Mutual Funds: PRENTENED BY:-Sher Singh Pradeep Kumar

MUTUAL FUNDS
PRENTENED BY:- Sher Singh

Pradeep Kumar
Mutual Funds
A mutual fund is a common pool of money into which
investors place their contributions that are to be invested in
different types of securities in accordance with the stated
objective.
An equity fund would buy equity assets – ordinary shares,
preference shares, warrants etc.
A bond fund would buy debt instruments such as debenture
bonds, or government securities/money market securities.
A balanced fund will have a mix of equity assets and debt
instruments.
Mutual Fund shareholder or a unit holder is a part owner of
the fund’s asset.
Mutual funds
Operations Flow Chart
History of Mutual Funds
Phase I – 1964 – 87: In 1963, UTI was set up by Parliament
under UTI act and given a monopoly. The first scheme launched
by UTI was Unit Scheme-64. Later in ’70’s and ’80’s, UTI started
offering some special purpose schemes like ULIP and Children’s
Gift Growth Fund. Master share, the first equity fund was
launched in 1986. These were launched to suit the needs of
different class of investors.
Phase II – 1987 – 93: 1987 marked the entry of non-UTI, Public

Sector mutual funds. Some of the mutual funds launched during
this period are SBI Mutual Fund, Canbank Mutual Fund, LIC
Mutual Fund, Indian Bank Mutual Fund, GIC Mutual Fund and
PNB Mutual Fund.
History of Mutual Funds
Cantriple, Magnum Triple, BOI Double Square Plus. Equity funds
with assured returns were launched which later ended in disaster.
Phase III – 1993 – 96: Permission was granted for entry of private
sector funds. It gave greater choice to the Indian Investors. These
private funds have brought in with them the latest product
innovations, investment management techniques and investor
servicing technology that makes the Indian mutual fund industry
vibrant and growing. This phase also marked the launch of an
open-end funds.
Phase IV – 1996: Investor friendly regulatory measures have been

taken both by SEBI to protect the investor, and by the government
to enhance investor’s returns through tax benefits.
Advantages of Mutual Funds
 Portfolio diversification: It enables him to hold a diversified investment portfolio
even with a small amount of investment like Rs. 2000/-.
 Professional management: The investment management skills, along with the

needed research into available investment options, ensure a much better return as
compared to what an investor can manage on his own.
 Reduction/Diversification of Risks: The potential losses are also shared with other
investors.
 Reduction of transaction costs: The investor has the benefit of economies of scale;
the funds pay lesser costs because of larger volumes and it is passed on to the
investors.
 Wide Choice to suit risk-return profile: Investors can chose the fund based on their
risk tolerance and expected returns
Disadvantages of Mutual Funds
 No control over costs: The investor pays investment management fees as long
as he remains with the fund, even while the value of his investments are
declining. He also pays for funds distribution charges which he would not incur
in direct investments.
 No tailor-made portfolios: The very high net-worth individuals or large

corporate investors may find this to be a constraint as they will not be able to
build their own portfolio of shares, bonds and other securities.
 Managing a portfolio of funds: Availability of a large number of funds can

actually mean too much choice for the investor. So, he may again need advice
on how to select a fund to achieve his objectives.
 Delay in redemption: It takes 3-6 days for redemption of the units and the
money to flow back into the investor’s account
BROAD TYPES OF MUTUAL FUNDS
Open-end Vs. Closed-end Funds
Open-end Fund
 Available for sale and repurchase at all times based on the net
asset value (NAV) per unit.
 Unit capital of the fund is not fixed but variable.
 Fund size and its total investment go up if more new
subscriptions come in than redemptions and vice-versa.
Closed-end Fund
 One time sale of fixed number of units.
 Investors are not allowed to buy or redeem the units directly
from the funds. Some funds offer repurchase after a fixed
period. For example, UTI offers a repurchase after 3 years.
Mutual Fund Types
Money Market Funds/Cash Funds
 Invest in securities of short term nature I.e. less than one year maturity.
 Invest in Treasury bills issued by government, Certificates of deposit
issued by banks, Commercial Paper issued companies and inter-bank
call money.
 Aim to provide easy liquidity, preservation of capital and moderate
income.
Gilt Funds
 Invest in Gilts which are government securities with medium to long
term maturities, typically over one year.
 Gilt funds invest in government paper called dated securities.
 Virtually zero risk of default as it is backed by the Government.
 It is most sensitive to market interest rates. The price falls when the
interest rates goes up and vice-versa
Debt Funds
Debt Funds/Income Funds
 Invest in debt instruments issued not only by government, but
also by private companies, banks and financial institutions and
other entities such as infrastructure companies/utilities.
 Target low risk and stable income for the investor.
 Have higher price fluctuation as compared to money market
funds due to interest rate fluctuation.
 Have a higher risk of default by borrowers as compared to
Gilt funds.
 Debt funds can be categorized further based on their risk
profiles.
 Carry both credit risk and interest rate risks.
Equity Funds
Equity Funds:
 Invest a major portion of their corpus in equity
shares issued by companies, acquired directly in
initial public offering or through secondary market
and keep a part in cash to take care of redemptions.
 Risk is higher than debt funds but offer very high
growth potential for the capital.
 Equity funds can be further categorized based on
their investment strategy.
 Equity funds must have a long-term objective.
Hybrid Funds
Balanced Funds:
 Has a portfolio comprising of debt instruments,
convertible securities, preference and equity shares.
 Almost equal proportion of debt/money market
securities and equities. Normally funds maintain a
Equity-Debt ratio of 55:45 or 60:40.
 Objective is to gain income, moderate capital
appreciation and preservation of capital.
 Ideal for investors with a conservative and long-term
orientation.
Systematic Investing, Builds
Future
A Systematic Investment Plan (SIP) is a disciplined approach to
wealth creation. It allows the investor to adopt a systematic and
dedicated approach to financial planning by inculcating a regular
savings habit.
 Instead of investing a large amount at one time, the investor can
choose to stagger his investment at regular intervals according to
his convenience and ability
 As individuals, our financial goals like obtaining income to meet
day to-day financial needs, saving for child’s education, marriage
or for a comfortable retirement & a secure financial future can be
met by means of a regular SIP
Systematic Investment Plan
 75% of the retail equity business comes through the

SIP route
 In 2005, two years ago the industry was adding about
10,000 SIPs a month, today the number is 10 times
higher
 SIP inflows are estimated over Rs. 400 Cr a month
 It's not just the salaried class that's investing, small
corporates and SMEs, are also signing up for SIPs
Benefits of Systematic Investing –
To the Investor
BENEFITS
 Regular small & manageable outflows each month.
UTI
 SIP can be started with as low as Rs. 1000 p.m.
 Hassle-free mode of deduction through salary
payments
 Take advantage of equity markets through limited
participation thereby minimizing the risk
 Professional financial advice from AMFI certified
advisors
 Automatic mode of savings
THANKYOU

Mutual Funds: PRENTENED BY:-Sher Singh Pradeep Kumar

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Mutual Funds: PRENTENED BY:-Sher Singh Pradeep Kumar

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MUTUAL FUNDS

PRENTENED BY:- Sher Singh

Phase II – 1987 – 93: 1987 marked the entry of non-UTI, Public

Phase IV – 1996: Investor friendly regulatory measures have been

 Professional management: The investment management skills, along with the

 No tailor-made portfolios: The very high net-worth individuals or large

 Managing a portfolio of funds: Availability of a large number of funds can

 75% of the retail equity business comes through the

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