2. Components of Financial System
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Financial Market
Financial Institution
Financial Services
Financial Instruments
3. On the basis mutual funds rated
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Weight of Risk
Return & Assets under management
Net assets value
Book value
Price earning ratio
4. Definition of Mutual Funds
• An investment programme funded by
shareholders that trades in diversified
holdings and is professionally managed.
• The combined holdings of stocks, bonds
or other assets the fund owns are known
as its portfolio. Each investor in the fund
owns shares, which represent a part of
these holdings.
6. Cont.
• When an investor subscribes to mutual
fund,he becomes part owner of the assets
of the fund in the same proportion as his
contribution amount put up with the
fund.mutual fund investor also known as
mutual fund unit holder,because mutual
fund is issued units to investor as per his
contribution in fund.
7. Cont..
• Any change in the value of investments
made in the capital market instruments
like shares,bonds etc,is reflected in the
Net Asset Value (NAV) of the scheme.
• NAV is defined as the market value of
mutual fund schemes assets net of its
liabilities. NAV of scheme is calculated by
dividing the market value of schems
assets by total number of units issued to
the investors.
8. Example
• Scheme offer nav starts with Rs 10 per unit
• Assume that number of units issued to the investors is
10000
• then the scheme fund value 10000*10 = Rs 100,000
• if an investor Mr A owns 5 units of the scheme ,then his
total contribution of the scheme is Rs 50 (unit price*
number of units)
• benefit of scheme = upside unit price or downside unit
price ,multiple with number of units of Mr A
9. Types of Mutual Funds
(On the basis of objective)
1 Equity/Growth Funds
2 Tax Saving Funds
3 Debt Funds
4 Balanced Funds:
10. Types of Mutual Funds
(On the basis of flexibility )
1 Open - ended funds
2 Close ended funds
11. Equity/Growth Funds
• Funds that invest equity shares are called
equity funds are growth funds.They carry
the principle objective of capital
appreciation of the investment over
medium to long term.there are different
types of funds such as Diversified equity
funds,sector specific funds and indexed
funds.
12. Funds under Equity/ Growth
• Diversified Funds: These funds invest in companies
spread across sectors.These fund are generally meant
for investors , who want a diversified portfolio across
sectors.
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Sector Funds: These funds are invested primarily in
equity shares of companies in a particular sector or
industry. Ex: infrastructure,it,real estate
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Index Funds: These funds invest in the name pattern as
popular market indices like Nifty,BSE 100.The money
collected from the investors is invested only in the stocks
,which represents the index. Ex: Nifty index fund will
invest only in the nifty 50 stocks.
13. Tax Saving Funds
• These funds offer tax benefits to investors under
the income tax act.
3)Debt Funds: These funds invest in high rated
fixed income bearing instruments like
bonds,debentures,Govt Securities ,commercial
paper and other money market instruments.They
are the best suited for the medium to long term
investors who are averse to risk and seek
capital preservation.They provide regular income
to the investor
14. Under Debt Funds
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Liquid Funds/Money market Funds: These funds invest in highly
liquid money market instruments .The period of investment could be
as short as a day and maximum one year..They provide easy
liquidity. These funds are ideal for corporate,institutional investors
and business houses that invest their funds for very short period.
ex:
Treasury bills,certificate of deposit issued by
banks..etc
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Gilt Funds: These funds are known as government securities in
India.Gilt Funds invest in government papers having medium to long
term maturity period,issued by Govt.These investments have little
credit risk and provide safety of principal to the investors.gilt funds
are exposed to interest rate risk,interest rates and prices of debt
securities are inversely related.
15. Balanced Funds
• 4)Balanced Funds: These funds invest
both in equity shares and Debt
instruments .They provide a steady return
and reduce the volatility of the fund.These
funds are ideal for medium to long term
investors who are willing to take moderate
risk.
16. On the basis of flexibility
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1)open - ended funds : These funds do not have a fixed date of
redemption. Generally they are open for subscription and
redemption throughout the year.The fund prices are linked to the
daily net asset value(NAV). From the investors perspective ,these
funds are having much liquidity than closed -ended funds.
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2)Close ended funds: These funds are open initially for entry
during the initial public offering(IPO) and thereafter closed for entry
as well as exit.These funds have a fixed date of redemption .One of
the Characteristics of close ended schemes is that they are
generally traded at a discount to NAV ,but the discount narrows as
maturity nears.These funds are open for subscription only once and
can be redeemed only on the fixed date of redemption.