A STUDY ON MUTUAL

FUNDS
BBM-506

PRESENTED BY:
SAKSHAM MAHESHWARI

BBA – 3RD YEAR

1702737
 WHAT ARE MUTUAL FUNDS?
A Mutual Fund (MF) is formed when capital collected by various investors is invested in
purchasing company shares, stocks, or bonds. Shared by thousands of investors, mutual funds’
investments are collectively managed by a professional fund manager to earn the highest
possible returns. This is how mutual funds work, not only in India but, anywhere in the world.
Investing in Mutual Funds is the easiest way to grow your wealth. The fund manager’s
expertise is an important factor to consider while choosing the fund. All Mutual Funds are
registered with the Securities Exchange and Board of India (SEBI) and hence, your investment
is safe.

TYPES OF MUTUAL FUNDS

A mutual fund is an investment vehicle which pools money from investors and invests on their
behalf in multiple assets like stocks and bonds. The profits made from the assets are then
distributed to the investors.

There are a variety of mutual funds. They can also be classified into different categories on
varying factors. Here’s a look at some of the types of mutual funds:

 TYPES OF MUTUAL FUNDS BASED ON FUND SCHEME

There are two key kinds of mutual funds on the basis of the constitution of the fund. This
basically affects when investors can buy fund units and sell them.

 CLOSE-ENDED SCHEMES:

These schemes have fixed maturity periods. Investors can buy into these funds during the
period when these funds are open in the initial issue. Once that window closes, such schemes
cannot issue new units except in case of bonus or rights issues.

After that period, you can only buy or sell already-issued units of the scheme on the stock
exchanges where they are listed. The market price of the units could vary from the NAV of the
scheme due to demand and supply factors, investors' expectations and other market factors.

 OPEN-ENDED SCHEMES:

These funds, unlike close-ended schemes, do not have a fixed maturity period. Investors can
buy or sell units at NAV-related prices from and to the mutual fund, on any business day. This
 means, the fund can issue units whenever it wants. These schemes have unlimited
capitalization, do not have a fixed maturity date, there is no cap on the amount you can buy
from the fund and the total capital can keep growing.

These funds are not generally listed on any exchange. Open-ended schemes are preferred for
their liquidity. Such funds can issue and redeem units any time during the life of a scheme.
Hence, unit capital of open-ended funds can fluctuate on a daily basis.

The advantages of open-ended funds over close-ended are as follows:

 Investors can exit any time they want. The issuing company directly takes the responsibility
of providing an entry and an exit. This provides ready liquidity to the investors and avoids
reliance on transfer deeds, signature verifications and bad deliveries.
 Investors can entry any time they want. Thus, an open-ended fund allows one to enter the
fund at any time and even to invest at regular intervals.

 TYPES OF MUTUAL FUNDS BASED ON ASSETS INVESTED IN

There three kinds of mutual funds based on the assets invested in. These are as follows:
 EQUITY FUNDS

These are funds that invest only in stocks. As a result, they are usually considered high risk,
high return funds. Most growth funds – the ones that promise high returns over a long-term –
are equity funds.
These funds have less tax liability in the long-run as compared to debt funds. Equity funds can
be further classified into types based on the investment objective into index funds, sector funds,
tax-saving schemes and so on. We shall go through these in detail later.

 HYBRID FUNDS

These are funds which invest in both equities as well as debt instruments. For this reason, they
are less risky than equity funds, but more than debt funds. Similarly, Similarly, they are likely
to give you higher returns than debt funds, but lower than equity funds. As a result, they are
often called 'balanced funds'.
 DEBT FUNDS

These funds invest in debt-market instruments like bonds, government securities, debentures
and so on. These are called debt instruments because they are a kind of borrowing mechanism
for companies, banks as well as the government.
Simply put, you give them money, which the company returns with interest over a period of
time. After which, it matures. Since the interest payments are fixed as well as the return of the
principle amount, debt instruments are considered low-risk, low-return financial assets. For the
same reason, debt funds are relatively safer.

They are usually preferred for the regular interest payments. Debt fund are further classified on
the basis of the maturity period of the underlying assets – long-term and short-term. Some debt
funds also invest in just a single type of debt instrument. Gilt funds are an example of such a
fund.

 TYPES OF MUTUAL FUNDS BASED ON INVESTMENT

OBJECTIVE

Every investor has a different reason for investing in financial instruments. Some do so for
making profits and increasing wealth, while some others do so for a regular secondary source
of income. Some others invest in mutual funds for a bit of both. Keeping these requirements in
mind, there are three key kinds of mutual funds based on the investment objective.

 GROWTH FUNDS

These are schemes that promise capital returns in the long-term. They usually invest in equities.
As a result, growth funds are usually high-risk schemes. This is because the values of assets
are subject to lot of fluctuations. Also, unlike fixed-income schemes, growth funds usually pay
lower dividends. They may also prefer to reinvest the dividend money into increasing the assets
under management.
 BALANCED FUNDS
As the name suggests, these schemes try to strike a balance between risk and return. They do
so by investing in both equities and debt instruments. As a result, they are a kind of hybrid
fund. Their risk is lower than equity or growth funds, but higher than debt or fixed-income
funds.
 FIXED-INCOME FUNDS

These are schemes that promise regular income for a period of time. For this reason, fixed-
income funds are usually a kind of debt fund. This makes fixed-income funds low-risk
schemes, which are unlikely to give you a large amount of profit in the long-run.
They pay higher dividends than growth funds. As with debt funds, they may be further
classified on the basis of the specific assets invested in or on the basis of maturity.

 SPECIAL FUNDS

These are funds which invest in a specific kind of assets. They may be a kind of equity or debt
fund.

 INDEX SCHEMES

Indices serve as a benchmark to measure the performance of the market as a whole. Indices are
also formed to monitor performance of companies in a specific sector. Every index is formed
of stock participants. The value of the index has a direct relation to the value of the stocks.
However, you cannot invest in an index directly. It is merely an arbitrary number. So, to earn
as much returns as the index, investors prefer to invest in an Index fund. The fund invests in
the index stock participants in the same proportion as the index.

For example, if a stock had a weightage of 10% in an index, the scheme will also invest 10%
of its funds in the stock. Thus, it recreates the index to help the investors earn money. Such
schemes are generally passive funds as the managers need not research much for asset
allocation. As a result, the fees are lower. They are also a kind of equity fund.

 REAL ESTATE FUNDS

These are not a sector-specific fund which invests in realty company shares. Instead, these
funds invest directly in real estate. This may be by buying property or funding real estate
developers.

That said, they can also buy shares of housing finance companies or their securitized assets.
Risk depends on where the fund is investing the money.

 GILT FUNDS

These schemes primarily invest in government securities. Government debt is usually credit-
risk free. Hence, the investor usually does not have to worry about credit risk.

 INTERVAL SCHEMES

These schemes combine the features of open-ended and closed-ended schemes. They may be
traded on the stock exchange or may be open for sale or redemption during pre-determined
intervals at NAV based prices.
 SECTOR FUNDS

These are a kind of equity scheme restrict their investing to one or more pre-defined sectors,
e.g. technology sector.

Since they depend upon the performance of select sectors only, these schemes are inherently
more risky than general schemes. They are best suited for informed investors, who wish to bet
on a single sector.

 TAX-SAVING SCHEMES

Investors are now encouraged to invest in the equity markets through the Equity Linked
Savings Scheme (ELSS) by offering them a tax rebate. When you invest in such schemes, your
total taxable income falls. However, there is a limit of Rs 1 lakh for tax purposes. The crutch
is that the units purchased cannot be redeemed, sold or transferred for a period of three years.
However, in comparison with other tax-saving financial instruments like Public Provident
Funds (PPF) and Employee Provident Funds (EPF), ELSS funds have the lowest lock-in period.
An example of ELSS scheme is the Kotak ELSS scheme.

 MONEY MARKET SCHEMES

These schemes – a kind of debt fund – invest in short-term instruments such as
commercial paper (CP), certificates of deposit (CD), treasury bills (T-Bill) and overnight
money (Call).

The schemes are the least volatile of all the types of schemes because of the short-term
maturities of the money-market instruments. These schemes have become popular with
institutional investors and high-net worth individuals having short-term surplus funds.

TYPES OF MARKET CAPITALIZATION

A. LARGE-CAP STOCKS

These stocks are the first class in market capitalization. As the name itself suggests, these
are stocks of well-established companies that have been around for years. The market
capitalization of these companies is very high – above Rs20,000cr. Large-cap companies
have strong market presence and their stocks are generally considered to be very safe (low
risk). Most of these companies regularly disclose information through media, such as
newspapers. In other words, information on large-cap companies is very readily available.
In India, examples of large-cap companies include Wipro, TCS, and Infosys, among others.
B. MID-CAP STOCKS

Mid-cap companies can be considered to border large-cap and small-cap companies on both
ends of the market capitalization spectrum. Typical, their market capitalization lies between
Rs5,000-20,000cr. Mid-cap companies are considerably smaller than large-cap companies
in all fields of comparison – revenue, profitability, employees, client base, etc.
What attracts investors to mid-cap stocks is the possibility of investing in a company that
could become an overnight success. Mid-cap companies have a tremendous scope for
growth and can potentially give higher returns in the 3-5-year investment horizon.
Unlike in the case of large-cap companies, a lot of information on mid-cap companies isn’t
publicly available. This makes it difficult for an investor to judge the stock – which is why
one hardly sees conservative investors investing in mid-cap stocks.

C. SMALL-CAP STOCKS

Small-cap stocks lie at the other end of the market capitalization spectrum. Most small-
cap companies are either start-up enterprises or companies in the development stage.
Understandably, they have low revenues and a small number of employees and clients.
Information on these companies isn’t easily available to all. This is exactly what
makes small-cap stocks a big winner for investors with a long investment horizon and a
moderate-to-high risk appetite – not a lot of people know about the stock! However due to
their nature, small-cap stocks are considered to be a highly risky investment.

WHY MUTUAL FUNDS?

Mutual Fund investment offers various benefits that make them the most lucrative investment
option.
o Expert Money Management
Mutual fund companies have fund managers to choose the company shares, sectors, and debt
papers in which the pooled mutual fund investment would be invested. This decision would be
made by keeping the investors’ interest in mind.

o Low Cost

Mutual funds investment is a very affordable option for those who wish to invest in small
amounts. MF houses levy a small fee called expense ratio, and it ranges from 0.5% to 1.5% of
the Mutual Fund investment. The expense ratio cannot exceed 2.5% as per SEBI regulations.
o SIP Option
If you don’t have a lump sum to invest, then you can invest in a Systematic Investment Plan
(SIP). Our experts at ClearTax have handpicked best mutual fund to invest based on your
requirements. The best thing about investing in mutual funds with ClearTax is that you can
invest as low as Rs 500 an instalment.

o Flexibility to Switch Funds

A good investor knows when to switch funds to keep up or stay ahead of the market. There are
various MF schemes that allow you to switch funds. The fund manager will have an eye on the
market to ensure the best returns while not getting burnt by the market volatility.

o Investments Based on Goals & Focus Sector

Each investor invests in MF with a financial goal to achieve. There are funds with varying risk
factors that help you in achieving all kinds of goals.

o Diversification
MFs invest across various asset classes and company shares to mitigate risk. When one asset
class underperforms, gains from other asset classes will negate the loss. However, it is
recommended not to invest in too many (more than 5) as it may get difficult to monitor the
performance of all avenues.

o Flexible Tenure
Equity-linked savings scheme (ELSS) is the only MF scheme that comes with a lock-in period
of three years. This gives investors enough flexibility in terms of their financial goals, whether
short-term or long-term. Investing over a certain timeframe makes it easier to plan when and
how to invest.

o Liquidity
Investing in Mutual Funds offer liquidity. You are allowed to redeem your investment at any
time. There is no requirement of justifying your decision or searching for a buyer. You just
have to place a request with your fund house and they will credit the money into your bank
account within 3-7 working days.

o Handpicked Funds
There are various MFs based on investment goals, individual risk appetite, sectors, and fund
size, among others. Considering the number of available options, it can be a difficult task to
research and compare the performance of various funds. ClearTax has handpicked best mutual
fund which suits your profile.

o Ease of Trading & Transaction Experience

Buying, selling, and redeeming fund units at the current market price per unit (NAV) is quite
simple. All you have to do is place a request with the MF House and the fund manager will
take care of the rest. The liquid nature of MFs can help you in case of an emergency situation.

o Tax Efficiency
Investing in ELSS offers a twin benefit of tax deductions and wealth accumulation. Investments
in ELSS are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. You
can deduct a maximum of Rs 1,50,000 a year. ELSS offers the highest returns among all
Section 80C instruments.

o Investment Safety
All MF houses are under the purview of the Securities and Exchange Board of India (SEBI)
and the Association of Mutual Funds in India (AMFI). Both SEBI and AMFI are government
bodies and hence, you can consider your Mutual Fund investments to be as safe as bank
deposits.

o Ease of Tracking

Investors might not have the time to analyse the performance of their MF investment. To make
things simpler, MF houses provide investors with regular statements which makes it easy to
track the performance of the fund(s).

GET BETTER RETURNS WITH MUTUAL FUNDS

FOR EG - Rs 1,000 invested monthly for 20 years in different investment options will become
 Bank will give returns of 3.65 Lakh @4% p.a.
 Fixed Deposit will give returns of 4.82 Lakh @6.5% p.a.
 Gold will give returns of 4.3 Lakh @5.5% p.a.
 Mutual Fund will give returns of 15.2 Lakh @15% p.a.

WHO SHOULD INVEST?

MFs make investing easier for you. Each fund is designed to fulfil different goals. It is
particularly useful for those who do not have enough time to research and choose wisely.
 WHEN TO INVEST?

Factors to consider before investing

1) Funds Availability
2) Market Conditions
3) Investment Duration
4) Expected Returns

Investors may find it difficult to analyse funds by considering the factors mentioned above and
hence, investing in SIP is the best option they have. There is no specific time that is considered
the best to invest. The best time to invest is when you have money in hand. You shouldn’t
worry about the market volatility, and not every Mutual Fund invests in equity instruments.

HOW TO INVEST?

Thanks to the digital wave, you can easily access MFs nowadays. How to invest in mutual
funds depends on person to person. Indian MF investors are given the following options:

 Direct Investment

Visit the nearest branch of the fund house to collect an application form or download it from
the web. You must go through the fine print carefully and clear all your doubts before investing.

 Agents

These are sales professionals who reach out to potential customers and inform them about the
various fund options. You can choose a fund based on your income, investment goal, and risk
appetite. The agent helps you with the application process, transactions, redemption, and
cancellation. They charge a commission for their services.

 Online (Distributors/Fund Houses)

Buying/selling MF units online is common today. This helps in saving time and efforts, and
most importantly, makes it easier to compare various funds to make an informed decision.
ClearTax is one such portal that handpicks the best Mutual Funds from the country’s top fund
houses for you, absolutely free of cost. All you need to do is enter your personal details and
make the payment. The entire process can be done in less than five minutes.
 TOP 10 MUTUAL FUNDS SCHEME

Here is the list of schemes:

 ICICI Prudential Equity & Debt Fund
 Mirae Asset Hybrid Equity Fund
 Axis Bluechip Fund
 ICICI Prudential Bluechip Fund
 L&T Midcap Fund
 HDFC Mid-Cap Opportunities Fund
 L&T Emerging Businesses Fund
 HDFC Small Cap Fund
 Motilal Oswal Multicap 35 Fund
 Kotak Standard Multicap Fund

INDIAN MUTUAL FUND INDUSTRY

Indian Mutual Fund Industry is going through a very tough phase for the last couple of
months, specifically for the last 12 months or so. The Assets Under Management (AUM) of
the Indian Mutual Fund Industry reached ₹24 Trillion in 2018.
Mutual funds' asset base increased to Rs 25.49 lakh crore in April-June 2019, a rise of 4.14 per
cent over the previous quarter, on the back of increased retail participation. The asset base of
the industry, comprising 44 players, stood at Rs 24.48 lakh crore in the preceding three months,
according to data by the Association of Mutual Funds in India. (Amfi)
In terms of asset size, HDFC MF continued to lead the pack with an AUM of Rs 3,62,538 crore
(excluding fund of funds) at the end of the June quarter, followed by ICICI Prudential MF (Rs
3,37,286 crore) and SBI MF (Rs 3,07,534 crore).
The total number of accounts (or folios as per mutual fund parlance) as on August 31, 2019
stood at 8.53 crore (85.3 million), while the number of folios under Equity, Hybrid and Solution
Oriented Schemes, wherein the maximum investment is from retail segment stood at 7.66 crore
(76.6 million). This is 63rd consecutive month witnessing rise in the no. of folios.