MUTUAL FUNDS
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Mutual funds are collective investment schemes that serves as an investment vehicle for a wide range of investment opportunities. The resources are pooled and invested in various schemes and the returns are shared. NO guarantee can be given for the returns. Professional Management, Liquidity, Diversification, Channelising savings, Offering wide portfolio, Return potential, Low costs, Tax benefits. RISK IN M F INDUSTRY: Market risks, Scheme risks, Investment advice risks, Business risk Political risks. Excessive diversification, Too much of concentration on blue chips, Poor planning, Un researched forecast, Fund managers are unaccountable for poor results.
SCHEMES OF MF: Open ended scheme: Funds with non-fixed ADVANTAGES OF MF:
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number of outstanding units – MF will continuously buy and sell units on the basis of net asset value (NAV). Close ended scheme: The corpus and the number of units are fixed. The units will be listed in SE and traded. It will have both market price and NAV. After expiry the entire corpus is sold and distributed.
2. Difference between open ended and close ended
Subscription Corpus Exit Maturity Listing Liquidity
OPEND ENDED open till the end keeps varying Easy No M. Period No listing By repurchase
CLOSE ENDED for a limited period fixed on closure / sold Fixed M period Listed in SE Sold in SE
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SEBI (Mutual Fund) Regulation 1996: All MFs must established in the form of trust to raise money through sale of units and be registered with SEBI and are governed by SEBI Regulations.
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CODE OF CONDUCT FOR M.F.: Not organized in the interest of sponsors, directors or trustees etc., give timely information to unit holders, scheme wise segregation of bank accounts and books of accounts, not to use unethical means to sell units, not to make any exaggerated statements.
Mutual Funds
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OTHER SCHEMES: Income oriented, Growth oriented, Hybrid, High growth, Tax saving, Special schemes, Real estate funds, Off-shore funds, Hedge funds, Fund of funds. Money Market MF: Money is invested in commercial paper, treasury bills etc.. Exchange Traded Funds – Provides exposure to index, can be bought and sold like any share, prices are market oriented and close to inter a day NAV. In India Nifty BeEs first ETF introduced, which can be bought and sold like any share.
MUTUAL FUND COSTS: Front end load: One time fixed fees paid by
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the investor when he buys the units. Back end load: Fixed fees on redemption. No Load : Expenses are borne by the fund itself. Roll over of a scheme: Can rollover from open to close ended before maturity. It includes fresh extension of period.
MANAGING MUTUAL FUNDS IN INDIA
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THE SPONSOR: Any corporate body which initiates the launching of a MF is known as Sponsor. The sponsors must have a sound track record and general reputation of integrity. THE TRUSTEES: Persons who hold the property of the MF in trust and for the benefit of the unit holders. The instrument of trust is executed by the sponsors and registered in favor of the trustees and is called Trust deed. Minimum 4 trustees. 75% of the trustees must be independent of the sponsors, meet at least 4 times a year and must be approved by SEBI. Trustees can be held liable for any financial irregularities, if any.
THE ASSEST MANAGEMENT COMPANY (AMC): They are the investment manager formed by the sponsors to manage the funds of MF. AMC is responsible for operating all the schemes of the MF and can act as AMC only for one MF. 40% of the capital is contributed by sponsors. One half of the Board of AMC must be independent members. Net worth must be Rs.10Cr. THE CUSTODIANS: They keep custody of the securities bought by the MF. They should not be associated with AMC.
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FACTORS TO SELECT MUTUAL FUND
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Consistency of performance. Investment process Quality of portfolio Track record of fund managers.
2) Credit Ratings 4) Fund managers quality 6)Transparency
RISK IN M F INDUSTRY: Market risks,
Scheme risks, Investment advice risks, Business risk and Political risks. Excessive diversification, Too much of concentration on blue chips, Poor planning, Un researched forecast, Fund managers are unaccountable for poor results.
REASONS FOR SLOW GROWTH OF M.F. IN INDIA:
Disparity between NAV and listed price, No uniformity in the calculation of NAV, Lack of transparency, Poor investor servicing, Too much dependence on outside agencies for data and research, Absence of qualified sales force.