Description
overview
MUTUAL FUND
CHAPTER 1
MUTUAL FUND
Source:http://beginnersinest!"bout!co#
1.1 INTRODUCTION TO MUTUAL FUNDS:
There "re #"n$ inest#ent "enues ""i%"b%e in the &n"nci"% #"r'et (or "n
inestor! )nestors c"n inest in b"n' *eposits+ corpor"te *ebentures "n* bon*s+
post o,ce s"ing sche#es etc! -here+ there is %o- ris' together -ith %o- return!
The$ #"$ inest in stoc' o( co#p"nies -here the ris' is high "n* so#eti#es the
returns "re "%so proportion"te%$ high! For ret"i% inestors+ -ho *o not h"e the
ti#e "n* e.pertise to "n"%$/e "n* inest in stoc'+ Mutu"% Fun*s is " i"b%e
inest#ent "%tern"tie! This is bec"use Mutu"% Fun*s proi*e the bene&t o( che"p
"ccess to e.pensie stoc's! A Mutu"% Fun* is " co%%ectie inest#ent ehic%e
(or#e* -ith the speci&c ob0ectie o( r"ising #one$ (ro# " %"rge nu#ber o(
in*ii*u"%s "n* inesting it "ccor*ing to " pre1speci&e* ob0ectie+ -ith the
bene&ts "ccrue* to be sh"re* "#ong the inestors on " pro1r"t" b"sis in
proportion to their inest#ent! Accor*ing to Enc$c%ope*i" A#eric"n"+ 2Mutu"%
(un*s "re open en* inest#ent co#p"nies th"t inest sh"reho%*ers3 #one$ in
port(o%io or securities! The$ "re open en*e* in th"t the$ nor#"%%$ o4er ne-
1
MUTUAL FUND
sh"res to the pub%ic on " continuing b"sis "n* pro#ise to re*ee# outst"n*ing
sh"res on "n$ business *"$!5 Accor*ing to Securities "n* E.ch"nge 6o"r* o( )n*i"
Regu%"tions+ 1778 " #utu"% (un* #e"ns 2" (un* est"b%ishe* in the (or# o( trust
to r"ise #one$ through the s"%e o( units to the pub%ic or " section o( the pub%ic
un*er one or #ore sche#es (or inesting in securities+ inc%u*ing #one$ #"r'et
instru#ents5!
A Mutu"% Fun* is " trust registere* -ith the Securities "n* E.ch"nge 6o"r* o(
)n*i" 9SE6): -hich poo%s up the #one$ (ro# in*ii*u"%/corpor"te inestors "n*
inests the s"#e on beh"%( o( the inestors/units ho%*ers+ in e;uit$ sh"res+
goern#ent securities+ bon*s+ c"%% #one$ #"r'et etc! The inco#e e"rne*
through these inest#ents "n* the c"pit"% "ppreci"tions re"%i/e* "re sh"re* b$
<
MUTUAL FUND
its unit ho%*ers in proportion to the nu#ber o( units o-ne* b$ the#! This poo%e*
inco#e is pro(ession"%%$ #"n"ge* on beh"%( the unit1ho%*ers+ "n* e"ch inestor
ho%*s " proportion o( the port(o%io!
1.2 DEFINITION:
2Mutual funds are collective savings and investment vehicles where
savings of small (or sometimes big) investors are pooled together to invest for
their mutual beneft and returns distributed proportionately”.
2A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each
own shares of the fund. he fund!s assets are invested according to an
investment ob"ective into the fund!s portfolio of investments. Aggressive growth
funds see# long$term capital growth by investing primarily in stoc#s of fast$
growing smaller companies or mar#et segments. Aggressive growth funds are
also called capital appreciation funds%3
=
MUTUAL FUND
1.3 OPERATIONAL FLOW OF MUTUAL FUND:
The (o%%o-ing *i"gr"# *epicts the oper"tion"% >o- o( Mutu"% Fun*
Source:http://---!nri#utu"%(un*s!co#
?
MUTUAL FUND
http://---!nri#utu"%(un*s!co#
The #utu"% (un* co%%ects #one$ *irect%$ or through bro'ers (ro# inestors!
The #one$ is ineste* in "rious instru#ents *epen*ing on the ob0ectie o( the
sche#e! The inco#e gener"te* b$ se%%ing securities or c"pit"% "ppreci"tion o(
these securities is p"sse* on to the inestors in proportion to their inest#ent in
the sche#e! The inest#ents "re *ii*e* into units "n* the "%ue o( the units -i%%
be re>ecte* in Net Asset @"%ue or NA@ o( the unit! NA@ is the #"r'et "%ue o( the
"ssets o( the sche#e #inus its %i"bi%ities! The per unit NA@ is the net "sset "%ue
o( the sche#e *ii*e* b$ the nu#ber o( units outst"n*ing on the "%u"tion *"te!
Mutu"% (un* co#p"nies proi*e *"i%$ net "sset "%ue o( their sche#es to their
inestors! NA@ is i#port"nt+ "s it -i%% *eter#ine the price "t -hich $ou bu$ or
re*ee# the units o( " sche#e! Depen*ing on the %o"* structure o( the sche#e+
$ou h"e to p"$ entr$ or e.it %o"*!
A
MUTUAL FUND
1. 4 ADVANTAGES OF MUTUAL FUNDS:
)( #utu"% (un*s "re e#erging "s the ("orite inest#ent ehic%e+ it is bec"use
o( the #"n$ "*"nt"ges the$ h"e oer other (or#s "n* the "enues o(
inesting+ p"rticu%"r%$ (or the inestor -ho h"s %i#ite* resources ""i%"b%e in
ter#s o( c"pit"% "n* the "bi%it$ to c"rr$ out *et"i%e* rese"rch "n* #"r'et
#onitoring! The (o%%o-ing "re the #"0or "*"nt"ges o4ere* b$ #utu"% (un*s to "%%
inestors:
1! Port(o%io Diersi&c"tion:
E"ch inestor in the (un* is " p"rt o-ner o( "%% the (un*3s "ssets+ thus en"b%ing
hi# to ho%* " *iersi&e* inest#ent port(o%io een -ith " s#"%% "#ount o(
inest#ent th"t -ou%* other-ise re;uire big c"pit"%!
8
MUTUAL FUND
uence o( UT) on the
#"r'ets #"$ be %ess th"n be(ore+ though it re#"ins %"rgest p%"$er in in*ustr$! )n
"bso%ute ter#s+ the inestib%e (un*s corpus o( een UT) -"s sti%% re%"tie%$ s#"%%
"t "bout Rs!8GG crores in 17I?.
1A
MUTUAL FUND
1987 – 1988
AMEUNT
ME6)L)SED
9Rs Crores:
ASSETS UNDER
MANAJEMENT
9Rs! Crores:
ME6)L)SAT)EN AS H
EFJRESS DEMEST)C
SA@)NJS
UT)
overview
MUTUAL FUND
CHAPTER 1
MUTUAL FUND
Source:http://beginnersinest!"bout!co#
1.1 INTRODUCTION TO MUTUAL FUNDS:
There "re #"n$ inest#ent "enues ""i%"b%e in the &n"nci"% #"r'et (or "n
inestor! )nestors c"n inest in b"n' *eposits+ corpor"te *ebentures "n* bon*s+
post o,ce s"ing sche#es etc! -here+ there is %o- ris' together -ith %o- return!
The$ #"$ inest in stoc' o( co#p"nies -here the ris' is high "n* so#eti#es the
returns "re "%so proportion"te%$ high! For ret"i% inestors+ -ho *o not h"e the
ti#e "n* e.pertise to "n"%$/e "n* inest in stoc'+ Mutu"% Fun*s is " i"b%e
inest#ent "%tern"tie! This is bec"use Mutu"% Fun*s proi*e the bene&t o( che"p
"ccess to e.pensie stoc's! A Mutu"% Fun* is " co%%ectie inest#ent ehic%e
(or#e* -ith the speci&c ob0ectie o( r"ising #one$ (ro# " %"rge nu#ber o(
in*ii*u"%s "n* inesting it "ccor*ing to " pre1speci&e* ob0ectie+ -ith the
bene&ts "ccrue* to be sh"re* "#ong the inestors on " pro1r"t" b"sis in
proportion to their inest#ent! Accor*ing to Enc$c%ope*i" A#eric"n"+ 2Mutu"%
(un*s "re open en* inest#ent co#p"nies th"t inest sh"reho%*ers3 #one$ in
port(o%io or securities! The$ "re open en*e* in th"t the$ nor#"%%$ o4er ne-
1
MUTUAL FUND
sh"res to the pub%ic on " continuing b"sis "n* pro#ise to re*ee# outst"n*ing
sh"res on "n$ business *"$!5 Accor*ing to Securities "n* E.ch"nge 6o"r* o( )n*i"
Regu%"tions+ 1778 " #utu"% (un* #e"ns 2" (un* est"b%ishe* in the (or# o( trust
to r"ise #one$ through the s"%e o( units to the pub%ic or " section o( the pub%ic
un*er one or #ore sche#es (or inesting in securities+ inc%u*ing #one$ #"r'et
instru#ents5!
A Mutu"% Fun* is " trust registere* -ith the Securities "n* E.ch"nge 6o"r* o(
)n*i" 9SE6): -hich poo%s up the #one$ (ro# in*ii*u"%/corpor"te inestors "n*
inests the s"#e on beh"%( o( the inestors/units ho%*ers+ in e;uit$ sh"res+
goern#ent securities+ bon*s+ c"%% #one$ #"r'et etc! The inco#e e"rne*
through these inest#ents "n* the c"pit"% "ppreci"tions re"%i/e* "re sh"re* b$
<
MUTUAL FUND
its unit ho%*ers in proportion to the nu#ber o( units o-ne* b$ the#! This poo%e*
inco#e is pro(ession"%%$ #"n"ge* on beh"%( the unit1ho%*ers+ "n* e"ch inestor
ho%*s " proportion o( the port(o%io!
1.2 DEFINITION:
2Mutual funds are collective savings and investment vehicles where
savings of small (or sometimes big) investors are pooled together to invest for
their mutual beneft and returns distributed proportionately”.
2A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each
own shares of the fund. he fund!s assets are invested according to an
investment ob"ective into the fund!s portfolio of investments. Aggressive growth
funds see# long$term capital growth by investing primarily in stoc#s of fast$
growing smaller companies or mar#et segments. Aggressive growth funds are
also called capital appreciation funds%3
=
MUTUAL FUND
1.3 OPERATIONAL FLOW OF MUTUAL FUND:
The (o%%o-ing *i"gr"# *epicts the oper"tion"% >o- o( Mutu"% Fun*
Source:http://---!nri#utu"%(un*s!co#
?
MUTUAL FUND
http://---!nri#utu"%(un*s!co#
The #utu"% (un* co%%ects #one$ *irect%$ or through bro'ers (ro# inestors!
The #one$ is ineste* in "rious instru#ents *epen*ing on the ob0ectie o( the
sche#e! The inco#e gener"te* b$ se%%ing securities or c"pit"% "ppreci"tion o(
these securities is p"sse* on to the inestors in proportion to their inest#ent in
the sche#e! The inest#ents "re *ii*e* into units "n* the "%ue o( the units -i%%
be re>ecte* in Net Asset @"%ue or NA@ o( the unit! NA@ is the #"r'et "%ue o( the
"ssets o( the sche#e #inus its %i"bi%ities! The per unit NA@ is the net "sset "%ue
o( the sche#e *ii*e* b$ the nu#ber o( units outst"n*ing on the "%u"tion *"te!
Mutu"% (un* co#p"nies proi*e *"i%$ net "sset "%ue o( their sche#es to their
inestors! NA@ is i#port"nt+ "s it -i%% *eter#ine the price "t -hich $ou bu$ or
re*ee# the units o( " sche#e! Depen*ing on the %o"* structure o( the sche#e+
$ou h"e to p"$ entr$ or e.it %o"*!
A
MUTUAL FUND
1. 4 ADVANTAGES OF MUTUAL FUNDS:
)( #utu"% (un*s "re e#erging "s the ("orite inest#ent ehic%e+ it is bec"use
o( the #"n$ "*"nt"ges the$ h"e oer other (or#s "n* the "enues o(
inesting+ p"rticu%"r%$ (or the inestor -ho h"s %i#ite* resources ""i%"b%e in
ter#s o( c"pit"% "n* the "bi%it$ to c"rr$ out *et"i%e* rese"rch "n* #"r'et
#onitoring! The (o%%o-ing "re the #"0or "*"nt"ges o4ere* b$ #utu"% (un*s to "%%
inestors:
1! Port(o%io Diersi&c"tion:
E"ch inestor in the (un* is " p"rt o-ner o( "%% the (un*3s "ssets+ thus en"b%ing
hi# to ho%* " *iersi&e* inest#ent port(o%io een -ith " s#"%% "#ount o(
inest#ent th"t -ou%* other-ise re;uire big c"pit"%!
8
MUTUAL FUND
uence o( UT) on the
#"r'ets #"$ be %ess th"n be(ore+ though it re#"ins %"rgest p%"$er in in*ustr$! )n
"bso%ute ter#s+ the inestib%e (un*s corpus o( een UT) -"s sti%% re%"tie%$ s#"%%
"t "bout Rs!8GG crores in 17I?.
1A
MUTUAL FUND
1987 – 1988
AMEUNT
ME6)L)SED
9Rs Crores:
ASSETS UNDER
MANAJEMENT
9Rs! Crores:
ME6)L)SAT)EN AS H
EFJRESS DEMEST)C
SA@)NJS
UT)