21-03-2014, 12:51 PM
THE MUTUAL FUND INDUSTRY
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INTRODUCTION TO THE MUTUAL FUND INDUSTRY
The modern mutual fund was first introduced in Belgium in 1822. This form of
investment soon spread to Great Britain and France. Mutual funds became popular in
the United States in the 1920s and continue to be popular since the 1930s, especially
open-end mutual funds. Mutual funds experienced a period of tremendous growth
after World War II, especially in the 1980s and 1990s.
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.
CORPORATE PROFILE OF IPAMC
ICICI Prudential Asset Management Company Ltd. (IPAMC/ the Company) is the
joint venture between ICICI Bank, a well-known and trusted name in financial
services in India and Prudential Plc, one of UK’s largest players in the financial
services sectors. IPAMC was incorporated in the year 1993. The Company in a span
of over 18 years since inception and just over 13 years of the Joint Venture, has
forged a position of preeminence in the Indian Mutual Fund industry as the third
largest asset management company in the country, contributing significantly to the
growth of the Indian mutual fund industry.
CONCEPT OF MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. Anybody with an investible surplus of as little as a few
hundred rupees can invest in Mutual Funds. These investors buy units of a particular
Mutual Fund scheme that has a defined investment objective and strategy. The money
thus collected is then invested by the fund manager in different types of securities.
These could range from shares to debentures to money market instruments, depending
upon the scheme’s stated objectives. The income earned through these investments
and the capital appreciation realised by the scheme are shared by its unit in proportion
to the number of units owned by them. Thus a Mutual Fund is the most suitable
investment for the common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost holders.
MANAGER OF INVESTOR’S MONEY
This is the role of the Asset Management Company (the Third tier). Trustees appoint
the Asset Management Company (AMC), to manage investor’s money. The AMC in
return charges a fee for the services provided and this fee is borne by the investors as
it is deducted from the money collected from them. The AMC’s Board of Directors
must have at least 50% of Directors who are independent directors. The AMC has to
be approved by SEBI. The AMC functions under the supervision of it’s Board of
Directors, and also under the direction of the Trustees and SEBI. It is the AMC, which
in the name of the Trust
PROCEDURE FOR INVESTING IN AN NFO
The investor has to fill a form, which is available with the distributor. The investor
must read the Offer Document (OD) before investing in a mutual fund scheme. In
case the investor does not read the OD, he must read the Key Information
Memorandum (KIM), which is available with the application form. Investors have the
right to ask for the KIM/ OD from the distributor. Once the form is filled and the
cheque is given to the distributor, he forwards both these documents to the RTA. The
RTA after capturing all the information from the application form into the system,
sends the form to a location where all the forms are stored and the cheque is sent to
the bank where the mutual fund has an account. After the cheque is cleared, the RTA
then creates units for the investor. The same process is followed in case an investor
intends to invest in a scheme, whose units are available for subscription on an on-
going basis, even after the NFO period is over.