Mutual funds

Mutual Funds

Presented By: Vritti Malhotra

What are Mutual Funds?

• A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investments that may make up a mutual fund.

• The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value.

Mutual Funds in India• The first introduction of a mutual fund in India occurred in

1963, when the Government of India launched Unit Trust of India (UTI). Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market.

• Then a set of other government controlled Indian Financial Companies came up to handle funds. These included:

State Bank of India, Canara Bank, and Punjab National Bank.

Working Of a Mutual Funds

Types Of Mutual Funds

There are 4 principal types of funds that you can invest in:

• Open Ended Funds• Close Ended Funds• Exchange traded Funds• Unit investments Trusts

Open Ended Funds• It is a collective investment scheme which can issue and

redeem shares at any time. An investor will generally purchase shares in the fund directly from the fund itself rather than from the existing shareholders.

• Open-ended funds are available in most developed countries, though terminology and operating rules vary.

• U.S. mutual funds, UK unit trusts and exchange-traded funds are all examples of open-ended funds.

• The price at which shares in an open-ended fund are issued or can be redeemed will vary in proportion to the net asset value of the fund, and therefore directly reflects the fund's performance.

Close Ended Funds• It is a collective investment scheme that has a fixed number of

shares. Unlike open-end funds, new shares/units in a closed-end fund are not created by managers to meet demand from investors. Instead, the shares can be purchased (and sold) only in the market.

• Closed-end funds are usually listed on a recognized stock exchange and can be bought and sold on that exchange.

Exchange Traded Funds (ETF’s)

ETFs hold the same mix of investments as a stock or bond market index and trade on a stock exchange. Most ETFs simply follow an index but some are more actively managed. You’ll pay a commission when you buy and sell an ETF.

Unit Investment Trusts (UIT’s) UIT’s issue shares to the public only once, when they are created. UIT does generally have a limited life span, established at creation. Investors can redeem shares directly with the fund at any time (as with an open-end fund) or wait to redeem upon termination of the trust.

Association of Mutual Funds in India (AMFI)

• It is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders. It was incorporated on August 22, 1995, as a non-profit organization.

Objectives:• To define and maintain high professional and ethical standards

in all areas of operation of mutual fund industry.• To represent to the Government, Reserve Bank of India and

other bodies on all matters relating to the Mutual Fund Industry.

Advantages of Investing in Mutual Funds

•Diversification:Using mutual funds can help an investor diversify their portfolio with a minimum investment.  When investing in a single fund, an investor is actually investing in numerous securities.

•Professional Management:Mutual funds are managed and supervised by investment professionals. As per the stated objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities.

Advantages (contd..)

•ConvenienceWith most mutual funds, buying and selling shares, changing distribution options, and obtaining information can be accomplished conveniently by telephone, by mail, or online.

•LiquidityMutual fund shares are liquid and orders to buy or sell are placed during market hours.

Disadvantages of Investing in Mutual Funds

• High Expense Ratios and Sales ChargesIf you're not paying attention to mutual fund expense ratios and sales charges, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.20%, as they will be considered on the higher cost end.

• Management AbusesChurning, turnover and window dressing may happen if your manager is abusing his or her authority.

• Tax InefficiencyLike it or not, investors do not have a choice when it comes to capital gain payouts in mutual funds. Due to the turnover, redemptions, gains and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event.

Various Mutual Funds in India

• State Bank of India mutual fund• ICICI prudential mutual fund• TATA mutual fund• HDFC mutual fund• Birla sun life mutual fund• Reliance mutual fund• Kotak Mahindra mutual fund etc.

Thank you