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S

MUTUAL FUND

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Concept of Mutual Fund (MFs)

S Defined:- A fund that is created when a large number of investors

put in their money, and is managed by professionally qualified

persons.

S It is a vehicle for collective investment, a way of becoming part-

owner of the investment held under the scheme.

S Till 1986, UTI was only mutual fund in India, which hasoutnumbered to 33 major emerged Mfs.

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Entities in MFs operation

S Sponsor:- It is like promoter of a company, maybe abank, FIs or a financial service company. For E.g.

sponsor for Templeton Mutual Fund is Templetoninternational INC. Sponsor is responsible for setting upand establishing the mutual fund.

S Trustee:- a corporate body appointed by sponsor. Itappoints Asset Management Company(AMC), securenecessary approvals, periodically monitor AMC

functions.

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Entities in MFs continues

S Asset Management Company(AMC):- also referred to as theinvestment manager, is separate company appointed the trustees to

run the mutual fund. For E.G.: Templeton Asset ManagementPvt. Is AMC of Templeton MF.

S Custodian:- it handles investment back office operations ofMFs. It looks after receipt and delivery of securities, collection ofincome, distribution of dividends.

S Registrar & Transfer Agents:- they handle investor relatedservices such as sending fact sheet, annual reports. It may beoutsourced to SEBI approved agents like KARVY & CAMS.

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MFs FLOW PATTERN

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ORGANISATION OF MFs

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Mutual funds Classified

Openended

schemes

Closeended

schemes

Intervalschemes

Growthschemes

Incomeschemes

Balancedschemes

Money

marketschemes

Tax savingschemes

Indexschemes

Sectorspecific

schemes

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Classification Discussed

S Open ended schemes:- is the one that an investor can buy or sell asand when they intend to at a NAV based price.

S Close-ended schemes:- it usually issue units to investors only once,when they launch an offer, called New Fund Offer (NFO).Thereafter, these units are listed in stock exchanges where they aretraded on daily basis.

S Exchange Traded Funds:- is a hybrid of close-ended & open-endedindex funds. It is listed on stock exchange and like an open-endedfund it creates and redeems units in line with rise and fall ofdemand.

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Open-ended Vs. Close-ended

Open-ended index fundS Subscription on continuous basis.

S Permits investor to withdraw funds

on continuing basis.

S No fixed maturity period.

S Not listed in secondary market.

Close-ended index fundS subscription for limited

period(usually 3months).

S Does not allow withdrawal as and

when they like.

S Has a fixed maturity period(5 to 15 yrs).

S Listed on secondary market.

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Structuring in ETF

Creation in-kind Redemption in-kind

ETF units CashBuy/sell

Arbitrage cashTF units

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Mutual Fund Terminology

S NAV- It is actual value of a share on any business day. Its equal to

market value of the funds investment +receivable +accrued income liabilities-accrued expensesNumber of shares outstanding

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Continues

S Rate of return It is the of money gained or lost on an investmentrelative to amount of money invested. It is also called as ROI

S Repurchase price It is the price at which the buyer of the securities isobilized to sell back the asset to the seller in relation to repurchase

agreement

S Standard deviation- equal to the square root of mean of the squares ofthe deviations from the arithmetic mean of the distribution.

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Continues

S BETA - beta of a fund measures its past price volatility relative to aparticular stock market indexS ALFHA- Alpha measures the extra return earned on a scheme on a riskadjusted basisS Large cap- Larger companies worth $5 billion or more, likeGeneralElectric (NYSE: GE).S Mid cap- Medium-size companies worth $1 billion to $5 billion, likeBarnes & Noble (NYSE: BKS).S Small cap - Smaller companies worth $250 million to $1 billion, likeHotTopic (Nasdaq: HOTT).

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Advantages of Mutual Funds

Increased Diversification Daily Liquidity Professional Investment Management Ability to participate in investments that may be available only to larger investors Service & Convenience Government oversight Ease to comparison

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Disadvantages of Mutual Funds

FeesLess control over timing of recognition of gainsLess predictable incomeNo opportunity to customize

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References of study

S http://finance.indiamart.com/india_business_information/mutual_fund_companies.html

S www.wikipedia.com/finance

S http://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-India

S Security Analysis & Portfolio Management Prassana & ChandraS Security Analysis & Portfolio Management- P. PandianS http://www.e-investing.in/mutual-funds/106-reliance-mutual-fund-now-indias-largest-mf.html

http://finance.indiamart.com/india_business_information/mutual_fund_companies.htmlhttp://finance.indiamart.com/india_business_information/mutual_fund_companies.htmlhttp://www.wikipedia.com/financehttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://sunseven.hubpages.com/hub/The-Top-10-Mutual-Funds-in-Indiahttp://www.wikipedia.com/financehttp://finance.indiamart.com/india_business_information/mutual_fund_companies.htmlhttp://finance.indiamart.com/india_business_information/mutual_fund_companies.htmlhttp://finance.indiamart.com/india_business_information/mutual_fund_companies.html

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AMIT KUMAR ROYVIVEK SINGHNITIN VERMAPARITOSH JAIN