mutual funds
DESCRIPTION
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MUTUAL FUND
Concept of Mutual Fund (MF’s)
Defined:- A fund that is created when a large number of investors put in their money, and is managed by professionally qualified persons.
It is a vehicle for collective investment, a way of becoming part-owner of the investment held under the scheme.
Till 1986, UTI was only mutual fund in India, which has outnumbered to 33 major emerged Mf’s.
Entities in MF’s operation
Sponsor:- It is like promoter of a company, maybe a bank, FI’s or a financial service company. For E.g. sponsor for Templeton Mutual Fund is Templeton international INC. Sponsor is responsible for setting up and establishing the mutual fund.
Trustee:- a corporate body appointed by sponsor. It appoints Asset Management Company(AMC), secure necessary approvals, periodically monitor AMC functions.
Entities in MF’s continues…
Asset Management Company(AMC):- also referred to as the investment manager, is separate company appointed the trustees to run the mutual fund. For E.G.: Templeton Asset Management Pvt. Is AMC of Templeton MF.
Custodian:- it handles investment back office operations of MF’s. It looks after receipt and delivery of securities, collection of income, distribution of dividends.
Registrar & Transfer Agents:- they handle investor related services such as sending fact sheet, annual reports. It may be outsourced to SEBI approved agents like KARVY & CAMS.
MF’s FLOW PATTERN
ORGANISATION OF MF’s
Mutual funds Classified
By structure
Open ended
schemes
Close ended
schemes
Interval schemes
Investment objective
Growth schemes
Income schemes
Balanced schemes
Money market
schemes
Other schemes
Tax saving schemes
Index schemes
Sector specific
schemes
Classification Discussed…
Open ended schemes:- is the one that an investor can buy or sell as and when they intend to at a NAV based price.
Close-ended schemes:- it usually issue units to investors only once, when they launch an offer, called New Fund Offer (NFO). Thereafter, these units are listed in stock exchanges where they are traded on daily basis.
Exchange Traded Funds:- is a hybrid of close-ended & open-ended index funds. It is listed on stock exchange and like an open-ended fund it creates and redeems units in line with rise and fall of demand.
Open-ended Vs. Close-ended
Open-ended index fund
Subscription on continuous basis.
Permits investor to withdraw funds on continuing basis.
No fixed maturity period.
Not listed in secondary market.
Close-ended index fund
subscription for limited period(usually 3months).
Does not allow withdrawal as and when they like.
Has a fixed maturity period(5 to 15 yrs).
Listed on secondary market.
Structuring in ETF
Primary market
Secondary market
seller
Authorized participant/fina
ncial institutions
Fund
Creation in-kind
Redemption in-kind
NSE
ETF units CashBuy/sell
Arbitrage
Buyer
cashETF units
Mutual Fund Terminology
NAV- It is actual value of a share on any business day. Its equal to
market value of the funds investment +receivable +accrued income –liabilities-
accrued expenses Number of shares outstanding
Continues…
Rate of return –It is the of money gained or lost on an investment relative to amount of money invested. It is also called as ROI
Repurchase price –It is the price at which the buyer of the securities is obilized to sell back the asset to the seller in relation to repurchase agreement
Standard deviation- equal to the square root of mean of the squares of the deviations from the arithmetic mean of the distribution.
Continues…
BETA - beta of a fund measures its past price volatility relative to a particular stock market index
ALFHA- Alpha measures the extra return earned on a scheme on a risk –adjusted basis
Large cap- Larger companies worth $5 billion or more, like General Electric (NYSE: GE).
Mid cap- Medium-size companies worth $1 billion to $5 billion, like Barnes & Noble (NYSE: BKS).
Small cap - Smaller companies worth $250 million to $1 billion, like Hot Topic (Nasdaq: HOTT).
Advantages of Mutual Funds
Increased Diversification
Daily Liquidity
Professional Investment Management
Ability to participate in investments that may be available only to larger investors
Service & Convenience
Government oversight
Ease to comparison
Disadvantages of Mutual Funds
Fees
Less control over timing of recognition of gains
Less predictable income
No opportunity to customize
References of study
http://finance.indiamart.com/india_business_information/mutual_fund_companies.html
www.wikipedia.com/finance
http://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-India
Security Analysis & Portfolio Management – Prassana & Chandra
Security Analysis & Portfolio Management- P. Pandian
http://www.e-investing.in/mutual-funds/106-reliance-mutual-fund-now-indias-largest-mf.html
AMIT KUMAR ROYVIVEK SINGHNITIN VERMAPARITOSH JAIN