Mutual Funds

Banking Concepts: MUTUAL FUNDS Dear Students, Recently we have seen an increasing trend in Banking Awareness Questions in SBI and IBPS Exams. Continuing from where we left earlier the Banking Concepts Segments where on a regular basis we had discussed concepts and made you understand lots of Complicated Topic in a much simpler manner. Today's Post will discuss about the Concept of Mutual Funds. This is one area from where numerous questions have been asked previously. MUTUAL FUNDS: Mutual funds are investment avenues that pool the money of several investors to invest in financial instruments such as stocks, debentures etc. The profits earned on the investments is distributed among the investors on the basis of the units held by each of them. Due to a large pool of investors, the individual risk is spread. So individually you take on low risk. The mutual funds in India are governed by Association of Mutual Funds in India, the umbrella body for mutual funds, which is in turn governed by the Securities and Exchange Board of India. A diagrammatic representation to understand the Cycle”: Various Entities of Mutual Funds: 1. SPONSER: Sponsor is the person who establishes the mutual fund. It can be a group of people or a single person. 2. TRUST: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. 3. TRUSTEE: Trustee is usually a company or a Board of Trustees. The main responsibility of the Trustee is to safeguard the interest of the unit holders and to ensure the interest of investors in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996. 4. ASSET MANAGEMENT COMPANY (AMC): The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. 5. REGISTAR AND TRANSFER AGENT: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. 6. NAV: NAV or Net Asset Value is the market value of the assets per unit after deducting the liabilities. 7. LOCK-IN PERIOD: If investment is in equity linked saving schemes (ELSS) the lock in period is three years. Which means your money will remain locked in with the mutual fund company for a period of three years. 8. SIP: SIP or Systematic Investment Plan enables you to invest an amount on a regular basis and bring about a disciplined approach to investing.