WHAT IS A MUTUAL FUND?

WHAT IS A MUTUAL FUND?WHAT IS A MUTUAL FUND?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common investment objective

IN turn buy assets

21-2 Copyright © 2002 by Prof. A.K. .Mishra All rights reserved.

LEGAL STRUCTURELEGAL STRUCTUREFUND SPONSPOR/SETTLOR

KOTAK MAHINDRA FINANCE LTD.

TRUSTKOTAK MAHINDRA MUTUAL FUND

TRUSTEEKOTAK MAHINDRA TRUSTEE CO. LTD.

INVESTMENT MANAGER &

ADVISORKOTAK MAHINDRA ASSET MANAGEMENT CO. LTD.UNIT

HOLDERS

Contd…


LEGAL STRUCTURELEGAL STRUCTURE

APPOINTS

• CUSTODIANS

• REGISTRARS

• BANKS

• DISTRIBUTORS

INVESTMENT MANAGER & ADVISORKOTAK MAHINDRA ASSET MANAGEMENT CO. LTD.


Working of a Mutual FundWorking of a Mutual Fund

FUND MANAGEMEN

T

SECURITIES

RETURNS

INVESTORS Pool their money with

Invest inGenerate

Passed back to INVESTORS GET A BLEND OF LIQUIDITYRETURNS & SAFETY

INVEST IN BALANCEDPORTFOLIO

PORTFOLIOYIELDS HIGH RETURN TO MFs

MUTUAL FUND•LARGE CORPORATE•SPECIALISTS MANAGE


Type of Mutual Fund

Schemes

StructureInvestment Objective

Special Schemes

Open Ended Funds

Close Ended Funds

Interval Funds

Growth Funds

Income Funds

Balanced Funds

Money Market Funds

Industry Specific Schemes

Index Schemes

Sectoral Schemes

TYPES OF MUTUAL FUNDSTYPES OF MUTUAL FUNDS


MUTUAL FUNDSMUTUAL FUNDSOPEN 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


WHY INVEST IN MUTUAL FUNDS?SAVE THROUGH MUTUAL FUNDS INVEST THROUGH MUTUAL FUNDS

Park surpluses

Short term investment

Easy liquidity

Tax benefits

Have a long term objective

Profile your risk

Select appropriate MF scheme, based on risk return requirement

Mix of equity and debt

Invest regularly/with flexibility

BENEFITS OF MUTUAL FUNDSBENEFITS OF MUTUAL FUNDSProfessional Management & AnalysisDiversification & Divisibility

Across Companies & SectorsLiquidity

Entry & Exit at NAVTransparency

Regular disclosuresConvenient Administration (Record Keeping)Low Costs of operations (Lower transaction cost)Choice of schemes.Well Regulated. (By SEBI)


HighNo price risk

9% - 10%Over 1 yearSerial

HighLow Credit

9% - 10.5%

1 month – 12 months

Bond

HighNo8% to 9.5%

Overnight to 1 month

Liquid

Mutual Funds

HighPrice Risk

7% - 9%<12 monthsT-Bills

Routed thro’ PD’sLow6.5% - 9%OvernightCall (thro’ PD’s)

No secondary mkt.Medium

9% - 11%<180 daysICD’s

Possible by breaking FD at cost

Low6% - 12%7 days to 1 yr.

Bank Deposits

LiquidityRiskPre-TaxReturns

TenureInstrument

INVESTMENT OPTIONS


RIGHTS AS A MUTUAL FUND RIGHTS AS A MUTUAL FUND UNITHOLDERUNITHOLDER

• Receive statement of accounts within 6 weeks from the date your request is received by the Mutual Fund

• Receive information about the investment policies, objectives, financial position and general affairs of the scheme

• Receive dividend within 30 days of their declaration, receive redemption proceeds within 10 days from the date of the valid redemption

• Vote in accordance with the Regulations to: - change the Asset Management Company

- wind up the schemes.

• To receive communication from the Trustee about change in the fundamental attributes of any scheme


MUTUAL FUNDSMUTUAL FUNDS

STRUCTURAL ISSUES (MUTUAL FUNDS)

MUTUAL FUND (REGISTERED WITH SEBI) MEANS:

A FUND ESTABLISHED IN THE FORM OF TRUST


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUNDS)

BY A SPONSOR

– BODY CORPORATE WHO ACTING ALONE OR IN

COMBINATION WITH ANOTHER BODY CORPORATE

– FLOATS THE IDEA OF SETTING UP OF MUTUAL FUND

– ESTABLISHES MUTUAL FUND IN FORM OF TRUST

– TRUST DEED EXECUTED WITH BOARD OF TRUSTEES

– REGISTERS IT WITH SEBI

– 40% CONTRIBUTION TO AMC


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUNDS)

TO RAISE MONIES BY TRUSTEES– HOLDG PROPERTY OF MF IN TRUST FOR BENEFIT OF UNIT

HOLDERS

THROUGH THE SALE OF UNITS– REPRESENTING ONE UNDIVIDED SHARE IN THE ASSETS OF A

SCHEME

FOR INVESTING IN SECURITIES APPLICATION FEES:5000; REGISTRATION FEES:10 LACS; ANNUAL FEES : 1 LAC


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES(MUTUAL FUND TRUST)

MF TO BE CONSTITUTED IN FORM OF MF TRUST

MANAGED BY A BOARD OF TRUSTES IN WHOSE

FAVOUR TRUST DEED IS EXECUTED BY SPONSORS

50% MEMBERS NOT AFFILIATED WITH SPONSORS

CONTROLS ALL CAPITAL PROPERTY OF MF

SCHEMES/ HOLDS THEM IN TRUST FOR HOLDERS


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES(MUTUAL FUND TRUST)

APPOINTS AMCs

ENSURES SCHEMES FLOATED & MANAGED BY AMC ARE IN

ACCORDANCE WITH TRUST DEED

POWER TO OBTAIN REPORT/DISMISS AMC

AN AMC NOT TO ACT AS TRUSTEE OF ANY MF

APPOINT CUSTODIAN &SUPERVISE ITS ACTIVITIES


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES (MUTUAL FUND TRUST LIST)

ALLIANZ CAPITAL & MGT SERVICES LTD ANZ GRINDLAYS BANK TIMES MUTUAL FUNDS UNIT TRUST OF INDIA VLS FINANCE LTD. KOTAK MAHINDRA FINANCE LTD PRUDENTIAL CAPITAL MARKETS LTD. SBI FUNDS MANAGEMENT LTD CEAT MF & ASSET MANAGEMENT COMPANY LTD.



STRUCTURAL ISSUES (AMC)

MFs OPERATED BY AMCs -APPTD BY TRUSTEES

AMCs & TRUSTEES TWO SEPARATE LEGAL ENTITIES & ARM’S LENGTH

RELATIONSHIP MNTD

AMCs TO APPROVE MOA & AOA FROM SEBI



STRUCTURAL ISSUES (AMC)

AMCs MIN NW 5 CR (40% CONTRIB BY SPOSORS)

50% MEMBERS FROM OUTSIDE

CAN’T ACQUIRE OUTSIDE THE SCHEME PROPERTY

DISCLOSE REPURCHASE PRICE/NAV OF SCHEMES


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES (AMC LIST)

20TH CENTURY AMC LTD APPLE ASSET MGT LTD. BOI AMC LTD. CREDIT CAPITAL AMC LTD. GIC AMC LTD. ICICI AMC LTD. ITC PIONEER AMC LTD. MORGAN STANLY AM INDIA LTD. PNB AMC LTD.


MUTUAL FUNDSMUTUAL FUNDSSTRUCTURAL ISSUES (INVESTMENT MIX)

EQUITY SHARES/EQUITY RELATED INSTRTS (CDs)/ DEBT INSTRUMENTS (NCDs, PSBONDS,GOVT SECT)/MONEY MARKET INSTRTS(TBs, CPs & BILLS)

5% CAP FROM ONE SCHEME IN ONE CO’S SHARE 10% CAP FROM ALL SCHEMES IN ONE CO’S SHARE 15%CAP FROM ALL SCHEMES IN ONE INDUSTRY TYPICAL ASSET MIXSCHEME EQUITY DEBT MONEY MKTGROWTH 70-90% 5-20% 0-10%INCOME 20-30% 60-70% 0-15%BALANCED 40-60% 40-50% 0-10%


MUTUAL FUND INDUSTRYMUTUAL FUND INDUSTRYKEY FINANCIALS

NAV= M.V OF FUND’S INVESTS+REC+ACCRUED INCOME- LIABILITIES-ACCRUED EXP

NO. OF SHARES OR UNITS OUTSTANDING

MARKET PRICE: IN CASE OF CLOSE ENDED REPURCHASE/REISSUE PRICE: OPEN ENDED DISCOUNT RATE OF RETURN= NAV AT END-NAV AT BEGINNING +

DIVIDEND PAID NAV AT BEGINNING

INITIAL EXPENSES: CEILING OF 6% RECURRING EXPENSES: MAX 3% OF AV

NET ASSETS IN A YEAR



LOADS(CHARGED TO MF SCHEME) THREE TYPES

INITIAL ISSUE EXP (6% OF FUND RAISED)HIDDEN

RECURRING EXP (3% MAX OF NET ASSETS)

– OTHER THAN INITIAL ISSUE EXP/ INCLUDES

TRUSTEESHIP FEES /INCLUDES INVST MGT &

ADVISORY FEE OF AMC (1.25% UPTO RS 100 CR & 1%

OVER 100 CR)



LOADS(CHARGED TO MF SCHEME) THREE TYPES

AMC CHARGE FOR ISSUE/RECURRING COST(6%)

IN OPEN END SCHEME DIFF BETWEEN PURCHASE &

SALE PRICE NOT TO EXCEED 7% OF SALE PRICE

BACK END (DISCOUNT TO NAV) DEDUCTED DURING

REPURCHASE/REDEMPTION



NAV OF A NO-LOAD FUND (20 LACS UNITS ISSUED)VALUE OF SECURITIES HELD IN PORTFOLIO 500 LACSCASH IN HAND OF MUTUAL FUND 10 LACSTOTAL ASSETS 510 LACSLESS : OUTSTANDING LIABILITIES 110 LACSTOTAL NET ASSETS 400 LACSTHUS NAV = Rs 400 LACS =RS 20 PER UNIT UNITS 20 LACSIF 10,000 NEW UNITS ISSUED AT NAV OF RS 20 PER UNITTHUS NAV = ^TOTAL ASSETS =RS 4,02,00,000= RS 20 PER UNIT ^UNITS UNITS 20,10,000THUS NAV DOES NOT VARY DUE TO SELING OR BUYING NAV VARIES ON ANY VARIATION OF MARKET PRICES OF SECURITIES

HELD IN THE PORTFOLIO OF MF



NAV OF A NO-LOAD FUND NAV VARIES ON ANY VARIATION OF MARKET PRICES OF

SECURITIES HELD IN THE PORTFOLIO OF MFNAV=(RS 6 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.5 16 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS DOUBLED, NAV SHIFTSNAV=(RS 12 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.875 16 MILL UNITS IN TRUST

IF VALUE OF EQUITY IS HALFED THEN THE NEW NAV ISNAV=(RS 3 MILL EQ + RS 4 MILL DEBT)- 2 MILL LIAB AS DEBT = 0.3125 16 MILL UNITS IN TRUST

IN ABOVE, FUND SHOULD SWITCH FROM AGGRESSIVE TO DEFENSIVE INVEST TO AVOID RAPID EROSION OF NAV

INVEST IN DEBT INSTRTS MAY BE ONE SOLUTION



NAV OF A LOAD FUND (20 LACS UNITS ISSUED)IF MF IS A 4% FRONT LOAD FUNDTHEN NAV=NAV(OF NO-LOAD FUND) PER UNIT/1-% OF LOAD= RS 20= RS 20 = RS 20 = RS 20.80 AS CALLED OFFERING 1-4% 1-4/100 0.96HERE OFFER PRICE (SALE PRICE) WILL BE 20.80 PER UNIT

BID PRICE (REPURCHASE PRICE) WILL BE RS 20.00 PER UNIT

DIFFRENCE BETWEEN OFFER & BID PRICE IS 4% i.e. 80 PAISE IS CALLED “SPREAD” PAID TO FUND

THERE IS A TWO WAY QUOTE PROVIDED BY IN OPEN FUND



MARS, PVT SECTOR MF LAUNCHED A GROWTH SCHEME WITH AN INITIAL TARGET OF Rs 100 CR. DEPLOYMENT OF FUNDS IS TO CONFIRM THE FOLLOWING COMPOSITION

EQUITY 70%, DEBT 25% MONEY MARKET 5% INITIAL EXPENSES 4% DEBT COMPONENT INVESTED EQUALLY IN AAA & AA RATED

INSTRUMENTS AT 18% & 20% RESPECTIVELY EQUITY PORTION INVESTED IN SENSEX SCRIPS AV. YIELD ON MONEY MARKET COMPONENT WAS 8% SENSEX WAS AT 3800 & AT TIME OF INVEST IS AT 2900 AFTER ONE

YEAR DEBT & MONEY MKT INSTRTS VALUED AT COST RECURRING EXP MET OUT OF INCOME EARNED ON DEBT & MONEY

MKT INSTRTS (assume 3% on size of fund) COMPUTE NAV & SALE PRICE IF FRONT LOAD FACTOR IS 5%


MUTUAL FUND INDUSTRYMUTUAL FUND INDUSTRY

PASSING THROUGH CRITICAL PHASE “LIVING DEAD” IN STOCK MARKETS LOST INVESTOR’S CONFIDENCE UTTER FAILURE IN INDIA


MUTUAL FUND INDUSTRYMUTUAL FUND INDUSTRYFEW EVIDENCES

SHRIRAM ASSET MGT CO FINED (JUN 96)

MORGAN STANLEY FINED (2/6/97)– RESORTING TO SHORT SALES

– PRICE RIGGING IN BHEL SCRIPS

– RENDERING PORTFOLIO MGT SERV TO GROUPS CANSTAR UNABLE TO PURCHASE AT

PROMISED NAV LIC MF HAD TO PURCHASE AT PROMISED NAV

& BOOK THE LOSS TO AMC


MUTUAL FUND MONITORMUTUAL FUND MONITOR

Particulars Growth Income Balanced Total

No. of Schemes 98 28 32 158

Schemes giving -ve returnson annualised basis

50 01 02 53

Schemes giving singledigit annualised returns

31 10 12 53

Schemes giving doubledigit annualised returns

17 17 18 52

Source: Business Today


MUTUAL FUND MONITORMUTUAL FUND MONITOR

INSTITUTIONS 1994-95 1995-96 1998-99

UTI 8120 2470 860

Private Sector 1216 375 115

Public Sector 949 327 156

TOTAL 10,285 3,172 1,131

Source: Business Today


MUTUAL FUND OPEARATIONMUTUAL FUND OPEARATION

PRODUCTDESIGN

PRODUCTMARKETING

FUNDMANAGEMENT

OUTSOURCING

INVESTOR’SSERVICE

THE CHAIN OFOPERATION

FAILED IN ALL CHAINS OF OPERATIONS


MUTUAL FUND OPERATIONMUTUAL FUND OPERATION

PRODUCT DESGIN

•INNOVATION

•SUPERIOR DESIGN

•ADAPATABILITY


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONPRODUCT DESIGN

DID LITTLE TO INNOVATE WITH INNOVATION 70% SCHEMES CLOSE END WITH POOR RETURNS UTI STILL CONTINUES WITH PLAIN VANILLAS INNOVATION ONLY IN OPEN END SCHEMEDS TIME TO DESIGN SECTOR, LOCATION BASED MFs


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONPRODUCT DESIGN- PACKAGED POTFOLIO MODEL KNOW BEFOREHAND Cos WERE INVEST BE MADE PORTFOLIO TO CONSIST OF 50 BLUE CHIP Cos

WHICH HAVE CREATED ENORMOUS WEALTH TO HOLDERS & THEIR MKT CAP HAVE INCREASED

FLEXIBILITY TO TIME INVESTMENTS TO TAKE ADVANTAGE OF PRICE MOVEMENTS

FUND INITIALLY TO BE OPEN ENDED AUTOMATICALLY CONVERTED INTO CLOSE

ENDED ONCE THE INVESTMENT CEILING IS ACVD


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONPRODUCT MARKETING

•COST

•AGGRESSIVE MARKETING

•UPFRONT COST


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONPRODUCT MARKETING

COST & ETHICS ARE TWO IMPORATNT FACTORS UPFRONT COST BORNE BY INVESTOR OR AMC UTI CAN’T AGGRESSIVELY MARKET ITS PRODUCT MORGAN STANLEY MADE MFs AS IPOs & ALL

NUANCES OF IPOs WERE BROUGHT IN


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONFUND MANAGEMENT

•CAPITAL PROTECTION

•MARKET TIMING

•ASSET QUALITY


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONFUND MANAGEMENT

NON-QUALIFIED, UNPROFESSNL FUND MANAGERS LOOK MFs AS ANOTHER EQUITY PRODUCT IGNORE ASSET ALLOCATION, PORTFOLIO,

TURNOVER & COST NO QICK ASSET REALLOCATION ON TIME DON’T INCLUDE HIGH LIQUID BLUE CHIP STOCKS NOT BALANCING RISK RETURN EXPECTATION OF

INVESTORS


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONFUND MANAGEMENT- SUGGESTED MODEL

PROTECT CAPITAL FROM EROSION ALTERNATIVELY GUARANTEE CAPITAL SAFETY POSSESS EXCELLLENT RESEARCH CAPABILITIES

– TO ENSURE MARKET TIMING– INVESTMENT STRATEGY FORMULATION

FOLLOW APPROPRIATE ASSET ALLOCATION MODEL SUITING FUND’S OBJECTIVE

QUICKLY RESTRURE ASSET ALOCATION ON NEED ENSURE QUALITY OF ASSETS BE IT EQTY OR DEBT ENSURE ECONOMICAL COST OF OPERATIONS BE IT

MANAGEMENT FEES OR OTHER EXPENSES


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONOUTSOURCING

•COST CONTROL

•FLEXIBILITY

•CHOICE


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONOUTSOURCING

NEW CONCEPT THAN TO DO THINGS IN HOUSE ENDORSED AS A GREAT COST CUTTING MEASURE CONVERTS FIXED COSTS TO VARIABLE COSTS ABROAD OUTSOURCING 100% FROM PRODUCT

DESIGN TO INVESTOR SERVICING YET TO COME IN INDIAN FUND MANAGEMENT ONE AREA MAY BE DISTRIBUTION NETWORK


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONINVESTOR SERVICE

•CUSTOMER FOCUS

•BETTER CONFIDENCE

•EFFICIENT SERVICE


MUTUAL FUND OPERATIONMUTUAL FUND OPERATIONCUSTOMER FOCUS

SCANT ATTENTION TO INVESTOR’S SERVICING IGNORING INVESTOR’S EDUCATION NOT INCLINED TOWARDS TRANSPARENCY NON DISCLOSURE OF PORTFOLIO LACK LUSTER SHOW ON RETURNS FRONT UNIT HOLDERS NOT TREATED AS CUSTOMERS GOOD SERVICE ATTRACTS MULTIPLE CUSTOMERS MORALE “TREAT HIM LIKE CUSTOMER & INVEST IN

TECNOLOGY TO REACH HIM FAR & WIDE” LESSONS TO LEARN FROM Pvt SECTOR MFs

Documents

WHAT IS A MUTUAL FUND?