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Mutual Funds in India


The mutual
fund industry in India began in 1963 with the formation of the Unit
Trust of India (UTI) as an initiative of the Government of India and the
Reserve Bank of India. Much later, in 1987, SBI Mutual Fund became the first
non-UTI mutual fund in India.


The year
1963 heralded a new era of Mutual funds in India. His was marked by the entry
of private companies in the sector. After the Securities and Exchange Board of
India (SEBI) Act was passed in 1992, the SEBI Mutual Fund Regulations came into
being in 1996. Since then, the Mutual fund companies have continued to grow
exponentially with foreign institutions setting shop in India, through joint
ventures and acquisitions.


As the
industry expanded, a non-profit organization, the Association of Mutual Funds
in India (AMFI), was established on 1995. Its objective is to promote healthy
and ethical marketing practices in the Indian mutual fund Industry. SEBI has
made AMFI certification mandatory for all those engaged in selling or marketing
mutual fund products



Major Mutual Fund
Companies in India .


Sector Mutual Funds

of Baroda Mutual Fund

State Bank of India Mutual Fund

LIC Mutual Fund

UTI Mutual Fund

? Canara Bank Mutual Fund









Private Sector Mutual



· ABN AMRO Mutual Fund

? Birla Sun Life Mutual Fund

? HDFC Mutual Fund

? HSBC Mutual Fund

? ICICI Prudential Mutual Fund

? Tata Mutual Fund

? Standard Chartered Mutual Fund

? Morgan Stanley Mutual Fund

? Alliance Capital Mutual Fund

? Franklin Templeton Mutual Fund

? Reliance Mutual Fund

? DSP Blackrock Mutual

These above are the Various
Mutual Funds in India which has given a good return.



Regulatory Body of Mutual
Funds in India(SEBI).


As far as Mutual funds are
concerned, SEBI (Securities & Exchange Board of India) formulates
policies and regulates the mutual funds to protect the interest of the


In January 1993, SEBI
prescribed registration of mutual funds integrity in business transactions and
financial soundness while granting permission. This would curb excessive growth
of mutual funds and protect investor’s interest by registering only the sound
promoters with proven track record & financial strength.


The offer documents of schemes
launched by mutual funds and the scheme particulars are required to be vetted
by SEBI. A standard format for mutual fund prospectuses is being formulated.


Mutual funds have been required
to adhere to a code of advertisement.


SEBI has introduced a change in
the Securities Control and Regulations Act governing the mutual funds. The
mutual funds which have been in the market for at least five years are allowed
to assure a maximum return of 12 per cent only, for one year.



The current SEBI guidelines on
mutual funds prescribe a minimum start-up of Rs.50 crore for an open-ended
scheme, and Rs.20 crore for closed-ended scheme, failing which application
money has to be refunded. AMFI (Association of Mutual Funds in India) have appealed
to regulatory authority of India for scrapping the minimum requirement


Also, 50% of the directors of
AMC must be independent. All mutual funds are required to be registered with
SEBI before they launch any scheme.


The transparent and well
understood declaration or Net Asset Values (NAVs) of mutual fund schemes is an
important issue in providing investors with information as to the performance
of the fund. SEBI has warned some mutual funds earlier of unhealthy market


Trustees shall immediately report
to the Board of any special developments in the mutual fund.



Net Asset Value(NAV)


The Net Asset Value
(NAV) of a mutual fund is the price at which the units of a mutual fund are
bought and sold. It is the market value of the fund after deducting its
liabilities. The value of all units of a mutual fund portfolio are calculated
on a daily basis, from this all expenses are then subtracted. The result is
then divided by the total number of units the resultant value is the NAV. NAV
is also sometimes referred to as Net Book Value or book Value.


NAV indicates the market value
of the units in a fund. So, it helps an investor keep track of the performance
about the mutual fund. An investor can calculate the actual increase in the
value of their investment by determining the percentage increase in the mutual
fund NAV. NAV, therefore, gives accurate information about the performance
about the mutual fund.



Calculation of NAV


Mutual fund assets usually fall
under two categories – securities & cash. Securities, here, include both
bonds and stocks. Therefore, the total asset value of a fund will include its
stocks, cash and bonds at market value. Dividends and interest accrued and
liquid assets are also included in total assets



The formula for calculating NAV





       The mutual fund itself and/or certain
accounting firms calculate the NAV of a mutual fund. Since, mutual funds depend
on stock markets, they are usually declared after the closing hours of the


         All Mutual Funds are required to publish
their NAV at every business day as per SEBI guidelines.


       NAV is obtained after subtracting the
expense ratio of a fund. This expense ratio is the total of all expenses made
by the mutual fund annually, including the operating expenses and the
management fees, distribution and marketing fees, transfer agent fees,
custodian fees and audit fees.






of calculation of NAV

an example, assume there are
two investors X and Y who have invested in a mutual fund which decided to issue
out units at Rs 1/-


X invests Rs
100/- and Y invests Rs 200/-.

The total
corpus of the mutual fund will be Rs 100 + Rs 200 = Rs 300/- and X will get 100
units and Y will get 200 units.

The total
corpus of the mutual fund will be Rs 100 + Rs 200 = Rs 300/- and X will get 100
units and Y will get 200 units.

The NAV will
be calculated as


= Rs 800/- 0 / 300 = 2.67


= The NAV is

So X’s value of investments
will be 100 units * 2.67 = Rs 267/- and


= Y’s value
of investments will be 200 units * 2.67 = Rs 534/-.

As per the
regulator SEBI’s guidelines, all mutual funds are required to publish the NAV
of their schemes at least once a week and in two leading newspapers


Categories: Accounting


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