The National Stock Exchange of India Ltd.

1

Preface

The National Stock Exchange of India Ltd. (NSE), set up in the year

1993, is today the largest stock exchange in India and a preferred exchange

for trading in equity, debt and derivatives instruments by investors. NSE has

set up a sophisticated electronic trading, clearing and settlement platform and

its infrastructure serves as a role model for the securities industry. The

standards set by NSE in terms of market practices; products and technology

have become industry benchmarks and are being replicated by many other

market participants.

NSE has four broad segments Wholesale Debt Market Segment (commenced

in June 1994), Capital Market Segment (commenced in November 1994)

Futures and Options Segment (commenced June 2000) and the Currency

Derivatives segment (commenced in August 2008). Various products which

are traded on the NSE include, equity shares, bonds, debentures, warrants,

exchange traded funds, mutual funds, government securities, futures and

options on indices & single stocks and currency futures. Thousands of

investors rely on the NSE's accessible, liquid and transparent markets for

order execution.

At NSE, it has always been our endeavour to continuously upgrade the skills

and proficiency of the Indian investor. Since, mutual funds play a crucial role

in channelising the savings of investors, it becomes important to understand

how they function. Mutual funds offer various products catering to different

classes of investors. It is important to understand them before investing.

This module has been developed for those of you who are keen to acquire

some basic but key information about mutual funds as an initial step towards

becoming a more informed investor. We hope this module will act as a means

of satisfying some of your initial queries on mutual funds.

This book has developed with the assistance of M/s Money Bee Institute

whose details are provided below:

Money Bee Institute

"Yashashree"

Sudarshan SBI Officer's Society,

Hindustan Colony, Amravati Road,

Nagpur - 440010. (Tel nos : 9860641317 / 9967654979)

Email : moneybee.finplan@gmail.com2

CONTENTS

CHAPTER 1...................................................................................... 5

MUTUAL FUNDS ............................................................................... 5

1.1 INTRODUCTION.......................................................................................... 5

1.2 MUTUAL FUNDS : STRUCTURE IN INDIA......................................................... 6

1.3 WHO MANAGES INVESTOR'S MONEY?........................................................... 7

1.4 WHO IS A CUSTODIAN? ............................................................................... 8

1.5 WHAT IS THE ROLE OF THE AMC?.................................................................. 9

1.6 WHAT IS AN NFO?......................................................................................10

1.7 WHAT IS THE ROLE OF A REGISTRAR AND TRANSFER AGENTS?.......................10

1.8 WHAT IS THE PROCEDURE FOR INVESTING IN AN NFO?..................................10

1.9 WHAT ARE THE INVESTOR'S RIGHTS & OBLIGATIONS?...................................11

CHAPTER 2.................................................................................... 14

MUTUAL FUND PRODUCTS AND FEATURES - EQUITY FUNDS ........... 14

2.1 WHAT ARE OPEN ENDED AND CLOSE ENDED FUNDS? ....................................14

2.2 WHAT ARE EQUITY FUNDS?.........................................................................15

2.2.1 Salient Features..................................................................................................... 15

2.2.2 Equity Fund Definition ........................................................................................ 15

2.3 WHAT IS AN INDEX FUND?..........................................................................16

2.4 WHAT ARE DIVERSIFIED LARGE CAP FUNDS? ................................................17

2.5 WHAT ARE MIDCAP FUNDS?........................................................................18

2.6 WHAT ARE SECTORAL FUNDS? ....................................................................18

2.7 OTHER EQUITY SCHEMES :..........................................................................19

2.7.1 Arbitrage Funds ...................................................................................................... 19

2.7.2 Multicap Funds ........................................................................................................ 19

2.7.3 Quant Funds ............................................................................................................. 19

2.7.4 P/ E Ratio Fund.......................................................................................................