What Are the MUTUAL FUNDS?  Types / Structure of Mutual Funds in India

INTRODUCTION

A mutual fund is a professionally managed type of collective investment scheme which pools money from investors and invests the same in stocks, bonds, short term money market instruments and other securities. Mutual funds have fund manager who invests on behalf of investors through buying/ selling stocks, bonds etc.

Mutual funds : Structure in India

How does a mutual fund come into being? Who are important people in mutual fund? What are their roles? There is a sponsor, who thinks of starting a mutual fund. The sponsor approaches the Securities and Exchange Board of India (SEBI), which is the market regulator and also the regulator for mutual funds.

Who manages Investor’s Money?

Managing investor’s money is the role of Asset Management Company. The ones trusted will appoint AMC(Asset Management Company) to manage money by investor’s.

Offer Document

A legal document on which investors rely upon for investing in mutual fund scheme is Offer Document.

Who is a custodian?

Who keeps securities in physical form secured and a tab on corporate actions such as bonus, dividend which is declared by companies wherein funds are invested.

What is the role of AMC?

Managing investors money on daily basis is the role of AMC.

What is an NFO?

After approval by SEBI, AMC launches schemes which are new under the name of trust when the 3 tier structure is safely in its place. This launch of new scheme is known as New Fund Offer (NFO).

Mutual Fund Products And Features Equity Funds

As many schemes are provided by mutual funds. It becomes hectic for investors to clearly know features of products, before the money is being invested in them.

What are Open Ended and Close Ended Funds?

An open ended scheme gives investor freedom to enter and exit at his will, anytime except under certain conditions whereas in close ended scheme there exists restriction on freedom of entry and exit.

What are Equity Funds?

They are funds which has 65% of Average Weekly Net Assets which are invested in Indian Equities. They can be classified on namely Large Cap Funds, Mid Cap Funds, or Small Cap Funds or on the basis of investment strategy the scheme intends to have like Index Funds, Infrastructure Funds, Power Sector Fund, Quant Fund, Arbitrage Fund, Natural Resources Fund, etc. These funds are explained later.

What is an Index Fund?

Index fund invest in stock comprising indices, such as the Nifty 50, which is a broad based index comprising 50 stocks.

What are Diversified Large Cap Funds?

These are funds which restrict their stock selection to the large cap stocks typically the top 100 or 200 stocks with highest market capitalization and liquidity. Thus, diversified large cap funds are said to be stable and safe.

What are Midcap funds?

After large cap funds come the midcap funds, which invest in stock belonging to the mid cap segment of the market.

What are sectoral funds?

Sectoral funds are those funds invested in stock from single or related sector. Examples of such funds are IT Funds, Infrastructure Funds, etc.

Debt Funds

Debt funds are funds which invest money in debt instruments such as short and long term bonds, government securities, t-bills, corporate paper, commercial paper, call money etc.

Liquid Funds

Funds invested in highly liquid money market instruments. Period of investment could be as short as a day. They provide easy liquidity.

TERMS

What is Net Asset Value?

Figure obtained after deducting all liabilities from assets is Net Assets of a scheme. NAV is calculated by dividing the value of Net Assets by the outstanding number of units.

What are exit Loads?

When entry load exist exit loads exist too. We know entry loads raises the cost of buying, similarly exit loads decreases amount received by investor. Exit loads is not seen in all schemes, and not all schemes have similar exit loads as well.

What is the name of industry Association for the Mutual Fund Industry?

AMFI (Association of Mutual Funds in India) is the industry association for the mutual fund industry in India which was incorporated in the year 1995.

Advantages of Mutual Funds

Professional Expertise :

Investing requires skill. It requires a constant study of the dynamics of the markets and of the various industries and companies within it. Anyone having surplus capital waiting to be parked as investment is said to be an investor, but to be successful investor, you need  someone to manage your money professionally.

Diersification :

There is an old saying: don’t put all your eggs in one basket. In order to reduce the risk you need to invest in different types of securities such that they do not move in a similar fashion.

Ease of process:

FI you have a bank account and a PAN card, you are ready to invest in mutual fund; it is as simple as that! You need to fill in application form, attach your PAN and sign your cheque and your investment in a fund is made.

Well regulated:

As SEBI regulates the funds comforting its investors, we can say mutual funds are very much well regulated.

INVESTMENT PLAN

What is a Systematic Investment Plan (SIP)?

The investor, by deciding to invest Rs.5000 regularly each month automatically got the benefit of the swings. As can be seen, he got least number of units in the months of March, april and may, whereas when the NAV continued its downward journey subsequently, he accumulated higher number of units. This is the benefit of disciplined investing. Many a times it is seen that in bear markets, when the NAVs are at their rock bottom, investor are gripped by panic and either stop their SIPs or worse, sell their units at a loss.

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