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MUTUAL FUND MANAGEMENT
Semester - 4
MANAGEMENT OF MUTUAL
FUND
2
COURES CURRICULUM
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Module I: Basic Concepts
Overview - Introduction to Mutual Funds, Role, Types, Structure, Organization and Constituents.
Module II: Mutual fund Industry
History of mutual funds, Workflow in a mutual fund company
Module III: Legal and Regulatory Framework
SEBI guidelines, Offer Documents and Disclosure
Module IV: Marketing of mutual funds
Distribution, Marketing and Sales of Mutual Funds
Module V: Pricing of Mutual Funds
NAV Pricing, Accounting and Taxation.
Module VI: Investment Management
Managing Unit holder’s money, Portfolio management/ Fund Management and it's
Evaluation- Developing a Model Portfolio for the investor.
Module VII: Risk Analysis and Investor Services
Risks involved in mutual funds, performance evaluation, Unit holders Protection, Investor Services,
Financial Planning Strategies to investors and selecting the right products for Investments.
MAJOR PLAYER
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AGENDA Section 1: Nuts & Bolts Concept & Role of Mutual Funds
Fund Structure and Constituents
Legal & Regulatory Framework
Section 2: Process of Investing Offer Document
Fund Distribution & Sales Practices
Investor Services
Section 3: Mutual Funds &
Securities Markets Investment Management
Section 4: Accounting Aspects Accounting, Valuation and Taxation
Section 5: Return Concepts Measuring & Evaluating Mutual Fund
Performance
Section 6: Financial Planning & Mutual Funds
Helping Investors with Financial Planning
Recommending Financial Planning
Strategies
Selecting the right Investment Products
Helping Investors understand risks
Recommending Model Portfolios and Selecting the right fund
Section 7: Business Ethics Business Ethics & Mutual Funds
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Section 1
Nuts and Bolts
1. Concept & Role of Mutual Funds
2. Fund Structure and Constituents
3. Legal & Regulatory Framework
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Concept of Mutual Fund • A pool of money contributed by many investors and
collectively managed by an asset management company
• Investments made in accordance with stated objectives
• A financial intermediary that allows small investors to
participate in the securities market
• Ownership of the fund is mutual and beneficial
• An investor becomes part owner of the fund’s assets
when he buys into the fund
• The investor is allotted units for the amount subscribed.
What it means
Investors
Markets
(volatile, has fluctuation)
Trust
(pool of money)
Contribute
money
Invest in
markets
Receive
dividend/capital
appreciation
Receive
interest,
dividend or
capital growth
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The MF Cycle
Characteristics
• Investors own the mutual fund
• Everyone else associated with the fund
earns a fee
• Things which are mutual
– Pool of money
– Investment objective
– Risk and return
• Funds are invested in a portfolio of
marketable securities reflecting the
investment objective
• Value of the portfolio and investors’
holdings change with change in the
market value of investments.
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Advantages
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Advantages of Mutual Funds
• Portfolio diversification: It enables him to hold a diversified investment
portfolio even with a small amount of investment like Rs. 2000/-.
• Professional management: The investment management skills, along
with the needed research into available investment options, ensure a
much better return as compared to what an investor can manage on his
own.
• Reduction/Diversification of Risks: The potential losses are also
shared with other investors.
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•Reduction of transaction costs: The investor has the
benefit of economies of scale; the funds pay lesser costs
because of larger volumes and it is passed on to the
investors.
• Wide Choice to suit risk-return profile: Investors can
chose the fund based on their risk tolerance and
expected returns.
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Advantages of Mutual Funds Cont….
• Liquidity: Investors may be unable to sell shares directly, easily and
quickly. When they invest in mutual funds, they can cash their investment
any time by selling the units to the fund if it is open-ended and get the
intrinsic value. Investors can sell the units in the market if it is closed-
ended fund.
• Convenience and Flexibility: Investors can easily transfer their
holdings from one scheme to other, get updated market information and
so on. Funds also offer additional benefits like regular investment and
regular withdrawal options.
•Transparency: Fund gives regular information to its investors on the
value of the investments in addition to disclosure of portfolio held by their
scheme, the proportion invested in each class of assets and the fund
manager's investment strategy and outlook
Disadvantages
• No Control Over Costs
• No Tailor Made
Portfolios
• Managing a large
number of funds/types.
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Disadvantages of Mutual Funds
• No control over costs: The investor pays investment
management fees as long as he remains with the fund, even while
the value of his investments are declining. He also pays for funds
distribution charges which he would not incur in direct investments.
• No tailor-made portfolios: The very high net-worth individuals or
large corporate investors may find this to be a constraint as they will
not be able to build their own portfolio of shares, bonds and other
securities.
• Managing a portfolio of funds: Availability of a large number of
funds can actually mean too much choice for the investor. So, he
may again need advice on how to select a fund to achieve his
objectives.
• Delay in redemption: It takes 3-6 days for redemption of the units
and the money to flow back into the investor’s account.
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History of Mutual Funds
• Birthplace of Mutual Funds – USA (like the United States. As at the
end of March 2008, in the US alone there were 8,064 mutual funds with total
assets of about US$ 11.734 trillion (Rs.470 lakh crores)*.
• History in India:
– 1964-1987 (Phase I) – Growth of Unit Trust of India
– 1987-1993 (Phase II) – Entry of Public Sector Funds
– 1993-1996 (Phase III) – Emergence of Private Funds
– 1996-1999 (Phase IV) – Growth and SEBI Regulation
– 1999-2004 (Phase V) – Emergence of large & uniform
Industry
– 2004 onwards (Phase VI) – Consolidation and Growth.
BIRTH..
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Historians are uncertain of the origins of investment funds; some cite the
closed-end investment companies launched in the Netherlands in 1822 by
King William I as the first mutual funds,
while others point to a Dutch merchant named Adriaan van Ketwich
whose investment trust created in 1774 may have given the king the idea.
Ketwich probably theorized that diversification would increase the appeal of
investments to smaller investors with minimal capital.
The name of Ketwich's fund, Eendragt Maakt Magt, translates to "unity
creates strength".
The next wave of near-mutual funds included an investment trust launched
in Switzerland in 1849, followed by similar vehicles created in Scotland in
the 1880s.
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The idea of pooling resources and spreading risk using closed-end investments
soon took root in Great Britain and France, making its way to the United
States in the 1890s.
The Boston Personal Property Trust, formed in 1893, was the first closed-end
fund in the U.S.
The creation of the Alexander Fund in Philadelphia in 1907 was an important
step in the evolution toward what we know as the modern mutual fund.
The Alexander Fund featured semi-annual issues and allowed investors to
make withdrawals on demand.
ERA OF MODERN MF
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The creation of the Massachusetts Investors' Trust in Boston, Massachusetts,
heralded the arrival of the modern mutual fund in 1924.
The fund went public in 1928, eventually spawning the mutual fund firm known
today as MFS Investment Management.
State Street Investors' Trust was the custodian of the Massachusetts Investors'
Trust.
Later, State Street Investors started its own fund in 1924 with Richard Paine,
Richard Saltonstall and Paul Cabot at the helm.
Saltonstall was also affiliated with Scudder, Stevens and Clark, an outfit that
would launch the first no-load fund in 1928.
A momentous year in the history of the mutual fund, 1928 also saw the launch of
the Wellington Fund, which was the first mutual fund to include stocks and bonds,
as opposed to direct merchant bank style of investments in business and trade.
TYPES OF FUND
Existing funds
• Open-ended (OEF) & Close-
ended (CEF)
• Growth, Income and Hybrid
• Equity, Debt and Balance
• Load & No-Load
• Guaranteed & Non-
Guaranteed
• Tax-exempt & Non tax-
exempt
New Gen Mutual Funds
• Fund of Fund
• Commodity fund
• Real Estate fund
• Asset Allocation fund
• Exchange-traded fund
• Derivative fund
• Capital Protection Oriented
Fund.
LOADS & NO LOADS FUND
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Load and No Load Funds: Funds that charge front-end (Entry), back-end (Exit)
or deferred (Contingent Deferred Sales Charge – CDSC) loads are called load
funds.
Funds that make no such charges are called no-load funds.
In India, SEBI has defined a load as the one-time fee payable by the investor to
allow the fund to meet initial issue expenses including brokers’ commission,
advertising and marketing expenses etc.
As per SEBI definition ONLY those funds that charge an entry load are considered
as load funds.
OEF & CEF
Open Ended Fund • No fixed tenor
• Continuous sale & purchase by the fund
• Subscription is not mandatory
• Redemption mandatory, with certain obvious conditions
• Fund size changes everyday
• No secondary market trading
• Redemption pressure on fund managers is higher
• Daily NAV (calc & disclosure)
Close Ended Fund • Fixed tenor – 1/3/5/7 years
• Sale of units only during NFO
• No subscription after closure of NFO
• Redemption in 2 ways
– Exit window – periodically repurchase of units by the fund
– Listing – secondary market trading of units, like stocks
• Fund size either constant or decreases
• Lower redemption pressure on fund managers
• Weekly NAV (calc weekly but disclosure daily).
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Equity-oriented
• Diversified
• Sectoral
• Thematic or Specialty
– ASEAN fund, Infrastructure Fund
• Growth & Value
• Large, Mid & Small Cap
• Dividend Yield or Equity Income
• Index
• ELSS
Primary objective: growth or capital appreciation.
Contd….
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Equity Funds: A fund that invests primarily in equity (ownership) instruments.
Equity Funds can be further classified as:
Diversified Equity Fund: investing in a mix of equity from different sectors
Index Funds: Portfolio replicates a selected Index
Sectoral Fund: invests in equity instruments of one sector for eg. Technology
Fund, Pharma Fund, Banking Fund etc.
Aggressive Growth Fund: target maximum capital appreciation, invest in less
researched or speculative shares
Growth Fund: This fund invests in equities of Growth companies only i.e. the
companies which have the potential to grow at higher rate in future
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Large Cap/Mid Cap/Small Cap Fund: These Funds invests in equities of
Large/Mid/ Small Cap companies respectively.
Specialty (or Thematic) Funds: have a narrow portfolio orientation and invest in
companies that meet pre-defined criteria. Eg. Infrastructure Fund or ASEAN Fund
Equity Linked Saving Scheme (ELSS) an Indian Variant: Investment in these
schemes entitle the investor an income tax deduction u/s 80C (max Rs. 1 lakh in
year 2007-08). These are open-ended funds but investment in these schemes
(including the reinvested dividends) gets locked-in for a period of 3 years.
Value Funds: try to seek out fundamentally sound companies whose shares are
currently under-priced in the market. These fund add those shares to their portfolio
that are selling at low price-earnings ratios, low market to book value ratios and are
believed to be undervalued compared to their true potential.
Equity Income or Dividend Yield Funds: invest in stocks which have a high Div
Yield i.e., Div to Market Price ratio
Equity-oriented funds
DIVERSIFIED
ACTIVE PASSIVE
Index Funds
NON–DIVERSIFIED
SECTORAL
GROWTH VALUE
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Debt Oriented
• Diversified Debt
• Focussed/Sectoral Debt
• Gilt Fund
• Bond Fund
• Fixed Maturity/Term Plan (FMP/FTP)
• Liquid or Money Market MF
Primary objective: regular income.
DEBT FUND Contd..
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Debt Funds or (Income Funds): A fund can be classified as Debt Fund, which
invests primarily in Debt (loan) Securities. Debts fund can be further classified
as:
Gilt Funds: invests primarily in Govt Securities or Gilts (Govt. borrowing
programme)
Diversified Debt: invests in different varieties of Debt Securities i.e. say Govt
Securities, Corporate Debts, Securities of different Maturities etc.
Income fund: invests in Debt securities so as to provide regular income to
Investors.
Diversified Debt Fund: a fund that invests in all available types of debt -
securities issued by entities across all industries and sectors.
Focused Debt Fund: invest only in specified securities and thus have a higher
risk than diversified debt funds.
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High Yield Debt Fund: seek to obtain higher interest returns by investing in
debt instruments that are considered below investment grade.
Assured Return Funds: an Indian variant, were being offered by erstwhile UTI
and now no longer offered.
Fixed Term Plan Funds: essentially close-end in nature and usually for term
less than a year. Being of short duration they are not listed on the stock
exchange. Invest in such securities whose residual maturity is equal to the
scheme tenor.
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Balance
• Investment in more than one asset class
– Debt and equity in various proportions
Primary objective: hybrid (regular income as
well as capital appreciation).
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Fund of Funds
• Invest in other schemes of same or other mutual fund
• Is considered like a Debt scheme for tax purposes
• 2 advantages:
– Since FOF is a mutual fund scheme, no tax on
income generated from buying and selling securities
• Allows fund managers to rebalance portfolio freely
– Investor need not to decide when to sell units and
execute transactions
• Convenience to the investor.
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Commodity Fund
• specialize in investing in different
commodities directly or through shares of
commodity companies or through
commodity futures contracts.
– Example - Precious Metals Funds
• As of date, Indian MF industry does not
have commodity funds except the ones
that invest in Gold.
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Real Estate Fund
• Invest in real estate directly, or fund real estate developers, or buy shares of housing finance companies
• Fund to invest min 30 % corpus in real estate projects
• Balance in equity, bonds/debentures of real estate cos.
• Close-ended schemes with secondary market trading
• Move to bring transparency, documentation and fair valuation of property
• Allow small investors with small investments to enjoy upswing of property without downside of high stamp duty, legal expenses, high initial investment, element of black money and disposal at the right prices.
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Asset Allocation Fund • Fund manager has the flexibility to change
the allocation of funds between equity and
debt based on perception about direction
of the market.
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Exchange-traded fund
• Passively managed fund that tracks a benchmark index
• An ETF is like a hybrid financial instrument, a cross
between an index fund and a stock
– An equity-based ETF would invest in a basket of
stocks that reflects the composition of an index, say
Nifty or Sensex
– These funds are freely traded on the stock exchange
and derive value from the underlying asset, i.e.,
stocks.
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ETF Contd..
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Exchange Traded Funds (ETFs) were first launched in India in December 2001
by Benchmark AMC. Now, a total of five ETFs are available to investors.
ETFs are fundamentally different from normal funds and have thus developed
something of a reputation for complexity.
While some of the details of how AMCs run ETFs are genuinely more complex,
that has nothing to do with investors. For the investors, ETFs are a straightforward
instrument that offers some interesting features. Let's see what makes ETFs
different.
ETF are index funds. An index fund is an equity fund, which tracks a particular
market index like the BSE Sensex or the Nifty.
The index fund holds the same stocks as the underlying index and in the same
proportion as the index. From an investment point of view, ETFs are simply index
funds that—unlike normal index funds—can be bought and sold at intra-day prices
throughout a trading day.
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In this respect they are more like shares rather than like mutual funds. Normal
index funds are, of course, available only at end-of-day NAVs from fund
distributors like any other fund.
ETFs, since they need to be transacted upon throughout the day, are bought
and sold through stockbrokers (using a demat account) just like shares.
However, behind the scenes, ETFs are very different from any other kind of
fund. Where an ETF really differs from an index fund is the manner in which it is
created, bought and sold.
In the case of normal mutual funds investors pays cash to the fund, which in
turn buys the stocks and bonds which constitute the fund. When ETFs are first
set up the initial participants will give the fund the basket of stocks, which
constitute the underlying index and take units of the fund in exchange. These
market makers will in turn sell these units to investors just like a distributor
does. The market maker is usually a broker. Since ETFs are sold through
brokers, you will pay brokerage in place of loads. ETFs tend to have lower
brokerage than normal funds have loads.
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The NAV of an ETF is a fraction of the value of the index. Thus the NAV of an
exchange-traded fund based on the Nifty can be one-tenth of the value of the
Nifty. If the Nifty is at 1500 points the NAV will be Rs 150.
Effectively, this fractional pricing means that a basket of stocks like the Nifty can
be purchased by an investor with a much lower outlay than it would otherwise
be possible.
Compare this with trying to replicate the index by purchasing individual shares,
where just one share of Infosys costs around Rs 4500. This also enables
smaller initial investments than what most index funds offer, which is specially
useful if you are just trying out index investing. By comparison, most nifty index
funds require a minimum investment of Rs 5000.
In the case of other mutual fund schemes the fund buys back and sells units. In
a way, an ETF resembles a close-end scheme, where the units are not sold
back to the fund and investors buy and sell the fund units on the market.
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However, there is obviously no discount to NAV like closed end funds. Also,
unlike a close-end fund supply can be altered by creating additional units or
extinguished by withdrawing existing ones.
Trading of the units ensures that underlying stocks do not have to brought or
sold. Investors entering and exiting do not also affect existing investors. As a
result an ETF has a much lower tracking error than an index fund.
Currently the equity ETFs available track the BSE Sensex, the S&P CNX Nifty
and the S&P CNX Nifty Junior. The ETF on the Nifty Junior is in fact the only
option for passive investing in mid-cap shares. On the debt side a liquid ETF is
available.
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Gold ETF
• Gold ETFs invest in physical gold and
derive their value from the underlying
asset
– The price of gold ETFs will be directly linked
to the price of gold itself and hence the
returns from a gold ETF will more or less
equal to returns from gold bars or coins
• Investors can buy or sell units of these
schemes, like any other stock listed on the
exchange, through brokers.
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Derivative fund • Hedging
– Futures
– Options
• Arbitraging
– Stock Arbitrage
– Index Arbitrage.
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Capital Protection Oriented fund • Close-ended with no exit option
• Debt scheme from a tax standpoint
• No guarantee by the AMC or sponsor
• Capital protection on account of the structure
– Eg. Debt component of 80 in zero coupon bonds
which give 100 on maturity and investment of the
balance 20 in equity
– With tools such as dynamic portfolio insurance,
increase equity component by a multiplier
• Rating of the scheme mandatory.
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Classification of funds • Risk
– Sectoral funds have higher risk
– Liquid or Money Market funds have least risk
• Tenor
– Equity funds require a long investment horizon
– Liquid funds are for the short term liquidity needs
• Investment objective
– Equity funds suit growth objective
– Debt funds suit income objective.
Risk-Return Hierarchy
Liquid
funds
ST debt
funds
Gilt
funds
Debt
Funds
Balanced
funds
Risk
Index
funds
Return Equity
funds
Sectoral
funds
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Mutual Funds Vs. Other Investments
Product Return Safety Liquidity
Tax
Benefit
Conven-
ience
Bank
Deposit
Low High
High No
High
Equity
Instruments
High Low High or
Low
No
Moderate
Debentures Moderate Moderate Low No Low
Fixed
Deposits by
Companies
Moderate
Low
Low No
Moderate
Bonds Moderate
Moderate Moderate Yes
Moderate
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Mutual Funds Vs. Other Investments
Product Return Safety Liquidity
Tax
Benefit
Conven-
ience
RBI Relief
Bonds
Moderate
High
Low
Yes
Moderate
PPF Moderate High Low Yes Moderate
National
Saving
Certificate
Moderate
High
Low
Yes Moderate
National
Saving
Scheme
Moderate
High
Low
Yes
Moderate
Monthly
Income
Scheme
Moderate
High
Low
Yes
Moderate
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Mutual Funds Vs.Other Investments
Product Return Safety Liquidity
Tax
Benefit
Conven-
ience
Life
Insurance
Moderate
High
Low
Yes
Moderate
Mutual
Funds
(Open-end)
Moderate
Moderate High
No
High
Mutual
Funds
(Closed-
end)
Moderate Moderate
High
Yes
High
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Mutual Fund
Structure &
Constituents
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MF Structure in other countries Structure in USA
• Management Company – Similar to AMC
• Underwriter – for Sales
• Management Group – Similar to Sponsor
• Custodian
Structure in UK
• Open Ended - Unit Trusts – regulated by Securities and
Investment Board + by relevant SRO
• Closed Ended - Investment Trusts – like a Company.
Structure in USA
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SHAREHOLDERS
BOARD OF DIRECTOR Oversees the Fund’s activities
INVESTMENT ADVISOR Manage Fund Portfolio
According to its Objective
PRINCIPLE
UNDERWRITER Sell Funds , Either Directly to the
Public or Through other firms.
INDEPENDENT
PUBLIC
ACCOUNTANT Certifies fund’s
statements
TRANSFER AGENT Maintain records of daily
transaction on behalf of
the company
CUSTODIAN Holds funds assets,
manage them
separately to protect
shareholders interest
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MF Structure in India
A mutual fund has a 3-tier structure
Sponsor
Trustee
AMC
Trust
MF Constituents in India
Sponsor
Trustee
AMC
Trust
Distributor
SEBI
R&T Agent
Securities
Dealer /
Broker
Banker Custodian &
Depository
Securities
Markets
Investor
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Trust • Mutual funds in India constituted as a Public Trust under
Indian Trust Act, 1882
• The trust is registered with the Office of Public Trustee
• OPT reports to the Charity Commissioner
• The trust or the fund has no independent legal capacity
itself
• Acts in relation to the trusts are taken on its behalf by the
trustees
• Treated as a separate entity and a pass through vehicle
• Has its own auditors, separate from the AMC.
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Sponsor • Promoter of the mutual fund
• Creates a Trust under Indian Trusts Act, 1882 and
registers it with Office of Public Trustee
• Appoints Board of trustees/trustee company
• Creates AMC under Indian Companies Act, 1956
• Fulfills necessary formalities and applies to SEBI for
registration of the Trust as a Mutual Fund.
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Sponsor Criteria • Min 5 years track record in financial services
• Bank, corporate or an FI
• Profit making in at least 3 out of past 5 years, including
the previous year
• Positive Net Worth in last 5 years
• At least 40% of the capital of the AMC
• Net worth in the immediately preceding year more than
the capital contribution to the AMC.
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Trustee • Appointed by sponsor with SEBI approval
• Have Registered ownership of investments
• Formed either as Board of Trustees or Trustee
Company
• Power to appoints all other constituents
• Appoint AMC through the ‘Investment
Management Agreement’ and delegate powers.
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Trustee Criteria • Minimum number of trustees is 4
– 2/3rd should be independent trustees i.e. no
connection of profit (what so ever) with the sponsor
• Meet at least 4 times in a year to review functioning of
AMC
• Trustees hold the unit-holders money in fiduciary
capacity
• All major decisions need trustee approval
• Right to seek regular information and take remedial
action.
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AMC • Required to be registered with SEBI
• Appointed as Investment Manager of the mutual fund
• Appointed by the trustees via an Investment Management
Agreement
• Responsible for operational aspects of the mutual fund
• Net Worth of at least Rs.10 crore OR US$ 20,00 at all times
• At least 1/2 of the board members must be independent
• Mostly, structured as a private limited company where Sponsor and
associates hold capital
• Quarterly reporting to Trustees.
AMC
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MF Constituents
Sponsor
Trustee
AMC
Trust
R&T Agent
Securities
Dealer /
Broker
Banker Custodian &
Depository
Distributor
SEBI
Securities
Markets
Investor
Other Constituents Custodian &
Depository
Banker
Securities
Dealer /
Broker
R&T Agent
Distributor
Investment back-office
Purchase and sale of securities
Not more than 5% through a related
broker
Research report to AMC
Investor records and transactions
Selling & Distributing schemes
Providing bank accounts & remittance services
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Role Restrictions • Sponsor of a fund cannot be its custodian
• Sponsor of a fund can be a distributor
• Trustee of one mutual fund cannot be trustee of another
mutual fund
– Exception is Independent trustees provided they
obtain approval of both the board of trustees
• Trustee of one fund cannot be AMC of another
• AMC of one fund cannot be Trustee of another
• AMC cannot have any business interest other than fund
advisory.
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Mergers & Takeovers
• Scheme Merger
– Scheme merged with another scheme of the same AMC
• AMC Takeover
– AMC is taken over by another set of sponsors
• AMC Merger
– One AMC may merge with another AMC
• Change of AMC/Trust
– Trustees decide to change the AMC and handover the scheme to a new AMC
• Scheme Takeover
– Just the schemes taken over by another set of trustees.
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Mergers & Takeovers • Scheme takeover (HDFC–Zurich, Birla-Apple)
– One AMC buys schemes of another AMC
– Organic growth in assets
– No change in AMC stakes
• AMC merger (HB-Taurus)
– Two AMCs merge
– Similar to merger of companies
– Sponsor stakes change
• AMC take-over (Zurich-ITC Threadneedle, Birla-Alliance)
– Stake of one sponsor in a AMC bought out by another
– Change in AMC and sponsor.
Mergers & Takeovers • Investor rights
– Right to be informed
– No prior approval required
– Option to exit at NAV without exit load.
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Regulatory framework
• Apex regulatory body
• Equivalent to a Securities and Investment Board in the UK
• Set up by an Act of Parliament in 1992
• Overall Capital Markets Regulator
• SEBI (MF) Regulations, 1996
SEBI RBI
Apex Banking
regulatory body
MFs are investors in
Gilts & Money Market
and thus indirectly under
RBI’s regulation
Regulates bank
assured return schemes
Bank sponsored AMC
wanting to offer assured
return scheme require
RBI approval as well.
Regulatory framework
MoF
SAT
Supervisor of both SEBI & RBI
Created in 2003
Provide apex appeal mechanism
for actions taken by SEBI
Registration of AMC and Trustee Company RoC for Compliance RoC is supervised by DCA DCA is a part of CLB which is under Ministry of Law and Justice CLB is the interface for prosecution and penalties.
Companies
Act
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Regulatory framework
Office of Public
Trustee
SRO
Industry
Association
Collective industry opinion
Guidelines & recommendations
Example: Association of Mutual Funds in India (AMFI).
Registration of Trust
Board of Trustees is accountable to the OPT
Complaints against individual trustees
Derive powers from regulator Ability to make bye-laws Regulate own members in a limited way Example : Stock exchanges – NSE, BSE etc.
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Q1. Mutual Funds in India are set up as A) Company
B) Trust
C) Partnership
D) Association of persons
Q.2 Issuing additional fresh units and redeeming the existing units of a mutual fund scheme is the role of:
A) The custodian
B) The transfer agent
C) The trustees
D) The bankers
Q.3 Minimum no of independent directors on the board of the AMC A) 50%
B) 25%
C) 75%
D) None of the above.
Stop Check!
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Q.4 Which of the following qualifies as an Self Regulatory Organization :- A) SEBI
B) RBI
C) NSE
D) AMFI
Q.5 To approve a change in fundamental attributes of a close-ended fund, consent of the following is required:
A) 50% of unit holders
B) 50% of trustees
C) 75% of unit holders
D) None of the above
Q.6 The body to which an investor may address their complaint is: A) SEBI
B) RBI
C) IRDA
D) NSE.
Stop Check!
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Q.7 A mutual fund is not
A) A company that manages an investment portfolio
B) A portfolio of stocks, bonds and other securities
C) A pool of funds used to purchase securities on behalf of investors
D) None of the above
Q.8 Which of the following mutual funds was not set up in the phase 1987-93:
A) Canara bank Mutual Fund
B) Kothari Pioneer Mutual Fund
C) SBI Mutual Fund
D) LIC Mutual Fund
Q.9 Which of the following has the lowest risk?
A) Liquid Fund (MMMF)
B) Gilt Fund
C) Diversified Debt fund
D) Diversified equity fund.
Stop Check!
KEY
75
QUESTION No KEY No
Q.1 B
Q.2 A
Q.3 A
Q.4 C
Q.5 C
Q.6 A
Q.7 A
Q.8 B
Q.9 A
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