Page 139 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Financial Institutions and Services

Notes 5. Convenience: You can usually buy mutual fund shares by mail, phone, or over the Internet.
6. Low Cost: Mutual fund expenses are often no more than 1.5 percent of your investment.
Expenses for Index Funds are less than that, because index funds are not actively managed.
Instead, they automatically buy stock in companies that are listed on a specific index:
(a) Transparency
(b) Flexibility

(c) Choice of schemes
(d) Tax benefits
(e) Well regulated

Task Discuss the main limitations as you analyse in the functioning of the
companies involving mutual funds.

9.4 SEBI and Mutual Funds

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds.
It notified regulations in 1993 (fully revised in 1996) and issued guidelines from time to time.
MF either promoted by public or by private sector entities including one promoted by foreign
entities are governed by these Regulations. As a result, the Indian mutual fund industry witnessed
robust growth and stricter regulation from SEBI since 1996.

9.4.1 Guidelines for Selling and Marketing Mutual Funds

Investors can purchase and sell mutual fund units through various types of intermediaries -
individual agents, distribution companies, national/regional brokers, banks, post offices etc. as
well as directly from Asset Management Companies (AMCs), including the Unit Trust of India
Investors of Mutual Funds can be broadly classified into three categories:
1. Those who want product information, advice on financial planning and investment
strategies.
2. Those who require only a basic level of service and execution support i.e. delivering and
collecting application forms and cheques, and other basic paperwork and post sale activities.

3. Those that prefer to do it all themselves, including choice of investments as well as the
process/paperwork related to investments.
To cater to different types of investors, the Mutual Fund industry comprising of AMCs and
intermediaries at present offers the following two levels of services:

Value Added Services

This includes product information and advice on financial planning and investment strategies.
The advice encompasses analyzing an investor's financial goals depending upon the segment of
investor, assessing his/her resources, determining his/her risk bearing capacity/preference
and then using this information to recommend an asset allocation/specific investment/s that
are in tandem with the investor's needs. Investors may also receive information on taxation,
estate planning and portfolio rebalancing to remain aware about the changes/developments in

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