Mutual fund

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  • 1. Mutual fund

2. The era between 1963 and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn Assets Under Management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI).
By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market.
3. Pure growth funds/ growth oriented funds
Long term gains / capital appreciation
Do not offer regular income (may declare dividend, but main objective is capital appreciation)
Nest eggs investment
Investment portfolio on equities with high growth potential
to accumulate for the future needs
4. Nest eggs - contd
High growth= high riskbearing securities
Useful for salaried & business people with ability to defer liquidity
5. Balanced funds
Otherwise called income cum growth fund
Aims at regular income & capital appreciation
Portfolio consists of high growth equity shares & fixed income earning securities
6. Specialised funds
Offer to meet specific needs of specific categories of people like pensioners, etc,.
Open doors to foreign investors in domestic securities
Invested in funds of specific areas like Japan fund, South Korean fund,
Can also be confined to one particular sector like, - fertilizer, automobiles, petroleum,
High risk invested in one industry
7. Money market funds
Open ended funds
Invested in highly liquid & safe securities
Invested only in money market securities
Used as a parking place / stop gap arrangement, till they finalise on long term investments
8. Taxation funds
Growth oriented fund which offers tax rebates
Covered under sec 88 of Income Tax Act 1961
20% rebate offered on an investment of Rs 10,000
Both domestic & foreign funds
Eg Tax saving SBI magnum, UTIs USD 60million India fund based in USA
9. Importance of mutual funds
10. Organisation of the fund
A sponsor (company which sets up the fund) institution to promote the fund
A team of trustees to oversee the operations (safeguarding the interest of investors)
An Asset Management company to actually deal with the funds (trustees guide & control AMC)
11. Operation of MF
Invites investors to join the fund by offering various schemes
Resources of individual investors are pooled together & invested in capital & money markets
Investors are issued units
For managing the funds the company gets an annual fee of max 1.25%of funds managed
If funds exceed 100 crores, it is 1% (fixed by SEBI MF regulations 1993
Regular expenses like registration, custodial fee, asset management fee cannot exceed 3% of the assets each year
The remaining amount is given to investors
12. NET ASSET VALUE / Intrinsic value
Market price of each unit of a particular scheme in relation to all assets of the scheme
This value is a true indicator of the performance of the fund
NAV forms the basis for fixing the repurchaseand reissue price
Eg- scheme size = Rs 100 cr .
Unit price = Rs 10.
market value of investment = 200 cr
NAV = RS 20
13. mF in India
The industry has been monopolised by the UTI since 1963
Now the commercial banks, LIC, GIC, private banks (1993 ) and other financial institutions are in the field
By 1995 there were nearly 25 MFs offering 80 schemes
14. mF in India( Contd)
By the end of 1993, the total AUM of the industry was Rs. 470.04 bn.
The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existance with re-registering all mutual funds except UTI.
The regulations were further given a revised shape in 1996.
15. mF in India(contd)
Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton.
Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn.
Today there are 33 mutual fund companies in India.
16. mF in India(contd)
Total assets managed by domestic mutual funds exceeded Rs 8 lakh crore mark in May 2010, rising around 5% over the previous month, according to data by Association of Mutual Funds in India (AMFI).
Future of MF in India
KPMG GROWTH 22% - 25% BETWEEN 2010 -2015 Rs 16,000 18,000 billion
17. Latest trends in the world
US- AVE MARIA MF (smart investing & catholic values)
No load, long term funds
For Investors -on Morally Responsible Securities ( in companies - do not violate core teachings of catholic church)
Investment Advisor : Schwartz Investment Counsel., Inc
Catholic Advisory Board guided by the Magisterium of the church sets the criteria for screening
18. contd
USdominated MF market $ 9.6 trillion 2008
Aggressive expansion of foreign owned companies
AUM 1,01,565 cr in 2000to 5,67,601 Ap 2008
19. Fund Structure
Fund Sponsor
Asset Management Company
20. Fund Sponsor
The Fund Sponsor
Any person or corporate body that establishes the Fund and registers it with SEBI.
Form a Trust and appoint a Board of Trustees.
Appoints Custodian andAsset Management Company either directly orthrough Trust, in accordance with SEBI regulations.
SEBI regulations also define that a sponsor must contribute
at least 40% to the net worth of the asset management
21. Trustees
Created through a document called the Trust Deed that is executed by the Fund Sponsor and registered with SEBI.
The Trust-the mutual fund may be managed by a Board of Trustees- a body of individuals or a Trust Company- a corporate body.
Protector of unit holders interests.
22. Trustees
Rights of Trustees:
Approve each of the schemes floated by the AMC.
The right to request any necessary information from the AMC.
May take corrective action if they believe that the conduct of the fund's business is not in accordance with SEBI Regulations.
Have the right to dismiss the AMC,
Ensure that, any shortfall in net worth of the AMC is made up.
23. Trustees
Obligations of the Trustees:
Enter into an investment management agreement with the AMC.
Ensure that the fund's transactions are in accordance with the Trust Deed.
Furnish to SEBI on a half-yearly basis, a report on the fund's activities
Ensure that no change in the fundamental attributes of any scheme or the trust or any other change which would affect the interest of unit holders is happens without informing the unit holders.
Review the investor complaints received and the redressal of the same by the AMC.