Basics of Mutual Funds Wednesday, April 20, 2011

What is Mutual Fund?

 MF’s is a financial product to mobilize money from investors, to invest in different markets and securities, in line with the investment objectives agreed upon, between the mutual fund and the investors.

Big Picture 

  

How Asset Management Company (AMC) Operates MF?

AMC wants to raise   Rs.10000

  NFO F.V of Rs.10 on Apr1  2011 1000 units

  Subscription by  100 investors

  Each Investor  10 Units

  Apr 20th 2011 NAV of MF   Rs.15

  Market value of Fund   15 X 1000 = Rs.15000

  Gain for each Investor => 50000 – expenses/No. of Units

                                                                      Types of Funds 

Broad Classification

•Open Ended

•Close Ended

•Interval Ended

Debt Fund

•Gilt

•FMP

Equity Fund

•Diversified

•Thematic

•ELSS

Hybrid Funds

•MIP

•Capital Protected Scheme

Exchange Traded Funds

•Gold ETF

•Silver ETF

Commodity Funds

International Funds

Funds of Funds

               Structure of MF in India

•Trust – MF Constituted as Trusts

•Sponsors – Main persons behind the business

•Trustees – protecting the investors(beneficiaries)

•AMC – day to day management of schemes appointed by trustees or sponsor

•Custodian – custody of the assets (securities, gold etc. ) of the scheme

•RTA Registrar & Transfer Agent – Maintains the record of the investors 

•Auditors

•Fund Accountant – NAV

•Distributors

•Collecting Bankers

Offer Document

•Offer Document –

  prescribes the nature of the scheme, its investment objectives and term, are the core of the scheme, These vital aspects of the scheme are referred to as its “fundamental attributes”. These cannot be changed by the AMC without going through specific legal processes, including permission of investors.

 

  Mutual Fund Offer Documents have two parts:

•Scheme Information Document (SID), which has details of the scheme

•Statement of Additional Information (SAI), which has statutory information about the mutual fund that is offering the scheme.  

•NFO – New Fund Offer

  Units in a mutual fund scheme are offered to investors for the first time through a NFO

•NFO Opening Date – 

  This is the date from which investors can invest in the NFO

•NFO Closing Date –

  This is the date upto which investors can invest in the NFO

•Scheme Re-Opening Date –

  This is the date from which the investors can offer their units for re-purchase to the scheme at the re-purchase price or buy new units of the scheme at the sale price.

Scheme Distribution Channels

•Distributors – individual, Bank, NBFC’s

•Institutional Channels

•Stock Exchanges

•Internet

                                  Loads, Valuation &Taxation 

•Entry Load – Nil (Sale – NAV)

•Exit Load- 1% - 2% within 1yr ,Nil after that (NAV – Re-purchase price)

•Valuation – Holdings or portfolio of the scheme

•Taxation – STT Securities Transaction Tax 

Example : STT 

                                      Investment Plans

•Dividend Payout,

• Growth

•Dividend Re-Investment

•Systematic Investment Plans – SIP (Rupee Cost Averaging)

•Systematic Withdrawal Plan – SWP

•Systematic Transfer Plan – STP

•Triggers

                     KYC Requirement

•Proof of Identity

•Proof of Address

•PAN Card

•Photograph

                   Advantages and disadvantages

Happy Investing!