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Mutual Fund and Functions of Mutual Fund in Financial Intermediaries

Manju MBS

Published on: November 17, 2020

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Financial Intermediaries

A financial intermediary or intermediator is a financial institution.

It may be a bank, building society, insurance company, investment bank or pension fund.

A financial intermediary offers a service to help an individual or firm to save or borrow money.

A financial intermediary helps to satisfy different needs of lenders and borrowers.

Role and function of financial institutions in financial market

The main functions of the financial institutions are as follows:

a.	Financial institutions accumulate the savings from several small investors and invest the same in the security.
b.	They offer margin lending opportunity to the prospective customers to purchase new securities from the market.
c.	They bring funds suppliers and fund borrowers together in single platform.
d.	They play vital role in transferring fund from one entity to another entity through financial market.
e.	Non-depository financial institutions like mutual funds play important role in financial intermediary.
f.	They allocating saving into investment.
g.	Providing financial services.
h.	Ensuring satisfaction, return and minimizing the risk of loss.
i.	Helping cost of living raising funds.

Financial Intermediaries

Depository institutions			Non-depository institutions
Commercial banks			Insurance companies
Development banks			Pension fund
Finance companies			Mutual fund
Saving and loan cooperatives

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Accounting Equation	http://tiny.cc/c89jkz
Basic Journal Entries in Nepali	http://tiny.cc/uaakkz
Basic Journal Entries	http://tiny.cc/8aakkz
Journal Entry and Ledger	http://tiny.cc/caakkz
Ledger	http://tiny.cc/haakkz
Subsidiary Book	http://tiny.cc/399jkz
Cash Book	http://tiny.cc/889jkz
Trial Balance & Adjusted Trial Balance	http://tiny.cc/c59jkz
Bank Reconciliation Statement (BRS)	http://tiny.cc/q59jkz
Depreciation	http://tiny.cc/ugakkz
Final Account: Class 11	http://tiny.cc/y89jkz
Adjustment In Final Account	http://tiny.cc/keakkz
Capital and Revenue	http://tiny.cc/peakkz
Single Entry System	http://tiny.cc/n19jkz
Non-Profit Organization (Non-Trading Concern)	http://tiny.cc/j09jkz
Government Accounting	http://tiny.cc/hcakkz
Goswara Voucher (Journal Voucher)	http://tiny.cc/hcakkz

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Mutual Funds

Mutual fund is a professionally-managed trust.

It is a pool of the savings of many investors.

Mutual fund is invested in securities like shares, corporate bonds, government bonds and short-term money market instruments.

It is also invested in commodities such as precious metals.

Investors in a mutual fund have a common financial goal and their money is invested in different asset.

Investments in mutual funds involve comparatively small amounts.

It may be even few thousand rupees.

Mutual funds are operated by mutual fund companies.

Generally, mutual funds are well diversified investment of portfolio.

It reduces the risk and maximizes the profit.

Mutual funds investment is managed by professional fund managers or industry.

They offer an attractive way for savings to be managed without paying high fees.

Mutual funds present an option for investors who lack the time or knowledge to make traditional and complex investment decisions.

Net asset value (NAV) is the total asset value (net of expenses) per unit of the fund and is calculated by the asset management company at the end of every business day.

To calculate the NAV of a mutual fund, you need to take the current market value of the security minus the liabilities.

NAV is calculated as follows:

Net asset value (NAV) = Net market value of security ÷ No. of outstanding units of the scheme

Net market value = Market value of security + Accrued income + Receivable + Other assets − Accrued expenses − Payable − Other liabilities

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Currency of your country

Example:

Market value of securities of a mutual fund scheme is $/₹/Rs 5,00,00,000

Mutual Fund has issued 10,00,000 units

Net asset value (NAV)

= Net market value of security ÷ No. of outstanding units of the scheme

= Rs 5,00,00,000 ÷ 10,00,000 units

= Rs 50 per unit

Mutual funds are a kind of shared investment.

When investor buys shares in a mutual fund, he/she becomes the owner of a group of securities or other assets in a pool with other investors.

A mutual fund manager manages the fund, selecting the specific assets that will populate the fund and charges investors a fee to participate.

Keep in Mind

List of Mutual Funds in Nepal:	Citizens Mutual Fund-1 (CMF1)
Global IME Samunnat Scheme-1 (GIMES1)	Nabil Balanced Fund-2 (NBF2)
NIBL Sambriddhi Fund-1 (NIBSF1)	Citizens Mutual Fund-2 (CMF2)
Nabil Equity Fund (NEF)	NMB 50 Fund (NMB50)
NMB Hybrid Fund L-1 (NMBHF1)	Siddhartha Investment Growth Scheme – 2 (SIGS2)
NIBL Pragati Fund (NIBLPF)	NIC Asia Balance Fund (NICBF)
Laxmi Equity Fund (LEMF)	Sunrise First Mutual Fund (SFMF)
Siddhartha Equity Fund (SEF)	NIBL Sahabhagita Fund (NIBLSF)
Sanima Equity Fund (SAEF)	[the only open-end mutual fund scheme of Nepal]
NIC Asia Growth Fund (NICGF)	Laxmi Unnati Kosh (LUK) – initial issue from 26 July 2020

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Share (Accounting for Share)	http://tiny.cc/889jkz
Share in Nepali	http://tiny.cc/k99jkz
Debentures	http://tiny.cc/yeakkz
Final Account: Class 12	http://tiny.cc/e89jkz
Final Account in Nepali	http://tiny.cc/w89jkz
Work Sheet	http://tiny.cc/579jkz
Ratio Analysis (Accounting Ratio)	http://tiny.cc/4fakkz
Fund Flow Statement	http://tiny.cc/wiakkz
Cash Flow Statement	http://tiny.cc/8gakkz
Theory Accounting Xii	http://tiny.cc/nfakkz
Theory: Cost Accounting	http://tiny.cc/tfakkz
Cost Accounting	http://tiny.cc/p29jkz
LIFO−FIFO	http://tiny.cc/dgakkz
Cost Sheet, Unit Costing	http://tiny.cc/w49jkz
Cost Reconciliation Statement	http://tiny.cc/829jkz

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Functions of Mutual Fund

The main functions of mutual fund are given below:

Diversification

Mutual funds serve as a way to make a diversified investment.

Although a mutual fund typically focuses on a specific asset type, such as bonds or stocks.

It allows for diversification within that asset type.

For instance, a stock fund could contain dozens of different stocks.

This allows investors to invest their money in a number of different assets at once, making multiple investments with one purchase.

Diversification is designed to use the gains of some assets to protect against losses in some others.

Investor choices

Mutual funds vary in the types of assets that they hold.

This allows individual investors to purchase shares in funds that meet their particular needs and preferences.

Mutual funds exist for securities such as shares and bonds.

They are available for money-market instruments. Such as certificates of deposit and treasury bills.

Professional management

A mutual fund serves to provide investors with professional management of their investment.

For an amateur investor, it is a difficult task to manage a diversified portfolio.

The fund manager tackles that job with a mutual fund for all of the funds’ shareholders.

In addition, a mutual fund simplifies the trading process for investors.

Investors’ goals

Mutual funds exist to meet a wide range of investors’ goals.

Some mutual funds target steady, long-term growth, while others focus on more short-term goals.

For instance, an investor seeking a conservative, low-risk investment with long-term returns could invest in an index/market fund.

More ambitious stock funds seek to produce returns better than the market averages.

Keep in Mind (KIM)

Type of mutual fund:
Based on the maturity period:	Based on investment objectives:	Other Schemes:
Open-ended Funds	Equity/Growth Funds	Tax-Saving Funds
Close-ended Funds	Debt/Income Funds	Index Funds
Interval Funds	Balanced Funds	Sector-specific Funds
	Money Market/Liquid Funds
	Gift Funds