutual funds provider will mention this in invitation form.

iv) Index Schemes

In this schemes, the funds collected by mutual funds are invested in shares forming the stock Exchange index. Eg- Nifty Scheme of UTI Mutual fund and Sensex Index Scheme of Tata Mutual Fund.

ORGANIZATION OF MUTUAL FUND IN INDIA

SEBI Guidelines on Mutual Funds

* The M.F company must be a registered company.

* M.F shall be established in the form of Trusts under the Indian Trust Act to be authorized for business by the SEBI

* SEBI has power to withdraw the authorization given to any AMC if it found to be not serving the interest of investor as well as the capital market.

* Both AMC & trustees should be treated as 2 seperate legal entities.

* Each Scheme of M.F. Must be compulsory registered with the SEBI before it is floated in the market.

ADVANTAGES OF MUTUAL FUNDS

Professional management

Minimization of risk

Return of potential

Liquidity

Choices of schemes

Tax benefits

DISADVANTAGES OF MUTUAL FUNDS

Costs control not in the hands of an investor

Delay in redemption of the units and the money

Difficulty in selecting a suitable fund scheme

REASON TO INVEST IN MUTUAL FUND

Expert on your side

Limited risk

Convenience

Investor protection

Quick access to your money

Transparency

Low transaction costs

Tax benefits

HOW TO INVEST IN MUTUAL FUNDS

Step 1: Identify the investment need

Step 2: Choose the right mutual fund

Step 3: Select the ideal mix of schemes

VALUATION OF NAV

Total Market Value of the Assets – All Liabilities

NAV = -------------------------------------------------------Number of fund’s units outstanding

VARIOUS M.F IN INDIA

Mutual fund industry is one of the fastestgrowing industry in India and it has alreadyestablished in foreign countries. Investing inMutual Funds is more safe as compared toequity as well as it give handsome returns.

Conclusion

MOST IMPORTANT THINGS

Mutual Fund investment are subject to

market risks. Please read the Statement of

Additional Information (SAI) and

Scheme Information Document (SID)

carefully before investing.