Mutual funds are financial intermediaries, which collect the savings of investors and invest them in a large and

well-diversified portfolio of securities such as money market instruments, corporate and government bonds and equity shares of joint stock companies. MFs can survive and thrive only if they can live up to the hopes and trusts of their individual members. This project deals with the structure of the Indian MF industry and its constituents. It also classifies the Mutual fund schemes and describes the major players in the industry, with specific reference to Unit Trust of India (UTI) A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of new players have entered the market and trying to gain market share in this rapidly improving market.

The Definition
A mutual fund is nothing more than a collection of stocks and bonds. investors can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.

INTRODUCTION
Before we understand what is mutual fund, its very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.

STOCKS:
Stocks represent shares of ownership in a public company. Examples of public Companies include Reliance, ONGC and Infosys. Stocks are considered to be the most Common owned investment traded on the market.

BONDS:
Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

CONCEPT
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. 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. The small

savings of all the investors are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Mutual fund scheme has a defined investment objective and strategy.

FUND STRUCTURE AND CONSTITUENTS

Mutual Funds have a unique structure not shared with other entities such as companies or firms. It is important here to discuss the special nature of this structure because it determines the rights and responsibilities of the funds constituents viz. Sponsors Trustees, custodian, transfer agent and of course, the fund and the asset management

company (AMC). The legal structure also drives the inter-relationship between these constituents.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone in a combination with another body corporate, establishes a mutual fund. The sponsor of the fund is akin to the promoters of a company as he gets the fund registered SEBI. Sponsors will form a trust and a point a board of trustees. The sponsors, either directly or acting through the Trustees, will also appoint an AMC as Fund Manager. All these appointments are made in accordance with SEBI regulations. As per the existing SEBI regulations, for a person to qualify as a sponsor, he must contribute at least 40% of the net worth of the AMC and possess a sound financial track record over 5 years prior to registration.

Trustee:
The trust- the mutual fund may be managed by board of Trustees body of individuals, or trust company corporate body. Most of the funds in India are managed by board of Trustees. While the board of trustees will be governed by the provision of the Indian Trust Act, where the trustee is a corporate body, it would also be required to comply with the provisions of independent body acts as a protector of the unit holders interest. The Trustees being the primary guardian of the unit holders funds and assets, a Trustee has to be a person of high repute and integrity. SEBI has laid down a set of conditions to be

fulfilled by the individuals being proposed as trustees of mutual fund both dependent and independent. Asset Management Company:

The role of an Asset Management Company (AMC) is to act as the investment manager of the trust under the board of supervision and direction of the Trustees. The AMC is required to be approved and registered with SEBI as an AMC.The AMC of a Mutual Fund must have a net worth of at least Rs. 10 crores at all times. Directors of the AMC, both independent and non-independent, should have adequate professional experience in financial services and should be individuals of high moral standing, a condition applicable to other key personnel of the AMC. The AMC cannot act as a trustee of other Mutual Fund. Besides its role as fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independently of one another and the AMCs resources (such as personnel, systems, etc.) are properly segregated by activity.

Custodian and Depositories:

Mutual Funds are in the business of buying and selling of securities in large volumes, handling these securities in terms of physical delivery and eventually safekeeping is therefore a specialized activity. The custodian appointed by the board of Trustees for safekeeping of securities or participating in a clearing system through approved depository companies on behalf of the mutual fund. The custodian should be an entity

independent of the sponsors and is requires to be registered with SEBI. A Mutual Funds dematerialized securities holdings will be a depository through depository participant

Bankers:
A funds activities involve dealing with money on a continuous basis primarily with respect to buying and selling units, paying for investments made, receiving the proceeds on sales of investments and discharging its obligation towards operating expenses. A funds bankers therefore play crucial role with respect to its financial dealings by holding its bank accounts and providing it with respect to its financial dealings by holding its bank accounts and providing it with remittances services

Transfer Agents:
Transfer agents are responsible for receiving and redeeming units of the Mutual fund and provide other related services such as preparation of transfer documents and updating investors records. A fund may choose to carry out this activity in house and charge the scheme for the service at a competitive market rate. where an outside transfer agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides ( besides the investment management) are going to be dependent on the transfer agents.

Distributors:
Mutual Funds operate as collective vehicles on the principle of accumulating fund from a large number of investors and then investing on a big scale. For a fund to sell units across

a wide retail base of individual investors and established network of distribution agents is essential.

Open-ended Fund/ Scheme

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Close-ended Fund/ Scheme

A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

Schemes according to Investment Objective:

A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:

Growth / Equity Oriented Scheme

The aim of growth funds is to provide capital appreciation over the medium to longterm. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, Capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date.

Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Income / Debt Oriented Scheme:

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

Money Market or Liquid Fund

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and interbank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Sector specific funds

These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Infrastructure, Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert.

Tax saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. ULIP schemes also offer tax benefits. These schemes are growth oriented and invest predominantly in equities. Their growth opportunities and risks associated are like any equity oriented schemes

Net Asset Value:

Before venturing into the market related functional aspects of Mutual funds, it is important to understand the evaluation criteria of these funds. Just as a business is evaluated by the level of its profits, a mutual fund is assessed on the basis of its net asset value, as explained below. The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders

would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the "per unit". We also abide by the same convention.

Calculation of NAV
The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of units outstanding. The detailed methodology for the calculation of the asset value is given below.

Asset value is equal to

Sum of market value of shares/debentures + Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid

Asset Management Company (AMC):

An Asset Management Company or AMC is the investment manager of the respective trust, which is entitled to invest in different securities on behalf of unit holders, in line with the objectives of respective schemes.

Load: The charge collected by a Mutual Fund from an investor for selling the units or
investing in it.

Entry load: When a charge is collected at the time of entering into the scheme it is
called an Entry load or Front-end load or Sales load. The entry load percentage is added to the NAV at the time of allotment.

Exit load:
An Exit load or Back-end load or Repurchase load is a charge that is collected at the time of redeeming or for transfer between schemes (switch). The exit load percentage is deducted from the NAV at the time of redemption or transfer between schemes.