Name- shivanshu dube
Roll no- 94
PGDM(finance)
Introduction-
A mutual fund is an investment vehicle made up of a pool of
moneys collected from many investors for the purpose
of investing in securities such as stocks, bonds, money
market instruments and other assets. Mutual funds are
operated by professional money market, who allocate the
fund's investments and attempt to produce capital
gain and/or income for the fund's investors. A mutual fund's
portfolio is structured and maintained to match the
investment objective stated in its prospectus.
The average mutual fund holds hundreds of different
securities, which means mutual fund shareholders gain
important diversification at a very low price. Consider an
investor who just buys Google stock before the company has
a bad quarter. He stands to lose a great deal of value
because all his dollars are tied to one company. On the other
hand, a different investor may buy shares of a mutual fund
that happens to own some Google stock. When Google has a
bad quarter, she only loses a fraction as much because
Google is just a small part of the fund's portfolio.
Mutual Funds Industry in India: A Growth Trend Analysis
Phase of growth of Indian mutual fund industry
Phase 1- Establishment and growth of UTI(1964-1987)
Phase 2- Entry of public sector funds(1987-1993)
Phase 3-Emergence of private sector funds(1993-1996)
Phase 4-Growth and SEBI regulations(1996-1999)
Phase 5-Emergence of a large and uniform industry(1999-2004)
Phase 6-consolidation and growth(2004-onwards....)
Different types of mutual fund schemes in India:
Schemes according to Maturity Period:
A mutual fund scheme can be classified into open-ended
scheme or close-ended scheme depending on its maturity
period.
Open-ended Fund/ Scheme:
An open-ended fund or scheme is one that is available for
subscription and repurchase on a continuous basis. These
schemes do not have a fixed maturity period. Investors can
conveniently buy and sell units at Net Asset Value (NAV)
related prices which are declared on a daily basis. The key
feature of open-end schemes is liquidity.
Close-ended Fund/ Scheme:
A close-ended fund or scheme has a stipulated maturity
period e.g. 5-7 years. The fund is open for subscription only
during a specified period at the time of launch of the scheme.
Investors can invest in the scheme at the time of the initial
public issue and thereafter they can buy or sell the units of
the scheme on the stock exchanges where the units are
listed. In order to provide an exit route to the investors, some
close-ended funds give an option of selling back the units to
the mutual fund through periodic repurchase at NAV related
prices. SEBI Regulations stipulate that at least one of the two
exit routes is provided to the investor i.e. either repurchase
facility or through listing on stock exchanges. These mutual
funds schemes disclose NAV generally on weekly basis.
Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income
scheme, or balanced scheme considering its investment
objective. Such schemes may be open-ended or close-ended
schemes as described earlier. Such schemes may be
classified mainly as follows:
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. and the investors may choose an option
depending on their preferences. The investors must indicate
the option in the application form. The mutual funds also
allow the investors to change the options at a later date.
Growth schemes are good for investors having a long-term
outlook seeking appreciation over a period of time.
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. If
the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term
investors may not bother about these fluctuations.
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. These are appropriate for investors looking
for moderate growth. 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.
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.
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.
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
weightage 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
