Mutual Funds in India

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CONTENTS Page no. 1. INTRODUCTION1 2. CONCEPT OF MUTUAL FUNDS4 3. IMPORTANCE OF MUTUAL FUNDS7 4. ORIGIN OF MUTUAL FUNDS IN INDIA 9 5. GROWTH OF MUTUAL FUNDS INDUSTRY IN INDIA11 6. TYPES OF MUTUAL FUNDS14 7. PROS AND CONS OF MUTUAL FUNDS 21 8. MUTUAL FUND AND CAPITAL MARKETS 23 9. RISKS INVOLVED IN MUTUAL FUNDS23 10. ORGANISATIONAL FRAMEWORK OF MUTUAL FUNDS25 11. REGULATORY FRAMEWORK FOR MUTUAL FUNDS 29 12. RECENT TRENDS IN MUTUAL FUNDS MARKET31 13. CHALLENGES AND ISSUES IN MUTUAL FUNDS33 14. CONCLUSION36 15. BIBLIOGRAPHY39 ABSTRACT The Indian capital market has been increasing tremendously during last few years.

With the reforms of economy, reforms of industrial policy, reforms of public sector and reforms of financial sector, the economy has been opened up and many developments have been taking place in the Indian money market and capital market. In order to help the small investors, mutual fund industry has come to occupy an important place. The main objective of this paper is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds and suggest some measures to make it a successful scheme in India. 1.

INTRODUCTION According to Shakespeare ‘out of this nettle, danger, we pluck this flower, safety’. The economic development model adopted by India in the post-independence era has been characterized by mixed economy with the public sector playing a dominating role and the activities in private industrial sector control measures emaciated from time to time. The industrial policy resolution was introduced by the government in the 1948, immediately after the independence. This outlined the approach to industrial growth and development.

The industrial policy statement of 1980 focussed attention on the need for promoting competition in the domestic market, technological upgradation and modernisation. A number of policy and procedural changes were introduced in 1985 and 1986, aimed at increasing productivity, reducing costs, improving quality, opening domestic market to increase competition and making free the public sector from constraints. Overall, in the seventh plan period (1985-86 to 1989-90), Indian industries grew by an impressive average annual rate of 8. 5 percent.

The last two decades have seen a phenomenal expansion in the geographical coverage and financial spread of our financial system. The spread of the banking system has been a major factor in promoting financial intermediation in the economy and in the growth of financial savings. With progressive liberalization of economic policies, there has been a rapid growth of capital market, money market and financial services industry including merchant banking, leasing and venture capital. Consistent with this evolution of the financial sector, he mutual fund industry has also come to occupy an important place. [1] The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels and the increasing reach of Asset Management Companies (AMCs) and distributors. However, after several years of relentless growth, the industry witnessed a fall of 8% in the assets under management in the financial year 2008-09 that has impacted revenues and profitability.

Recent developments triggered by the global economic crisis are served to highlight the vulnerability of the Indian mutual fund industry to global economic turbulence and exposed our increased dependence on corporate customers and the retail distribution system. It is therefore an opportune time for the industry to dwell on the experiences and develop a roadmap through a collaborative effort across all stakeholders, to achieve sustained profitable growth and strengthen investor faith and confidence in the health of the industry.

Innovative strategies of AMCs and distributors, enabling support from the regulator SEBI, and pro-active initiatives from the industry bodies CII and AMFI are likely to be key components in defining the future shape of the mutual fund industry. [2] NEED FOR THE STUDY The main purpose of undertaking this project is to be acquainted with the concept of mutual fund as a process of investment which entails details about mutual fund industry right from its inception stage, growth, operations, regulatory regime, challenges and issues and future prospects with deep understanding of different schemes of mutual funds.

Finally this project would help in better understanding of the benefits and disadvantages of mutual funds accruing to investors. SCOPE OF THE STUDY This project is limited to the analysis about the concept of the mutual funds along with its pros and cons accruing to the investors. This project is devoted to the regulatory regime governing the operations of mutual funds from the legal perspective and finally dwells upon the specific issues and challenges facing the mutual fund industry with some light thrown upon the future prospects of the industry. OBJECTIVE

The specific objective of the study is focussed upon the following: i) To illuminate the concept of mutual funds along with its phased growth. ii) To discuss the various types of mutual funds schemes available in the capital market. iii) To bring into light the various advantages and disadvantages of mutual funds. iv) To delineate upon the organisational and regulatory framework of mutual funds in India. v) To explore the challenges facing the mutual funds industry and vi) Finally to focus on the future prospects of the mutual funds industry in India. METHODOLOGY

In order to achieve the objective of studying about the concept of mutual funds industry in India, the research methodology adopted for this study is basically explanatory and analytical. This study is based on library study and analysis of secondary data gathered from various sources such as books, journals, newspapers and reports. 2. CONCEPT OF MUTUAL FUND A “mutual fund” is an investment vehicle for investors who pool their savings for investing in diversified portfolio of securities with the aim of attractive yields and appreciation in their value.

As per the Mutual Fund Book, published by Investment Company Institute of the U. S. , “A Mutual Fund is a financial service organisation that receives money from shareholders, invests it, earns return on it, attempts to make it grow and agrees to pay the shareholder cash on demand for the current value of his investment”. The investment managers of the funds manage these savings in such a way that the risk is minimised and steady return is ensured. A mutual fund is a financial intermediary that pools the savings of investors for collective investment in a diversified portfolio of securities.

A fund is “mutual” as all of its returns, minus its expenses, are shared by the fund’s investors. The Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 defines a mutual fund as a ‘a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments’. According to the above definition, a mutual fund in India can raise resources through sale of units to the public. It can be set up in the form of a Trust under the Indian Trust Act.

The definition has been further extended by allowing mutual funds to diversify their activities in the following areas: 1. Portfolio management services 2. Management of offshore funds 3. Providing advice to offshore funds 4. Management of pension or provident funds 5. Management of venture capital funds 6. Management of money market funds 7. Management of real estate funds A mutual fund serves as a link between the investor and the securities market by mobilising savings from the investors and investing them in the securities market to generate returns.

Thus, a mutual fund is akin to portfolio management services (PMS). Although, both are conceptually same, they are different from each other. Portfolio management services are offered to high net worth individuals; taking into account their risk profile, their investments are managed separately. In the case of mutual funds, savings of small investors are pooled under a scheme and the returns are distributed in the same proportion in which the investments are made by the investors/unit-holders. Mutual fund is a collective savings scheme.

Mutual funds play an important role in mobilising the savings of small investors and channelizing the same for productive ventures in the Indian economy. [3] A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments and other securities. Mutual funds have a fund manager who invests the money on behalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value of all mutual funds totals more than $US 26 trillion.

There are various investment avenues available to an investor such as real estate, bank deposits, post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of investment avenue available to investors. There are many reasons why investors prefer mutual funds. Buying shares directly from the market is one way of investing. But this requires spending time to find out the performance of the company whose share is being purchased, understanding the future business prospects of the company, finding out the track record of the promoters and the dividend, bonus issue history of the company etc.

An informed investor needs to do research before investing. However, many investors find it cumbersome and time consuming to pore over so much of information, get access to so much of details before investing in the shares. Investors therefore prefer the mutual fund route. They invest in a mutual fund scheme which in turn takes the responsibility of investing in stocks and shares after due analysis and research. The investor need not bother with researching hundreds of stocks. It leaves it to the mutual fund and it is professional fund management team.

Another reason why investors prefer mutual funds is because mutual funds offer diversification. An investor’s money is invested by the mutual fund in a variety of shares, bonds and other securities thus diversifying the investors’ portfolio across different companies and sectors. This diversification helps in reducing the overall risk of the portfolio. It is also less expensive to invest in a mutual fund since the minimum investment amount in mutual fund units is fairly low (Rs. 500 or so). With Rs. 500 an investor may be able to buy only a few stocks and not get the desired diversification.

These are some of the reasons why mutual funds have gained in popularity over the years. Indians have been traditionally savers and invested money in traditional savings instruments such as bank deposits. Against this background, if we look at approximately Rs. 7 lakh crores1 which Indian Mutual Funds are managing, then it is no mean an achievement. A country traditionally putting money in safe, risk-free investments like Bank FDs, Post Office and Life Insurance, has started to invest in stocks, bonds and shares – thanks to the mutual fund industry. However, there is still a lot to be done.

The Rs. 7 lakh crores stated above includes investments by the corporate sector as well. Going by various reports, not more than 5% of household savings are channelized into the markets, either directly or through the mutual fund route. Not all parts of the country are contributing equally into the mutual fund corpus. 8 cities account for over 60% of the total assets under management in mutual funds. These are issues which need to be addressed jointly by all concerned with the mutual fund industry. Market dynamics are making industry players to look at smaller cities to increase penetration.

Competition is ensuring that costs incurred in managing the funds are kept low and fund houses are trying to give more value for money by increasing operational efficiencies and cutting expenses. As of today there are around 40 Mutual Funds in the country. Together they offer around 1051 schemes2 to the investor. Many more mutual funds are expected to enter India in the next few years. All these developments will lead to far more participation by the retail investor and ample of job opportunities for young Indians in the mutual fund industry.

This module is designed to meet the requirements of both the investor as well as the industry professionals, mainly those proposing to enter the mutual fund industry and therefore require a foundation in the subject. Investors need to understand the nuances of mutual funds, the workings of various schemes before they invest, since their money is being invested in risky assets like stocks/ bonds (bonds also carry risk). [4] 3. IMPORTANCE OF MUTUAL FUNDS Small investors face a lot of problems in the share market, limited resources, lack of professional advice, lack of information etc.

Mutual funds have come as a much needed help to these investors. It is a special type off-institutional device or an investment vehicle through which the investors pool their savings which are to be invested under the guidance of a team of experts in wide variety of portfolios of corporate securities in such a way, so as to minimise risk, while ensuring safety and steady return on investment. It forms an important part of the capital market, providing the benefits of a diversified portfolio and expert fund management to a large number, particularly small investors.

Nowadays, mutual fund is gaining its popularity due to the following reasons: a) With the emphasis on increase in domestic savings and improvement in deployment of investment through markets, the need and scope for mutual fund operation has increased tremendously. The basic purpose of reforms in the financial sector was to enhance the generation of domestic resources by reducing the dependence on outside funds. This calls for a market based institution which can tap the vast potential of domestic savings and channelize them for profitable investments.

Mutual funds are not only best suited for the purpose but also capable of meeting this challenge. b) An ordinary investor who applies for share in a public issue of any company is not assured of any firm allotment. But mutual funds who subscribe to the capital issue made by companies get firm allotment of shares. Mutual fund latter sell these shares in the same market and to the Promoters of the company at a much higher price. Hence, mutual fund creates the investors’ confidence. c) The phyche of the typical Indian investor has been summed up by Mr. S. A.

Dave, Chairman of UTI, in three words; Yield, Liquidity and Security. The mutual funds, being set up in the public sector, have given the impression of being as safe a conduit for investment as bank deposits. Besides, the assured returns promised by them have investors had great appeal for the typical Indian investor. d) As mutual funds are managed by professionals, they are considered to have a better knowledge of market behaviours. Besides, they bring a certain competence to their job. They also maximise gains by proper selection and timing of investment. ) Another important thing is that the dividends and capital gains are reinvested automatically in mutual funds and hence are not fritted away. The automatic reinvestment feature of a mutual fund is a form of forced saving and can make a big difference in the long run. f) The mutual fund operation provides a reasonable protection to investors. Besides, presently all Schemes of mutual funds provide tax relief under Section 80 L of the Income Tax Act and in addition, some schemes provide tax relief under Section 88 of the Income Tax Act lead to the growth of importance of mutual fund in the minds of the investors. ) As mutual funds creates awareness among urban and rural middle class people about the benefits of investment in capital market, through profitable and safe avenues, mutual fund could be able to make up a large amount of the surplus funds available with these people. h) The mutual fund attracts foreign capital flow in the country and secures profitable investment avenues abroad for domestic savings through the opening of off shore funds in various foreign investors. Lastly another notable thing is that mutual funds are controlled and regulated by S E B I and hence are considered safe.

Due to all these benefits the importance of mutual fund has been increasing. [5] 4. ORIGIN OF MUTUAL FUNDS The history of mutual funds dates back to the times of the Egyptians and Phoenicians when they sold shares in caravans and vessels to spread the risk of these ventures. The foreign and colonial government Trust of London of 1868 is considered to be the fore-runner of the modern concept of mutual funds. The USA is, however, considered to be the Mecca of modern mutual funds. In the 19th century it was introduced in Europe, in particular, Great Britain.

Robert Fleming set up in 1868 the first investment trust called Foreign and colonial investment trust which promised to manage the finances of the moneyed classes of Scotland by scattering the investment over a number of different stocks. This investment trust and other investment trusts which were afterward set up in Britain and the U. S. , resembled today’s close – ended mutual funds. The first mutual fund in the U. S. , Massachusetts investor’s trust, was set up in March 1924. This was the open – ended mutual fund.

The stock market crash in 1929, the Great Depression, and the outbreak of the Second World War slackened the pace of growth of the mutual fund industry. Innovations in products and services increased the popularity of mutual funds in the 1950s and 1960s. The first international stock mutual fund was introduced in the US in 1940. In 1976, the first tax – exempt municipal bond funds emerged and in 1979, the first money market mutual funds were created. The latest additions are the international bond fund in 1986 arm funds in 1990.

This industry witnessed substantial growth in the eighties and nineties when there was a significant increase in the number of mutual funds, schemes, assets, and shareholders. In the US the mutual fund industry registered s ten – fold growth the eighties. Since 1996, mutual fund assets have exceeds bank deposits. The mutual fund industry and the banking industry virtually rival each other in size. A Mutual fund is type of Investment Company that gathers assets form investors and collectively invests in stocks, bonds, or money market instruments.

The investment company concepts date to Europe in the late 1700s, according to K. Geert Rouwenhost in the Origins Mutual Funds, when “a Dutch Merchant and Broker Invited subscriptions from investor with limited means. ” The materialization of “investment Pooling“ in England in the 1800s brought the concept closer to U. S. shores. The enactment of two British Laws, the Joint Stock Companies Acts of 1862 and 1867, permitted investors to share in the profits of an investment enterprise, and limited investor liability to the amount of investment capital devoted to the enterprise.

May be more outstandingly, the British fund model established a direct link with U. S. Securities markets, serving finance the development of the post – Civil War U. S. economy. The Scottish American Investment Trust, Formed on February1, 1873 by fund pioneer Robert Fleming, invested in the economic potential of the United States, Chiefly through American railroad bonds. Many other trusts followed that not only targeted investment in America, but led to the introduction of the fund investing concept on U. S. shores in the late 1800 and early 1900s. All these funds were open – ended having redemption feature.

Similarly, they had almost all the features of a good modern Mutual Funds – like sound investment policies and restrictions, open end ness, self – liquidating features, a publicized portfolio, simple capital structure, excellent and professional fund management and diversification etc and hence they are the honored grand – parents of today’s funds. Prior to these funds all the initial investment companies were closed – ended companies. Therefore, it can be said that although the basic concept of diversification and professional fund management, were picked by U.

S. A. from England Investment Companies “The Mutual Fund is an American Creation. ” Because of their exclusive feature, open – ended Mutual Funds rapidly became very popular. By 1929, there were 19 open – ended Mutual Funds in USA with total assets of $ 140 million. But the 1929 Stock Market crash followed by great depression of 1930 ravaged the U. S. Financial Market as well as the Mutual Fund Industry. This necessitated stricter regulation for mutual funds and for Financial Sectors. Hence, to protect the interest of the common investors, U. S.

Government passed various Acts, such a Securities Act 1933, Securities Exchange Act 1934 and the Investment Companies Act 1940. A committee called the National Committee of Investment Company (Now, Investment Company Institute) was also formed to co – operate with the Federal Regulatory Agency and to keep informed of trends in Mutual Fund Legislation. As a result of these measures, the Mutual Fund Industry began to develop speedily and the total net assets of the Mutual Funds Industry increased from $ 448 million in 1940 to $ 2. 5 billion in 1950.

The number of shareholder’s accounts increased from 296000, to more than one Million during 1940 – 1951. As a result of renewed interest in Mutual Fund Industry they grew at 18% annual compound rate reaching peak of their rapid growth curve in the late 1960s. [6] 5. GROWTH OF MUTUAL FUNDS INDUSTRY IN INDIA The Indian mutual fund industry has evolved over distinct stages. The growth of the mutual fund industry in India can be divided into four phases: Phase I (1964-87), Phase II (1987-92), Phase III (1992-97), and Phase IV (beyond 1997). Phase I (1964-87) The mutual fund concept was introduced in India with the setting up of UTI in 1963.

The Unit Trust of India (UTI) was the first mutual fund set up under the UTI Act, 1963, a special act of the Parliament. It became operational in 1964 with a major objective of mobilising savings through the sale of units and investing them in corporate securities for maximising yield and capital appreciation. This phase commenced with the launch of Unit Scheme 1964 (US-64) the first open-ended and the most popular scheme. UTI’s investible funds, at market value (and including the book value of fixed assets) grew from Rs 49 crore in1965 to Rs 219 crore in 1970-71 to Rs 1,126 crore in 1980-81 and further to Rs 5,068 crore by June 1987.

Its investor base had also grown to about 2 million investors. It launched innovative schemes during this phase. Its fund family included five income-oriented, open-ended schemes, which were sold largely through its agent network built up over the years. Master share, the equity growth fund launched in 1986, proved to be a grand marketing success. Master share was the first real close-ended scheme floated by UTI. It launched India Fund in 1986-the first Indian offshore fund for overseas investors, which was listed on the London Stock Exchange (LSE). UTI maintained its monopoly and experienced a consistent growth till 1987.

Phase II (1987-92) The second phase witnessed the entry of mutual fund companies sponsored by nationalised banks and insurance companies. In 1987, SBI Mutual Fund and Canbank Mutual Fund were set up as trusts under the Indian Trust Act, 1882. In 1988, UTI floated another offshore fund, namely, The India Growth Fund which was listed on the New York Stock Exchange (NYSB). By 1990, the two nationalised insurance giants, LIC and GIC, and nationalised banks, namely, Indian Bank, Bank of India, and Punjab National Bank had started operations of wholly-owned mutual fund subsidiaries.

The assured return types of schemes floated by the mutual funds during this phase were perceived to be another banking product offered by the arms of sponsor banks. In October 1989, the first regulatory guidelines were issued by the Reserve Bank of India, but they were applicable only to the mutual funds sponsored by FIIs. Subsequently, the Government of India issued comprehensive guidelines in June 1990 covering all ‘mutual funds. These guidelines emphasised compulsory registration with SEBI and an arm’s length relationship be maintained between the sponsor and asset management company (AMC).

With the entry of public sector funds, there was a tremendous growth in the size of the mutual fund industry with investible funds, at market value, increasing to Rs 53,462 crore and the number of investors increasing to over 23 million. The buoyant equity markets in 1991-92 and tax benefits under equity-linked savings schemes enhanced the attractiveness of equity funds. Phase III (1992-97) The year 1993 marked a turning point in the history of mutual funds in India. The Securities and Exchange Board of India (SEBI) issued the Mutual Fund Regulations in January 1993.

SEBI notified regulations bringing all mutual funds except UTI under a common regulatory framework. Private domestic and foreign players were allowed entry in the mutual fund industry. Kothari group of companies, in joint venture with Pioneer, a US fund company, set up the first private mutual fund the Kothari Pioneer Mutual Fund, in 1993. Kothari Pioneer introduced the first open-ended fund Prima in 1993. Several other private sector mutual funds were set up during this phase. UTI launched a new scheme, Master-gain, in May 1992, which was a phenomenal success with a subscription of Rs 4,700 crore from 631akh applicants.

The industry’s investible funds at market value increased to Rs 78,655 crore and the number of investor accounts increased to 50 million. However, the year 1995 was the beginning of the sluggish phase of the mutual fund industry. During 1995 and 1996, unit holders saw erosion in the value of their investments due to a decline in the NA V s of the equity funds. Moreover, the service quality of mutual funds declined due to a rapid growth in the number of investor accounts, and the inadequacy of service infrastructure.

A lack of performance of the public sector funds and miserable failure of foreign funds like Morgan Stanley eroded the confidence of investors in fund managers. Investors’ perception about mutual funds gradually turned negative. Mutual funds found it increasingly difficult to raise money. The average annual sales declined from about Rs 13,000 crore in 1991-94 to about Rs 9,000 crore in 1995 and 1996. Phase IV (beyond 1997) During this phase, the flow of funds into the kitty of mutual funds sharply increased.

This significant growth was aided by a more positive sentiment in the capital market, significant tax benefits, and improvement in the quality of investor service. Investible funds, at market value, of the industry rose by June 2000 to over Rs 1,10,000 crore with UTI having 68% of the market share. During 1999-2000 sales mobilisation reached a record level of Rs 73,000 crore as against Rs 31,420 crore in the preceding year. This trend was, however, sharply reversed in 2000-01. The UTI dropped a bombshell on the investing public by disclosing the NAV of US-64-its flagship scheme as on December 28,2000, just at Rs 5. 1 as against the face value of Rs 10 and the last sale price of Rs 14. 50. The disclosure of NAV of the country’s largest mutual fund scheme was the biggest shock of the year to investors. Crumbling global equity markets, a sluggish economy coupled with bad investment decisions made life tough for big funds across the world in 2001-02. The effect of these problems was felt strongly in India also. Pioneer JP Morgan and Newton Investment Management pulled out from the Indian market. Bank of India MF liquidated all its schemes in 2002.

The Indian mutual fund industry has stagnated at around Rs 1,00,000 crore assets since 2000-01. This stagnation is partly a result of stagnated equity markets and the indifferent performance by players. As against this, the aggregate deposits of Scheduled Commercial Banks (SCBs) as on May 3, 2002, stood at Rs 11,86,468 crore. Mutual funds assets under management (AUM) form just around 10% of deposits of SCBs. The Unit Trust of India is losing out to other private sector players. While there has been an increase in AUM by around 11% during the year 2002, UTI on the contrary has lost more than 11% in AUM.

The private sector mutual funds have benefited the most from the debacle ofUS-64 of UTI. The AUM of this sector grew by around- 60% for the year ending March 2002. [7] 6. TYPES OF MUTUAL FUNDS There are a number of mutual funds to suit the needs and preferences of the investors. The choice of the fund is linked to the demand of the investor. The object of earning helps in deciding the type of funds where investment is made. To achieve the differing objectives of the investors, mutual funds adopt different strategies and accordingly offer different schemes of investment.

The various mutual funds may be classified under five broad categories: a) According to Ownership: According to ownership, mutual funds in India may be classified as under: i) Public sector mutual funds: Unit Trust of India (UTI) has been functioning in the arena of mutual fund business in India since 1963-64. However, it was only after 23 years, in 1987 that second fund was established in India by the SBI. Although UTI was functioning successfully, it was found inadequate to meet the requirements of small and medium household sectors.

Thus UTI’s monopoly in this business was curtailed by the Central Government by opening the operations of mutual funds to the requirements of the common investors. SBI Mutual Fund was the first among all the public sector commercial banks that started operations in mutual funds. Thereafter a number of public sector organisations like IND Bank – MF, Can Bank MF, PNB – MF etc. (ii) Private sector mutual funds: Seeing the success and growth of the mutual funds in the Indian capital market, the Central Government allowed the private sector corporate to join the mutual fund industry on February 14, 1992.

Since then a number of private sector companies have approached SEBI for permission to set up private mutual funds. Thereafter SEBI (Mutual Funds) Regulations, 1996 provide guidelines for registration, constitution, management and schemes of mutual funds. b) According to the Scheme of Operations: The most important classification of mutual funds is on the basis of scheme of their operations as all types of mutual funds fall under this classification. According to the scheme of operations, the mutual funds could be divided into three categories: ) Open-ended Schemes: It means a scheme of mutual funds which offers units for sale without specifying the duration for redemption. These schemes donot have a fixed maturity and entry to the fund is always open to investors who can subscribe it at any time. Similarly, the investors have an option to get their holdings redeemed at any time. The fund redeems or repurchases the units or shares at periodically announced rates. These repurchase rates are based upon the net current asset value of the fund. Thus, these funds provide better liquidity to the investors.

In the same manner, the price at which the units are offered to the public is also announced periodically. As an investor can directly purchase and sell units under open ended schemes, these are not listed. The Unit Scheme 1964 of UTI, ULIP, Dhanraksha and Dhanvirdhi of LIC Mutual Funds are some examples of open ended funds. ii) Close-ended Schemes: It means any scheme of mutual fund in which the period of maturity of the scheme is specified. Unlike open ended schemes, the corpus of the close ended schemes is fixed and investor can subscribe directly to the scheme only at the time of initial issue.

After the initial issue is closed, a person can buy or sell the units of the scheme in the stock exchanges where these are listed. The price in the secondary market is determined on the basis of demand and supply and hence could be different from the net assets value. Dhanshree and Dhansamardhi of LIC Mutual Funds, Canshare of Canara Bank, Ind Jyoti and Swaran Jyoti of Indian Bank are some of the examples of close ended mutual funds. iii) Interval Schemes: An interval scheme is a scheme of mutual fund which is kept open for a specific interval and after that it operates as a close scheme.

Thus, it combines the features of both open ended and close ended schemes. Interval schemes have been permitted by the SEBI in recent year only. The scheme is open for sale or repurchase at fixed predetermined intervals which are disclosed in the offer document. The units of the scheme are also traded in the stock exchanges. c) According to Portfolio: Mutual Funds can be classified according to portfolio or the objectives of the fund some of which are discussed below: i) Income Funds: These funds aim at providing maximum current return/income to the investors.

The investments are made in stocks yielding higher returns and capital appreciation is of small importance. Such funds distribute the income earned by them periodically amongst the investors. There may be income funds of two types: some funds may concentrate on low risks, constant returns while others may aim at maximum return even at the cost of some risk. ii) Growth Funds: These funds aim at providing capital appreciation in the value of investment. Such funds invest in growth oriented securities have a potential to appreciate in long run.

Growth funds concentrate on value appreciation of securities and not on the regularity of income and are known as ‘Nest Eggs’ or ‘Long Haul’ investment. However, the risk involved in such funds is higher than the income funds. iii) Balanced or Conservative Funds: Balanced funds spend both on common stock and preferred stock. Some part of funds is spent on buying equity while other part is used in acquiring interest bearing debentures and preference shares ensuring certain amount of dividend. Some funds generally spend half the funds on equity stock while the other half is spent on preferred stock.

Balanced funds ensure both appreciation in stock and regular return in the shape of interest and dividend. The investors have advantages of regular income and appreciation in value of securities. These funds are known as ‘Conservative Funds’ or ‘Income or Growth Funds’. iv) Equity/Stock Fund: These funds mainly invest in share of the companies. The investments may vary from ‘blue chip’ companies to newly established companies. They undertake risk associated with investment in equity shares of the companies. Stock funds may have further sub-divisions such as income funds or growth funds.

A special type of equity fund is known as ‘index fund’ or ‘never beat market fund’. v) Bond Funds: These funds employ their resources in bonds. These investments ensure fixed and regular income. Sometimes bonds are available in the market at lower than face value, the net income on these bonds goes higher because interest will be received on the face value of the bond. Some companies offer non-convertible bonds alongwith shares. Any person subscribing for the shares will have to take up bonds also. vi) Specialised Funds: These funds invest in particular type of securities.

These funds may specialise in securities of companies dealing in a particular product, firms in a particular industry or of certain income producing securities. Any investor wanting to invest in a particular security will prefer a fund dealing in such securities. vii) Leverage Funds: The primary aim of leverage funds is to maximise capital appreciation. These funds may use even borrowed funds for buying speculative stock which ensures a profit in the future. The cost of raising loaned fund and the gain from holding shares is the profit of the leverage fund. The leverage is used to the benefit of the shareholders.

Leverage funds indulge in speculative activities to earn more profit. In a declining market, the fund may indulge in short sales. The reduced price of the stock in future will benefit the fund. viii) Taxation Funds: Mutual funds may be designed to suit the tax payers. The contributors to such funds get some concession in income tax. The investors are required to keep the money with the fund for a certain period called the lockup period which is at present 3 years in India. These funds distribute the profits among the unit holders. A repurchase offer of units is also given at the current net assets value.

A large number of mutual funds have come up with schemes which ensure tax benefits to the subscribers besides some income and small appreciation in value of units. The amount collected by these funds is used to acquire shares and interest bearing securities. The net assets value of the units varies with the values of the securities held. Generally income tax payers contribute in these funds. ix) Money Market Mutual Funds: Money market mutual funds mean a scheme of mutual funds which has been set up with the objective of investing exclusively in money market instruments.

These instruments include treasury bills, dated government securities with an unexpired maturity of upto one year, call and notice money, commercial paper, commercial bills accepted by the banks and certificates of deposits. While equities and bonds or debentures dominate the portfolio of “Capital market mutual funds”, the money market instruments constitute only the portfolio of “Money market mutual funds”. d) According to Location: Mutual funds can also be classified on the basis of location from where they mobilise funds: i) Domestic Funds: These are the funds which mobilise savings of people ithin the country where the investments are made. Domestic funds can be further sub-divided on the basis of the scheme of operation or portfolio. ii) Off-shore Funds: Off-shore mutual funds are those which raise or mobilise funds in countries other than where the investments are to be made. These funds attract foreign savings for investment in India. e) Other types of mutual funds: In addition to the above mentioned mutual funds, there can be other types of mutual funds also such as loan funds and non-loan funds based upon the expenses or fees to be charged; hub and spoke funds which are basically fund of funds etc. ) Sectoral: These funds invest in specific core sectors like energy, telecommunications, IT, construction, transportation, and financial services. Some of these newly opened-up sectors offer good investment potential. ii) Tax saving schemes: Tax-saving schemes are designed on the basis of tax policy with special tax incentives to investors. Mutual funds have introduced a number of taxsaving schemes. These are close–ended schemes and investments are made for ten years, although investors can avail of encashment facilities after 3 years.

These schemes contain various options like income, growth or capital application. The latest scheme offered is the Systematic Withdrawal Plan (SWP) which enables investors to reduce their tax incidence on dividends from as high as 30% to as low as 3 to 4%. iii) Equity-linked savings scheme (ELSS): In order to encourage investors to invest in equity market, the government has given tax-concessions through special schemes. Investment in these schemes entitles the investor to claim an income tax rebate, but these schemes carry a lock-in period before the end of which funds cannot be withdrawn. v) Special schemes: Mutual funds have launched special schemes to cater to the special needs of investors. UTI has launched special schemes such as Children’s Gift Growth Fund, 1986, Housing Unit Scheme, 1992, and Venture Capital Funds. v) Gilt funds: Mutual funds which deal exclusively in gilts are called gilt funds. With a view to creating a wider investor base for government securities, the Reserve Bank of India encouraged setting up of gilt funds. These funds are provided liquidity support by the Reserve Bank. vi) Load funds: Mutual funds incur certain expenses such as brokerage, marketing expenses, and communication expenses.

These expenses are known as ‘load’ and are recovered by the fund when it sells the units to investors or repurchases the units from withholders. In other words, load is a sales charge, or commission, assessed by certain mutual funds to cover their selling costs. Loads can be of two types-Front-end-load and back-endload. Front-end-load, or sale load, is a charge collected at the time when an investor enters into the scheme. Back-end, or repurchase, load is a charge collected when the investor gets out of the scheme. Schemes that do not charge a load are called ‘No load’ schemes.

In other words, if the asset management company (AMC) bears the load during the initial launch of the scheme, then these schemes are known as no-load schemes. However, these no-load schemes can have an exit load when the unit holder gets out of the scheme before a stipulated period mentioned in the initial offer. This is done to prevent short-term investments and redemptions. Some funds may also charge different amount of loads to investors depending upon the time period the investor has stayed with the funds. The longer the investor stays with the fund, less is the amount of exit load charged.

This is known as contingent deferred sales’ charge (CDSL). It is a back-end (exit load) fee imposed by certain funds on shares redeemed with a specific period following their purchase and is usually assessed on a sliding scale. vii) Index funds: An index fund is a mutual fund which invests in securities in the index on which it is based BSE Sensex or S&P CNX Nifty. It invests only in those shares which comprise the market index and in exactly the same proportion as the companies/weightage in the index so that the value of such index funds varies with the market index.

An index fund follows a passive investment strategy as no effort is made by the fund manager to identify stocks for investment/disinvestment. The fund manager has to merely track the index on which it is based. His portfolio will need an adjustment in case there is a revision in the underlying index. In other words, the fund manager has to buy stocks which are added to the index and sell stocks which are deleted from the index. Internationally, index funds are very popular. Around one third of professionally run portfolios in the US are index funds.

Empirical evidence points out those active fund managers have not been able to perform well. Only 20-25% of actively managed equity mutual funds out-perform benchmark indices in the long-term. These active fund managers park 80% of their money in an index and do active management on the remaining 20%. Moreover, risk averse investors like provident funds and pension funds prefer investment in passively managed funds like index funds. viii) PIE ratio fund: PIE ratio fund is another mutual fund variant that is offered by Pioneer IT Mutual Fund.

The PIE (Price-Earnings) ratio is the ratio of the price of the stock of a company to its earnings per share (EPS). The PIE ratio of the index is the weighted average price-earnings ratio of all its constituent stocks. The PIE ratio fund invests in equities and debt instruments wherein the proportion of the investment is determined by the ongoing price-earnings multiple of the market. Broadly, around 90% of the investible funds will be invested in equity if the Nifty Index PIE ratio is 12 or below. If this ratio exceeds 28, the investment will be in debt/money markets.

Between the two ends of 12 and 28 PIE ratio of the Nifty, the fund will allocate varying proportions of its investible funds to equity and debt. The objective of this scheme is to provide superior risk-adjusted returns through a balanced portfolio of equity and debt instruments. ix) Exchange traded funds: Exchange Traded Funds (ETFs) are a hybrid of open-ended mutual funds and listed individual stocks. They are listed on stock exchanges and trade like individual stocks on the stock exchange. However, trading at the stock exchanges does not affect their portfolio.

ETFs do not sell their shares directly to investors for cash. The shares are offered to investors over the stock exchange. ETFs are basically passively managed funds that track a particular index such as S&P CNX Nifty. Since they are listed on stock exchanges, it is possible to buy and sell them throughout the day and their price is determined by the demand-supply forces in the market. In practice, they trade in a small range around the value of the assets (NAV) held by them. ETFs offer several distinct advantages such as (a) ETFs bring the trading and real time pricing advantages of individual stocks to mutual funds.

The ability to trade intraday at prices that are usually close to the actual intra-day NAV of the scheme makes it almost real-time trading. (b) ETFs are simpler to understand and hence they can attract small investors who are deterred to trade in index futures due to requirement of minimum contract size. Small investors can buy minimum one unit of ETF, can place limit orders and trade intra-day. This, in turn, would increase liquidity of the cash market. (c) ETFs can be used to arbitrate effectively between index futures and spot index. (d) ETFs provide the benefits of diversified index funds.

The investor can benefit from the flexibility of stocks as well as the diversification. (e) ETFs being passively managed have somewhat higher NAV against an index fund of the same portfolio. The operating expenses of ETFs are lower than even those of similar index funds as they do not have to service investors who deal in shares through stock exchanges. 7. PROS AND CONS OF MUTUAL FUNDS An investor can invest directly in individual securities or indirectly through a financial intermediary. Globally, mutual funds have established themselves as the means of investment for the retail investor.

The advantages of mutual funds have been discussed as under: a) Professional management: An average investor lacks the knowledge of capital market operations and does not have large resources to reap the benefits of investment. Hence, he requires the help of an expert. It, is not only expensive to ‘hire the services’ of an expert but it is more difficult to identify a real expert. Mutual funds are managed by professional managers who have the requisite skills and experience to analyse the performance and prospects of companies.

They make possible an organised investment strategy, which is hardly possible for an individual investor. b) Portfolio diversification: An investor undertakes risk if he invests all his funds in a single scrip. Mutual funds invest in a number of companies across various industries and sectors. This diversification reduces the riskiness of the investments. c) Reduction in transaction costs: Compared to direct investing in the capital market, investing through the funds is relatively less expensive as the benefit of economies of scale is passed on to the investors. ) Liquidity: Often, investors cannot sell the securities held easily, while in case of mutual funds, they can easily encash their investment by selling their units to the fund if it is an open-ended scheme or selling them on a stock exchange if it is a close-ended scheme. e) Convenience: Investing in mutual fund reduces paperwork, saves time and makes investment easy. f) Flexibility: Mutual funds offer a family of schemes, and investors have the option of transferring their holdings from one scheme to the other. g) Tax benefits Mutual fund investors now enjoy income-tax benefits.

Dividends received from mutual funds’ debt schemes are tax exempt to the overall limit of Rs 9,000 allowed under section 80L of the Income Tax Act. h) Transparency Mutual funds transparently declare their portfolio every month. Thus an investor knows where his/her money is being deployed and in case they are not happy with the portfolio they can withdraw at a short notice. i) Stability to the stock market Mutual funds have a large amount of funds which provide them with economies of scale by which they can absorb any losses in the stock market and continue investing in the stock market.

In addition, mutual funds increase liquidity in the money and capital market. j) Equity research Mutual funds can afford information and data required for investments as they have large amount of funds and equity research teams available with them. The mutual fund does not have just advantages over investor but also has disadvantages for the funds. The fund manager not always makes profits but might create loss for not properly managed. The fund have own strategy for investment to hold, to sell, to purchase unit at particular time period. The disadvantages are discussed below: ) Costs Control Not in the Hands of an Investor Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. b) No Customized Portfolios The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. c) Difficulty in Selecting a Suitable Fund Scheme

Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives. 8. MUTUAL FUND AND CAPITAL MARKETS Indian institute of capital market (IICM) aims is to educate and develop professionals for the securities industry in India and other developing countries, other objectives like to function on a centre for creating investors awareness through research & turning and to provide specialized consultancy related to the securities industry.

Capital market play vital role for the growth of Mutual fund in India, capital market divided into the two parts one is the primary market and another is secondary market, primary market concern with issue management, as per the mutual fund concern the primary called as the NFO New Fund Offer, all the AMC (Assets Management Company) are issuing all the funds all the way through the NFO, Every NFO came with particularly investment objectives, style of investment and allocation of the funds all that thing depend on the fund manager style of investment.

The other portion of the capital market is secondary market, as we have a discussion with reference with mutual fund secondary market means when the market bull stage the investors sole the units. Opposite when the bear stage the investor buy or some of the investor time wait for sale. 9. RISKS INVOLVED IN MUTUAL FUNDS i) The Risk-Return Trade-off: The most important relationship to understand is the risk-return trade-off. Higher the risk greater the returns/loss and lower the risk lesser the returns/loss.

Hence it is up to the investor to decide how much risk you are willing to take. In order to do this one must first be aware of the different types of risks involved with your investment decision. ii) Market Risk: Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk. ii) Credit Risk: The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cashflows determines the Credit Risk faced by investors. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk. iv) Inflation Risk: Things you hear people talk about: “Rs. 100 today is worth more than Rs. 00 tomorrow. ” “Remember the time when a bus ride costed 50 paise? ” The root cause for this is Inflation. Inflation is the loss of purchasing power over time. A lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk. ) Interest Rate Risk: In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk. vi) Political/Government Policy Risk: Changes in government policy and political decision can change the investment environment.

They can create a favourable environment for investment or vice versa. vii) Liquidity Risk: Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. 10. ORGANISATIONAL FRAMEWORK OF MUTUAL FUNDS The Mutual Funds in India are regulated by SEBI MF Regulations, 1996. Under the regulations mutual fund is formed as a Public Trust under the Indian Trusts Act, 1882.

These regulations stipulate a three tiered structure of entities – sponsor (creation), trustees, and Asset Management Company (fund management) – for carrying out different functions of a mutual fund, but place the primary responsibility on the trustees. 1. The Fund Sponsor – SEBI regulations define Sponsor as any person who either itself or in association with another body corporate establishes a mutual fund. Sponsor sets up a mutual fund to earn money by doing fund management through its subsidiary company which acts as Investment manager of the fund.

Largely, a sponsor can be compared with a promoter of a company. Sponsors activities include setting up a Public Trust under Indian Trust Act, 1882 (the mutual fund), appointing trustees to manage the trust with the approval of SEBI, creating an Asset Management Company under Companies Act, 1956 (the Investment Manager) and getting the trust registered with SEBI. (a) Eligibility of Sponsor – Mutual funds involves managing retail investor’s money and hence, it becomes important to ensure that it is run by entities with capabilities and professional merits.

SEBI (Mutual fund) Regulations, 1996 specifies the following eligibility criteria in this regard: (i) Sponsor is required to have financial services business experience of at least 5 years and a positive Net worth in all the preceding five years. (ii) Sponsors’ Net worth in the immediately preceding year is required to be more than the capital contribution to AMC. (iii) Sponsor is required to be profit making in at least three out of the last five years including the last year. (iv)Sponsor must contribute at least 40% of the Net worth of the Asset Management Company.

Any entity, which contributes at least 40% to the Net worth of an AMC, is deemed sponsor and therefore is required to fulfil all the requirements given in 1 to 4. (b) Trustees – The trust is created through a document called the trust deed which is executed by the fund sponsor in favour of the trustees. Trustees manage the trust and are responsible to the investors in the mutual funds. They are the primary guardians of the unit-holders funds and assets. Trustees can be formed in either of the following two ways -Board of Trustees, or a Trustee Company.

The provisions of Indian Trust Act, 1882, govern board of trustees or the Trustee Company. A trustee company is also subject to provisions of Companies Act, 1956. i) Obligations of trustees – Trustees ensure that the activities of the mutual fund are in accordance with SEBI (mutual fund) regulations, 1996. They check that the AMC has proper systems and procedures in place. Trustees also make sure that all the other fund constituents are appointed and that proper due diligence is exercised by the AMC in the appointment of constituents and business associates.

All schemes floated by the AMC have to be approved by the trustees. Trustees review and ensure that the net worth of the AMC is as per the regulatory norms. They furnish to SEBI, on a half-yearly basis, a report on the activities of AMC. ii) Regulation regarding appointment of trustees – Sponsor with prior approval of SEBI appoints trustees. There should be at least four members in the board of trustees with at least 2/3rd independent. A trustee of one mutual fund cannot be trustee of another mutual fund, unless he is an independent trustee in both cases and has the approval of both the boards.

The trustees are appointed by executing and registering a trust deed under the provisions of Indian registration Act. This trust deed is also registered with SEBI. iii) Responsibilities of trustees – The Trustees are required to fulfill several duties and obligations in accordance with SEBI (Mutual Funds) Regulations, 1996 and the Trust Deed constituting the Mutual Fund. These include inter alia: 1. The Trustee and the Asset Management Company enter into an Investment Management Agreement (IMA) with the approval from SEBI. 2.

The Investment Management Agreement shall contain such clauses as are mentioned in the Fourth Schedule of the SEBI (MFs) Regulations, 1996 and other such clauses as are necessary for making investments. 3. The Trustees shall have a right to obtain from the Asset Management Company such information as is considered necessary by the Trustees. 4. The Trustee shall ensure before the launch of any scheme that the Asset Management Company possesses/has done the following: a. Systems in place for its back office, dealing room and accounting; b.

Appointed all key personnel including fund manager(s) for the Scheme(s) and submitted their bio-data which shall contain the educational qualifications, past experience in the securities market to SEBI, within 15 days of their appointment; c. Appointed Auditors to audit its accounts; d. Appointed a Compliance Officer to comply with regulatory requirement and to redress investor grievances; e. Appointed Registrars and laid down parameters for their supervision; f. Prepared a compliance manual and designed internal control mechanisms including internal audit systems; and g. Specified norms for empanelment of brokers and marketing agents . Asset Management Company – The Asset Management Company (AMC) is the investment Manager of the Trust. The sponsor, or the trustees is so authorized by the trust deed, appoints the AMC as the “Investment Manager” of the trust (Mutual Fund) via an agreement called as ‘Investment Management Agreement’. An asset management company is a company registered under the Companies Act, 1956. Sponsor creates the asset management company and this is the entity, which manages the funds of the mutual fund (trust). The mutual fund pays a small fee to the AMC for management of its fund.

The AMC acts under the supervision of Trustees and is subject to the regulations of SEBI too. (a) Role of AMC – The AMC is an operational arm of the mutual fund . AMC is responsible for all carrying out all functions related to management of the assets of the trust. The AMC structures various schemes, launches the scheme and mobilizes initial amount, manages the funds and give services to the investors . In fact, AMC is the first major constituent appointed . Later on AMC solicits the services of other constituents like Registrar, Bankers, Brokers, Auditors, Lawyers etc and works in close co-ordination with them. b) Restrictions on business activities of the Asset Management Company – In India, regulator has ensured that an AMC focuses just on its core business and that the activities of AMC’s are not in conflict of each other. These are ensured through the following restrictions on the business activities of an AMC. a. An AMC shall not undertake any business activity except in the nature of portfolio management services, management and advisory services to offshore funds etc, provided these activities are not in conflict with the activities of the mutual fund. b.

An AMC cannot invest in any of its own schemes unless full disclosure of its intention to invest has been made in the offer document c. An AMC shall not act as a trustee of any mutual fund (c) Custodian – Though the securities are bought and held in the name of trustees, they are not kept with them. The responsibility of safe keeping the securities is on the custodian. Securities, which are in material form, are kept in safe custody of a custodian and securities, which are in “De-Materialized” form, are kept with a Depository participant, who acts on the advice of custodian.

Custodian performs a very important back office operation. They ensure that delivery has been taken of the securities, which are bought, and that they are transferred in the name of the mutual fund. They also ensure that funds are paid out when securities are bought. Custodians keep the investment account of the mutual fund. They collect and account for the dividends and interest receivables on mutual fund investments. They also keep track of various corporate actions like bonus issue, rights issue, and stock split; buy back offers, open offer etc and act on these as per instructions of the Investment manager. . 4. 1. Responsibility of custodian Following are the responsibilities of a custodian: (i) Provide post-trading and custodial services to the Mutual Fund; (ii) Keep securities and other instruments belonging to the Scheme in safe custody; (iii) Ensure smooth inflow/outflow of securities and such other instruments as and when necessary, in the best interests of the unit holders; (iv) Ensure that the benefits due to the holdings of the Mutual Fund are recovered; and (v) Be responsible for loss of or damage to the securities due to negligence on its part or on the part of its approved agents.

The Custodian normally charge portfolio fee, transaction fee and out-of -pocket expenses in accordance with the terms of the Custody Agreement and as per any modification made thereof from time to time. 2. Other constituents – Regulation imposes responsibility on the trustees to ensure that the AMC has proper system and procedures in place and has appointed key personnel and other constituents like R&T agents, brokers etc. a) Registrar and transfer agent – A mutual fund manages money of many unit-holders across cities and towns of the country. Investor servicing not only becomes important but challenging as well.

This would typically include processing investors’ application, recording the details of investors, sending them account statements and other reports on periodical basis, processing dividend payouts, making changes in investor details and keeping investor records updated by adding details of new investors and by removing details of investors who withdraw their funds from the mutual funds. It is very impractical and expensive for any mutual fund to have adequate workforce all over India for this purpose. Instead, they use entities called as Registrars and transfer agents, which generally provide services to many mutual funds.

This ensures quality services across all location and keeps the costs lower for the unit-holders. b) Auditor – Investor money is held by the trustees in trust. Regulation has ensured proper accounting norms to ensure fair and responsible record keeping of investor’s money. Separate books of account are maintained for each scheme of the mutual fund and individual annual report is prepared. The books of accounts and the annual reports of the scheme are aud

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