MUTUAL FUNDS - ECONOMY
News; 'MFs
have only 10% women managers'
What's in the news?
● Women account for only
10% of the total fund managers in the mutual fund (MF) sector despite
a gradual increase in their numbers witnessed in the last few years, as per a
report.
Key takeaways:
● The
Morningstar Investment Adviser India's annual report on women fund managers in
the asset management industry said the total count of women fund managers has
risen from 32 last year to 42 now.
● The
total number of fund managers saw a healthy increase this year to 428 from 399
last year.
Mutual Funds:
● A
mutual fund is an investment vehicle that pools
funds from investors and invests in equities, bonds, government securities,
gold, and other assets.
● Companies
that qualify to set up mutual funds, create Asset Management Companies (AMCs) or Fund Houses, which pool in the
money from investors, market mutual funds, manage investments and enable
investor transactions.
● Mutual
funds are managed by sound financial professionals known as fund managers, who have the expertise
in analyzing and managing investments.
● The
funds collected from investors in mutual funds are invested by the fund
managers in different financial assets such as stocks, bonds, and other assets, as defined by the fund’s
investment objective.
● For
the fund’s management, the AMC charges a fee to the investor known as the expense ratio. It is not a fixed fee
and varies from one mutual fund to another. SEBI (Securities and Exchange Board
of India) has defined the maximum limit of the expense ratio that can be
charged on the basis of the total assets of the fund.
Role of Trustees:
● Mutual
funds in India have a three-tiered
structure – mutual fund, the trustees and the AMC.
● Board of trustees or
trustee company holds the property of the mutual
fund in trust for the benefit of the unit holders. They appoint an AMC to float
schemes for the mutual fund and manage the funds mobilized under various
schemes.
● They
are also expected to exercise supervisory oversight over AMC and its activities
so as to ensure that AMC acts in the interest of the unitholders.
Types of Mutual Funds:
1. Classification on the basis of the structure:
● Open-ended funds
are mutual funds that allow you to invest and redeem investments at any time,
i.e. they are perpetual in nature. They are liquid in nature and don’t come
with a specific investment period.
● Close-ended schemes
have a fixed maturity date. You can only invest at the time of the new fund
offer and redemption can only be done on maturity. You cannot purchase the
units of a close-ended mutual fund whenever you please.
2. Classification on the basis of asset classes:
Equity Mutual Funds:
● Equity Mutual Funds
invest at least 65% of their assets in stocks of companies listed on the stock
exchange. They are more suitable as long-term investments (> 5 years) as
stocks can be volatile in the short term. They have the potential to offer
higher returns but also come with high risk.
● Large-cap Funds
invest at least 80% of their portfolio in stocks of large-cap companies i.e.
the companies that are ranked in the first 100 in the list of stocks prepared
by AMFI depending on market capitalization. [Association of Mutual Funds of
India (AMFI) is the industry body representing mutual funds and is tasked with
protecting and promoting the interests of mutual funds as well as unitholders.]
● Mid-cap Funds
invest at least 65% of their portfolio in stocks of mid-cap companies i.e. the
companies that are ranked between the 101st and 250th based on their market capitalization.
● Small-cap Funds
invest at least 65% of their portfolio in stocks of small-cap companies i.e.
the companies that are ranked 251st and above based on their market
capitalization.
Debt Mutual Funds:
● Debt Mutual Funds
primarily invest in fixed-income instruments like Government securities,
corporate bonds, and other debt instruments. They are not affected by stock
market volatility and hence, can offer more stable returns compared to equity
mutual funds. The types of debt mutual funds are differentiated on the basis of
the maturity period of the securities they hold.
● Liquid Funds
invest in debt securities and higher-rated securities which have a maturity
period of fewer than 91 days. This makes them relatively less risky than most
other categories because a lower maturity mitigates any interest rate
volatility (which is the risk of loss resulting from a change in interest
rates). Liquid funds are a good avenue for parking emergency funds alternative
to bank savings accounts.
● Overnight Funds
invest in securities with a maturity of one day. These funds come with low
risks safety again because of shorter maturity periods, the interest rate risk
is on the lower side. These are commonly used by corporates to park their
funds.
● Money Market Funds
invest mainly in government securities (known as treasury bills) and similar
instruments, which are short-term with maturity periods less than one year.
These funds are suitable for investors looking for stable and non-volatile
funds as interest risk is less.
● Banking & PSU Funds
invest at least 80% of their investment in debt securities of banks, public
sector undertakings, municipal bonds, public financial institutions etc. They
can be better suited for investors looking for short to medium-term investment
tenure.
● Glit Funds
invest a minimum of 80% in Government securities across maturity periods. The
nature of investment makes it more suitable for a long-term investment as
Government securities can be volatile in the short-term.
● Short Duration Funds
invest in debt and other money market securities such that the average maturity
of the portfolio is between 1-3 years. They are more suited for investors
looking at an investment time frame of 1-3 years and moderate risk appetite.