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Worldwide, Mutual Fund or UnitTrust as it is

referred to in some parts of the world, has a
long and successful history.The popularity of
Mutual Funds has increased manifold in
developed financial markets, like the United
States. As at the end of March 2008, in the US
alone there were 8,064 mutual funds with
total assets of about US$ 11.734 trillion
(Rs.470 lakh crores)*.

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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 of India. The history
of mutual funds in India can be broadly
divided into four distinct phases

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First Phase 1964-87 Unit Trust of India (UTI)

was established on 1963 by an Act of Parliament.
It was set up by the Reserve Bank of India and
functioned under the Regulatory and
administrative control of the Reserve Bank of
India.
In 1978 UTI was de-linked from the RBI and the
Industrial Development Bank of India (IDBI) took
over the regulatory and administrative control in
place of RBI. The first scheme launched by UTI
was Unit Scheme 1964. At the end of 1988 UTI
had Rs.6,700 crores of assets under
management.

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Second Phase 1987-1993 (Entry of Public Sector

Funds) 1987 marked the entry of non- UTI, public
sector mutual funds set up by public sector banks
and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987 followed by Canbank Mutual
Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of
India (Jun 90), Bank of Baroda Mutual Fund (Oct 92).
LIC established its mutual fund in June 1989 while
GIC had set up its mutual fund in December 1990. At
the end of 1993, the mutual fund industry had assets
under management of Rs.47,004 crores
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Third Phase 1993-2003 (Entry of Private Sector

Funds) With the entry of private sector funds in
1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider
choice of fund families.
Also, 1993 was the year in which the first Mutual
Fund Regulations came into being, under which
all mutual funds, except UTI were to be
registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton)
was the first private sector mutual fund
registered in July 1993.

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Fourth Phase since February 2003 In February

2003, following the repeal of the Unit Trust of
India Act 1963 UTI was bifurcated into two
separate entities.
One is the Specified Undertaking of the Unit
Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64
scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust
of India, functioning under an administrator and
under the rules framed by Government of India
and does not come under the purview of the
Mutual Fund Regulations.
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The second is the UTI Mutual Fund, sponsored

by SBI, PNB, BOB and LIC. It is registered with SEBI
and
functions
under
the
Mutual
Fund
Regulations. With the bifurcation of the erstwhile
UTI which had in March 2000 more than
Rs.76,000 crores of assets under management
and with the setting up of a UTI Mutual Fund,
conforming to the SEBI Mutual Fund Regulations,
and with recent mergers taking place among
different private sector funds, the mutual fund
industry has entered its current phase of
consolidation and growth

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The 1993 SEBI (Mutual Fund) Regulations were

substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual
Fund) Regulations 1996. The number of mutual
fund houses went on increasing, with many
foreign mutual funds setting up funds in India
and also the industry has witnessed several
mergers and acquisitions. As at the end of
January 2003, there were 33 mutual funds with
total assets of Rs. 1,21,805 crores. The Unit
Trust of India with Rs.44,541 crores of assets
under management was way ahead of other
mutual funds.
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A Mutual Fund is a trust that pools the

savings of a number of investors who
share a common financial goal. The
money thus collected is then invested in
capital market instruments such as
shares, debentures and other securities.

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The
income
earned
through
these
investments and the capital appreciation
realised are shared by its unit holders in
proportion to the number of units owned by
them. Thus a Mutual Fund is the most
suitable investment for the common man as it
offers an opportunity to invest in a
diversified, professionally managed basket of
securities at a relatively low cost.

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Professional Management
Diversification
Convenient Administration
Return Potential
Low Costs
Liquidity
Transparency
Flexibility
Choice of schemes
Tax benefits
Well regulated
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 Net

NAV

Asset Value is the market

value of the assets of the scheme
minus its liabilities. The per unit
NAV is the net asset value of the
scheme divided by the number of
units
outstanding
on
the
valuation date
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Sale Price

Is the price you pay when you invest in a scheme. Also called Offer Price. It
may include a sales load.

Repurchase Price
Is the price at which units under open-ended schemes are repurchased by
the Mutual Fund. Such prices are NAV related.

Redemption Price
Is the price at which close-ended schemes redeem their units on maturity.
Such prices are NAV related.

Sales Load
Is a charge collected by a scheme when it sells the units. Also called, Frontend load. Schemes that do not charge a load are called No Load schemes.
Repurchase or Back-endLoad
Is a charge collected by a scheme when it buys back the units from the
unitholders.
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These do not have a fixed maturity. You deal

with the Mutual Fund for your investments
and redemptions.The key feature is liquidity.
You can conveniently buy and sell your units
at Net Asset Value(NAV) related prices, at any
point of time.

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Schemes that have a stipulated maturity period (ranging

from 2 to 15 years) are called close ended schemes.You
can invest in the scheme at the time of the initial issue
and thereafter you can buy or sell the units of the
scheme on the stock exchanges where they are listed.
The market price at the stock exchange could vary from
the schemes NAV on account of demand and supply
situation, unitholders expectations and other market
factors. One of the characteristics of the close-ended
schemes is that they are generally traded at a discount
to NAV; but closer to maturity, the discount narrows

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Some close-ended schemes give you an

additional option of selling your units to the
Mutual Fund through periodic repurchase at
NAV related prices. SEBI Regulations ensure
that at least one of the two exit routes are
provided to the investor under the close ended
schemes

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These combine the features of

open-ended and close-ended
schemes. They may be traded on
the stock exchange or may be
open for sale or redemption
during predetermined intervals at
NAV related prices.
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Aim to provide capital appreciation over the

medium to long term. These schemes
normally invest a majority of their funds in
equities and are willing to bear short term
decline in value for possible future
appreciation. These schemes are not for
investors seeking regular income or needing
their money back in the short term.
Ideal for:
Investors in their prime earning years.
Investors seeking growth over the long term.
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Aim to provide regular and steady income to

investors. These schemes generally invest in
fixed income securities such as bonds and
corporate debentures.
Capital appreciation in such schemes may be
limited.
Ideal for:
Retired people and others with a need for capital
stability and regular income.
Investors who need some income to supplement
their earnings.

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Aim to provide both growth and income by

periodically distributing a part of the income and
capital gains they earn. They invest in both
shares and fixed income securities in the
proportion indicated in their offer documents. In
a rising stock market, the NAV of these schemes
may not normally keep pace or fall equally when
the market falls.
Ideal for:
Investors looking for a combination of income
and moderate growth.
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Aim to provide easy liquidity, preservation of

capital and moderate income. These schemes
generally invest in safer, short term instruments
such as treasury bills, certificates of deposit,
commercial paper and interbank call money.
Returns on these schemes may fluctuate,
depending upon the interest rates prevailing in
the market.
Ideal for:
Corporates and individual investors as a
means to park their surplus funds for short
periods or awaiting a more favourable
investment alternative.
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Tax Saving Schemes (Equity Linked Saving

Scheme - ELSS)
These schemes offer tax incentives to the
investors under tax laws as prescribed from
time to time and promote long term
investments in equities through Mutual
Funds.
Ideal for: Investors seeking tax incentives

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Fund of Funds are schemes that invest in other mutual fund schemes. The
portfolio of these schemes comprise only of units of other mutual
fund schemes and cash / money market securities/ short term deposits
pending deployment. The first FOF was launched by Franklin Templeton
Mutual Fund on October 17, 2003. Fund of Funds can be Sector specific
e.g. Real Estate FOFs, Theme specific e.g. Equity FOFs, Objective specific
e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc.
Please bear in mind that any one scheme may not meet all your
requirements for all time. You need to place your money judiciously in
different schemes to be able to get the combination of growth, income and
stability that is right for you. Remember, as always, higher the return you
seek higher the risk you should be prepared to take
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Exchange traded funds popularly also known as ETFs, is a type of mutual fund
wherein, the corpus is invested in a basket of securities, which is being traded on an
exchange.
Further, an Exchange traded fund investments are being made either on all the
securities or on a sample of the representative securities that are being traded in the
said index.The exchange traded funds employ the process of arbitration during
trading, in order to keep its trading value in sync with the values of the underlying
stocks, which makes up the portfolio.
All the Exchange Traded Funds in India are regulated by the Association of Mutual
Funds of India (AMFI). Further, the Association of Mutual Funds of India (AMFI)
operates in accordance with the laid down guidelines of the Securities and
Exchange Board of India (SEBI). The Chapter III of the Income Tax Act, 1961
provides tax exemption on investment on Exchange Traded Funds. The rise of the
Indian capital markets and increasing numbers of exchange has propelled the
growth in the numbers of Exchange traded funds in India.

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The Sector Funds are those types of mutual funds which accumulate stocks of
particular sector.
In other words sector funds invest in a single type of industry, like Information
Technology, Telecommunication, Pharmaceuticals, Infrastructure, etc.
The Sector Funds are structured in this particular manner in order to take advantage
of growth of particular type of industry. The Sector Funds can offer tremendous
profit to the investor if the funds are carefully chosen. The authorities to the Sector
Funds in India are the Association of Mutual Funds of India (AMFI), which operates
in accordance with the laid down guidelines of the Securities and Exchange Board of
India (SEBI). Moreover, investments in Sector Funds offer tax exemptions to the
investors (Chapter III of the Income Tax Act, 1961). With the growth of the Indian
industries the financial markets have undergone tremendous transformation. The rise
of different sectors has necessitated structuring of sector specific funds to attract
substantial amount of money for the growth of a specific sector in India.

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 All

investments whether in shares, debentures or

deposits involve risk: share value may go down
depending upon the performance of the
company, the industry, state of capital markets
and the economy; generally, however, longer the
term, lesser the risk;
companies may default in
payment of interest/principal on their debentures
/bonds/ deposits; the rate of interest on an
investment may fall short of the rate of inflation
reducing the purchasing power.
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While risk cannot be eliminated, skillful

management can minimize risk. Mutual Funds
UNDERSTANDING AND MANAGING RISK
help to reduce risk through diversification and
professional management. The experience and
expertise of Mutual Fund managers in selecting
fundamentally sound securities and timing their
purchases and sales, help them to build a
diversified portfolio that minimizes risk and
maximizes returns.
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Step1..Identify your investment needs.

Step2..Choose the right Mutual Fund.
Step3..Select the ideal mix of Schemes.
Step4..Invest regularly
Step4..Keep your taxes in mind
Step5..Start early
Step6..The final step

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SYSTEMATICE INVESTMENT PLANS (SIPs)

A Systematic Investment Plan allows an investor to buy units

of a mutual fund scheme on a regular basis by means of
periodic investments into that scheme in a manner similar
to installments paid on purchase of normal goods. The
investor is allotted units on a predetermined date specified
in the application form of the scheme based on that days
NAV. Here the Plan allows the investor to take advantage of
the Rupee Cost Averaging methodology..minimum
investment of Rs 500 every month.

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Systematic Withdrawal Plan

A Systematic Withdrawal Plan permits the
investor to receive a pre-determined amount
/ units from his investment in a mutual fund
scheme on a periodic basis. Retirees in need
of a regular income often opt for this.

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Systematic Transfer Plan

An STP allows the investor to transfer a predetermined amount from his investment in a
mutual fund scheme to another mutual fund
scheme (of the same company) on a periodic
basis. This Plan is generally used to transfer
sums from a Money Market / Liquid / Cash
scheme to another scheme.

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SEBI (Mutual Funds) Regulations, 1996

ASSOCIATION OF MUTUAL FUNDS OF INDIA
(AMFI)

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An applicant proposing to sponsor a mutual fund in India must

submit an application in Form A along with a fee of Rs.25,000.
The application is examined and once the sponsor satisfies
certain conditions such as being in the financial services
business and possessing positive net worth for the last five
years, having net profit in three out of the last five years and
possessing the general reputation of fairness and integrity in all
business transactions, it is required to complete the remaining
formalities for setting up a mutual fund. These include inter alia,
executing the trust deed and investment management
agreement, setting up a trustee company/board of trustees
comprising two- thirds independent trustees, incorporating the
asset management company (AMC), contributing to at least 40%
of the net worth of the AMC and appointing a custodian. Upon
satisfying these conditions, the registration certificate is issued
subject to the payment of registration fees of Rs.25.00 lacs For
details, see the SEBI (Mutual Funds) Regulations, 1996.

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Every mutual fund shall compute the Net Asset Value of

each scheme by dividing the net assets of the scheme by
the number of units outstanding on the valuation date.
(2) The Net Asset Value of the scheme shall be calculated
and published at least in two daily newspapers at
intervals of not exceeding one week :
[Provided that the Net Asset Value of a close ended
scheme, other than that of equity linked savings scheme,
shall be calculated on daily basis and published in at least
two
daily newspapers having circulation all over India.]
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(1) The price at which the units may be subscribed or sold and the price at which such
units may at any time be repurchased by the mutual fund shall be made available to the
investors.
(2) The mutual fund, in case of open-ended scheme, shall at least once a week publish in
a daily newspaper of all India circulation, the sale and repurchase price of units.
(3) While determining the prices of the units, the mutual fund shall ensure that the
repurchase price is not lower than 93 per cent of the Net Asset Value and the sale price is
not higher than 107 per cent of the Net Asset Value:
Provided that the repurchase price of the units of close ended scheme launched prior
to the commencement of the Securities and Exchange Board of India (Mutual Funds)
(Amendment) Regulations, 2009 shall not be lower than ninety five per cent of the Net
Asset Value:]
Provided further that the difference between the repurchase price and the sale price of
the unit shall not exceed 7 per cent calculated on the sale price

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Certification SEBI vide its Gazette Notification dated May

31, 2010 has notified that with effect from June 1, 2010 all
the distributors, agents, any persons employed or
engaged or to be employed or to be engaged in the sale
and/ or distribution of Mutual Fund Products shall be
required to have a valid certification from the National
Institute of Securities Market (NISM) by passing their
certification examination 'NISM Series V-A : Mutual Fund
Distributors Certification Examination'. For further details
as well as for study material, which can be downloaded,
please log on to the website of NISM www.nism.ac.in.
It is further notified that if the said associated person
possesses a valid AMFI Mutual Fund (Advisors) Module
Certificate obtained before June 1, 2010, he shall be
exempted from the requirement of the abovementioned
NISM Certification Examination.

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