Prepared by Dhruv Rathod.

What is a Mutual Fund?

❏ A mutual fund is an investment vehicle where many investors pool their
money to earn returns on their capital over a period.
❏ This corpus of funds is managed by an investment professional known
as a fund manager or portfolio manager.
❏ It is his/her job to invest the corpus in different securities such as bonds,
stocks, gold and other assets and seek to provide potential returns.
❏ The gains (or losses) on the investment are shared collectively by the
investors in proportion to their contribution to the fund.
Cycle of Mutual fund:
 1) Equity Funds

❏ Equity mutual funds invest primarily in shares of listed companies.

❏ Equity funds may invest in companies belonging to different sectors and
maybe diversified across different market capitalization segments like, large
cap, mid-cap and small cap.
❏ Based on investment in different market capitalization segments, there can be
large cap, mid cap and small cap funds in an AMC (Asset Management
Company).
❏ Also, equity funds can either be active or passive.
❏ The fund manager of an active fund does market research of companies/
sectors and tries to invest in the best companies whereas the fund manager
of a passive fund builds an investment portfolio that may mirror a popular
market Index, like NIFTY or Sensex.
 2) Bond Funds
❏ A bond is a fixed-income instrument that represents a loan made by an
investor to a borrower (typically corporate or governmental). A bond could be
thought of as an I.O.U. (signed informal notice of an unpaid debt) between the
lender and borrower that includes the details of the loan and its payments.
❏ Bonds are used by companies, municipalities, states, and sovereign
governments to finance projects and operations. Owners of bonds are
debtholders, or creditors, of the issuer.
❏ Bond details include the end date when the principal of the loan is due to be
paid to the bond owner and usually include the terms for variable or fixed
interest payments made by the borrower.
 3) Balanced Funds

❏ A balanced fund is a mutual fund that typically contains a component of

stocks and bonds.
❏ A mutual fund is a basket of securities in which investors can purchase.
❏ Typically, balanced funds stick to a fixed asset allocation of stocks and
bonds, such as 70% stocks and 30% bonds. Bonds are debt instruments
that usually pay a stable, fixed rate of return.
❏ The investment objective for a balanced mutual fund tends to be a
mixture of growth and income, which leads to the balanced nature of the
fund.
❏ Balanced mutual funds are geared toward investors who are looking for a
mixture of safety, income, and modest capital appreciation.
 What is Small-Cap Mutual Funds?

❏ Small-Cap Funds invest a major portion of their investible corpus into equity or equity-related instruments of
small-cap companies. According to the Securities and Exchange Board of India (SEBI), small-cap schemes need to
invest at least 80% of their total assets in small-cap companies. Also, SEBI defines small-cap companies as those
which are ranked below the 250th rank in terms of market capitalization. In monetary terms, these are companies
with a market capitalization of less than Rs. 500 crores.
❏ It is important to note that small-cap funds carry a high level of risk. Even the slightest volatility in the market can
have a huge impact on the share prices of small-cap companies. However, these stocks also have a huge potential
to offer amazing returns.
❏ Think about it – a small company has a lot of scope for growth and when it does grow, the share price would
increase dramatically. However, many investors tend to turn towards small-cap schemes for short-term investment
needs. This can be counterproductive as small companies need time to grow. Hence, it is usually recommended to
option for small-cap funds if you have a higher risk tolerance and a long investment horizon.
 What are Mid Cap Mutual Fund?
❏ Mid Cap Funds invest in equity and equity-related instruments of mid-cap companies. According to the

Securities and Exchange Board of India (SEBI), mid-cap companies are those which are ranked between 101

and 250 in the list of companies according to market capitalization. To give you a fair idea, the market

capitalization of the 101st company on the list is around Rs. 30,000 crores, while the market cap of the 250th

company is around Rs. 9,500 crores.

❏ Since mid-cap companies fall between the small-cap and large-cap companies, they offer certain advantages

and disadvantages to both of them. Mid-cap funds usually offer better returns than large-cap funds but are more

volatile than them. On the other hand, they are more stable than the small-cap funds but tend to offer lesser

returns. In a nutshell, mid-cap mutual funds are the perfect combination of risk and return. As an investor, if you

select the schemes prudently having a great selection of stocks, diversification across sectors, and good fund

manager, then you can expect much better returns.

 What is Large Cap Mutual Fund?
❏ Large Cap Mutual Funds are equity funds that invest a bigger proportion of
their total assets in companies with a large market capitalization.
❏ These companies are highly reputed and have an excellent track record of
generating wealth for their investors over a long period.
❏ Large Cap Funds are hence known to generate regular dividends and steady
compounding of wealth.
❏ Also, these schemes carry a lower risk as compared to the small-cap or
mid-cap schemes and are known to generate steadier returns.
❏ They are a good option for investors with a relatively lower risk appetite and a
long-term investment horizon.
❏ According to SEBI, large-cap companies fall in the top 100 of the list of
companies according to market capitalization.
❏ Hence, investing in these companies is considered to be less risky and
steady.
 Mutual funds in India:

1. State Bank of India mutual fund

2. ICICI prudential mutual fund
3. TATA mutual fund
4. HDFC mutual fund
5. Birla sun life mutual fund
6. Reliance mutual fund
7. Kotak Mahindra mutual fund ,etc.