mutual fund types 1 final
TRANSCRIPT
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MUTUAL FUND
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CONTENTS
Meaning of Mutual Fund
History of Mutual Fund Flow chart of Mutual Fund
Types of Mutual Funds
Advantages of Mutual Fund Name of the companies who
launched various Mutual Funds
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WHATISMUTUALFUND?
A Mutual Fund is a trust that pools the savings of anumber of investors who share a common financial goal.
The money thus collected is then invested in capital
market instruments such as shares, debentures and othersecurities.
The income earned through these investments and thecapital appreciation realised are shared by its unit holdersin proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment forthe common man as it offers an opportunity to invest in adiversified, professionally managed basket of securities ata relatively low cost.
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History of the Indian Mutual Fund
Industry
The mutual fund industry in India started in
1963 with the formation of Unit Trust ofIndia, at the initiative of the Government of
India and Reserve Bank.
The history of mutual funds in India can bebroadly divided into three distinct phases:
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First Phase1964-87
Unit Trust of India (UTI) was established on
1963 by an Act of Parliament. It was set up
by the Reserve Bank of India andfunctioned under the Regulatory and
administrative control of the Reserve Bank
of India.
The first scheme launched by UTI was Unit
Scheme 1964. At the end of 1988 UTI had
Rs.6,700 crores of assets under
management.
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Second Phase1987-1993 (Entry of
Public Sector Funds)
1987 marked the entry of non- UTI, public sector
mutual funds set up by public sector banks andLife Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual
Fund established in June 1987.
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Third Phase1993-2003 (Entry of Private
Sector Funds)
With the entry of private sector funds in 1993, a
new era started in the Indian mutual fund
industry, giving the Indian investors a wider
choice of fund families.
In 1993 was the year in which the first Mutual
Fund Regulations came into being, under whichall mutual funds, except UTI were to be
registered and governed.
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The flow chart below describes the working
of a mutual fund:
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TYPES OF MUTUAL FUNDs
MutualFunds
By MaturityPeriod
By InvestmentObjective
Equity
Income
Balance
fund
Money
market
Gilt fund
Index
fund
Close
ended
Open
ended
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Schemes according to Maturity Period
A mutual fund scheme can be classified into open-endedscheme or close-ended scheme depending on its maturity
period.
Open-ended
FundAn open-ended Mutual fund is one that is available for subscription and
repurchase on a continuous basis. These Funds do not have a fixed
maturity period.
close-endedFund
A close-ended Mutual fund has a stipulated maturity period e.g. 5-7
years. The fund is open for subscription only during a specified
period.
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Fund according to Investment Objective
A scheme can also be classified as growth fund, income
fund, or balanced fund considering its investment objective.
Growth / EquityOriented Scheme
The aim of growth funds is to provide capital appreciation
over the medium to long- term.Such funds have comparatively high risks.
These schemes provide different options to the investors
like dividend option, capital appreciation, etc.
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Income / Debt
Oriented Scheme
The aim of income funds is to provide regular and
steady income to investors.
Such schemes generally invest in fixed
income securities such as bonds, corporate
debentures, Government securities and
money market instruments.
Such funds are less risky compared to equity
schemes
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Balanced Fund
The aim of balanced funds is to provide both
growth and regular income as such schemesinvest both in equities and fixed income securities
in the proportion indicated in their offer
documents.
These are appropriate for investors looking for
moderate growth.
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Money Market
These funds are also income funds and their aim
is to provide easy liquidity, preservation of capital
and moderate income.
These schemes invest exclusively in safer short-
term instruments such as treasury bills,
commercial paper and government securities,
etc.These funds are appropriate for corporate and
individual investors as a means to park their
surplus funds for short periods.
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Gilt Funds
These funds invest exclusively in governmentsecurities.Government securities have no default
risk.
Index Funds
This schemes invest in the securities in thesame weightage comprising of an index.
This schemes would rise or fall in accordance
with the rise or fall in the index
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ADVANTAGESOFMUTUALFUNDS
Flexibility:The investments pertaining to the
Mutual Fund offers the public a lot of flexibility by
means of dividend reinvestment, systematic
investment plans and systematic withdrawal plans.
Affordability:The Mutual funds are available in
units. Hence they are highly affordable and due to
the very large principal sum, even the small
investors are benefited by the investment scheme.
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Liquidity:In case of Open Ended Mutual Fund
schemes, the investors have the option of
redeeming or withdrawing money at any point of
time at the current rate of net value asset.
Diversification:The risk pertaining to the Mutual
Funds is quite low as the total investment is
distributed in several industries and different stocks.
Professional Management:The Mutual Funds are
professionally managed. The experienced Fund
Managers pertaining to the Mutual Funds examine
all options based on research and experience.
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Potential of return:The Fund Managers of the
Mutual Funds gather data from leading economists
and financial analysts. So they are in a better
position to analyze the scopes of lucrative returnfrom the investments.
Low Costs:The fees pertaining to the brokerage,
and others is very low.
Regulated for investor protection:The Mutual
Funds sector is regulated by the Securities
Exchange Board of India (SEBI) to safeguard the
rights of the investor.
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Net Asset Value (NAV)
Net Asset Value is the market value of the assets ofthe scheme minus its liabilities. The per unit NAV isthe net asset value of the scheme divided by thenumber of units outstanding on the Valuation Date.
Sale PriceIs the price you pay when you invest in a scheme.Also called Offer Price. It may include a sales load.
Repurchase Price
Is the price at which a close-ended schemerepurchases its units and it may include a back-endload. This is also called Bid Price.
FREQUENTLYUSEDTERMS
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Redemption Price
Is the price at which open-ended schemes
repurchase their units and close-ended schemesredeem their units on maturity. Such prices are NAVrelated.
Sales Load
Is a charge collected by a scheme when it sells theunits. Also called, Front-end load. Schemes that donot charge a load are called No Load schemes.
Repurchase or Back-end Load
Is a charge collected by a scheme when it buysback the units from the unit holders.
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NAV:-
NAV is nothing but the total market value of allthe assets held in the mutual fund portfolio less the
liabilities, divided by all the outstanding units.
That amounts to nothing but the book value.
The NAV measures how much each share of amutual fund is worth. So essentially, the NAV of a
mutual fund is the cost of one share of the fund.
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HOWNAV ISCALCULATED?
The total assets of a mutual fund usually falls into
two categoriescash and securities. Securities
include stocks and bonds. So the total asset will
include the market value of all its cash, stocks,
bonds. Liquid assets, dividends to be received,interest accrued also need to be included in the
total assets.
At the same time, the mutual fund will have some
money that it will owe to some creditors. That is itsliabilities. There will be some expenses that has
accrued over time and yet to be paid, this also
needs to be included.
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Let us see that in a formula.
Net Asset Value (NAV) = (AssetsDebts) / (Number
of Outstanding units)
whereAssets = Market value of the funds investments +
Receivables + Accrued Income
Debts = Liabilities + Accrued Expenses
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As an example, assume there are two investors X
and Y who have invested in a mutual fund whichdecided to issue out units at Rs 1/-.
X invests Rs 100/- and Y invests Rs 200/-.
The total corpus of the mutual fund will be Rs 100 +
Rs 200 = Rs 300/- and X will get 100 units and Ywill get 200 units.
Now suppose the mutual fund manager invests
smartly over a year and makes the investment grow
and the corpus becomes Rs 800/-.
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The NAV will be calculated as :
NAV per share = (AssetsDebts) / ( Number of
Outstanding Units)
= (Rs 800/- 0) / (300)
= 2.67
The NAV is 2.67.
So Xs value of investments will be 100 units * 2.67 =Rs 267/- and
Ys value of investments will be 200 units * 2.67 = Rs
534/-.
In reality of course, there are liabilities and expenseratios to be taken care of.
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Top Mutual Funds Companies
ICICI PruUTI
SBI Mangum Emerging Fund
IDFC Premier Equity Fund
HDFCReliance Equity Opportunity Fund
Reliance Pharma Fund
SBI FMCG Fund
HDFC Balanced FundICICI Balanced Fund
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SummaryThe Mutual Fund Industry is a growth
industry
Mutual Funds cover a spectrum of InvestmentOptions
Start Investing Early & Systematically
We invest directly or through a Professional
Money Manager