Page 254 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 12: Mutual Fund

Systems and Controls Notes
For managing a portfolio, it is not only the creation, re-creating and regrouping of various
securities that are important for achieving the desired rate of return, but various kinds of
systems and controls too are needed. A mutual fund generally provides the desired controls
through its accounting and custodian system. We shall discuss each of them and how these help
to manage a portfolio.
Accounting System
An accounting system must clearly disclose:

1. The policy in respect of recognition of revenue and income from investment.
2. The policies relating to valuation of investments.
3. The aggregate carrying value and market value of non-performing assets under each type
of investment.
4. Provision to be made for depreciation/loss in the value of non-performing investments.
5. Per unit Net Asset Value (NAV) at various intervals and at the end of the accounting year.
All the above accounting policies, if pursued consistently, help to maintain a clear picture about
all investments in a portfolio and thus provide the true picture of the portfolio.

Self Assessment

Fill in the blanks:
13. The .......................................... of a mutual fund depends on the objectives of each scheme/
fund floated by mutual fund.
14. The portfolio of a fund should consist of fixed .......................................... securities, so that
the fund can achieve its objective.

12.7 Unit Linked Insurance Plans (ULIPs)

ULIPs are a category of goal-based financial solutions that combine the safety of insurance
protection with wealth creation opportunities. In ULIPs, a part of the investment goes towards
providing you life cover. The residual portion is invested in a fund which in turn invests in
stocks or bonds. The value of investments alters with the performance of the underlying fund
opted by you.
Simply put, ULIPs are structured such that the protection element and the savings element can
be distinguished and hence managed according to your specific needs, offering unprecedented
flexibility and transparency.

12.7.1 Working of ULIPs

It is critical that you understand how your money gets invested once you purchase ULIP.
Once you decide the amount of premium to be paid and the amount of life cover you want, the
insurer deducts some portion of the premium upfront. This portion is known as the Premium
Allocation charge and this varies from product to product. The rest of the premium is invested
in the fund or mixture of funds chosen by you. Mortality charges and administration charges are
thereafter deducted on a periodic (mostly monthly) basis whereas the fund management charges
are deducted on a daily basis.

LOVELY PROFESSIONAL UNIVERSITY 249