SERVICE SECTOR MANAGEMENT[/b]
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TOPIC: MUTUAL FUNDS[/b]
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[/b]TEJAS POPAT (75)[/b]
SIDDHI SHAH (98) [/b]
VINAY THAKKAR (111)[/b]
INTRODUCTION
DEFINITION OF MUTUAL FUNDS
“Mutual fund is a non-depository, non-banking financial intermediary that acts as an improvement vehicle for bringing wealth holders and deficit units together directly.”
IERCE & JAMES.L
“Mutual fund is corporation, which accepts money from investors and uses the same to buy stocks, long-term bonds & short-term debt instruments used by issuers”.
WESTON...J.FRED & BRIGHAM
The SEBI (Mutual Fund Regulations 1993 Defines Mutual Fund as a
“Fund Established In Form Of Trust By A Sponsor To Raise Money By The Trustees Through Sale Of Units Of The Public Under One Or More Schemes For Investing In Securities In Accordance With These Regulations”.
HISTORY OF MUTUAL FUNDS
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the Assets under Management (AUM) was Rs. 67billion. The private sector entry to the fund family raised the Assets under Management to Rs. 470 billion in March 1993 and till April 2004; it reached
the height of 1,540 billion.
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PRODUCT[/b]
Mutual Funds primarily sell a service to the investors – The service of organizing the
pooling of resources, and managing assets and investments of the investors. They mobilize funds from the investing public to manage funds efficiently, i.e., they create an expectation of good returns in the mind of the investors and generate a desire in them to invest their money in Mutual Fund units / shares.
Mutual Funds are portrayed as products different from various other investment
options. While bank deposits offer assured returns, insurance companies sell contracts. Equity shares of companies give returns based on their operations. Mutual Funds on the other hand sell on the proposition that returns are hedged against various risks and depend on the investment skills and efficiency of the MF managers.
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PRICING STRATEGIES[/b]
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The price of mutual fund products is inextricably linked with returns. Indian mutual funds follow the historic pricing structure. SEBI (Mutual Funds) Regulations, 1996, contain guidelines about the pricing of units. As per these guidelines, the schemes may also provide for the price at which the units may be subscribed or sold to the independent participants in the scheme and the price at which such units may at any time be repurchased by the mutual funds. Mutual funds are also to publish the sale and repurchase prices at least once in a week. Mutual funds are also to ensure that the difference between the sale and repurchase prices does not exceed 7 per cent of the sale price.
In India the face value of the units of most of the mutual funds is Rs 10. However, while deciding on the price, incentives, brokerage charges and commissions are also to be decided in advance because the expenses towards these items will effect the ultimate returns to investors.
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PLACE[/b]
Mutual funds are sold through five distribution channels:
1) the direct channel
2) the advice channel
3) the retirement plan
4) the supermarket channel
5) the institutional channel
The first four channels primarily serve individual investors. In the direct channel investors carry out transactions directly with mutual funds. In the advice, retirement plans and supermarket channels, individual investors use third parties or intermediaries that conduct transactions with mutual funds on their behalf. Third parties also provide services to fund investors on behalf of mutual funds.
The most important feature of the advice channel is the provision of investment advice and ongoing assistance to fund investors by financial advisors at full service securities firms, banks, insurance agencies and financial planning firms. Advisers are compensated through sales load or from asset-based fees.
The retirement plan channel primarily consists of employer-sponsored defined contribution plans in which employers provide mutual funds and other investments for purchase by plan participation through payroll deductions.
The supermarket channel is made up of discount brokers that offer mutual funds from a large number of fund sponsors. Many of the fund offerings are subject to no transaction charges or sales loads.
Business financial institutions, endowments, foundations and other institutional investors use the institutional channel to conduct transactions either directly with mutual funds or through third parties.