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MUTUAL FUND MANAGEMENT

Semester - 4

MANAGEMENT OF MUTUAL

FUND

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COURES CURRICULUM

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Module I: Basic Concepts

Overview - Introduction to Mutual Funds, Role, Types, Structure, Organization and Constituents.

Module II: Mutual fund Industry

History of mutual funds, Workflow in a mutual fund company

Module III: Legal and Regulatory Framework

SEBI guidelines, Offer Documents and Disclosure

Module IV: Marketing of mutual funds

Distribution, Marketing and Sales of Mutual Funds

Module V: Pricing of Mutual Funds

NAV Pricing, Accounting and Taxation.

Module VI: Investment Management

Managing Unit holder’s money, Portfolio management/ Fund Management and it's

Evaluation- Developing a Model Portfolio for the investor.

Module VII: Risk Analysis and Investor Services

Risks involved in mutual funds, performance evaluation, Unit holders Protection, Investor Services,

Financial Planning Strategies to investors and selecting the right products for Investments.

MAJOR PLAYER

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AGENDA Section 1: Nuts & Bolts Concept & Role of Mutual Funds

Fund Structure and Constituents

Legal & Regulatory Framework

Section 2: Process of Investing Offer Document

Fund Distribution & Sales Practices

Investor Services

Section 3: Mutual Funds &

Securities Markets Investment Management

Section 4: Accounting Aspects Accounting, Valuation and Taxation

Section 5: Return Concepts Measuring & Evaluating Mutual Fund

Performance

Section 6: Financial Planning & Mutual Funds

Helping Investors with Financial Planning

Recommending Financial Planning

Strategies

Selecting the right Investment Products

Helping Investors understand risks

Recommending Model Portfolios and Selecting the right fund

Section 7: Business Ethics Business Ethics & Mutual Funds

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Section 1

Nuts and Bolts

1. Concept & Role of Mutual Funds

2. Fund Structure and Constituents

3. Legal & Regulatory Framework

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Concept of Mutual Fund • A pool of money contributed by many investors and

collectively managed by an asset management company

• Investments made in accordance with stated objectives

• A financial intermediary that allows small investors to

participate in the securities market

• Ownership of the fund is mutual and beneficial

• An investor becomes part owner of the fund’s assets

when he buys into the fund

• The investor is allotted units for the amount subscribed.

What it means

Investors

Markets

(volatile, has fluctuation)

Trust

(pool of money)

Contribute

money

Invest in

markets

Receive

dividend/capital

appreciation

Receive

interest,

dividend or

capital growth

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The MF Cycle

Characteristics

• Investors own the mutual fund

• Everyone else associated with the fund

earns a fee

• Things which are mutual

– Pool of money

– Investment objective

– Risk and return

• Funds are invested in a portfolio of

marketable securities reflecting the

investment objective

• Value of the portfolio and investors’

holdings change with change in the

market value of investments.

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Advantages

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Advantages of Mutual Funds

• Portfolio diversification: It enables him to hold a diversified investment

portfolio even with a small amount of investment like Rs. 2000/-.

• Professional management: The investment management skills, along

with the needed research into available investment options, ensure a

much better return as compared to what an investor can manage on his

own.

• Reduction/Diversification of Risks: The potential losses are also

shared with other investors.

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•Reduction of transaction costs: The investor has the

benefit of economies of scale; the funds pay lesser costs

because of larger volumes and it is passed on to the

investors.

• Wide Choice to suit risk-return profile: Investors can

chose the fund based on their risk tolerance and

expected returns.

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Advantages of Mutual Funds Cont….

• Liquidity: Investors may be unable to sell shares directly, easily and

quickly. When they invest in mutual funds, they can cash their investment

any time by selling the units to the fund if it is open-ended and get the

intrinsic value. Investors can sell the units in the market if it is closed-

ended fund.

• Convenience and Flexibility: Investors can easily transfer their

holdings from one scheme to other, get updated market information and

so on. Funds also offer additional benefits like regular investment and

regular withdrawal options.

•Transparency: Fund gives regular information to its investors on the

value of the investments in addition to disclosure of portfolio held by their

scheme, the proportion invested in each class of assets and the fund

manager's investment strategy and outlook

Disadvantages

• No Control Over Costs

• No Tailor Made

Portfolios

• Managing a large

number of funds/types.

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Disadvantages of Mutual Funds

• No control over costs: The investor pays investment

management fees as long as he remains with the fund, even while

the value of his investments are declining. He also pays for funds

distribution charges which he would not incur in direct investments.

• No tailor-made portfolios: The very high net-worth individuals or

large corporate investors may find this to be a constraint as they will

not be able to build their own portfolio of shares, bonds and other

securities.

• Managing a portfolio of funds: Availability of a large number of

funds can actually mean too much choice for the investor. So, he

may again need advice on how to select a fund to achieve his

objectives.

• Delay in redemption: It takes 3-6 days for redemption of the units

and the money to flow back into the investor’s account.

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History of Mutual Funds

• Birthplace of Mutual Funds – USA (like the United States. As at the

end of March 2008, in the US alone there were 8,064 mutual funds with total

assets of about US$ 11.734 trillion (Rs.470 lakh crores)*.

• History in India:

– 1964-1987 (Phase I) – Growth of Unit Trust of India

– 1987-1993 (Phase II) – Entry of Public Sector Funds

– 1993-1996 (Phase III) – Emergence of Private Funds

– 1996-1999 (Phase IV) – Growth and SEBI Regulation

– 1999-2004 (Phase V) – Emergence of large & uniform

Industry

– 2004 onwards (Phase VI) – Consolidation and Growth.

BIRTH..

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Historians are uncertain of the origins of investment funds; some cite the

closed-end investment companies launched in the Netherlands in 1822 by

King William I as the first mutual funds,

while others point to a Dutch merchant named Adriaan van Ketwich

whose investment trust created in 1774 may have given the king the idea.

Ketwich probably theorized that diversification would increase the appeal of

investments to smaller investors with minimal capital.

The name of Ketwich's fund, Eendragt Maakt Magt, translates to "unity

creates strength".

The next wave of near-mutual funds included an investment trust launched

in Switzerland in 1849, followed by similar vehicles created in Scotland in

the 1880s.

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The idea of pooling resources and spreading risk using closed-end investments

soon took root in Great Britain and France, making its way to the United

States in the 1890s.

The Boston Personal Property Trust, formed in 1893, was the first closed-end

fund in the U.S.

The creation of the Alexander Fund in Philadelphia in 1907 was an important

step in the evolution toward what we know as the modern mutual fund.

The Alexander Fund featured semi-annual issues and allowed investors to

make withdrawals on demand.

ERA OF MODERN MF

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The creation of the Massachusetts Investors' Trust in Boston, Massachusetts,

heralded the arrival of the modern mutual fund in 1924.

The fund went public in 1928, eventually spawning the mutual fund firm known

today as MFS Investment Management.

State Street Investors' Trust was the custodian of the Massachusetts Investors'

Trust.

Later, State Street Investors started its own fund in 1924 with Richard Paine,

Richard Saltonstall and Paul Cabot at the helm.

Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that

would launch the first no-load fund in 1928.

A momentous year in the history of the mutual fund, 1928 also saw the launch of

the Wellington Fund, which was the first mutual fund to include stocks and bonds,

as opposed to direct merchant bank style of investments in business and trade.

TYPES OF FUND

Existing funds

• Open-ended (OEF) & Close-

ended (CEF)

• Growth, Income and Hybrid

• Equity, Debt and Balance

• Load & No-Load

• Guaranteed & Non-

Guaranteed

• Tax-exempt & Non tax-

exempt

New Gen Mutual Funds

• Fund of Fund

• Commodity fund

• Real Estate fund

• Asset Allocation fund

• Exchange-traded fund

• Derivative fund

• Capital Protection Oriented

Fund.

LOADS & NO LOADS FUND

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Load and No Load Funds: Funds that charge front-end (Entry), back-end (Exit)

or deferred (Contingent Deferred Sales Charge – CDSC) loads are called load

funds.

Funds that make no such charges are called no-load funds.

In India, SEBI has defined a load as the one-time fee payable by the investor to

allow the fund to meet initial issue expenses including brokers’ commission,

advertising and marketing expenses etc.

As per SEBI definition ONLY those funds that charge an entry load are considered

as load funds.

OEF & CEF

Open Ended Fund • No fixed tenor

• Continuous sale & purchase by the fund

• Subscription is not mandatory

• Redemption mandatory, with certain obvious conditions

• Fund size changes everyday

• No secondary market trading

• Redemption pressure on fund managers is higher

• Daily NAV (calc & disclosure)

Close Ended Fund • Fixed tenor – 1/3/5/7 years

• Sale of units only during NFO

• No subscription after closure of NFO

• Redemption in 2 ways

– Exit window – periodically repurchase of units by the fund

– Listing – secondary market trading of units, like stocks

• Fund size either constant or decreases

• Lower redemption pressure on fund managers

• Weekly NAV (calc weekly but disclosure daily).

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Equity-oriented

• Diversified

• Sectoral

• Thematic or Specialty

– ASEAN fund, Infrastructure Fund

• Growth & Value

• Large, Mid & Small Cap

• Dividend Yield or Equity Income

• Index

• ELSS

Primary objective: growth or capital appreciation.

Contd….

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Equity Funds: A fund that invests primarily in equity (ownership) instruments.

Equity Funds can be further classified as:

Diversified Equity Fund: investing in a mix of equity from different sectors

Index Funds: Portfolio replicates a selected Index

Sectoral Fund: invests in equity instruments of one sector for eg. Technology

Fund, Pharma Fund, Banking Fund etc.

Aggressive Growth Fund: target maximum capital appreciation, invest in less

researched or speculative shares

Growth Fund: This fund invests in equities of Growth companies only i.e. the

companies which have the potential to grow at higher rate in future

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Large Cap/Mid Cap/Small Cap Fund: These Funds invests in equities of

Large/Mid/ Small Cap companies respectively.

Specialty (or Thematic) Funds: have a narrow portfolio orientation and invest in

companies that meet pre-defined criteria. Eg. Infrastructure Fund or ASEAN Fund

Equity Linked Saving Scheme (ELSS) an Indian Variant: Investment in these

schemes entitle the investor an income tax deduction u/s 80C (max Rs. 1 lakh in

year 2007-08). These are open-ended funds but investment in these schemes

(including the reinvested dividends) gets locked-in for a period of 3 years.

Value Funds: try to seek out fundamentally sound companies whose shares are

currently under-priced in the market. These fund add those shares to their portfolio

that are selling at low price-earnings ratios, low market to book value ratios and are

believed to be undervalued compared to their true potential.

Equity Income or Dividend Yield Funds: invest in stocks which have a high Div

Yield i.e., Div to Market Price ratio

Equity-oriented funds

DIVERSIFIED

ACTIVE PASSIVE

Index Funds

NON–DIVERSIFIED

SECTORAL

GROWTH VALUE

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Debt Oriented

• Diversified Debt

• Focussed/Sectoral Debt

• Gilt Fund

• Bond Fund

• Fixed Maturity/Term Plan (FMP/FTP)

• Liquid or Money Market MF

Primary objective: regular income.

DEBT FUND Contd..

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Debt Funds or (Income Funds): A fund can be classified as Debt Fund, which

invests primarily in Debt (loan) Securities. Debts fund can be further classified

as:

Gilt Funds: invests primarily in Govt Securities or Gilts (Govt. borrowing

programme)

Diversified Debt: invests in different varieties of Debt Securities i.e. say Govt

Securities, Corporate Debts, Securities of different Maturities etc.

Income fund: invests in Debt securities so as to provide regular income to

Investors.

Diversified Debt Fund: a fund that invests in all available types of debt -

securities issued by entities across all industries and sectors.

Focused Debt Fund: invest only in specified securities and thus have a higher

risk than diversified debt funds.

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High Yield Debt Fund: seek to obtain higher interest returns by investing in

debt instruments that are considered below investment grade.

Assured Return Funds: an Indian variant, were being offered by erstwhile UTI

and now no longer offered.

Fixed Term Plan Funds: essentially close-end in nature and usually for term

less than a year. Being of short duration they are not listed on the stock

exchange. Invest in such securities whose residual maturity is equal to the

scheme tenor.

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Balance

• Investment in more than one asset class

– Debt and equity in various proportions

Primary objective: hybrid (regular income as

well as capital appreciation).

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Fund of Funds

• Invest in other schemes of same or other mutual fund

• Is considered like a Debt scheme for tax purposes

• 2 advantages:

– Since FOF is a mutual fund scheme, no tax on

income generated from buying and selling securities

• Allows fund managers to rebalance portfolio freely

– Investor need not to decide when to sell units and

execute transactions

• Convenience to the investor.

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Commodity Fund

• specialize in investing in different

commodities directly or through shares of

commodity companies or through

commodity futures contracts.

– Example - Precious Metals Funds

• As of date, Indian MF industry does not

have commodity funds except the ones

that invest in Gold.

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Real Estate Fund

• Invest in real estate directly, or fund real estate developers, or buy shares of housing finance companies

• Fund to invest min 30 % corpus in real estate projects

• Balance in equity, bonds/debentures of real estate cos.

• Close-ended schemes with secondary market trading

• Move to bring transparency, documentation and fair valuation of property

• Allow small investors with small investments to enjoy upswing of property without downside of high stamp duty, legal expenses, high initial investment, element of black money and disposal at the right prices.

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Asset Allocation Fund • Fund manager has the flexibility to change

the allocation of funds between equity and

debt based on perception about direction

of the market.

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Exchange-traded fund

• Passively managed fund that tracks a benchmark index

• An ETF is like a hybrid financial instrument, a cross

between an index fund and a stock

– An equity-based ETF would invest in a basket of

stocks that reflects the composition of an index, say

Nifty or Sensex

– These funds are freely traded on the stock exchange

and derive value from the underlying asset, i.e.,

stocks.

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ETF Contd..

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Exchange Traded Funds (ETFs) were first launched in India in December 2001

by Benchmark AMC. Now, a total of five ETFs are available to investors.

ETFs are fundamentally different from normal funds and have thus developed

something of a reputation for complexity.

While some of the details of how AMCs run ETFs are genuinely more complex,

that has nothing to do with investors. For the investors, ETFs are a straightforward

instrument that offers some interesting features. Let's see what makes ETFs

different.

ETF are index funds. An index fund is an equity fund, which tracks a particular

market index like the BSE Sensex or the Nifty.

The index fund holds the same stocks as the underlying index and in the same

proportion as the index. From an investment point of view, ETFs are simply index

funds that—unlike normal index funds—can be bought and sold at intra-day prices

throughout a trading day.

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In this respect they are more like shares rather than like mutual funds. Normal

index funds are, of course, available only at end-of-day NAVs from fund

distributors like any other fund.

ETFs, since they need to be transacted upon throughout the day, are bought

and sold through stockbrokers (using a demat account) just like shares.

However, behind the scenes, ETFs are very different from any other kind of

fund. Where an ETF really differs from an index fund is the manner in which it is

created, bought and sold.

In the case of normal mutual funds investors pays cash to the fund, which in

turn buys the stocks and bonds which constitute the fund. When ETFs are first

set up the initial participants will give the fund the basket of stocks, which

constitute the underlying index and take units of the fund in exchange. These

market makers will in turn sell these units to investors just like a distributor

does. The market maker is usually a broker. Since ETFs are sold through

brokers, you will pay brokerage in place of loads. ETFs tend to have lower

brokerage than normal funds have loads.

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The NAV of an ETF is a fraction of the value of the index. Thus the NAV of an

exchange-traded fund based on the Nifty can be one-tenth of the value of the

Nifty. If the Nifty is at 1500 points the NAV will be Rs 150.

Effectively, this fractional pricing means that a basket of stocks like the Nifty can

be purchased by an investor with a much lower outlay than it would otherwise

be possible.

Compare this with trying to replicate the index by purchasing individual shares,

where just one share of Infosys costs around Rs 4500. This also enables

smaller initial investments than what most index funds offer, which is specially

useful if you are just trying out index investing. By comparison, most nifty index

funds require a minimum investment of Rs 5000.

In the case of other mutual fund schemes the fund buys back and sells units. In

a way, an ETF resembles a close-end scheme, where the units are not sold

back to the fund and investors buy and sell the fund units on the market.

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However, there is obviously no discount to NAV like closed end funds. Also,

unlike a close-end fund supply can be altered by creating additional units or

extinguished by withdrawing existing ones.

Trading of the units ensures that underlying stocks do not have to brought or

sold. Investors entering and exiting do not also affect existing investors. As a

result an ETF has a much lower tracking error than an index fund.

Currently the equity ETFs available track the BSE Sensex, the S&P CNX Nifty

and the S&P CNX Nifty Junior. The ETF on the Nifty Junior is in fact the only

option for passive investing in mid-cap shares. On the debt side a liquid ETF is

available.

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Gold ETF

• Gold ETFs invest in physical gold and

derive their value from the underlying

asset

– The price of gold ETFs will be directly linked

to the price of gold itself and hence the

returns from a gold ETF will more or less

equal to returns from gold bars or coins

• Investors can buy or sell units of these

schemes, like any other stock listed on the

exchange, through brokers.

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Derivative fund • Hedging

– Futures

– Options

• Arbitraging

– Stock Arbitrage

– Index Arbitrage.

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Capital Protection Oriented fund • Close-ended with no exit option

• Debt scheme from a tax standpoint

• No guarantee by the AMC or sponsor

• Capital protection on account of the structure

– Eg. Debt component of 80 in zero coupon bonds

which give 100 on maturity and investment of the

balance 20 in equity

– With tools such as dynamic portfolio insurance,

increase equity component by a multiplier

• Rating of the scheme mandatory.

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Classification of funds • Risk

– Sectoral funds have higher risk

– Liquid or Money Market funds have least risk

• Tenor

– Equity funds require a long investment horizon

– Liquid funds are for the short term liquidity needs

• Investment objective

– Equity funds suit growth objective

– Debt funds suit income objective.

Risk-Return Hierarchy

Liquid

funds

ST debt

funds

Gilt

funds

Debt

Funds

Balanced

funds

Risk

Index

funds

Return Equity

funds

Sectoral

funds

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Mutual Funds Vs. Other Investments

Product Return Safety Liquidity

Tax

Benefit

Conven-

ience

Bank

Deposit

Low High

High No

High

Equity

Instruments

High Low High or

Low

No

Moderate

Debentures Moderate Moderate Low No Low

Fixed

Deposits by

Companies

Moderate

Low

Low No

Moderate

Bonds Moderate

Moderate Moderate Yes

Moderate

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Mutual Funds Vs. Other Investments

Product Return Safety Liquidity

Tax

Benefit

Conven-

ience

RBI Relief

Bonds

Moderate

High

Low

Yes

Moderate

PPF Moderate High Low Yes Moderate

National

Saving

Certificate

Moderate

High

Low

Yes Moderate

National

Saving

Scheme

Moderate

High

Low

Yes

Moderate

Monthly

Income

Scheme

Moderate

High

Low

Yes

Moderate

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Mutual Funds Vs.Other Investments

Product Return Safety Liquidity

Tax

Benefit

Conven-

ience

Life

Insurance

Moderate

High

Low

Yes

Moderate

Mutual

Funds

(Open-end)

Moderate

Moderate High

No

High

Mutual

Funds

(Closed-

end)

Moderate Moderate

High

Yes

High

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Mutual Fund

Structure &

Constituents

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MF Structure in other countries Structure in USA

• Management Company – Similar to AMC

• Underwriter – for Sales

• Management Group – Similar to Sponsor

• Custodian

Structure in UK

• Open Ended - Unit Trusts – regulated by Securities and

Investment Board + by relevant SRO

• Closed Ended - Investment Trusts – like a Company.

Structure in USA

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SHAREHOLDERS

BOARD OF DIRECTOR Oversees the Fund’s activities

INVESTMENT ADVISOR Manage Fund Portfolio

According to its Objective

PRINCIPLE

UNDERWRITER Sell Funds , Either Directly to the

Public or Through other firms.

INDEPENDENT

PUBLIC

ACCOUNTANT Certifies fund’s

statements

TRANSFER AGENT Maintain records of daily

transaction on behalf of

the company

CUSTODIAN Holds funds assets,

manage them

separately to protect

shareholders interest

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MF Structure in India

A mutual fund has a 3-tier structure

Sponsor

Trustee

AMC

Trust

MF Constituents in India

Sponsor

Trustee

AMC

Trust

Distributor

SEBI

R&T Agent

Securities

Dealer /

Broker

Banker Custodian &

Depository

Securities

Markets

Investor

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Trust • Mutual funds in India constituted as a Public Trust under

Indian Trust Act, 1882

• The trust is registered with the Office of Public Trustee

• OPT reports to the Charity Commissioner

• The trust or the fund has no independent legal capacity

itself

• Acts in relation to the trusts are taken on its behalf by the

trustees

• Treated as a separate entity and a pass through vehicle

• Has its own auditors, separate from the AMC.

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Sponsor • Promoter of the mutual fund

• Creates a Trust under Indian Trusts Act, 1882 and

registers it with Office of Public Trustee

• Appoints Board of trustees/trustee company

• Creates AMC under Indian Companies Act, 1956

• Fulfills necessary formalities and applies to SEBI for

registration of the Trust as a Mutual Fund.

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Sponsor Criteria • Min 5 years track record in financial services

• Bank, corporate or an FI

• Profit making in at least 3 out of past 5 years, including

the previous year

• Positive Net Worth in last 5 years

• At least 40% of the capital of the AMC

• Net worth in the immediately preceding year more than

the capital contribution to the AMC.

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Trustee • Appointed by sponsor with SEBI approval

• Have Registered ownership of investments

• Formed either as Board of Trustees or Trustee

Company

• Power to appoints all other constituents

• Appoint AMC through the ‘Investment

Management Agreement’ and delegate powers.

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Trustee Criteria • Minimum number of trustees is 4

– 2/3rd should be independent trustees i.e. no

connection of profit (what so ever) with the sponsor

• Meet at least 4 times in a year to review functioning of

AMC

• Trustees hold the unit-holders money in fiduciary

capacity

• All major decisions need trustee approval

• Right to seek regular information and take remedial

action.

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AMC • Required to be registered with SEBI

• Appointed as Investment Manager of the mutual fund

• Appointed by the trustees via an Investment Management

Agreement

• Responsible for operational aspects of the mutual fund

• Net Worth of at least Rs.10 crore OR US$ 20,00 at all times

• At least 1/2 of the board members must be independent

• Mostly, structured as a private limited company where Sponsor and

associates hold capital

• Quarterly reporting to Trustees.

AMC

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MF Constituents

Sponsor

Trustee

AMC

Trust

R&T Agent

Securities

Dealer /

Broker

Banker Custodian &

Depository

Distributor

SEBI

Securities

Markets

Investor

Other Constituents Custodian &

Depository

Banker

Securities

Dealer /

Broker

R&T Agent

Distributor

Investment back-office

Purchase and sale of securities

Not more than 5% through a related

broker

Research report to AMC

Investor records and transactions

Selling & Distributing schemes

Providing bank accounts & remittance services

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Role Restrictions • Sponsor of a fund cannot be its custodian

• Sponsor of a fund can be a distributor

• Trustee of one mutual fund cannot be trustee of another

mutual fund

– Exception is Independent trustees provided they

obtain approval of both the board of trustees

• Trustee of one fund cannot be AMC of another

• AMC of one fund cannot be Trustee of another

• AMC cannot have any business interest other than fund

advisory.

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Mergers & Takeovers

• Scheme Merger

– Scheme merged with another scheme of the same AMC

• AMC Takeover

– AMC is taken over by another set of sponsors

• AMC Merger

– One AMC may merge with another AMC

• Change of AMC/Trust

– Trustees decide to change the AMC and handover the scheme to a new AMC

• Scheme Takeover

– Just the schemes taken over by another set of trustees.

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Mergers & Takeovers • Scheme takeover (HDFC–Zurich, Birla-Apple)

– One AMC buys schemes of another AMC

– Organic growth in assets

– No change in AMC stakes

• AMC merger (HB-Taurus)

– Two AMCs merge

– Similar to merger of companies

– Sponsor stakes change

• AMC take-over (Zurich-ITC Threadneedle, Birla-Alliance)

– Stake of one sponsor in a AMC bought out by another

– Change in AMC and sponsor.

Mergers & Takeovers • Investor rights

– Right to be informed

– No prior approval required

– Option to exit at NAV without exit load.

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Regulatory framework

• Apex regulatory body

• Equivalent to a Securities and Investment Board in the UK

• Set up by an Act of Parliament in 1992

• Overall Capital Markets Regulator

• SEBI (MF) Regulations, 1996

SEBI RBI

Apex Banking

regulatory body

MFs are investors in

Gilts & Money Market

and thus indirectly under

RBI’s regulation

Regulates bank

assured return schemes

Bank sponsored AMC

wanting to offer assured

return scheme require

RBI approval as well.

Regulatory framework

MoF

SAT

Supervisor of both SEBI & RBI

Created in 2003

Provide apex appeal mechanism

for actions taken by SEBI

Registration of AMC and Trustee Company RoC for Compliance RoC is supervised by DCA DCA is a part of CLB which is under Ministry of Law and Justice CLB is the interface for prosecution and penalties.

Companies

Act

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Regulatory framework

Office of Public

Trustee

SRO

Industry

Association

Collective industry opinion

Guidelines & recommendations

Example: Association of Mutual Funds in India (AMFI).

Registration of Trust

Board of Trustees is accountable to the OPT

Complaints against individual trustees

Derive powers from regulator Ability to make bye-laws Regulate own members in a limited way Example : Stock exchanges – NSE, BSE etc.

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Q1. Mutual Funds in India are set up as A) Company

B) Trust

C) Partnership

D) Association of persons

Q.2 Issuing additional fresh units and redeeming the existing units of a mutual fund scheme is the role of:

A) The custodian

B) The transfer agent

C) The trustees

D) The bankers

Q.3 Minimum no of independent directors on the board of the AMC A) 50%

B) 25%

C) 75%

D) None of the above.

Stop Check!

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Q.4 Which of the following qualifies as an Self Regulatory Organization :- A) SEBI

B) RBI

C) NSE

D) AMFI

Q.5 To approve a change in fundamental attributes of a close-ended fund, consent of the following is required:

A) 50% of unit holders

B) 50% of trustees

C) 75% of unit holders

D) None of the above

Q.6 The body to which an investor may address their complaint is: A) SEBI

B) RBI

C) IRDA

D) NSE.

Stop Check!

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Q.7 A mutual fund is not

A) A company that manages an investment portfolio

B) A portfolio of stocks, bonds and other securities

C) A pool of funds used to purchase securities on behalf of investors

D) None of the above

Q.8 Which of the following mutual funds was not set up in the phase 1987-93:

A) Canara bank Mutual Fund

B) Kothari Pioneer Mutual Fund

C) SBI Mutual Fund

D) LIC Mutual Fund

Q.9 Which of the following has the lowest risk?

A) Liquid Fund (MMMF)

B) Gilt Fund

C) Diversified Debt fund

D) Diversified equity fund.

Stop Check!

KEY

75

QUESTION No KEY No

Q.1 B

Q.2 A

Q.3 A

Q.4 C

Q.5 C

Q.6 A

Q.7 A

Q.8 B

Q.9 A

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