mutual funds documentation

7/28/2019 Mutual Funds Documentation

1/25

MUTUAL FUNDS

Basics of mutual funds

The area in which mutual funds works is Stocks and Bonds.

Stocks

Stocks represent shares of ownership in a public company. Examples of public companiesinclude Reliance, ONGC and Infosys. Stocks are considered to be the most common owned

investment traded on the market.Bonds

Bonds are basically the money which you lend to the government or a company, and in returnyou can receive interest on your invested amount, which is back over predetermined amounts oftime. Bonds are considered to be the most common lending investment traded on the market.There are many other types of investments other than stocks and bonds (including annuities, realestate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.


2/25

Entities Involved in Mutual Fund

The following diagram illustrates various entities involved in the organizational structure ofMutual Fund

Regulatory Authorities:

To protect the interest of the investors, SEBI (Securities and Exchange Board ofIndia)formulates policies and regulates the mutual funds. It notified regulations in 1993 (fullyrevised in 1996) and issues guidelines from time to time. MF either promoted by public or byprivate sector entities including one promoted by foreign entities is governed by theseRegulations.

SEBI approved Asset Management Company (AMC) manages the funds by makinginvestments in various types of securities. Custodian, registered with SEBI, holds the securitiesof various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors of Trustee Company or board of

trustees must be independent.

The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutualfunds that the mutual funds function within the strict regulatory framework.

AMFI : also is engaged in upgrading professional standards and in promoting best industrypractices in diverse areas such as valuation, disclosure, transparency etc.


3/25

Custodian: An agent, bank, trust company, or otherorganization which holds and safeguards anindividual's, mutual fund's, orinvestment company'sassets for them.

What is a Mutual Fund?

A Mutual fund is an investment in an investment company. Investment companies sell stock intheir mutual funds. Instead of producing a product or service they take the money they receivefor their stock and invest it in the stocks and bonds of other corporations.

The mutual fund will have a fund manager who is responsible for investing the gathered moneyinto specific securities (stocks or bonds).

When you invest in a mutual fund, you are buying units or portions of the mutual fund and thuson investing becomes a shareholder or unit holder of the fund.

Working of Mutual Fund
http://www.investorwords.com/154/agent.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/5085/trust_company.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.businessdictionary.com/definition/hold.htmlhttp://www.businessdictionary.com/definition/safeguard.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/2609/investment_company.htmlhttp://www.investorwords.com/2609/investment_company.htmlhttp://www.investorwords.com/2609/investment_company.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.businessdictionary.com/definition/safeguard.htmlhttp://www.businessdictionary.com/definition/hold.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/5085/trust_company.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/154/agent.html


4/25

Summary:

A Mutual Fund is a trust that pools the savings of a number of investors who sharea common financial goal.

The money thus collected is then invested in capital market instruments such as

shares, debentures and other securities. The income earned through these investments and the capital appreciation realised

are shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as itoffers an opportunity to invest in a diversified, professionally managed basket of

securities at a relatively low cost.

Advantages of Investing Mutual Funds:1. Professional Management - The basic advantage of funds is that, they are professionalmanaged, by well qualified professional. Investors purchase funds because they do not have the

time or the expertise to manage their own portfolio. A mutual fund is considered to be relativelyless expensive way to make and monitor their investments.2.Diversification:Diversification is nothing but spreading out your money across available ordifferent types of investments. By choosing to diversify respective investment holdings reducesrisk tremendously up to certain extent. The most basic level of diversification is to buy multiplestocks rather than just one stock. Mutual funds are set up to buy many stocks.3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus helpto reducing transaction costs, and help to bring down the average cost of the unit for theirinvestors.4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate theirholdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other availableinstruments in the market, and the minimum investment is small. Most AMC also have automaticpurchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as theirmanagement is not dynamic enough to explore the available opportunity in the market, thusmany investors debate over whether or not the so-called professionals are any better than mutualfund or investor him self, for picking up stocks.2. CostsThe biggest source of AMC income, is generally from the entry & exit load which

they charge from an investors, at the time of purchase. The mutual fund industries are thuscharging extra cost under layers of jargon.3. Dilution - Because funds have small holdings across different companies, high returns from afew investments often don't make much difference on the overall return. Dilution is also theresult of a successful fund getting too big. When money pours into funds that have had strongsuccess, the manager often has trouble finding a good investment for all the new money.4. Taxes - when making decisions about your money, fund managers don't consider yourpersonal tax situation. For example, when a fund manager sells a security, a capital-gain tax is


5/25

triggered, which affects how profitable the individual is from the sale. It might have been moreadvantageous for the individual to defer the capital gains liability.

Types of Mutual Funds Schemes in IndiaWide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk

tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being acollection of many stocks, an investors can go for picking a mutual fund might be easy. Thereare over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds incategories, mentioned below.

Overview of existing schemes existed in mutual fund category:

1) BY STRUCTURE .

-Open - Ended Schemes-Close - Ended Schemes

-Interval Schemes

2) BY NATURE.- Equity fund

-Debt funds

-Balanced funds

3) OTHERS.

-Tax Saving Schemes-Index Schemes-Sector Specific Schemes

BY STRUCTURE

1. Open - Ended Schemes: An open-end fund is one that is available for subscription allthrough the year. These do not have a fixed maturity. Investors can conveniently buy and sellunits at Net Asset Value ("NAV") related prices. The key feature of open-end schemes isliquidity.2. Close - Ended Schemes: These schemes have a pre-specified maturity period. One can investdirectly in the scheme at the time of the initial issue. Depending on the structure of the schemethere are two exit options available to an investor after the initial offer period closes. Investorscan transact (buy or sell) the units of the scheme on the stock exchanges where they are listed.

The market price at the stock exchanges could vary from the net asset value (NAV) of thescheme on account of demand and supply situation, expectations of unit holder and other marketfactors. Alternatively some close-ended schemes provide an additional option of selling the unitsdirectly to the Mutual Fund through periodic repurchase at the schemes NAV; however onecannot buy units and can only sell units during the liquidity window. SEBI Regulations ensurethat at least one of the two exit routes is provided to the investor.3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open


6/25

for sale or redemption during pre-determined intervals at NAV related prices.

The risk return trade-off indicates that if investor is willing to take higher risk thencorrespondingly he can expect higher returns and vise versa if he pertains to lower riskinstruments, which would be satisfied by lower returns. For example, if an investors opt forbank FD, which provide moderate return with minimal risk. But as he moves ahead to invest incapital protected funds and the profit-bonds that give out more return which is slightly higher as

compared to the bank deposits but the risk involved also increases in the same proportion.Thus investors choose mutual funds as their primary means of investing, as Mutual fundsprovide professional management, diversification, convenience and liquidity. That doesnt mean

mutual fund investments risk free. This is because the money that is pooled in are not investedonly in debts funds which are less riskier but are also invested in the stock markets whichinvolves a higher risk but can expect higher returns. Hedge fund involves a very high risk since itis mostly traded in the derivatives market which is considered very volatile.

BY NATURE

1. Equity fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of thefund may vary different for different schemes and the fund managers outlook on differentstocks. The Equity Funds are sub-classified depending upon their investment objective, asfollows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds


7/25

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.

2. Debt funds:

The objective of these Funds is to invest in debt papers. Government authorities, privatecompanies, banks and financial institutions are some of the major issuers of debt papers. Byinvesting in debt instruments, these funds ensure low risk and provide stable income to theinvestors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known asGovernment of India debt papers. These Funds carry zero Default risk but are associatedwith Interest Rate risk. These schemes are safer as they invest in papers backed byGovernment.

Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. Thesescheme ranks slightly high on the risk-return matrix when compared with other debtschemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. Thesefunds primarily invest in short term papers like Certificate of Deposits (CDs) andCommercial Papers (CPs). Some portion of the corpus is also invested in corporatedebentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easyliquidity and preservation of capital. These schemes invest in short-term instruments like

Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant forshort-term cash management of corporate houses and are meant for an investmenthorizon of 1day to 3 months. These schemes rank low on risk-return matrix and areconsidered to be the safest amongst all categories of mutual funds.

3. Balanced funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in both equitiesand fixed income securities, which are in line with pre-defined investment objective of thescheme. These schemes aim to provide investors with the best of both the worlds. Equity partprovides growth and the debt part provides stability in returns.

Fur ther the mutual funds can be broadly classif ied on the basis of i nvestment parameter viz,Each category of funds is backed by an investment philosophy, which is pre-defined in theobjectives of the fund. The investor can align his own investment needs with the funds objectiveand invest accordingly.


8/25

By investment objective:

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of theseschemes is to provide capital appreciation over medium to long term. These schemesnormally invest a major part of their fund in equities and are willing to bear short-term

decline in value for possible future appreciation. Income Schemes:Income Schemes are also known as debt schemes. The aim of these

schemes is to provide regular and steady income to investors. These schemes generallyinvest in fixed income securities such as bonds and corporate debentures. Capitalappreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income byperiodically distributing a part of the income and capital gains they earn. These schemesinvest in both shares and fixed income securities, in the proportion indicated in their offerdocuments (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity,preservation of capital and moderate income. These schemes generally invest in safer,

short-term instruments, such as treasury bills, certificates of deposit, commercial paperand inter-bank call money.

Other schemes

Tax Saving Schemes:Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time totime. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked SavingsScheme (ELSS) are eligible for rebate.

Index Schemes:Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex

or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute theindex. The percentage of each stock to the total holding will be identical to the stocks indexweightage. And hence, the returns from such schemes would be more or less equivalent to thoseof the Index.

Sector Specific Schemes:These are the funds/schemes which invest in the securities of only those sectors or industries asspecified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods(FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance ofthe respective sectors/industries. While these funds may give higher returns, they are more riskycompared to diversified funds. Investors need to keep a watch on the performance of thosesectors/industries and must exit at an appropriate time.

AUM: (Assets UnderManagement)

The total value ofassets that a mutual fund, hedge fund, or otherportfolio managermanages and

administers for itself and its customers.

Assets Under Management (AUM) is a term used by financial services companies in themutual fund, hedge fund, and money management, investment management, wealth
http://www.businessdictionary.com/definition/total-value.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/2296/hedge_fund.htmlhttp://www.investorwords.com/3744/portfolio_manager.htmlhttp://www.businessdictionary.com/definition/administer.htmlhttp://www.investorwords.com/5877/customer.htmlhttp://en.wikipedia.org/wiki/Financial_serviceshttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Investment_managementhttp://en.wikipedia.org/wiki/Hedge_fundhttp://en.wikipedia.org/wiki/Mutual_fundhttp://en.wikipedia.org/wiki/Financial_serviceshttp://www.investorwords.com/5877/customer.htmlhttp://www.businessdictionary.com/definition/administer.htmlhttp://www.investorwords.com/3744/portfolio_manager.htmlhttp://www.investorwords.com/2296/hedge_fund.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.businessdictionary.com/definition/total-value.html


9/25

management, and private bankingbusinesses to gauge how much money they are managing.Many financial services companies use this as a measure of success and comparison againsttheir competitors; in lieu ofrevenue or total revenue they use total assets undermanagement .

The difference between two AUM balances consists of market performance gains/(losses),foreign exchanges movements, net new assets (NNA) inflow/(outflow), and structural effects ofthe company, such as acquisitions. Investors are mainly interested in the NNA (sometimes callednet new money or NNM), which indicate how much money from clients had been newlyinvested. Furthermore, it is common to calculate the key figure NNA growth, which shows theNNA in relation of the previous AUM balance on an annualized basis. NNA growth can also bereferred to as organic growth.

Client assets are transactional assets, which are used as collateral for specific transactions, e.g.margin accounts.

Registrar:

The organization, usually a bankor a trust company, that maintains a registry of the

shareowners and number of shares held for a mutual fund, bond or stock, and makes sure

that more shares are not issued than are authorized.

Types:

1)Cams

2)Karvy

3) Templtant

Transactions in mutual funds:

Theall Transactions are maintained by Registrar.

MF Investment company gives all Registries of the shareowners and number of shares held for a

mutual fund, bond orstockto Registrar and registrar maintain and also makes sure that more

shares are not issued than are authorized.

Definition 1

An agreementbetween a buyerand a sellerto exchange anpayment forasset

Definition 2

In accounting anyevent orcondition recorded in the book ofaccounts.
http://en.wikipedia.org/wiki/Wealth_managementhttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Organic_growthhttp://en.wikipedia.org/wiki/Margin_%28finance%29http://www.investorwords.com/3504/organization.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/5085/trust_company.htmlhttp://www.businessdictionary.com/definition/registry.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.investorwords.com/1797/exchange.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.investorwords.com/42/account.htmlhttp://www.investorwords.com/42/account.htmlhttp://www.investorwords.com/6456/condition.htmlhttp://www.businessdictionary.com/definition/event.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/3634/payment.htmlhttp://www.investorwords.com/1797/exchange.htmlhttp://www.businessdictionary.com/definition/seller.htmlhttp://www.businessdictionary.com/definition/buyer.htmlhttp://www.businessdictionary.com/definition/agreement.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/4725/stock.htmlhttp://www.investorwords.com/521/bond.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/2299/held.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.investorwords.com/4525/share.htmlhttp://www.businessdictionary.com/definition/registry.htmlhttp://www.investorwords.com/5085/trust_company.htmlhttp://www.investorwords.com/401/bank.htmlhttp://www.investorwords.com/3504/organization.htmlhttp://en.wikipedia.org/wiki/Margin_%28finance%29http://en.wikipedia.org/wiki/Organic_growthhttp://en.wikipedia.org/wiki/Private_bankinghttp://en.wikipedia.org/wiki/Wealth_management


10/25

Types of Transaction:

1 FRESH PURCHASE

2 ADDITIONAL PURCHASE

3 FULL REDEMPTION:A situation in which an issuercalls the whole thing ofbondissue called redemption.

4 PARTIAL REDEMPTION:

Redemption by an issuer of less than an entire issue of its securities. For example, a corporationmay redeem a portion of an outstanding bond issue.

1. A situation in which an issuercalls part of a bond issue but not the whole thing. That is, if acompany issues a callable bond and decides later to redeem a portion before maturity, this iscalled a partial redemption.

2. In investment companies, the decision of a shareholderto redeem some but not all of his/hershares.

5 SWITCH OUT:Investors think of rebalancing portfolios if they find the asset allocationhas become skewed because of a run up in a particular asset class.

For instance, when equity markets go up, the investment in equity funds also increases in valueand may now form a greater proportion of the total portfolio. Investors who find this risky maywant to sell equity funds and invest in debt funds.

Or, investors who are willing to take risk for better returns may want to reduce their debt fundholdings, and invest in equity funds.

An investor who is looking for a payout may switch from a growth option to dividend option.Investors may switch between options for the tax implication also.

For instance, investors in debt funds who are in the 10 per cent tax bracket, the growth option

may be more suitable than the dividend option where there is a dividend distribution tax of 12.5per cent.

To rebalance, portfolio investors first have to put in a redemption request from the scheme theywant to exit. Redemption proceeds are received within a week. Then the application for buyingunits are put in. The entire exercise is time consuming and cumbersome. To facilitate suchtransactions, mutual funds offer a facility called a switch.
http://financial-dictionary.thefreedictionary.com/Issuerhttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Issuerhttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Callable+Bondhttp://financial-dictionary.thefreedictionary.com/redeemhttp://financial-dictionary.thefreedictionary.com/Maturityhttp://financial-dictionary.thefreedictionary.com/Shareholderhttp://financial-dictionary.thefreedictionary.com/Shareshttp://financial-dictionary.thefreedictionary.com/Shareshttp://financial-dictionary.thefreedictionary.com/Shareholderhttp://financial-dictionary.thefreedictionary.com/Maturityhttp://financial-dictionary.thefreedictionary.com/redeemhttp://financial-dictionary.thefreedictionary.com/Callable+Bondhttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Issuerhttp://financial-dictionary.thefreedictionary.com/Bondhttp://financial-dictionary.thefreedictionary.com/Issuer


11/25

What is a switch?

A switch is a single transaction that combines a redemption and purchase transaction into one.An inter-scheme switch is done between specified schemes of a fund house. An intra-schemeswitch is done between options of a scheme.

A switch can be done by putting in a request specifying the details of the scheme/option andnumber of units/amount to be redeemed, and the scheme/option to be invested into.

The MF gives effect to the redemption and purchase simultaneously. The transaction slip thataccompanies the investor's account statement is used for doing inter-scheme and intra-schemeswitch transactions.

Points to remember

Check for availability. The facility is offered only on certain schemes. Investors need to check if

the schemes that they have invested in have the provision to switch out into the scheme of theirchoice.

Loads and taxes. Loads as applicable on the schemes will be applicable on the switch transactionalso. MFs may exempt intra-scheme switches from loads. But inter-scheme switches are subjectto entry and exit loads. Similarly, investors will be also liable to pay taxes on redemptions inboth inter and intra scheme switches.

Units redeemed and allotted. Investors have to specify the number of units or amount to beredeemed. The number of units allotted will not be the same as the number of units redeemed.

It will depend upon the net asset value of the scheme into which investment is being made. Forinstance, if the investor switches 500 units from the dividend option of a scheme with an NAV ofRs 24 into the growth scheme with an NAV of Rs 40, the number of units allotted to the investorafter the switch will be 300 units [(500 * Rs 24)/ Rs 40].

Selected occasion. The switch can be used only between the schemes of a fund house. It restrictsthe investor's choice to one fund house irrespective of the performance of the schemes.

6 SWITCH IN

7 TRANSFER IN

8 TRANFER OUT

9 DIVIDEND REINVESTMENT:Tax policy and tax policy alone should dictate the choice ofDividend Reinvestment option. There is simply no other criterion.


12/25

Let's see why. Again, let's take the example ofFranklin India Prima, a scheme that has been inexistence, in one form or another, since November 1993. At the time of writing this, the NAV ofPrima Growth option is Rs. 155.10 whereas that of the Dividend option is Rs. 49.39. Notice that

there is no separate NAV declared for the Dividend Reinvestment option. Why is this?

The reason is simple. As far as NAV is concerned, there is no difference between the Dividend option and

the Dividend Reinvestment option. In other words, the NAV of the Dividend option of Prima would alsoapply to the Dividend Reinvestment option.

How does the Dividend Reinvestment option work?This is because, under the Reinvestment option, instead of actually physically receiving the dividend inyour bank, the Mutual Fund itself ploughs it back at source by allotting additional units in the scheme tothe investor. In fact, you could have done the sameafter having received the dividend; you could havecut a cheque to invest the dividend amount into the scheme. Since this is done at source, the onlydifference between the Dividend option and the Reinvestment option is the time saved in the latter. Ofcourse, there is no entry load imposed but that's not the point here.

The problem with receiving the money and then investing it is that often times, the money lies in the bankbut you just haven't got down to actually investing it. Each day that passes dilutes the return on your

investment. The other problem is our innate psychologyjust then if the market is volatile, you may deferthe decision of committing money and again on an overall perspective, the return suffers. With dividendreinvestment, there is a kind of enforced disciplinesince the MF is doing it on your behalf, you takeaway the discretion element from the equation. Then isn't this the best option to choose?

10 DIVIDEND PAYOUT:The percentage of earnings paid to shareholders in dividends.

Calculated as:

Dividend Payout RatioThe payout ratio provides an idea of how well earnings support the dividend payments. Moremature companies tend to have a higher payout ratio.

In the U.K. there is a similar ratio, which is known as dividend cover. It is calculated as earningsper share divided by dividends per share.

11 BONUS:
http://mutualfunds.moneycontrol.com/india/mutualfunds/mfinfo/13/27/mfcodesearch/MKP002http://mutualfunds.moneycontrol.com/india/mutualfunds/mfinfo/13/27/mfcodesearch/MKP002http://mutualfunds.moneycontrol.com/india/mutualfunds/mfinfo/13/27/mfcodesearch/MKP002http://ads.forbes.com/RealMedia/ads/click_lx.ads/investopedia.com/stocks/993906676/x85/OasDefault_v5/default/empty.gif/4f3756356955752b76494541414e2f79http://ads.forbes.com/RealMedia/ads/click_lx.ads/investopedia.com/stocks/993906676/x85/OasDefault_v5/default/empty.gif/4f3756356955752b76494541414e2f79http://mutualfunds.moneycontrol.com/india/mutualfunds/mfinfo/13/27/mfcodesearch/MKP002


13/25

1.Additional compensation given to an employee above his/her normal wage. A bonus can beused as a reward for achieving specific goals set by the company, or for dedication to thecompany.

2. Dividends paid to shareholders from funds created out of additional profits realized by thecompany.

3. A premium paid for accepting an agreement. Sometimes referred to as a "signing bonus".

4. Anything over and above what is expected.

explainsBonus1. Bonuses can add up to the majority of some employees' compensation. For example, GoldmanSachs CEO L. Blankfein received $68 million in cash and stock as a 2007 bonus, but onlymade $600,000 in salary. Due to these high amounts, corporate compensation is public

information in public companies.

2. These bonus dividends are paid to specific shareholders. The board of directors would approvepayment, and can also decide to stop dividends at its discretion.

3. Signing bonuses are used as an incentive to obtain employees or contracts. The initial paymentis designed to entice the signing of an agreement that will cost the company more now for higherfuture benefits.

4. A realized benefit that was not intended or planned.

12 FINANCIAL TRANSACTION

13 PURCHASE:

14 REDEMPTION:The return of an investor's principal in a fixed income security, such as a

preferred stock or bond; or the sale of units in a mutual fund. A redemption occurs, in a fixed income

security at par or at a premium price, upon maturity or cancellation by the issuer. Redemptions occur

with mutual funds, at the choice of the investor, however limitations by the issuer may exist, such as

minimum holding periods.

explainsRedemption

Redemption of mutual fund shares from a mutual fund company must occur within seven days of

receiving a request for redemption from the investor. Some mutual funds, may have redemption fees

attached, in the place of a back-end load. It is important to note which units should be redeemed when

choosing to sell mutual funds within a portfolio.


14/25

15 NFO: New Fund Off er

A security offering in which investors may purchase units of a closed-end mutual fund. A new

fund offer occurs when a mutual fund is launched, allowing the firm to raise capital forpurchasing securities.

explainsNew Fund Offer - NFOA new fund offer is similar to an initial public offering. Both represent attempts to raise capital tofurther operations. New fund offers are often accompanied by aggressive marketing campaigns,created to entice investors to purchase units in the fund. However, unlike an initial publicoffering (IPO), the price paid for shares or units is often close to a fair value. This is because thenet asset value of the mutual fund typically prevails. Because the future is less certain forcompanies engaging in an IPO, investors have a better chance to purchase undervalued shares.

16 PURCHASE REJECTION

17 REDEMPTION REJECTION

Transfer Agent

An agentemployedby a corporation ormutual fund to maintain shareholderrecords, includingpurchases, sales, and account balances.

Registrar and Transfer Agent

The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual

Fund. The Registrar processes the application form; redemption requests and dispatches account

statements to the unit holders. The Registrar and Transfer agent also handles communications with

investors and updates investor records.

Transaction:

An agreement between a buyer and a seller for the exchange of goods or services for payment.

explaination :The parties participating in a transaction have an obligation to perform their part. For example,

for two parties involved in a futures contract, the seller is obligated to sell and deliver the underlying asset and

the buyer is contractually obligated to pay the agreed upon price and accept the delivery.

NAV(Net Asset Value)
http://www.investorwords.com/154/agent.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/4527/shareholder.htmlhttp://www.investorwords.com/3952/purchase.htmlhttp://www.investorwords.com/4365/sales.htmlhttp://www.investorwords.com/46/account_balance.htmlhttp://www.investorwords.com/46/account_balance.htmlhttp://www.investorwords.com/4365/sales.htmlhttp://www.investorwords.com/3952/purchase.htmlhttp://www.investorwords.com/4527/shareholder.htmlhttp://www.investorwords.com/4527/shareholder.htmlhttp://www.investorwords.com/3173/mutual_fund.htmlhttp://www.investorwords.com/1140/corporation.htmlhttp://www.investorwords.com/154/agent.htmlhttp://www.investorwords.com/154/agent.html


15/25

The net asset value of a mutual fund reflects the market value of all securities (e.g. stocks, bonds,cash) owned by the fund, less its total liabilities. That total is then divided by the number ofshares outstanding, since NAV is typically issued on a per share basis. The net asset value, then,is the price per share of the fund.

The formula for net asset value can be written as:

(1) NAV = Net Asset Value of the Fund / Number of Shares

Outstanding

Mutual funds sell their shares to public and redeem them to current net asset value (NAV) whichis calculated as under-

Total market value of all MF holdings - All MF liabilitiesNAV of MF = -------------------------------------------------------------

No. of MF units or shares

OR

Market value of Scheme's Investments + Receivables + AccruedIncome + Other Assets - Accrued Expenses - Payables - Other Liabilities

NAV of MF = -------------------------------------------------------------------------------No. of Units outstanding under the Scheme

The net asset Value of a mutual fund scheme is basically the per unit market value of all theassets of the scheme. To illustrate this better, a simple example will help.

Scheme name XYZScheme size Rs. 50,00,00,000 (Rs. Fifty crores)

Face value of units Rs. 10No. Of Units (Scheme size) 5,00,00,000Face value of unitsInvestments In sharesMarket value of shares Rs. 75,00,00,000 (Rs Seventy Five crores)

NAV(Market value ofInvestments / No. of units) = Rs. 75,00,00,000
http://www.stockresearchpro.com/the-benefits-of-bond-investinghttp://www.stockresearchpro.com/the-basics-of-money-market-investinghttp://www.stockresearchpro.com/the-basics-of-money-market-investinghttp://www.stockresearchpro.com/the-benefits-of-bond-investing


16/25

-----------------------5,00,00,000

= Rs.15

Thus, each unit of Rs. 10 is worth Rs. 15.

Simply stated, NAV is the value of the assets of the assets of each unit of the scheme, or evensimpler value of one unit of the scheme. Thus, if the NAV is more than the face value (Rs. 10), itmeans the money has appreciated and vice versa.

NAV also includes dividends, interest accruals and reduction of liabilities and expenses, besidesmarket value of investments.

Net Asset Value and Open-Ended Funds:

The majority of mutual funds are open-ended. An open-ended fund is a mutual fund in which

shares are not traded between investors but issued to investors by the fund without restriction asto the amount it issues. The fund will buy back shares from investors when they decide to sell.The net asset value is important to open-ended fund investors because it is the price investors payfor new shares of the fund and the price for which they may redeem shares they hold.

Conversely, closed-end mutual fund shares are traded at market prices, similar to stocks. Thesemarket prices might be at a premium or a discount to the net asset value. Shares of closed-endfunds normally trade at a discount to the net asset value.

Limitations of Net Asset Value for Investors:

While the net asset value provides a method to track price changes, it is not always a goodindicator of the actual performance of the fund. Any time the fund pays a distribution to itsshareholders, the net asset value decreases. This means that a decrease in the funds net asset

value per share is not necessarily indicative of poor performance.

Broker:

A brokerage is a firm that acts as an intermediary between a purchaser and a seller. Morecommonly, a brokerage is referred to as abrokerage firm. To brokera deal is to communicatewith both the buyer and seller as to acceptable price on anything sold or purchased.

Brokerage is payment made to the distributors who procure funds for Mutual Fund. Brokers helpthe investor in making investment decisions.
http://www.wisegeek.com/what-is-a-brokerage-firm.htmhttp://www.wisegeek.com/what-is-a-brokerage-firm.htmhttp://www.wisegeek.com/what-is-a-brokerage-firm.htmhttp://www.wisegeek.com/what-is-a-brokerage-firm.htm


17/25


18/25

Note

Brokers are not eligible for brokerage for their own investments in mutual funds.

Brokers have to submit Annual certification within 3 months of completion of everyFinancial Year( Declaration in the format specified by SEBI/ AMFI) failing whichbrokerage would be held back till the time it is submitted.

It may be noted that the Brokerage Concepts could differ and vary from time to time or from

fund house to fund house. Hence the brokers are advised to get themselves conversant with such

concepts practiced by the concerning fund houses/Asset Management Companies.

ReturnsOf Mutual funds:

Rate of Return and Return on Investment indicate cash flow from an investment to theinvestor over a specified period of time, usually a year.

ROI is a measure of investment profitability, not a measure of investment size. While compoundinterest and dividend reinvestment can increase the size of the investment (thus potentiallyyielding a higher dollar return to the investor), Return on Investment is a percentage returnbased on capital invested.

In general, the higher the investment risk, the greater the potential investment return, and thegreater the potential investment loss.

Up to March 14t 854.79

From 15t -31stMarch 409.75


19/25

Return on Investment: What is ROI analysis?

Return on Investment (ROI) analysis is one of severalapproaches to evaluating and comparing investments. With ROI, decision makers evaluateinvestments by comparing the magnitude and timing of expected gains to the magnitude andtiming of investment costs. A good ROI means that investment returns compare favorably

to investment costs.

In the last few decades, this approach has been applied to asset purchase decisions (computersystems, factory machines, or service vehicles, for example), "go / no-go" decisions for projectsand programs of all kinds (including marketing programs, recruiting programs, and trainingprograms), and to more traditional investment decisions (such as the management of stockportfolios or the use of venture capital).

The ROI Concept

ROI compares investment returns and costs by constructing a ratio, or percentage. In most ROI

methods, an ROI ratio greater than 0.00 (or a percentage greater than 0%) means the investmentreturns more than its cost. When potential investments compete for funds, and when other factorsbetween the choices are truly equal, the investmentor action, or business case scenariowiththe higher ROI is considered the better choice, or the better business decision.

One serious problem with using ROI as the sole basis for decision making, is that ROI by itselfsays nothing about the likelihood that expected returns and costs will appear as predicted. ROIby itself, that is, says nothing about the risk of an investment. ROI simply shows how returnscompare to costs if the action or investment brings the results hoped for. (The same is also trueof other financial metrics, such asNet Present Value, orInternal Rate of Return). For that reason,a good business case or a good investment analysis will also measure the probabilities of

different ROI outcomes, and wise decision makers will consider both the ROI magnitude and therisks that go with it.

Decision makers will also expect practical suggestions from the ROI analyst, on ways to improveROI by reducing costs, increasing gains, or accelerating gains (see the figure above).
http://www.solutionmatrix.com/net-present-value.htmlhttp://www.solutionmatrix.com/net-present-value.htmlhttp://www.solutionmatrix.com/net-present-value.htmlhttp://www.solutionmatrix.com/internal-rate-of-return.htmlhttp://www.solutionmatrix.com/internal-rate-of-return.htmlhttp://www.solutionmatrix.com/internal-rate-of-return.htmlhttp://www.solutionmatrix.com/internal-rate-of-return.htmlhttp://www.solutionmatrix.com/net-present-value.html


20/25

Simple ROI for Cash Flow and Investment Analysis

Return on investment is frequently derived as the return (incremental gain) from an actiondivided by the cost of that action. That is simple ROI, as used in business case analysis andother forms of cash flow analysis. For example, what is the ROI for a new marketing program

that is expected to cost $500,000 over the next five years and deliver an additional $700,000 inincreased profits during the same time?

Simple ROI is the most frequently used form of ROI and the most easily understood. Withsimple ROI, incremental gains from the investment are divided by investment costs.

Annual returns and annualizedreturns:

The return an investment provides over a period of time, expressed as a time-weighted annualpercentage. Sources of returns can include dividends, returns of capital and capital appreciation.The rate of annual return is measured against the initial amount of the investment and representsa geometric mean rather than a simple arithmetic mean.

Annual return is the de facto method for comparing the performance of investments withliquidity, which includes stocks, bonds, funds, commodities and some types of derivatives.Different asset classes are considered to have different strata of annual returns.

Annual Return Explanation:For example, consider an investor that purchases a stock on January 1, 2000, for $20. The

investor then sells it on January 1, 2005, for $35a $15 profit. The investor also received a totalof $2 in dividends over the five-year holding period. In this example, the investors total returnover five years would be $17, or (17/20) 85% of the initial investment. The annual returnrequired to achieve 85% over five years follows the formula for the compound annual growthrate (CAGR):

(37/20) ^(1/5 (yr))1 = 13.1% annual return

Annual-return statistics are commonly quoted in promotional materials for mutual funds, ETFsand other individual securities.


21/25

Care must be taken not to confuse annual and annualized returns. An annual rate of return is asingle-period return, while an annualized rate of return is a multi-period, geometric averagereturn.

An annual rate of return is the return on an investment over a one-year period, such as January 1

through December 31, or June 3 2006 through June 2 2007. Each ROI in the cash flow exampleabove is an annual rate of return.

An annualized rate of return

An annualized rate of return is the return on an investment over a period other than one year(such as a month, or two years) multiplied or divided to give a comparable one-year return. Forinstance, a one-month ROI of 1% could be stated as an annualized rate of return of 12%. Or atwo-year ROI of 10% could be stated as an annualized rate of return of 5%. **For GIPScompliance: you do not annualize portfolios or composites for periods of less than one year. Youstart on the 13th month.

In the cash flow example below, the dollar returns for the four years add up to $265. Theannualized rate of return for the four years is: $265 ($1,000 x 4 years) = 6.625%.

Uses

ROI is a measure of cash[citation needed] generated by or lost due to the investment. It

measures the cash flow or income stream from the investment to the investor, relative tothe amount invested. Cash flow to the investor can be in the form of profit, interest,dividends, or capital gain/loss. Capital gain/loss occurs when the market value or resalevalue of the investment increases or decreases. Cash flow here does not include the return

of invested capital.

A return may be adjusted forinflation to better indicate its true value in purchasingpower. Any investment with a nominal rate of return less than the annual inflation raterepresents a loss of value, even though the nominal rate of return might well be greaterthan 0%. When ROI is adjusted for inflation, the resulting return is considered anincrease or decrease in purchasing power. If an ROI value is adjusted for inflation, it isstated explicitly, such as The return, adjusted for inflation, was 2%.

Many online poker tools include ROI in a player's tracked statistics, assisting users inevaluating an opponent's profitability.

XIRR(values,dates,guess)
http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Inflation_ratehttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Poker_toolshttp://en.wikipedia.org/wiki/Poker_toolshttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Inflation_ratehttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Purchasing_powerhttp://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Cash_flowhttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Wikipedia:Citation_needed


22/25

Values is a series of cash flows that corresponds to a schedule of payments in dates. Thefirst payment is optional and corresponds to a cost or payment that occurs at thebeginning of the investment. If the first value is a cost or payment, it must be a negativevalue. All succeeding payments are discounted based on a 365-day year. The series ofvalues must contain at least one positive and one negative value.

Dates is a schedule of payment dates that corresponds to the cash flow payments. Thefirst payment date indicates the beginning of the schedule of payments. All other datesmust be later than this date, but they may occur in any order. Dates should be entered byusing the DATE function, or as results of other formulas or functions. For example, useDATE(2008,5,23) for the 23rd day of May, 2008. Problems can occur ifdates are enteredas text.

Guess is a number that you guess is close to the result of XIRR.

Remarks:

Microsoft Excel stores dates as sequential serial numbers so they can be used in

calculations. By default, January 1, 1900 is serial number 1, and January 1, 2008 is serialnumber 39448 because it is 39,448 days after January 1, 1900. Microsoft Excel for theMacintosh uses adifferent date system as its default.

Numbers in dates are truncated to integers. XIRR expects at least one positive cash flow and one negative cash flow; otherwise,

XIRR returns the #NUM! error value. If any number in dates is not a valid date, XIRR returns the #VALUE! error value. If any number in dates precedes the starting date, XIRR returns the #NUM! error value. If values and dates contain a different number of values, XIRR returns the #NUM! error

value. In most cases you do not need to provide guess for the XIRR calculation. If omitted,

guess is assumed to be 0.1 (10 percent). XIRR is closely related to XNPV, the net present value function. The rate of return

calculated by XIRR is the interest rate corresponding to XNPV = 0. Excel uses an iterative technique for calculating XIRR. Using a changing rate (starting

with guess), XIRR cycles through the calculation until the result is accurate within0.000001 percent. If XIRR can't find a result that works after 100 tries, the #NUM! errorvalue is returned. The rate is changed until:

where:

di = the ith, or last, payment date.

d1 = the 0th payment date.
http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)http://go%28%27/search/redir.aspx?AssetID=HP052006741033&CTT=5&Origin=HP052093411033%27)


23/25

Pi = the ith, or last, payment.

Example

The example may be easier to understand if you copy it to a blank worksheet.

1

2

3

4

5

6

A B

Values Dates

-10,000 January 1, 2008

2,750 March 1, 2008

4,250 October 30, 2008

3,250 February 15, 2009

2,750 April 1, 2009

Formula Description (Result)

=XIRR(A2:A6,B2:B6,0.1) The internal rate of return (0.373362535 or 37.34%)

CAGR:

A compound annual growth rate (CAGR) measures the rate of return for an investmentsuchas a mutual fund or bondover an investment period, such as 5 or 10 years. The CAGR is alsocalled a "smoothed" rate of return because it measures the growth of an investment as if it had


24/25

grown at a steady rate on an annually compounded basis. To calculate a CAGR, use the XIRRfunction.

If the XIRR function is not available and returns the #NAME? error, install and load theAnalysis ToolPak add-in.

Example

1

2

3

4

5

6

A B

Values Dates

-10,000 January 1, 2008

2,750 March 1, 2008

4,250 October 30, 2008

3,250 February 15, 2009

2,750 April 1, 2009

Formula Description (Result)

=XIRR(A2:A6,B2:B6)The compound annual growth rate (0.373362535 or 37.34%)

Notes

When you compare the CAGRs of different investments, make sure that each rate is calculated

over the same investment period.

To view the number as a percentage, select the cell and then clickCells on the Formatmenu. Click the Number tab, and then clickPercentage in the Category box.

IMPORTANTPlease read this before investing to the Mutal Funds.

The broad guidelines issued for a Mutual Fund?


25/25

mutual funds documentation

Documents