1. SEBI & MUTUAL FUNDS INDIAN FINANCIAL SYSTEM MBA-FA (SEM I)

2. INTRODUCTION Mutual fund is a financial intermediary that pools the savings of investors for collective investment in a diversified portfolio of securities. As per SEBI Regulations,1996,Mutual Funds can be defined as “a fund established in form of a trust to raise money through the sale of units to public or a section of public under one or more schemes for investing in securities, including money market instruments.”

4. Portfolio Management services

5. Management of offshore services

6. Providing advice to offshore funds

7. Management of pension or provident funds

8. Management of venture capital funds

10. INTERMEDIARIES There exists a wide range of intermediaries such as institutional agents, distribution companies national brokers, banks, finance companies, secondary market brokers and post. There are various kinds of investors and to cater to different type of investors, intermediaries offer following two level of services.

13. SEBI GUIDELINES FOR NAV Net Asset Value is the market value of the assets of the scheme minus its liabilities. According to SEBI (mutual funds, second amendment) Regulations, 2000, a mutual fund can invest up to 5% of its NAV in the unlisted equity shares or equity related instruments in case of open ended schemes; while in case of close ended schemes, mutual funds can now invest up to 10% of its NAV. Mutual funds are required to declare their NAV and sale repurchase prices of all schemes updated daily on a regular basis on the AMFI website by 8:00 pm and declare NAVs of their close ended schemes every Wednesday.

14. TYPES OF MUTUAL FUNDS FUNCTIONAL CLASSIFICATION PORTFOLIO CLASSIFICATION GEOGRAPHICAL CLASSIFICATION OTHERS

15. FUNCTIONAL CLASSIFICATION OPEN ENDED SCHEMES Continuous sale and purchase of units at NAV or NAV related values. No need of listing of these funds on stock exchange Investor can enter and exit the scheme any time during the life of the fund. Eg. UTI’s US 64

16. CLOSE ENDED SCHEMES Open for subscription only for specified period and have a fixed corpus. It remains open for investment only for a period not exceeding 45 days. Units need to be listed on stock exchange after the initial subscription. Can be converted to open ended scheme by passing a resolution by a majority of unit holders.

17. INTERVAL SCHEMES Combines the features of Open and close ended schemes. Open for sale or redemption during pre-determined interval.

18. PORTFOLIO CLASSIFICATION INCOME FUNDS Aims at safety of investment and regular income to investors. Such schemes invest in income bearing instruments like bonds, debentures, govt. securities and commercial papers. GROWTH FUNDS Aims at capital appreciation over medium to long term. Major investment in equity shares. No guarantee of return. Usually close ended and listed on stock exchange.

19. PORTFOLIO CLASSIFICATION BALANCED FUNDS Aims to provide both capital appreciation and regular returns. Division of investments between equity shares and fixed interest bearing instruments. MONEY MARKET MUTUAL FUNDS Aims to provide liquidity with low rate of return. Major investment in short term money market instruments like treasury bills and certificates of deposit.

20. GEOGRAPHICAL CLASSIFICATION DOMESTIC FUNDS These funds mobilize resources from particular geographical locality. Market is limited and confined to boundaries of the nation in which fund operates. OFFSHORE FUNDS They open domestic capital market for foreign investment. Eg :India fund was launched in July 1986 by UTI in collaboration with US’ Merrill Lynch.

21. OTHERS SECTORAL FUNDS Investment in specific core sectors like energy, telecom, IT, construction, transportation. TAX SAVING SCHEMES These are close ended schemes with investments made for 10 years although investors can avail encashment facilities after 3 years.

22. RISKS IN MUTUAL FUNDS Mutual Fund investments are not free from risk. Equity-oriented mutual fund schemes are risky as their returns are market-linked. There are wide variety of Equity schemes such as diversified Equity schemes Index funds Sectoral schemes Equity-linked savings schemes

23. DISADVANTAGES Fluctuating Returns Diversification / Diworsification Cash, Cash and More Cash Costs Misleading Advertisements Evaluating Funds

24. INVESTORS Resident Indian individual Indian companies Indian trust/charitable institution Banks Non banking finance corporation Insurance companies Provident funds Non resident & Foreign entities

25. SPONSER TO ASSET MANAGEMENT CO. Sponsor , mutual fund trust and AMC are involved in setting up of mutual funds. They are assisted by independent administrative entities like banks, registrars, transfer agents & custodians. Sponsor means any person who acting alone or with other corporate body establishes a mutual funds. He gets the fund registered with SEBI.

26. SEBI GUIDELINES FOR SPONSOR TO AN ASSET MANAGEMENT COMPANY The sponsor should have a soundtrack record. Sponsor should have been doing business in financial services for not less than 5 years with positive net worth in all the immediately preceding 5 years. Sponsors, director or any principal officer should not have been found guilty of fraud or convicted of an offence involving moral & economic turpitude.

27. MUTUAL FUND AS TRUSTS Mutual fund in India is constituted in the form of a public trust created under the Indian trust act of 1882. Sponsor forms the trust and registers it with SEBI and contributes to its initial capital and appoints trustees. Investors are invited to contribute their money in the common pool by subscribing to “units”.

28. SEBI GUIDELINES FOR TRUSTEES OF A MUTUAL FUND According to new SEBI regulations, at least two thirds of the trustees, on Board of Trustees must be independent meaning that they should not be associated with the sponsors. He/she can not be trustee of any other mutual fund. The trustees appoint the AMC with the prior approval of the SEBI.

29. ASSET MANAGEMENT COMPANY AMC is a company formed and registered under the companies’ act, 1956, to manage the affairs of mutual fund and operate the schemes of mutual funds.

31. No AMC shall utilize services of the sponsor or any of its associates, employees, or their relatives….

32. No person, who has been found guilty of…The AMC shall abide by the code of conduct… The registrars and share transfer agents to be appointed by AMC are to be registered with the SEBI…

33. SEBI (MUTUAL FUND) REGULATIONS, 1996 All the schemes to be launched by the AMC need to be approved by the trustees… The offer documents shall contain adequate disclosures to enable…. Advertisements in respect of schemes should be in conformity with the SEBI… The listing of close ended schemes is mandatory and every close ended scheme… Units of a close ended scheme can be opened for….

34. Units of close ended scheme can also be converted in open ended…. Units of close ended scheme may be rolled over by passing… No scheme other than the unit linked scheme can be opened… The AMC must specify in the offer document about the minimum…. The AMC must refund the application… Guaranteed returns can be provided in a scheme if… A close ended scheme shall be wound up on the redemption day…

35. MUTUAL FUNDS IN PRIMARY & CAPITAL MARKET First mutual funds in India were set up in 1964 as UNIT TRUST OF INDIA under an act of parliament. In 1987, During 1987-92, seven new mutual funds mere established in the public sector. A change in govt. policy in 1993 led to entry of private corporate and foreign institutional investors into mutual fund segment, taking the tally of mutual funds to 37 by end-march 2004. The total assets under the management of all mutual funds (including UTI) as of march 2004 has grown to 1, 50,000 crore from 25 crores in 1964. This asset base is spread in over 300 schemes.

36. Currently, the worldwide value of all mutual funds totals more than $26 trillion Union budget for 1999-2000 announced several tax incentives for mutual fund investors. The tax concessions were offered in the equity oriented schemes The Indian capital market is getting institutionalized as investors after incurring losses by directly investing in the primary market are preferring mutual funds as their investment vehicle.

37. SEBI GUIDELINES RELATED TO MUTUAL FUND Disclosure of their entire portfolio on a half-yearly basis should be done according to a prescribed format along with this, mutual fund schemes are required to disclose the various types of instruments and percentage of investment in each scrip. Mutual funds have been directed to fully revise and update offer document and memorandum at least once in two years.

40. Norms to check the abuse of mutual fund vehicle by large corporate investors for tax benefits were issued in November 2003. the new norms stipulate that each mutual fund scheme should have at least 20 investors and no single investor should hold more than 25 % of the total corpus of the scheme. SEBI is working on a proposal making it mandaotory for mutual funds to allocate units to investors on NAVs at the time the repayment cheques for these units are cleared by banking system. Earlier, MFs allocated units to investors on NAVs prevailing at the time of submission of applications for purchasing the units. Investors can use their demat accounts with NSDL and CSDL for buying and selling mutual funds.

41. RETURNS FROM MUTUAL FUNDS Dividends Tax free in hands of investors Capital appreciation Equity oriented schemes: Holding period less than 12 months- short term capital gains tax of 10%. Holding period more than 12 months- no long term capital gains tax but security transaction tax. Debt-oriented schemes: Short term capital gains added to total income and taxed at the appreciable rate of tax for theindividual.. In case of long term capital gains, the investor has a choice of selecting the rate of 10% flat without using the benefit of indexation or 20% after using the benefit of indexation.

42. CONCLUSION Extreme potential of growth of mutual funds India. The assets under management rose to Rs 3,26,388 crore in March 2007 from Rs 80,000 crore in march 2007 Almost 30 AMCs are competing for space in mutual fund industry here assets under Management (AUM) are over Rs. 3.3 lakhcrore. Mutual funds need to develop a wide distribution network to increase its reach and tap investments from all corners and segments. Innovation is the need of the hour. Mutual funds have come a long way but far more can be done.

43. Industry has to bring innovative concepts like high yielding bonds, principal protected funds, long short funds, arbitrate funds, dynamic funds and precious metal funds. There is a need to educate investors about risk adjusted return and total port folio return to enable them to make an informed decision. When you buy any investment, it's important to understand both the good and bad points. If the advantages that the investment offers outweigh its disadvantages, it's quite possible that mutual funds are something to consider. Whether you decide in favor or against mutual funds, the probability of a successful portfolio increases dramatically when you do your homework

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