Shares & Mutual Funds.
BUSINESS MATH
A PROJECT SUBMITED TO
UNIVERSITY OF MUMBAI FOR PARTIAL
COMPLETION OF THE DEGREE OF BACHLOR IN
COMMERCE
[ACCOUNTING AND FINANCE]
BY
GHATE VAIBHAVI NILESH
Exam seat no:- Baf001044
FYBAF – A
UNDER GUIDANCE OF
ANIKET SIR
CHANGU KANA THAKUR ARTS, COMMERCE,
SCIENCE COLLEGE,
SECTOR-11, NEW PANVEL.
2021
Definition of Shares
Ordinary share represent the ownership position in the company. The holders of ordinary shares are called the
shareholders and they are the legal owners of the company.
By a share it also means right to participate in the profits made by a company, while it is a going concern and
declares dividend, and in the assets of the company when it is wound up.
A stock is defined as consolidated value of fully paid up shares of a member.
Definition of Mutual Funds
A mutual fund is a common pool of money into which investors place their contributions that are to be
invested in different types of securities in accordance with the stated objective.
An equity fund would buy equity assets – ordinary shares, preference shares, warrants etc.
A bond fund would buy debt instruments such as debenture bonds, or government securities/money market
securities.
A balanced fund will have a mix of equity assets and debt instruments.
Mutual Fund shareholder or a unit holder is a part owner of the fund’s asset.
Types of Shares
Equity shares capital
Preference shares capital: Preference share is the one which satisfies the following criteria
With respect to dividend it carries a preferential right to be paid which may be a fixed amount or a fixed rate
On winding up or on repayment of capital a preferential right to be repaid the amount .
Types of Mutual Funds
By Structure:
1. Open-ended Funds
2. Closed-ended Funds
3. Interval Funds
By Investment Objective:
1. Growth Funds
2. Income Funds
3. Balanced Funds
4. Money Market Funds
5. Load Funds
6. No-Load Funds
Features of Preference Share
Claims on income and assets
Fixed Dividend
Cumulative dividend
Redemption
Sinking fund
Call feature
Participation feature
Advantages of Shares
Dividend
An investor is entitled to receive a dividend from the company. It is one of the two main sources of return on
his investment.
Capital Gain
The other source of return on investment apart from dividend is the capital gains. Gains which arise due to
rise in market price of the share.
Limited liability
Liability of shareholder or investor is limited to the extent of the investment made. If the company goes into
losses, the share of loss over and above the capital investment would not be borne by the investor.
Exercise control
By investing in the company, the shareholder gets ownership in the company and thereby he can exercise
control. In official terms, he gets voting rights in the company.
Claim over Assets and Income
An investor of equity share is the owner of the company and so is the owner of the assets of that company. He
enjoys a share of the incomes of the company. He will receive some part of that income in cash in the form of
dividend and remaining capital is reinvested in the company.
Bonus Shares
At times, companies decide to issue bonus shares to its shareholders. It is also a type of dividend. Bonus
shares are free shares given to existing shareholders and many times they are given in lieu of dividends.
Liquidity
The shares of the company which is listed on stock exchanges have the benefit of any time liquidity. The
shares can very easily transfer ownership.
Stock Split
Stock split means splitting a share into parts. How should an investor be benefited by this? By splitting of
share, the per-share price reduces in the market which eventually increases the readability of share. At the
end, stock split results in higher volumes with a number of investors leading to high liquidity of the share.
Rights Shares
Whenever companies require further capital for expansion etc, they tend to issue ‘rights shares’. By issuing
such shares, ownership and control of existing shareholders are preserved and the investor receives
investment priority over other general investors. Right Shares are issued at a price lower than current market
price of the equity share. So, existing investor can take that advantage or otherwise can renounce right in
some one’s favor to get value of right.
Disadvantages of Shares
Dividend
The dividend which a shareholder receives is neither fixed nor controllable by investor. The management of
the company decides how much dividend should be given. If there is a loss, there is no question of dividend. If
there is a profit, unless Board of Directors propose dividend, investors will not receive dividend.
High Risk
Equity share investment is a risky investment as compared to any other investment like debts etc. The money
is invested based on the faith an investor has in the company. There is no collateral security attached with it.
Fluctuation in Market Price
The market price of any equity share has a wide variation. It is always very difficult to book profits from the
market. On the contrary, there are equal chances of losses.
Limited Control
An equity investor is a small investor in the company, therefore, it is hardly possible to impact the decision of
the company using the voting rights.
Residual Claim
An equity shareholder has a residual claim over both the assets and the income. Income which is available to
equity shareholders is after the payment of all other stakeholders’ viz. debenture holders etc.
Advantages of Mutual Funds
Liquidity
Investors may be unable to sell shares directly, easily and quickly. When they invest in mutual funds, they can
cash their investment any time by selling the units to the fund if it is open-ended and get the intrinsic value.
Investors can sell the units in the market if it is closedended fund.
Convenience and Flexibility
Investors can easily transfer their holdings from one scheme to other, get updated market information and so
on. Funds also offer additional benefits like regular investment and regular withdrawal options.
Transparency
Fund gives regular information to its investors on the value of the investments in addition to disclosure of
portfolio held by their scheme, the proportion invested in each class of assets and the fund manager's
investment strategy and outlook
Disadvantages of Mutual Funds
No control over costs
The investor pays investment management fees as long as he remains with the fund, even while the value of
his investments are declining. He also pays for funds distribution charges which he would not incur in direct
investments.
No tailor-made portfolios
The very high net-worth individuals or large corporate investors may find this to be a constraint as they will
not be able to build their own portfolio of shares, bonds and other securities.
Managing a portfolio of funds
Availability of a large number of funds can actually mean too much choice for the investor. So, he may again
need advice on how to select a fund to achieve his objectives.
Delay in redemption: It takes 3-6 days for redemption of the units and the money to flow back into the
investor’s account.
Hybrid security
Ordinary share

Non payment of dividend does not
force the company to insolvency

Dividends are not deductible for
tax purpose

In some cases there is no fixed
maturity date.
Debenture

Dividend rate is fixed

Pref shareholders do not share in

the residual earnings

They have claim on income and

assets prior to ordinary
shareholders
Fund Structure
FUND SPONSER
TRUSTEE
ASSET MANAGEMENT COMPANY
DESPOSITORY
AGENT
CUSTODIAN
Evaluation
Merits
It is a permanent source of fund without any repayment liability
It does not involve any obligatory dividend payment
Demerits
High cost of fund reflecting the high required rate of return of investors as a compensation for higher risk
High floatation cost in terms of underwriting, brokerage and other issue expenditure
Dilution of control
Asset Management Company
Acts as an invest manager of the Trust under the Board Supervision and direction of the Trustees.
Has to be approved and registered with SEBI.
Will float and manage the different investment schemes in the name of Trust and in accordance with SEBI
regulations.
Acts in interest of the unit-holders and reports to the trustees.
At least 50% of directors on the board are independent of the sponsor or the trustees.
Conclusion
As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your
shares. Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a
higher claim than shareholders. ... Stock markets are places where buyers and sellers of stock meet to trade.
Mutual funds are a popular investment avenue among investors, as they are easy to invest in and give higher
returns as compared to other traditional asset classes such as FDs or saving bank deposits.
Thank you