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Submitted By-Shalini MBA II (Sec-A) Dbimcs

Mutual funds pool money from investors and invest it in a portfolio of securities like stocks, bonds, and money market instruments. There are two main types - open-ended funds that allow investors to buy or sell units at any time, and close-ended funds that are open for a limited period of time. Mutual funds also differ based on their investment objectives, such as growth/equity oriented funds that aim for capital appreciation, income/debt oriented funds that focus on regular income, and balanced funds that seek both growth and income. Within these categories there are also sector funds, gilt funds, money market funds, index funds, and more.

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Shalini Thakur
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61 views15 pages

Submitted By-Shalini MBA II (Sec-A) Dbimcs

Mutual funds pool money from investors and invest it in a portfolio of securities like stocks, bonds, and money market instruments. There are two main types - open-ended funds that allow investors to buy or sell units at any time, and close-ended funds that are open for a limited period of time. Mutual funds also differ based on their investment objectives, such as growth/equity oriented funds that aim for capital appreciation, income/debt oriented funds that focus on regular income, and balanced funds that seek both growth and income. Within these categories there are also sector funds, gilt funds, money market funds, index funds, and more.

Uploaded by

Shalini Thakur
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Submitted By-

Shalini
MBA II(Sec-A)
DBIMCS
A Mutual Fund is a trust pools the
savings of a number of investors share
a common financial goal a diversified
portfolio of financial instruments like
equities , debentures / bonds or other
instruments the fund is then deployed
in.
Definition – Mutual Fund
The Securities and Board of India
(Mutual Fund) Regulations, 1993 defines a mutual
fund as “A fund established in the form of a trust by a
sponsor, to raise money by the trustees through the
sale of units of public, under on or more schemes, for
investing in the securities in accordance with these
regulations.”
Mutual Fund Flow Chart
The savings of a number of investors who share a
common financial goal are pooled into a fund. The
money thus collected is invested by the fund manager
in different types of securities depending upon the
objective of the scheme. These could range from
shares to debentures to money market instruments.
The income earned through these investments and
the capital appreciations realized by the scheme are
shared by its unit holders in proportion to the
number of units owned by them.
Mutual Funds ­Types
A. Classification as per Structure
1. Open-ended:
 In an open ended fund, investors can buy and sell units of
the fund, at NAV related prices, at any time, directly from
the fund. This is called an open-ended fund because, the
pool of funds is open for additional sales and repurchases.
Therefore both the amount of funds that the mutual fund
manages and the number of units, vary everyday.
 Open ended funds have to balance the interests of the
investors who come in, investors who go out and
investors who stay invested.
2. Close­ended:
 A closed ended fund is open for sale to investors for a
specific period, after which further sales are closed.
 Any further transaction for buying the units or
repurchasing them, happen in the secondary
markets, where closed ended funds are listed.
Therefore new investors buy from the existing
investors, and existing investors can liquidate their
units by selling them to other willing buyers. In a
closed end fund, thus, the pool of funds can
technically be kept constant.
B. Classification according to investment objectives

i. Growth / Equity Oriented Scheme


The aim of growth funds is to provide capital
appreciation over the medium to long- term. Such
schemes normally invest a major part of their corpus
in equities. Such funds have comparatively high
risks. These schemes provide different options to
the investors like dividend option, capital
appreciation, etc. Growth schemes are good for
investors having a long-term outlook seeking
appreciation over a period of time.
ii. Income / Debt Oriented Scheme

The aim of income funds is to provide regular and


steady income to investors. Such schemes generally
invest in fixed income securities such as bonds,
corporate debentures, Government securities and
money market instruments. Such funds are less risky
compared to equity schemes. These funds are not
affected because of fluctuations in equity markets.
However, opportunities of capital appreciation are
also limited in such funds. The NAVs of such funds
are affected because of change in interest rates in the
country.
iii. Balanced Fund
The aim of balanced funds is to provide both growth
and regular income as such schemes invest both in
equities and fixed income securities in the proportion
indicated in their offer documents.
They generally invest 40-60% in equity and debt
instruments. These funds are also affected because of
fluctuations in share prices in the stock markets.
However, NAVs of such funds are likely to be less
volatile compared to pure equity funds.
iv. Money Market or Liquid Fund
These funds are also income funds and their aim is to
provide easy liquidity, preservation of capital and
moderate income. These schemes invest exclusively in
safer short-term instruments such as treasury bills,
certificates of deposit, commercial paper and inter-
bank call money, government securities, etc. Returns
on these schemes fluctuate much less compared to
other funds. These funds are appropriate for
corporate and individual investors as a means to park
their surplus funds for short periods.
v. Sector Funds
The riskiest among equity funds, sector funds invest
only in stocks of a specific industry, say IT or FMCG.
A sector fund’s NAV will zoom if the sector performs
well; however, if the sector languishes, the scheme’s
NAV too will stay depressed.
The way to make money from sector funds is to catch
these cycles–get in when the sector is poised for an
upswing and exit before it slips back.
vi. Gilt Fund
These funds invest exclusively in government
securities. Government securities have no default risk.
 NAVs of these schemes also fluctuate due to change
in interest rates and other economic factors as is the
case with income or debt oriented schemes.
vii. Index Funds
Index Funds replicate the portfolio of a particular index
such as the BSE Sensitive index, S&P NSE 50 index (Nifty),
etc These schemes invest in the securities in the same
weight age comprising of an index. NAVs of such schemes
would rise or fall in accordance with the rise or fall in the
index, though not exactly by the same percentage due to
some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer
document of the mutual fund scheme.
There are also exchange traded index funds launched by
the mutual funds which are traded on the stock
exchanges.

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