#Stock-Market  #Investment  #Mutual-Funds  #Finance 

Mutual Funds (MF)

  • Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities
  • Governed by Indian Trust Act 1882
  • MFs are registered as Trust but not as Company

How is a mutual fund set up?

  • A mutual fund is set up in the form of a trust
  • Which has sponsor, trustees, asset management company(AMC) and custodian.
  • One who starts the idea of MF, Like a promoter
  • Eg: HDFC AMC
    • This MF is sponsored by Hdfc Bank and Standard Life investment

Trustee

  • The Sponsor appoints a trustee to look after MF
  • The trustees work to monitor the activities of the Mutual Fund and check its compliance with SEBI (Mutual Fund) regulations.
  • Eg:
    • Hdfc trustee company ltd –> Trustee of HDFC AMC

AMC

  • AMC act as a Fund Manager for the Trust
  • The AMC the appoints Fund Manager
  • MF also has operational arm
    • Registrar and Transfer Agent(RTA)
    • RTA process investor application
    • Keep investor details
    • Eg: CAMS(Computer Age Management Services)

Custodian

  • A custodian is responsible for the safekeeping of the securities of the MF.
  • Looking after investment made by AMC.
  • Eg:
    • Hdfc bank ltd(47), City Bank(9), Deutsche Bank(Gold)
    • Hdfc AMC as 3 custodians

Mutual Funds(MF) vs Stock(S) investment in Equity

  • Cost of investing
* S:  Low	---> Due to Discount broker
* MF: 1%-2%	---> Expense ratio
  • Diversification
* S:  Large corpus required
* MF: Small amount is sufficient
  • Research, Time(Expert Management)
* S:  High 	---> Self-research, Good knowledge, time is required
* MF: Very Low 	---> Fund manager will handle everything for you
  • Returns
* S:  High
* MF: Slightly lower than stocks

Why invest directly in Stock

  • Have an interest in SM
  • Has No Lock-In period
  • Can buy and sell any Stock
  • Eager to analyze Company
  • Can apply in IPO

Why invest through MF

  • No interest in Company analysis
  • Not interest in SM
  • Need ELSS Income-tax benifit
  • Has Liquidity
  • Has Affordability
  • Has Transparency
  • It is Convenience
  • FD return < Index funds returns (5-10 yrs)
  • Good for small investors – in terms of
    • No maintenance charge
    • No transaction charge
    • Diversification

NOTES

  • Before investment in MF, check
    • Expense Ratio
    • Exit loads
  • Choose a fund based on your goal and time horizon

Reference