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Microsoft Office
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Microsoft Office
Word Document
Flow chart of working of mutual fund
Organisation of mutual fund
• The Organization of a Mutual Fund is how the mutual
funds are controlled. A number of entities are involved in
the Organization of a Mutual Fund. This helps in the
proper management of the mutual fund portfolio.
1. SEBI: The primary aim of the Securities Exchange Board
of India is to protect the interest of the mutual fund
investors. All mutual funds, private sector and public
sector are regulated by the guidelines of the SEBI. The
Asset Management Company managing the funds has to
be approved by the SEBI.
2. Mutual Fund Shareholders: The Mutual
Fund Shareholders, like the other share holders
have the right to vote. The voting rights include,
the right to elect directors during the directorial
elections, voting right to approve the alterations
investment advisory contract pertaining to the
fund and provide approval for changing
investment objectives or policies
3. Board of directors: The Board of directors
supervise the functional activities, which include
approval of the contract Asset Management
Company and other various service providers.
4. Investment management company or Asset
Management Company: This body handles the
mutual fund portfolio as per the objectives and
policies mentioned in the prospectus.
5. Custodians: The custodians of the mutual funds
protect the portfolio securities. Mostly qualified
bank custodians are used for mutual funds.
6. Transfer Agents: The transfer agent for the
purpose of maintaining records and similar
functions. The maintenance of the shareholder's
accounts, calculation of dividends to the be
disbursed, sending information to the shareholders
about the account statements, notices, and income
tax information.
7. Trustee: The mutual fund is required to have an
independent board of trustees, i.e.,two third of the
trustees should be independent persons who are not
associated with the sponsors in any matter.
8. Sponsor: The sponsor should contribute at least
40% to the net worth of the asset management
company. However, if any person hold 40% or
more of the net worth of an AMC shall be a
sponsor and will be required to fulfill the eligibility
criteria in the mutual fund regulations.
9. Unit holder: they are the party to whom the
mutual fund is sold. They are the ultimate
beneficiary of the income earned by the
mutual fund.
Advantage of mutual fund
1.Flexibility: The investments pertaining to the Mutual Fund
offers the public a lot of flexibility by means of dividend
reinvestment, systematic investment plans and
systematic withdrawal plans
2.Affordability: The Mutual funds are available in units.
Hence they are highly affordable and due to the very large
principal sum, even the small investors are benefited by
the investment scheme.
3.Liquidity: In case of Open Ended Mutual Fund schemes, the
investors have the option of redeeming or withdrawing
money at any point of time at the current rate of net
value asset.
4.Diversification: The risk pertaining to the Mutual Funds is
quite low as the total investment is distributed in several
industries and different stocks.
5.Professional Management: The Mutual Funds are
professionally managed. The experienced Fund
Managers pertaining to the Mutual Funds examine
all options based on research and experience.
6.Potential of return: The Fund Managers of the Mutual
Funds gather data from leading economists and
financial analysts. So they are in a better position
to analyze the scopes of lucrative return from the
investments.
7.Low Costs: The fees pertaining to the custodial,
brokerage, and others is very low.
8.Regulated for investor protection: The Mutual Funds
sector is regulated by the Securities Exchange Board of
India (SEBI) to safeguard the rights of the investor.
The drawback of mutual fund
1. Fees and commissions: The Mutual funds charge
administrative fees to meet the daily expenses. Many
funds charge brokerage or 'loads' to pay financial planners or
financial consultants, brokers. In case a shareholder does not
use the services of financial adviser, he still has to pay a sales
commission.