Download - Learn About Mutual Funds

8/2/2019 Learn About Mutual Funds

1/23

So, just what are mutual funds?

Mutual funds are large, diversified portfolios of securities selected by skilledsecurities analysts and managed by highly qualified investment professionals.The money used to purchase the securities is raised by selling shares of the

mutual funds to investors.

Shares of mutual funds are similar to shares of common stock in that theyrepresent the ownership of a piece of the fund. However, the formation of mutualfunds and the pricing of their shares is much different than that of a regularcorporation. This an important part of what you'll learn about mutual funds andyou'll learn even more in the following subsection.

Understanding Mutual Fund Prices

Mutual fund shares are bought and sold at their net asset value (NAV). As with

any security, you can expect your funds' share prices to fluctuate after youpurchase the shares. Unlike other types of securities, mutual fund share pricesare determined solely by the market prices of their underlying assets.

Your Response to Changes in NAV

Due to their nature and the means by which mutual funds are priced, yourperception of their prices and your response to fluctuations in their prices shouldbe different than your perception of and response to the prices of individualstocks and bonds. This is attributable to the fact that the number of mutual fundshares varies with demand, thus ensuring that price is determined solely by NAV.

This seemingly subtle difference is another important aspect that you'll learnabout mutual funds.

The Mutual Fund Prospectus

The prospectus provides basic information about a fund, including the fund'sobjectives, what kinds of securities it can invest in and in what proportions, all thevarious fees charged to investors, past performance, and the fund'smanagement. There's a lot to be learned about mutual funds in theirprospectuses.

No-Load Mutual Funds vs Load Mutual Funds

For virtually every load mutual fund there is a no-load mutual fund that is equal inevery way, or even better than, the corresponding load funds. If you are notreceiving something of value in return for the load, then there is no good reasonto pay the load.
http://www.investing-in-mutual-funds.com/what-are-mutual-funds.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/changes-in-nav.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prospectus.htmlhttp://www.investing-in-mutual-funds.com/no-load-mutual-funds.htmlhttp://www.investing-in-mutual-funds.com/what-are-mutual-funds.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/changes-in-nav.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prospectus.htmlhttp://www.investing-in-mutual-funds.com/no-load-mutual-funds.html


2/23

A load is a sales commission and usually runs about 5% of the amount you payfor shares of a load mutual fund. However, only 95% of the money you pay isactually invested, so you automatically suffer a 5% loss right out of the startinggate.

Mutual Funds vs Stocks & Bonds

Owning a portfolio of stocks and bonds that is large enough to be appropriatelydiversified is beyond the means of most investors. But even the wealthiestinvestors can benefit from the diversification and cost efficiency of mutual funds.What you'll learn about mutual funds will make this perfectly clear.

How are mutual funds bought and sold?

Shares of mutual funds can be bought and sold directly through the companiesthat manage the funds, or through discount or full-service brokers. You should

never be charged a transaction fee when you deal directly with a company thatmanages a fund. You may have to pay a small transaction fee if you tradethrough a discount broker. You will pay a full commission if you trade through afull-service broker.

Automatic investments and withdrawals are an option available with many fundcompanies. However, these options require establishing an account with the fundcompany.

Additional information can be found above underThe Prospectus and MutualFund Prices.

What are Exchange Traded Funds?

ETF stands for Exchange Traded Fund, which is an investment company thatowns a pool of securities that form the underlying value of the fund's shares andwhose shares are traded like shares of common stock.

The primary advantage of ETFs over regular mutual funds is that investors canexercise more control over the timing of capital gains and the incurrence of theassociated tax liability. This advantage makes ETFs an appropriate alternative toregular mutual funds for some investors.

What are closed-end funds?

Closed-end funds are funds with a fixed number of shares that trade just likecommon stock. A closed-end fund's shares trade at whatever investors arewilling to pay at any given time. So investors' perceptions of the aggregate valueof a fund's assets determines price, rather than their net asset value (NAV).
http://www.investing-in-mutual-funds.com/mutual-funds-vs-stocks.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prospectus.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/exchange-traded-funds.htmlhttp://www.investing-in-mutual-funds.com/mutual-funds-vs-stocks.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prospectus.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/mutual-fund-prices.htmlhttp://www.investing-in-mutual-funds.com/exchange-traded-funds.html


3/23

Closed-end funds often trade at a discount or premium to their NAV, which canpresent opportunities to knowledgeable, active traders. No amateurs, please!

Given the way they are structured and sold, closed-end funds bear moreresemblance to conglomerate corporations or holding companies than mutual

funds. Therefore, there will be no further discussion of them on this site.

Are hedge funds mutual funds?

No! Absolutely not! The only similarity is that hedge funds invest pools of moneyprovided by passive investors. (Here, passive means that the investors do notparticipate in the investment decision-making process or management of thefund.)

The original purpose of hedge funds was to provide a market-neutral investmentvehicle for wealthy investors as a hedge against large market fluctuations, thus

their name. However, due to the fact that they are subject to very little regulationand oversight, many no longer do any hedging and instead take advantage of thedirth of regulation to invest in whatever they want. Currently, true hedge fundsare very few in number.

Unlike hedge funds, mutual funds are subject to very stringent guidelines definedby securities laws and enforced by the SEC. These guidelines include, but arenot limited to, investing within the usually narrow and conservative confines ofthe objectives and constraints stated in the funds' prospectuses, operating in avery transparent manner, and not investing in harebrained schemes that couldreap high returns at great risk to investors' capital.

Due to their inherent risks, in particular the lack of regulation, hedge funds areonly available to high net worth individuals. Given that, and the fact that they bearlittle resemblance to mutual funds, there will be no further discussion of them onthis site.


4/23

PREFACEMBA is a stepping-stone to the management carrier and to develop goodmanager it isne ces sar y t ha t the the ore t i c a l mus t b esu pp le me nt ed wi th ex po su re to th e re al environment.Theoret ical

knowledge just provides the base and its not sufficient to produce agoodmanager thats why practical knowledge is needed.Therefore the researchproduct is an essential requirement for the student of MBA. Thisresearchproject not only helps the student to ut i l ize his ski l ls properlylearn f ie ldreal i t ies but also provides a chance to the organizat ionto fi nd ou t ta le nt am on g th ebudding managers in the very beginning.Inaccordance with the requirement of MBA course I have summer trainingproject onthe topic Comparitive Analysis of Mutual funds and Ulips. Themain objective of theresearch project was to study the two instrumentsand make a detailed comparison of the two.For conducting the researchproject sample size of 50 customers of SBIMFand SBOP was selected. The

information regarding the project research was collectedthrough thequestionnaire formed by me which was filled by the customers there


5/23

INDUSTRY PROFILEThe mutual fund industry is a lot like the film star of the finance business.Thoughit is perhaps the smallest segment of the industry, it is also the mostglamorous

in that it is a young industry where there are changes in the rulesof the gameeveryday, and there are constant shifts and upheavals.The mutual fund isstructured around a fairly simple concept, the mitigationof risk through thespreading of investments across multiple entities, which isachieved by thepooling of a number of small investments into a large bucket.Yet it has been thesubject of perhaps the most elaborate and prolongedregulatory effort in thehistory of the country.

A little history:The mutual fund industry started in India in a small way with the UTI Actcreatingwhat was effectively a small savings division within the RBI. Over aperiod of 25years this grew fairly successfully and gave investors a goodreturn, and therefore

in 1989, as the next logical step, public sector banksand financial institutionswere allowed to float mutual funds and their successemboldened the governmentto allow the private sector to foray into this area.The initial years of the industryalso saw the emerging years of the Indianequity market, when a number ofmistakes were made and hence the mutualfund schemes, which invested inlesser-known stocks and at very high levels,became loss leaders for retailinvestors. From those days to today the retailinvestor, for whom the mutual fundis actually intended, has not yet returnedto the industry in a big way. But to befair, the industry too has focused on

brining in the large investor, so that it can create a significant base corpus,which

can make the retail investor feel more secure.The Indian MF industryhas Rs 5.67 lakh crore of assets under management. As per data released by

Association of Mutual Funds in India,the asset base of all mutual fund combinedhas risen by 7.32% in April, thefirst month of the current fiscal. As of now, thereare 33 fund houses inthe country including 16 joint ventures and 3 whollyownedforeign assetmanagers.According to a recent McKinsey report, the total AUM ofthe Indian mutualfund industry could grow to $350-440 billion by 2012, expanding33%annually. While the revenue and profit (PAT) pools of Indian AMCs arepeggedat $542 million and $220 million respectively, it is at par with fund

housesin developed economies. Operating profits for AMCs in India, as apercentageof average assets under management, were at 32 basis points in2006-07,while the number was 12 bps in UK, 17 bps in Germany and 18 bps inthe US,in the same time frame


6/23

Major players in Indian mutual fund industry and their AUMMutual Fund NameNo. of Schemes* As onCorpus

ABN AMRO M F3 3 7 J u l y

3 1 , 20087803AIG GlobalM F5 4 J u l y3 1 , 20083513SBI Mutual Fund1 7 7 J u l y3 1 , 200829151.00Birla MutualFund 3 4 3 J u l y3 1 , 200837497.00BOB MutualFund 2 2 J u l y3 1 , 200856.00Canara Robeco MutualFund5 4 J u l y3 1 , 20084576.00DBS Chola Mutual

Fund8 0 J u l y3 1 , 20081853.00Deutsche MutualFund 1 8 7 J u l y3 1 , 200810792.00DSP Merrill Lynch Mutual Fund2 1 1 F e b2 9 , 2 0 0 8 1 9 4 8 3 . 0 0 Escorts MutualFund2 6 F e b 2 9 ,2 0 0 8 1 7 7 . 0 0 Fidelity Mutual Fund3 9 M a r 3 1 , 2 0 0 8 7 4 6 4 . 0 0 Franklin Te mpletonInvestments2 3 0 J u l y3 1 , 200824441.00HDFC MutualFund 3 7 1 J u l y3 1 , 200850,752.00HSBC MutualFund 2 2 1 J u l y3 1 , 200816,385.00ICICI Prudential MutualFund4 3 1 J u l y3 1 , 200855,161.00ING MutualFund 2 6 2 J u l y3 1 , 20087091.00JPMorgan MutualFund9 J u l y3 1 , 20083054.00Kotak Mahindra MutualFund1 8 5 J u l y3 1 , 200818,782.00LIC MutualFund 1 1 2 J u l y3 1 , 200817,499.00
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM046http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM026http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM047http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM046http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM026http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM005http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM006http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM008http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM009http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM044http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM010http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM011http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM047http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM037http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM041http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM043http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM024http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM038http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM033http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM021


7/23

Lotus India Mutual Fund2 1 6 J u l y3 1 , 20087831.00Morgan Stanley MutualFund 3 J u l y3 1 , 20082,814.00PRINCIPAL MutualFund1 5 1 J u l y
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM022http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM016


8/23

3 1 , 200811,359.00Quantum MutualFund 6 J u l y3 1 , 200866.00Reliance MutualFund 3 4 5 J u l y3 1 , 200884,564.00Sahara Mutual

Fund 4 5 J u l y3 1 , 2008175.00Mirae asset mutualfund2 5 5 J u l y3 1 , 20082546.00Sundaram MutualFund2 1 9 J u l y3 1 , 200811,898.00Tata MutualFund 3 8 9 J u l y3 1 , 200820,443.00Taurus MutualFund 1 4 J u l y3 1 , 2008289.00UTI MutualFund3 1 5 J u l y

3 1 , 200846,120.00
http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM048http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM025http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM012http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM032http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM034http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM036http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045http://www.mutualfundsindia.com/amc_snapshot.asp?amc_name=AM045


9/23

schemes f loated by these funds was not good. Some schemes hadofferedguaranteed returns and their parent organizations had to bail out these

AMCs bypaying large amounts of m oney as a di f feren ce betweenthe gu ara nte ed and actual returns. The service levels were also very

bad. Most of these AMCs havenot been able to retain staff, float newschemes etc.

TECHNOLOGICAL ENVIRONMENT

IMPACT OF TECHNOLOGYM u t u a l f u n d , d u r i n g t h e l a s t o n e d e c a d e b r o u g h t o u t s e v e r a l

i nn ova t io ns in the i r p roducts and i s of fer ing va lue addedse rv ices to the ir inves tor s. Som e o f the val ue added services that arebeing offered are:Electronic fund transfer facility.

Investment and re-purchase facility through internet.Added features like accident insurance cover, med claim etc.Holding the investment in electronic form, doing away with the traditional formof unit certificates.Cheque writing facilities.Systematic withdrawal and deposit facility.

ONLINE MUTUAL FUND TRADINGThe innovation the industry saw was in the field of distribution to make itmore easily accessible to an ever increasing number of investors acrossthe country. For the first time in India the mutual fund start using theautomated trading, clearing and settlement system of stock exchanges forsal e and rep urc has e of open -en ded de- mate rial ized mutual fund units.Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) wereoptions introduced which have come in very handy for the investor tomaximize their returns from their investments. SIP ensures that there is aregular investment that the investor makes on specified dates making hispurchases to spread out reducing the effect of the short term volatility of markets.SWP was designed to ensure that investors who wanted a regular income orcash f low f rom thei r investments were able to do so wi th a pre-

defined automated form. Today the SW facility has come inhandy for the investors to reduce their taxes

.


10/23

LEGAL AND POLITICAL ENVIRONMENTASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)With the increase in mutual fund players in India, a need for mutual fundassociation inIndia was genera ted t o fun ct ion as a non-pr of i t

or ga ni za ti on . As so ci at io n of Mu tual Funds in India (AMFI) wasincorporated on 22nd

August 1995.AMFI is an apex body of all Asset Management Companies (AMC),which has beenregistered with SEBI. Till date all the AMCs are that havelaunched mutual fundschemes are its members. It functions under thesupervision and guidelines of board of directors. AMFI has brought down theIndian Mutual Fund Industry to a professional andhealthy market with ethicallines enhancing and maintaining standards. It follows theprinciple of bothprotecting and promoting the interest of mutual funds as well as their unit holders.

It has been a forum where mutual funds have been able to present their views,debateand participate in creating their own regulatory framework. Theassociation was createdoriginally as a body that would lobby with the regulator toensure that the fund viewpointwas heard. Today, it is usually the body that isconsulted on matters long beforeregulations are framed, and it often initiatesmany regulatorychanges that preventmalpractices that emerge from time to time.AMFI worksthrough a number of committees, some of which are standing committeestoaddress areas where there is a need for constant vigil and improvements andother which are adhoc committees constituted to address specific issues. Thesecommitteesconsist of industry professionals from among the member mutualfunds. There is now

some thought that AMFI should become a self-regulatory organization since ithasworked so effectively as an industry body.OBJECTIVES:To define and maintain high professional and ethical standards in all areasof operation of mutual fund industryTo recommend and promote best businesspractices and code of conduct to befollowed by members and others engaged inthe activities of mutual fund and assetmanagement including agencies connectedor involved in the field of capital marketsand financial services.To interact with

the Securities and Exchange Board of India (SEBI) and to representto SEBI onall matters concerning the mutual fund industry.To represent to the Government,Reserve Bank of India and other bodies on allmatters relating to the Mutual FundIndustry.To develop a cadre of well trained Agent distributors and to implement aprogrammeof training and certification for all intermediaries and other engaged inthe industry.To undertake nation wide investor awareness programme so as topromote proper understanding of the concept and working of mutual funds.To


11/23

disseminate information on Mutual Fund Industry and to undertake studiesandresearch directly and/or in association with other bodies.


12/23

MEMBERS OF AMFI:Bank Sponsored1.Joint Ventures - Predominantly Indian1.

Canara Robeco Asset Management Company Limited2.SBI FundsManagement Private Limi ted2 . O t h e r s1.Baroda Pioneer Asset Management Company Limited2.UTI AssetManagement Company LtdInstitutions1.LIC Mutual Fund Asset Management Company Limited

Private Sector 1 . I n d i a n1.Benchmark Asset Management Company Pvt. Ltd.2.DBS Cholamandalam Asset Management Ltd.3.Deutsche Asset Management (India) Pvt. Ltd.4. Ed elw eis s AssetManagement Limited5.Escorts Asset Management Limited6.IDFC

Asset Management Company Private Limited7.JM Financial AssetManagement Private Limited8.Kotak Mahindra Asset Management Company Limited(KMAMCL)9.Quantum

Asset Manage me nt Co . Pr iv at e Ltd. 10.Reliance Capital AssetManagement Ltd.11.Sahara Asset Management Company PrivateLimited12.Tata Asset Management Limited13.Taurus Asset ManagementCompany Limited

2 . F o r e i g n1.

AIG Global Asset Management Company (India) Pvt. Ltd.2.FIL FundManagement Private Limi ted3.Franklin Templeton Asset Management (India) Private Limited4.Mirae Asset Global Investment Management (India) Pvt. Ltd.3.Joint Ventures - Predominantly Indian1.Birla Sun Life Asset Management Company Limited2.DSP MerrillLynch Fund Managers Limi ted3.HDFC Asset ManagementCompany Limi ted4.ICICI Prudential Asset Mgmt.Company Limited


13/23

5.Sundaram BNP Paribas Asset Management Company Limited4.Joint Ventures - Predominantly Foreign1.

ABN AMRO Asset Management (India) Pvt. Ltd.

2.Bharti AXA Investment Managers Private Limited3.HSBC Asset Management (India) Private Ltd.4.ING Investment Management (India) Pvt. Ltd.5.JPMorgan AssetManagement India Pvt. Ltd.6.Lotus India Asset Management Co.Private Ltd.7.Morgan Stanley Investment Management Pvt.Ltd.8.

Principal Pnb Asset Management Co. Pvt. Ltd.


14/23

STRUCTURE OF MUTUAL FUNDThere are many entities involved and the diagram below illustrates the structure

of mutual funds: -Structure of Mutual FundsSEBIThe regulation of mutual funds operating in India falls under the preview ofauthorityof the Securities and Exchange Board of India(SEBI). Any person proposing to setup a mutual fund in India is required underthe SEBI (Mutual Funds) Regulations, 1996to be registered with the SEBI.


15/23


16/23

SponsorThe sponsor should contribute at least 40% to the net worth of the AMC.However, if any per son hold s 40 % or mor e of the net wort h of an

AMC shal l be deemed to be aspon sor and w i l l b e r equ i re d t ofu l f i l l th e e l i g i b i l i t y cr i t er ia in th e Mut ua l F un dRegulations. The

sponsor or any of its directors or the principal officer employed by themutual fundshould not be guilty of fraud or guilty of any economic offence.TrusteesThe mutual fund is required to have an independent Board of Trustees, i.e. twothirdo f t he t rus t ees shou l d be i ndep ende n t pe rson s who a ren ot as s oc i at ed wi th th esponsors in any manner. An AMC or any ofits officers or employees are not eligible toact as a tru ste e of anymutual fund. Th e trus tees ar e res ponsib le for - inter al ia ensuringthat the AMC has all its systems in place, all key personnel, auditors,registrar etc. have been appointed prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage theassetsof the mutual fund. Under the mutual fund regulations, the applicant mustsatisfy certaineligibility criteria in order to qualify to register with SEBI as an

AMC.1.The sponsor must have at least 40% stake in the AMC.2.Thechairman of the AMC is not a trustee of any mutual fund.3.The AMCshould have and must at all times maintain a minimum net worth ofCr.100 million.4. Th e d i re ct or o f th e AMC sh ou ld be a pe rs onha vi ng ad eq ua te pr ofe ss io na lexperience.5.The board of di rectors of such AMC has at least 50% directorswho a re not assoc i a t e o f o r assoc i a t ed i n any man ner w i t h t hes p on s o r o r a n y o f i t s subsidiaries or the trustees.The Transfer AgentsThe transfer agent is contracted by the AMC and is responsible formaintaining thereg is t e r o f i nv es t ors / u n i t ho l der s a nd eve ryd a y s e t t l e m e n t s o f p u r c h a s e s a n d

redempt ion of uni ts. The role of a t ransfer agent is to col lect dataf rom distr ibutorsrelating to daily purchases and redemption of units.CustodianThe mutual fund is required, under the Mutual Fund Regulat ions,t o a pp oi nt ac u s t o d i a n t o c a r r y o u t t h e c u s t o d i a l s e r v i c e s f o r the sch eme s o f th e f und . On ly ins t it u ti ons wi th subs tan t ia lorganizat ional st rength, service capabi l i ty in termsof computerization and other infrastructure facilities are approved to actas custodians.The custodian must be totally delinked from the AMC and mustbe registered with SEBI.Unit Holders


17/23

They are the parties to whom the mutual fund is sold. They are ultimatebeneficiaryof the income earned by the mutual funds.


18/23

FREQUENTLY USED TERMS

Advisor-

Is employed by a mutual fund organization to give professional adviceonthe funds investments and to supervise the management of its asset.Diversification The policy of spreading investments among a range of differentsecuritiesto reduce the risk.Net Asset Value (NAV)-Net Asset Value is the market value of the assets of thescheme minus itsliabilities. The per unit NAV is the net asset value of the schemedivided by thenumber of units outstanding on the Valuation Date.

Sales Price- Is the pr ice you pay when you invest in a scheme. Also cal ledOffer Price. It may include a sales load.Repurchase Price -Is the price at which a close-ended scheme repurchases i tsunitsand it may include a back-end load. This is also called Bid Price.Redemption Price- Is the pr ice at which open-ended schemes repurchase thei r uni tsand close-ended schemes redeem their units on maturity. Such pricesare NAVrelated.Sales Load -Is a charge collected by a scheme when it sells the units. AlsocalledFront-end load. Schemes that do not charge a load are called No Loadschemes.


19/23

ULIPS

PLATFORMS OF LIFE INSURANCE-UNIT LINKED INSURANCE PLANSWorld over , insurance come in di f ferent forms and shapes .al thou gh th e gen er icnames may find similar ,the difference in productfeatures makes one wonder about thebasis on which these products aredesigned .With insurance market opened up , Indiancustomer has suddenlyfound himself in a market place where he is bombarded with alot of

jargon as wel l as market ing gimmicks wi th a very l i t t le knowledge


20/23

o f w ha t i sh a p p e n i n g . T h i s m o d u l e i s a i m e d a t c l a r i f y i n g t h e s eu n d e r l y i n g c o n c e p t s a n d simplifying the different products available in themarket.We hav e man y pr oducts l ike Endowmen t , Whole l i fe ,Mon ey bac k etc . Al l th es eproducts are based on following basic platformsor structures viz.

Traditional Life

Universal Life or Unit Linked Policies3.1 TRADITIONAL LIFE AN OVERVIEWThe basic and widely used form of design is known as Traditional LifePlatform. It isbased on the concept of sharing . Each of the policy holdercontributes his contribution(premium) into the common large fund ismanaged by the company on behalf of thepolicy holders.There are various unit linked insurance plans available in the market. However,

the keyones arepension, children, group and capital guarantee plans.The pension plans come with two variations with and without life cover andaremeant for people who want to generate returns for their sunset years.Thechildren plans, on the other hand, are aimed at taking care of their educationalandother needs..Apart from unit-linked plans for individuals, group unit linkedplans are also available inthe market. The Group linked plans are basicallydesigned for employers who want tooffer certain benefits for their employeessuch as gratuity, superannuation and leaveencashment.The other importantcategory of ULIPs is capital guarantee plans. The plan promisesthe policyholderthat at least the premium paid will be returned at maturity. But theguaranteedamount is payable only when the policy's maturity value is below thetotalpremium paid by the individual till maturity. However, the guarantee is notprovided onthe actual premium paid but only on that portion of the premium thatis net of expenses(mortality, sales and marketing, administration).How ULIPs workULIPs work on the lines of mutual funds. The premium paid by the client (lessanycharge) is used to buy units in various funds (aggressive, balanced orconservative)floated by the insurance companies. Units are bought according tothe plan chosen bythe policyholder. On every additional premium, more units areallotted to his fund. Thepolicyholder can also switch among the funds as andwhen he desires. While somecompanies allow any number of free switches tothe policyholder, some restrict thenumber to just three or four. If the number isexceeded, a certain charge is levied.

Individuals can also make additional investments (besides premium) from time totimeto increase the savings component in their plan. This facility is termed "top-up". Themoney parked in a ULIP plan is returned either on the insured's death orin the event of maturity of the policy. In case of the insured person's untimelydeath, the amount thatthe beneficiary is paid is the higher of the sum assured


21/23

(insurance cover) or the value of the units (investments). However, someschemes pay the sum assured plus theprevailing value of the investments.ULIP - KEY FEATURESPremiums paid can be single, regular or variable. The payment period too can

beregular or variable. The risk cover can be increased or decreased.As in all insurance policies, the risk charge (mortality rate) varies with age.The maturity benefit is not typically a fixed amount and the maturity period canbeadvanced or extended.Investments can be made in gilt funds, balanced funds, money marketfunds,growth funds or bonds.The policyholder can switch between schemes, for instance, balanced to debt

or gilt to equity, etc.The maturity benefit is the net asset value of the units.The costs in ULIP are higher because there is a life insurance component in itaswell, in addition to the investment component.Insurance companies have the discretion to decide on their investment portfolios.

Being transparent the policyholder gets the entire episode on the performance

of his fund.ULIP products are exempted from tax and they provide life insurance.Provides capital appreciation.Investor gets an option to choose among debt, balanced and equity funds.USP of ULIPSInsurance cover plus savingsULIPs serve the purpose of providing life insurance combined with savings atmarket-linked returns. To that extent, ULIPS can be termed as a two-in-one plan

in terms of giving an individual the twin benefits of life insurance plus savings.Multiple investment optionsULIPS offer a lot more variety than traditional life insurance plans. So there aremultipleoptions at the individuals disposal. ULIPS generally come in three broadvariants:

Aggressive ULIPS (which can typically invest 80%-100% in equities,balance indebt)


22/23


23/23

This is in stark contrast to conventional insurance plans where the sumassured is thestarting point and premiums to be paid are determinedthereafter.ULIP investors also have the flexibility to alter the premium amountsduring the policy'ste nu re . Fo r ex am pl e an in di vi du al wi th ac ce ssto su rp lu s fu nd s ca n en ha nc e th econtribution thereby ensuringthat his surplus funds are gainfully invested; converselyan individualfaced with a liquidity crunch has the option of paying a lower amount(thedifference being adjusted in the accumulated value of his ULIP). Thefreedom to modifypremium payments at one's convenience clearly givesULIP investors an edge over their mutual fund counterparts.2. ExpensesI n m u t u a l f u n d i n v e s t m e n t s , e x p e n s e s c h a r g e d f o r v a r i o u s a c t i v i t i e s l i k e f u n d management, sales and marketing,administration among others are subject to pre-determined upper limits asprescribed by the Securities and Exchange Board of India.For example equity-

oriented funds can charge their investors a maximum of 2.5% per annumon a recurring basis for all their expenses; any expense above theprescribedlimit is borne by the fund house and not the investors.Similarly fundsalso charge their investors entry and exit loads (in most cases, eitherisapplicable). Entry loads are charged at the timing of making an investmentwhile the exitload is charged at the time of sale.Insurance companies have a freehand in levying expenses on their ULIP products withno upper limits beingprescribed by the regulator, i.e. the Insurance Regulatory andDevelopment

Authority. This explains the complex and at times 'unwieldy' expensestructureson ULIP offerings.

Download - Learn About Mutual Funds

Top Related