MUTUAL FUNDS

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MUTUAL FUNDS
2
HISTORY

• UTI WAS THE ONLY MUTUAL FUND OPERATING SINCE
  1964. IT IS AN OPEN ENDED FUND- UNITS CAN BE
  PURCHASED AND SOLD BACK TO UTI ANY TIME. IT WAS
  A PUBLIC SECTOR MONOPOLY POSITION FUND. MANY TAX
  BENEFITS WERE OFFERED FOR BUYING UNITS
• SINCE 1987 MANY PUBLIC SECTOR BANKS SET UP THEIR
  MUTUAL FUNDS- FOLLOWING AN AMENDMENT IN THE
  BANKING REGULATION ACT-THAT COMMERCIAL BANKS CAN
  CARRY ON NON-BANKING BUSINESS.
• MUTUAL FUNDS BUSINESS WAS THROWN OPEN TO PRIVATE
  AS WELL AS FOREIGN INSTITUTIIONS AFTER
  1992LIBERALISATION.
• MUTUAL FUNDS CATER TO THE NEEDS OF SMALL SAVERS
  AND INDIVIDUAL INVESTORS.

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DEFINITION

• IT IS AN ASSOCIATION OR TRUST OF MEMBERS WHO WISH
  TO INVEST IN FINANCIAL INSTRUMENTS FOR MUTUAL
  BENEFITS. FUNDS COLLECTS MONEY FROM MEMBERS AND
  INVESTS SUCH MONEYS IN DIVERSIFIED PORTFOLIO OF
  FINANCIAL ASSETS WITH A VIEW TO REDUCE RISKS AND
  MAXIMISE INCOME. INVESTORS ARE BENEFITTED BY THE
  EXPERTISE AVAILABLE WITH THE MUTUAL FUND.
• MUTUAL FUNDS ARE OF VARIOUS TYPES
• OPEN ENDED
• CLOSE ENDED WITH SPECIFIC TIME FRAME WHERE THE
  MATURITY MAY ALSO BE FIXED.

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TYPES OF MF..CONTD..

• ON THE BASIS OF OBJECTIVES
• INCOME FUND
• GROWTH FUND (CAPITAL APPRECIATION)
• BALANCED FUNDS (INCOME AND GROWTH)
• ON THE BASIS OF INVESTMENT PATTERNS
• INVESTMENT IN GOVT.SECURITIES
• INVESTMENT IN DEBENTURES
• INVESTMENT IN EQUITIES
• SECTORWISE INVESTMENT
• MONEYMARKET MUTUAL FUNDS
• TAXATION FUNDS

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TYPES OF FUNDS..CONTD..

• LEVERAGE FUNDSTHEY ARE USED TOINCREASE THE SIZE
  OF THE VALUE OF PORTFOLIO(BORROWED FUNDS)
• DUAL FUNDS- SINGLE INVESTMENT OPPORTUNITY FOR TWO
  DIFFERENT TYPES OF INVESTORS INCOME UNIT AND
  CAPITAL UNITS.
• INDEX FUNDS- THE PORTFOLIO IS DESIGNED IN SUCH A
  MANNER THAT THEY REFLECT THE COMPOSITION OF SOME
  BROAD BASED INDEX SECURITIES IN THE SAME
  PROPORTION AS INDEX. IT INVOLVES LESS
  ADMINISTRATIVE EXPENSES AND LOWER TRANSACTION
  COST.
• BOND FUNDS PORTFOLIO CONSISTS OF FIXED INCOME
  SECURITIES BONDS.
• OFF-SHORE FUNDS MEANT FOR NON-RESIDENT
  INVESTORS.REGULATED BY THE PROVISIONS OF THE
  FOREIGN COUNTRY WHERE IT IS REGISTERED.

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IMPORTANCE OF MUTUL FUNDS

• CHANNELISING SAVINGS
• OFFERING WIDE PORTFOLIO INVESTMENT
• PROVIDING BETTER YIELDS
• EXPERT INVESTMENT ADVICE AT LOW COST
• TAX BENEFITS
• PROVIDING RESEARCH SERVICE
• INTRODUCING FLEXIBLE INVESTMENT SCHEDULE.
• SIMPLIFIED RECORD KEEPING
• SUPPORTING CAPITAL MARKET
• PROMOTING INDUSTRIAL DEVELOPMENT
• KEEPING MONEY MARKET ACTIVE.

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RISKS OF MUTUAL FUNDS

• MARKET RISKS
• SCHEME RISKS
• INVESTMENT RISKS (EXPERTISE)
• EXTERNAL RISKS
• ORGANISATION OF FUND
• SPONSORING INSTITUTION PROMOTING FUND
• TEAM OF TRUSTEES.
• ASSET MANAGEMENT COMPANY TO DEAL WITH FUNDS
  ASSETS
• EXPENSES MAXIMUM 1.25 IF THE FUND IS LESS THAN
  100 CR.AND 1 IF IT EXCEEDS 100 CRORES.

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FACILITIES AVAILABLE TO THE INVESTORS

• REPURCHASE FACILITY
• REISSUE FACILITY
• ROLL OVER FACILITY (REINVESTING FOR ANOTHER TERM)
• LATERAL SHIFTING FACILITIES
• S I P
• NET ASSET VALUE TRHE REPURCHASE PRICE IS LINKED
  TO NAV. IT IS MARKET VALUE OF THE SECURITIES
  HELD DIVIDED BY THE NUMBER OF UNITS.. IT IS THE
  INTRINSIC VALUE OF THE UNIT.

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INVESTORS RIGHTS

• UNIT CERTIFICATE WITHIN 10 WEEKS FROM DATE OF
  CLOSURE FOR CLOSE ENDED AND 6 WEEKS FOR INITIAL
  OFFER.
• TRANSFER WITHIN A PERIOD OF 30 DAYS.
• REFUND OF APPLICATION MONEY(STATUTORY MINIMUM
  AMOUNT 20 CRORES FOR CLOSE E NDED ,50 CRORES FOR
  OPEN ENDED OR 60 OF TARGETED AMOUNT WHICHEVER
  IS HIGHER.APPLICATIOPN MONEY HAS TO BE RETURNED
  WITHIN 6 WEEKS

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SOME SHORTCOMINGS OF MFS

• DISPARITY BETWEEN NAV AND LISTED PRICE
• NO UNIFORMITY IN CALCULATION OF NAV
• LACK OF TRANSPERANCY
• POOR INVESTOR SERVICING
• EXCESSIVE DEPENDENCE ON OUTSIDE AGENCIES
• ABSENCE OF QUALIFIED SALES FORCE
• INVESTORS EXPECTATIONS ALWAYS RISING --HENCE BIG
  PROMISES.