Mutual funds allow investors to pool their money together into a portfolio that is professionally managed. The key benefits of mutual funds include diversification of risk, professional management, and reduced transaction costs. A mutual fund is made up of a trust that holds the securities in the fund. The trust is managed by a board of trustees and an asset management company. Regulators like SEBI oversee the mutual fund industry in India and work to protect investors. Distribution channels play an important role in helping mutual funds reach retail investors. Agents and brokers are typically compensated through upfront and trail commissions.

1. CONCEPT AND ROLE OF MUTUAL
FUND

2. WHAT IS MUTUAL FUND?
 COMMON POOL OF MONEY
 JOINT OR “MUTUAL” OWNERSHIP
 HENCE…LIKE SHARES OF THE
JOINT STOCK COMPANY
 UNITS ARE THE REPRESENTATION
OF OWNERSHIP

3. ADVANTAGES OF MUTUAL FUNDS
 PORTFOLIO DIVERSIFICATION
 PROFESSIONAL MANAGEMENT
 REDUCTION/DIVERSIFICATION OF
RISK
 REDUCTION OF TRANSACTION COSTS
 LIQUIDITY
 CONVENIANCE AND FLEXIBILITY

4. DISADVANTAGES OF INVESTING
THROUGH MF
 NO CONTROL OVER COST
 NO TAILOR-MADE PORTFOLIO
 MANAGING A PORTFOLIO OF FUND

5. HISTORY OF MF IN INDIA
 MF INDUSTRY STARTED IN INDIA
IN 1963 WITH FORMATION OF UTI
 DIFFERENT PAHSES :
• PHASE -1(UTI)
• PHASE-2 (ENTRY OF PUBLIC SECTOR MFs)
• PAHSE-3 (ENTRY OF PRIVATE MFs)
• PHASE-4 (UNDER SEBI REGULATION)

6. PHASE-1
 ESTABLISHMENT OF UTI IN 1963
 LAUNCH OF FIRST SCHEME US-64
 FOLLOWED BY ULIP IN 1971, CRTS(1981),
CGS(1983), CGGF(1986), MASTERSHARE(1987)
 UTI THE ONLY PLAYER IN THE MARKET WITH
MONOPOLY POWER
 HUGE MOBILIZATION OF FUNDS

7. PHASE-2
 ESTABLISHMENT OF SBI-MF---THE FIRST NON-
UTI MF
 FOLLOWED BY CANBANK-MF, LIC-MF,BOI-MF
 CHANGE IN THE MIND SET OF THE INVESTORS

8. PHASE-3
 ENTRY OF THE PRIVATE SECTOR FUND IN 1993
 JV OF FOREIGN FUND MANANGEMENT
COMPANIES WITH INDIAN PROMOTERS
 MORE COMPETITIVE PRODUCT INNOVATION,
INVESTMENT MANAGEMENT TECHNIQUES,
INVESTORS SERVICING TECHNIQUES
 INVESTORS STARTED BECOME SELECTIVE

9. PHASE-4
 SEBI- THE REGULATORY AUTHORITY
 UTI CAME UNDER SEBI REGULATION
VOLUNTARILY
 GOVT.’S STEPS FOR INVESTORS’ PROTECTION

10. TYPES OF FUNDS
 CLOSE END/ OPEN END
 LOAD / NO-LOAD
 TAX EXEMPT/NON-TAX EXEMPT

11.  OPEN END FUND:
• UNITS AVAILABLE FOR SALE AND REPURCHASE AT
ALL TIMES
• INVESTORS CAN BUY OR REDEEM ON NAV
• Ex: ETSP”.
• UNIT CAPITAL - VARIABLE
 CLOSE END FUND:
• DON’T ALLOW INVESTORS TO BUY/ REDEEM UNITS
DIRECTLY FROM FUNDS
• GET LISTED ON STOCK EXCHANGE TO PROVIDE
LIQUIDITY. EX: MEP
• “Units may be traded at a discount or premium to NAV
based on investor’s perception on future performance and
market factors”

12.  LOAD FUND:
• LOAD CHARGE TO COVER THE EXPENSES
• ENTRY/FRONT LOAD AND EXIT/ BACK LOAD
• DEFFERED LOAD - CHARGED OVER A PERIOD OF
TIME
• EXIT LOAD PREFFERED OVER ENTRY LOAD FOR
BENEFIT OF COMPOUNDING
• CONTINGENT DEFFERED SALES CHARGE- EXIT
LOAD CHARGED DEPENDING ON THE PERIOD.
EX:BOND FUND
• EVEN CLOSE END FUNDS MAY HAVE LOADS
 NO LOAD FUND:
• THERE IS NO LOAD- NO SALES EXPENSE CHARGE
• NAV CALCULATED AFTER ACCOUNTING FOR
OTHER EXPENSES

13. MUTUAL FUND TYPES
 BY NATURE OF INVESTMENTS
• EQUITY, BOND, MONEY MARKET FUNDS
 BY INVESTMENT OBJECTIVE
• INCOME, GROWTH, VALUE FUNDS
 BY RISK PROFILE
• HIGH, LOW, MODERATE RISK FUNDS

14. MONEY MARKET FUND
 LOWEST RISK
 INVESTMENT IN THE SECURITY OF LESS THAN
ONE YEAR MATURITY
 INVESTMENT IN TREASURY BILLS, CD, COM.
PAPERS, CALL MONEY
 STRENGTH: LIQUIDITY AND SAFETY OF
PRINCIPAL

15. GILT FUND
 LOW RISK BUT HIGHER THAN THAT OF MMF
 MEDIUM TO LONG TERM MATURITY (MORE
THAN 1 YEAR)
 LITTLE DEFAULT RISK, HIGH INTEREST RISK
 IT’S PRICES FALLS IF INTEREST RATE
INCREASES AND VICE VERSA

16. DEBT/INCOME FUND
 RISK HIGHER THAN G-SEC FUND
 MORE EMPHASIS ON INCOME DISTRIBUTION
THAN CAPITAL APPRECIATION
 TYPES
• DIVERSIFIED
• FOCUSED
• HIGH YEILD (Investment in lower rate)
• ASSURED RETURN

17. TYPES OF EQUITY FUNDS
 AGGRESSIVE GROWTH FUNDS:Investment in less
researched or speculative/non-blue chip stocks
 GROWTH FUNDS: Investment in stocks with above
average growth prospects over 3-5 years.Ex:Tech Stock
 SPECIALITY FUNDS: Sector, Offshore, Small-cap
equity, Option income funds
 DIVERSIFIED EQUITY FUNDS: ELSS. Ex: ETSP
 EQUITY INDEX FUNDS
 VALUE FUNDS: Invest in fundamentally sound
companies with low P/E ratio.
 EQUITY INCOME FUND:Invest in sectors where low
fluctuation in stock price and high dividend is expected.

18. TYPES OF HYBRID FUNDS
 BALANCED FUNDS: More or less equal proportion
 GROWTH -INCOME FUNDS: Mix between good
dividend paying records and with potential of capital
appreciation.
 ASSET ALLOCATION FUNDS:Asset allocation
between equity,debt or money market and asset
allocation policy may be pre-determined or flexible.
OTHER FUNDS
 COMODITY FUNDS
 REAL ESTATE FUNDS

19. FUND STRUCTURE AND
CONSTITUENTS
 LEGAL STRUCTURE
 ROLE OF DIFFERENT OPERATING
BODIES
 FUND MERGERS AND SCHEME
TAKEOVERS

20. LEGAL STRUCTURE
 IN INDIA
• ISSUE OF OPEN AND CLOSE END FUNDS IN
SAME LEGAL STRUCTURE
• FOLLOW THE SEBI REGULATION
• TRUST FORM
 SPONSOR: ESTABLISHES THE MUTUAL FUND
• Must contribute 40% of the net worth of the
AMC
• Need to have sound financial track record
• Appoint trustees

21. LEGAL STRUCTURE
 TRUSTEES:Manages the Mutual Fund and look after the operations of
the appointed AMC.
 The investments are held by the Trustee.
 The beneficiaries from the assets are the unit holders.
 The trustees have a fiduciary responsibility.
 Trustees approve each MF scheme floated by AMC.
 Trustees receive fees for their services.
 Trusts are formed through “Trust Deed”
 “Furnish report to SEBI on half yearly basis on AMC and Fund
functioning”
 Amc:acts as investment manager of the trust under the board supervision
and direction of the trustees
 “AMC Submit report to Trustees on quarterly basis, mentioning activity
and compliance factor.

22. LEGAL STRUCTURE
 AMC: Acts as investment manager of the trust under the board
supervision and direction of the trustees.
 AMC is the fund manager
 AMC floats the different MF schemes.
 AMC is responsible to the trustees.
 AMC fees have a ceiling decided by SEBI
– Initial issue expenses not exceeding 6%
– Recurring expenses such as trustee fees, audit fees, etc.
– When net assets do no exceed Rs.100 crores, asset management fee is
maximum 1.25% of average weekly net assets.
– When assets exceed Rs.100 crores, an additional asset management
fee of maximum 1% of additional net assets.
– If the scheme is a no-load scheme, further fee of maximum 1% of
average weekly net assets.

23. LEGAL STRUCTURE
The Sponsor
 A sponsor appoints the asset management company.
 Sometimes, this power is given by the sponsor to the trustees
through the trust deed.
 At least 50% of directors on the board of asset management
company should be independent of the sponsor.
 Asset management company shall not deal with any broker/firm
associated with sponsor beyond 5% of daily gross business of the
MF.
 All security transactions of the asset management company with
its associates should be disclosed.

24. Contingent Deferred Sales Charge
 For no-load schemes
 Redemption during the first four years after purchase
 First year maximum 4%
 Second year maximum 3%
 Third year maximum 2%
 Fourth year maximum 1%

25. Ceiling on Expenses
 Excepting initial and redemption expenses, the total of
all other expenses should be a maximum of
 Average weekly Fees as % of
 net assets (Rs.Crores) average weekly
 net assets
 0-100 2.5%
 next 300 2.25%
 next 300 2.0%
 balance 1.75%

26. LEGAL STRUCTURE
 CUSTODIAN:
• APPOINTED BY BOARD OF
TRUSTEES FORSAFEKEEPING OF SECURITIES.
• IT’S AN ENTITY INDEPENDENT OF SPONSORS
 BANKERS
 TRANSFER AGENTS
• ISSUE AND REDEEM OF UNITS AND OTHER
RELATED SERVICE
 DISTRIBUTORS
• APPOINTED BY AMC
• MAY ACT ON BEHALF OF DIFFERENT FUNDS
• AGENTS - AS INDIVIDUAL

27. FUND MERGER & TAKEOVERS
 CONSTITUTION CAN CHANGE IN MANY
POSSIBLE WAYS
• AMC TAKEN OVER BY ANOTHER SPONSOR
• MERGER OF TWO AMCs
• DECISION OF TRUSTEE TO CHANGE AMC
• CHANGE OF TRUSTEES
• MERGER OF TWO SCHEMES WITH SAME
AMC/TRUSTEES

28.  MERGER OF TWO AMCs
• NEEDS TO FOLLOW INDIAN CO. ACT
• SEBI APPROVAL REQUIRED
• CONSENT OF UNIT HOLDERS WITH 75% VOTING
RIGHTS
 AMC TAKEOVER BY NEW SPONSORS
• HIGH COUT APPROVAL NOT REQUIRED BUT
SEBI CLEARANCE REQUIRED
 SCHEME TAKE OVER
• AMC CANNOT WITHDRAW OR TRANSFER THE
MANAGEMENT OF SCHEME TO ANOTHER AMC
WITHOUT UNIT HOLDERS CONSENT
• TRUSTEES CANNOT EFFECT THE CHANGES IN
AMC WITHOUT UNITHOLDERS CONSENT
“ANY AMMENDMENTS IN SCHEME REQUIRECONSENT OF
UNIT HOLDERS IN CASE OF ONLY CLOSE END FUND.
OEN END FUND NEEDS TO JUST INFORM”

29. Legal and Regulatory
Environment

30. Regulators in India
 SEBI
– SEBI regulates MFs
– All MFs have to be registered with SEBI
 RBI
– Bank-owned MFs are under RBI and SEBI
• Ownership of AMC by the bank
• Guarantees issued by the bank as sponsor
• Fund mergers of bank-sponsored MFs
– Permission to access inter-bank call money
market

31. Regulators in India…
 Ministry of Finance
 Company Law Board
– Department of Company Affairs
• Registrar of Companies
 Stock Exchanges
 Charity Commissioner
– Office of the public trustee
• Board of trustees of MFs

32. Self-regulatory Organization
 An organization specially empowered to
regulate activities of its members
 AMFI is not a self-regulatory
organization

33. AMFI
 Promote the interests of the mutual funds
and unit-holders
 Set ethical, commercial, and professional
standards in the industry
 Increase the public awareness of MF
industry

34. Investors Rights and
Obligations
 Right of Proportionate “beneficial
Ownership”
 Right to Timely Service
 Right to Information
 Right to Approve changes in
Fundamental Attributes
 Right to Wind Up a Scheme
 Right to Terminate the AMC

35. Legal Limitations to Investors
Rights
 Investors cannot Sue the Trust.
 Investors can initiate legal
proceedings against the trustees
 Sponsors of a MF have no
obligation to meet the shortfall in
non- assured schemes
 Only if the OD has specifically
provided such guarantee by a
named sponsor the investors have
a right to sue the sponsors
 Prospective Investors cannot sue
the Trust / the AMC or any other
constituent.

36. Investors Obligations /
Complaint Redressal
Investors should:  SEBI intervention
 Read Offer Document  For issue of due diligence
 Understand Risk factors certificate for new
 Monitor Investments scheme by compliance
officer
 Ask for information
 Companies Act cannot
required
protect investors as fund
“Monitoring is entirely his/ her investors are neither
own responsibility” shareholders in the AMC
nor depositors

37. Fund Distribution
&
Sales Practices

38. Investor Community
Institutional Individual
Investors Investors
HNIs Retail

39. Who can invest in Mutual Funds in India?
 Residents :
 Resident Individuals
 Indian Companies
 Indian Trusts/ Charitable Institutions
 Banks / NBFCs
 Insurance Companies
 Provident funds

40. Who can invest in Mutual Funds in India?
 Non Residents :
 NRIs
 OCBs
 Foreign Entities:
 FIIs registered with SEBI

41. Role of the Distribution Channels
“MFs are primarily vehicles for large collective investments , based on the
principle of pooling the funds from a large number of investors”
Hence,
“Majority of schemes are targeted at the retail level, from where a
substantial portion of investment takes place”
So,
“Distribution network becomes critical
in view of the spread of investor community”

42. Types of Distribution Channels:
1.Individual Agents
2. Distribution Companies
3. Banks / NBFCs
4. Direct Marketing ( By the Sales Officers)
5.Current Distribution patterns - Non UTI funds
rely on the 2&3 above.

43. Sales Practices in MF Market

44. Agents’ Commission
•Commission can be paid upfront or trail commission.
• Market Practice: 1-1.5% (Equity funds)
0.6-0.8% (Debt Funds)
• Higher commission paid for Tax-benefit schemes as there is a lock-
in period.

45. Agents’ Commission
•The initial issue expense cap of 6% includes brokerage as well.
•All SEBI regulated open ended funds are authorized to charge
exit /entry loads to cover the funds’ distribution expenses.
• A no load fund includes these expenses as a part of the regular
management & marketing expenses.
• SEBI prescribes a cap on all the total expenses that can be charged
to a scheme each year. Any additional expense will have to be borne
by the AMC

46. Effective Selling of MF Schemes
• Know the important characteristics of the scheme.
• Know your client profile (age, risk tolerance,income levels)
• Understand clients’ needs (investment objective,return expectation,
cash flow requirement)
• Assistance in making the right choice of investment
• Encourage regular investment and seek commitment from the client
to invest.
• Personalized post sales service.

47. SEBI's Advertising Code
• The code protects from misleading investors.
• Past performance is not a guarantee
• Dividends declared/paid shall be mentioned in Rs.per unit
• Only compound and annualized yield can be advertised for
schemes for more than one year.
• Annualised yield must be shown for at least one, three fine and
since launch.
• For less than one year performance may be shown in terms of
total returns should not be annualized.
• Appropriate benchmark should be chosen. And once chosen it
should be consistent.
• Where any ranking has been made should be explained.

48. Appointment of Agents
The key terms of agreement are as follows:
• The agent will provide a copy of the abridged OD to the customer
and will make available for inspection a copy of the OD and sell at
price currently in effect.
• The agent will execute all the transactions on behalf of the
customer who will not have any recourse to the agent in case of an
errors/problems/quality of investment.
• The agent must make the customer know that the funds’ units are
not endorsed by him and do not constitute his obligation.
•Agent responsible at his expense to ensure compliance with
applicable regulation in each jurisdiction.
•Fund not responsible for any losses claims or damages.

49. Key terms of Agreement………….2
• The agent will offer/sell/purchase unit at the current public offering
price.
• All orders become effective only upon acceptance and confirmation
by the fund.
• The agent is responsible to ensure compliance with the applicable
regulations in each transaction he deals in and the fund is not
responsible for any breach by agent in this regard.

50. AMFI Code of Ethics
AMFI has recommended a code of practices with respect to overall
fund operation including distribution and selling.
1. Management of fund should be in the interest of unit holders.
2. High standards of service are expected from funds
3. Adequate disclosure standards
4. Professional Selling practices.
5. Fund Management in accordance to stated investment objective.
6. Avoid conflict of interest in its dealing with its employees.
7. Refrain from unethical market Practices.

51. Fund broking practices in US
 Cap on sales/distribution expenses.
 Broker is not allowed to describe a fund as no load
fund if it has front-end or default load.
 Broker prohibited from recommending that purchase
of units before ex-dividend may be advantageous.
 Prohibited from using commission as a basis for
recommending a fund.
 Preferred pricing to specific investors prohibited.

52. BEST OF LUCK
Thank You