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Unit 14

MUTUAL FUND SERVICES AND PRODUCTS

A typical MF in India has the following constituents

Fund Sponsor Mutual Fund Trustees Asset Management Company

Fund Sponsor
A sponsor is a person who establishes a MF. It obtains the certificate of registration as a MF from SEBI. He is similar to the promoter of a company. Contributes at least 40% of the net worth of AMC

Mutual Fund
A MF is constituted in the form of a trust under the Indian Trust Act, 1882. The fund invites investors to contribute their money in the common pool, by subscribing to units issued by various schemes established by the trust. The assets of the trust are held by the trustee for the benefit of unit holders.

Trustees

The MF or trust can either be managed by the Board of Trustees, which is a body of individuals, or b a Trust Company, which is a corporate body.

Asset Management Company

The AMC, appointed by the sponsor or the Trustees and approved by SEBI, acts like the investment manager of the trust.

Working of a Mutual Fund


INVESTORS Passed back to RETURNS
INVESTORS GET A BLEND OF LIQUIDITY RETURNS & SAFETY
MUTUAL FUND LARGE CORPORATE SPECIALISTS MANAGE

Pool their money with

FUND MANAGEMENT

Generate

Invest in

PORTFOLIO YIELDS HIGH RETURN TO MFs

SECURITIES

INVEST IN BALANCED PORTFOLIO

TYPES OF MUTUAL FUNDS


Type of Mutual Fund Schemes Investment Objective Special Schemes

Structure Open Ended Funds

Growth Funds Income Funds

Industry Specific Schemes

Close Ended Funds Interval Funds

Index Schemes
Sectoral Schemes

Balanced Funds
Money Market Funds

MUTUAL FUNDS

OPEN ENDED OPEN FOR ALL THE YEAR MIN SUBS AMT 50CR NO DURATION REFUNDED IF MIN SUBS NOT ACHIEVED REPURCHASED ANY TIME REDEEMED AT NAV & LOAD FACTOR RANGES (4% TO 6%) AS REPURCHSED SO NOT LISTED AT STOCK EX TRADED AS PERMITTED LOT DIVID MAY /MAY NOT SWITCHOVER ALLOWED

CLOSE ENDED OPEN FOR FIXED PERIOD MIN SUBS AMT 20CR DURATION (5TO7 YEARS) REFUNDED IF MIN AMT NOT ACHIEVED MAY BE REPURCHASED (AFTER 2 TO 3 YRS) REDEMPTION SPECIFIED & DONE AT NAV - SERVICE CHARGE LISTED AT STOCK EX DIVID MAY/MAY NOT BE SWITCHOVER ALLOWED

Growth/equity oriented funds


Provide capital appreciation over the medium to long-term. Normally invest a major part of their corpus in equities. Good for investors having a long-term outlook seeking appreciation over a period of time

Income/ Debt oriented funds

Provide regular and steady income to investors. Generally invest in fixed income securities such as corporate debentures, government securities, and money market instruments
Less risky compared to equity schemes

Balanced funds
Provide both growth and regular income. Invest both in equities and fixed income securities in the proportion indicated in their offer documents. Suitable for risk-averse investors interested in exposure to equities and bonds.

Sector funds

Investment strategy is focused on a particular sector such as pharmaceuticals, software, FMCG etc, which is likely to grow at a faster rate in the near/immediate future Invest in the companies of such a particular sector. The examples are UTI Software Fund Franklin FMCG Fund Pru ICICI FMCG Fund

Index funds

Mirror a market index, like Nifty or Sensex. Invest in all the stocks that comprise a particular index in proportions equal to the weightage of those stocks in the index. Passively managed funds. Appropriate for conservative long term investors looking at moderate risk, moderate return arising out of a welldiversified portfolio. Performance is generally similar to that of their benchmark indices.

Index funds and the base index


Index funds IDBI Principal Franklin India Index Tax Fund Franklin India Index Fund UTI Nifty Fund Pioneer ITI Index Fund India Access Fund Magnum Index Fund UTI Master Index Base index S&P CNX Nifty S&P CNX Nifty S&P CNX Nifty S&P CNX Nifty S&P CNX Nifty S&P CNX Nifty S&P CNX Nifty BSE Sensex

MMMF
Invest exclusively in safer short-term instruments such as T/Bs, CDs, CP and inter bank call money, government securities, etc. Appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Funds & Venture capital Funds


Gilt Funds Invest exclusively in government securities which have no default risk.
Venture capital Funds Invest in unlisted companies, start-up business, new technologies. Risk is very high. Return is also very high. Provide tax benefit to the investors.

Fund of Funds

Invest in other mutual funds which are performing well. Suitable for cautious investors who want to minimize risks. Kotak Equity Fund of Funds (FoFs), Indians only FoFs that invests in other AMCs funds. Can invest up to 25% in its core equity fund Kotak 30, and the rest can be invested in other top performing funds.

MUTUAL FUND INDUSTRY


KEY FINANCIALS

NAV=

M.V OF FUNDS INVESTS+REC+ACCRUED INCOMELIABILITIES-ACCRUED EXP NO. OF SHARES OR UNITS OUTSTANDING NAV AT END-NAV AT BEGINNING + DIVIDEND PAID NAV AT BEGINNING

RATE OF RETURN=

INITIAL EXPENSES: CEILING OF 6% RECURRING EXPENSES: MAX 3% OF AV NET ASSETS IN A YEAR

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