•MF is a mechanism for –pooling resources from the public –by issuing units to them and – investing the funds, so collected in securities – •
Investors are – unit holders.
•Profit and loss shared by investors
•A MF is set up in the form of trust, which has sponsors, trustees, Asset Management Companies(AMCs) and custodians.
–Sponsors establish a MF.
–Trustees hold its property for the benefit of the unit holders.
–AMC manages schemes of the Fund
–Custodian holds securities of the fund in its custody.
Types of Mutual Funds
•Open-ended Scheme/plan: One that is available for subscription and repurchase on a continuous basis. •
•Close ended Scheme/plan: Fund is open for subscription only during a specified period at the time of launch. Exit routes: either repurchase facility or through listing on stock exchange. •
•Growth Scheme/Equity Oriented Scheme: Invest major part in equity. Higher risk. Different options like dividend option, capital appreciation etc. •
•Income Scheme/Debt Oriented Scheme: Provide regular and steady income. Invest in fixed income securities. Less risky.
• Balance Plan/Scheme: Provide growth and regular income. Invest both in equities and fixed income securities in the proportion indicated in their offer document.
Money Market or Liquid Fund: Provide easy liquidity, preservation of capital and to ensure a moderate income.
Gilt Fund: Invest exclusively in Govt. Securities. No default risk.
Index Fund: Invest in the securities in the same weight age comprising an index, BSE sensitive index, Nifty etc.
Sector Specific Fund: Invest only those sectors or industries as specified in the offer documents.
Tax Saving Scheme: ELSS (Equity linked saving Scheme) are growth oriented and invest predominantly in equities. Lock in period 3 years.
Fund of Funds (FoFs): Invest primarily in other schemes of the same MF or other MF. Greater diversification through one scheme.
Rajiv Gandhi Equity Saving Scheme (RGESS)
Tax benefit – section 80CCG
– New investors – investment up to Rs 50000
–Gross annual income up to Rs 12.00 lac.
New Fund Offer (NFO) period
•Open ended and close ended scheme -15 days. •
•ELSS scheme – as per Govt. guidelines •
•RGESS – 30 days. •
• AMC shall make investment out of the NFO proceeds only on or after the closer of the NFO period.
•The MF should allot units/refund money and dispatch statements of accounts within 5 business days from the closure of the NFO.
Product labeling in Mutual Funds
All MFs to mention
1. Nature of scheme: Growth or income
2. kind of product Equity/Debt
3.Level of risk, depicted by colour code
1.Blue – principal at low risk 2.Yellow – principal at medium risk 3.Brown – principal at high risk.
Systematic Investment Plan
•SIP allows a person to invest a fixed sum either monthly or quarterly, for a predetermined period as may be decided.
•One can decide the amount of each installment.
• In most schemes one can withdraw at his/her convenience
•Net Asset Value (NAV): MV of securities, less expenses divided by No. of units of scheme as on a date.
• to be published on daily basis.
• to be updated on AMFI’s website and the MFs’ website by 9 PM on the same day.
•To round off NAV up to
–2 decimal places for all equity oriented and balance fund scheme.
–4 decimal place for index funds and all type of debt & liquid/money market scheme.
– •Repurchase or redemption price is the price or NAV at which an open ended scheme purchases or redeems its units from the unit holders. •
•Assured return Scheme: assures a specific return to unit holders irrespective of performance of the scheme.