MUTUAL FUND SCHEMES

A.What is mutual fund? Mutual fund schemes are the schemes offered by various financial
institutions in which institutions collect savings from different individuals and mobilize it
into various investing schemes according to the need of the investors. Every mutual fund
scheme providing institutions appoint fund managers who has an expertise in the selecting
different investment avenues such as shares, debentures, bonds, gold etc. from different
market such as equity market, bond market, money market etc. at the right price and at the
right quantity.
Different types of mutual fund schemes:
1. Large cap oriented-equity schemes: The Large Cap funds are the funds that invest larger
proportions of their assets under management (AUM) in equity shares that belong to
companies that constitute top 100 when it comes to market capitalisation, such as Reliance,
TCS, HDFC, Infosys and more.
2. Consistent performers equity fund: While investors should invest in mutual funds with a
long-time horizon to create wealth, investors also look for the flexibility of earning good
returns in the short to medium term, in case they need the liquidity in that time frame.
Short term performance is not a good indicator of long-term potential. Some funds may
take advantage of volatility or momentum to generate high returns, but these strategies
cannot be sustained in the long term.

3. Diversified equity funds: As per definition, diversified equity mutual funds are purely
equity funds which invest in a large number of stocks across different sectors. The objective
is to diversify unsystematic risks and generate highest risk adjusted returns. Company
specific and sector specific risks are unsystematic risks. A diversified equity fund invests in
companies across sectors and industries.

4. Mid-cap and Small-cap equity funds: Mutual funds which diversify investments in
between mid and small cap companies are termed as mid and small cap funds. The
proportion of investments between midcap and small cap may vary from fund to fund.
These funds invest in a mix of midcap and small cap stocks. Due to their exposure in high
beta (which involves higher risk) stocks, they are positioned on a high-risk return trade-off
plane compared to a large cap fund.

5.Infrastructure funds: Infrastructure funds are those funds that invest in infrastructure
companies or stocks. The companies engaged in the infrastructure sector are targeted for
investment purposes. Like other sectors such as banking, technology, medicines, minerals;
the infrastructure sector is also a very broad sector. Infrastructure includes waste
management, utilities, sewer services, water services to name a few. These funds are mainly
utilised to reduce the overall volatility of the portfolio. Infrastructure funds invest in public
assets and services that people rely on to live, work and travel. These funds can invest in
things like: Electric and other utility services. Rail travel companies. Shipping and freight
services. Engineering and construction. Oil and gas pipelines. Communications services,
including cell phone towers.

6. Long-term income funds: An income fund is a type of debt mutual fund which generates
returns by investing in relatively long-dated debt instruments like government securities,
corporate bonds, debentures, certificates of deposit, etc. It is an open-ended debt
scheme which invests in debt and money market instruments such that the duration of the
fund is more than 7 years.The objective of the fund is to derive interest income mainly from
corporate bonds and capital appreciation which is dependent on macroeconomic factors
like interest rate, liquidity, inflation.

7. 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. This balanced portfolio provides the investor with a safety net if the market should
experience a downturn.

8. Equity linked saving schemes: ELSS Funds are diversified equity funds. These funds
primarily invest in stocks of listed companies in a specific proportion according to the
investment objective of the fund. The stocks are chosen from across market capitalisation
(Large-Caps, Mid-Caps, Small-Caps) and industry sectors. What makes ELSS different from
other equity mutual fund schemes is that investment up to ₹1.5 lakh in ELSS is eligible for
deduction from taxable income in a financial year. The scheme comes with a statutory lock-
in period of 3 years for each SIP. It is the only mutual fund scheme that qualifies for tax
deduction under Section 80(C) of the IT Act.As compared to the other tax saving schemes
such as NSC (National Savings Certificate), PPF (Public Provident Fund), etc. the lock-in
period of ELSS is much lower. 

9. Consistent performers debt fund: Consistent performers aim to outperform the market
and generate good returns across all time scales from short to long term. Debt funds are a
type of mutual funds, which can generate good returns from your money by allocating
assets in deposits or bonds of various financial securities.

10. Consistent performers Balanced funds: Balanced funds indicate the mutual funds that
constitute a bond, a stock or often a money market component in an individual
portfolio/asset class.

11. Long-term glit funds: Gilt Funds are debt funds which only invest in bonds and fixed
interest-bearing securities issued by the state and central governments. These
investments are made in instruments having varying maturities. Since the money is
invested with the government, these funds are said to carry minimal risk. Whenever the
State or Central Government requires funds, it asks the apex bank of the country – The
Reserve bank of India (RBI) – which is also the Government’s banker.

12. Index funds: An Index Mutual Fund invests in stocks that imitate a stock market index
like the NSE Nifty, BSE Sensex, etc. These are passively managed funds which means that
the fund manager invests in the same securities as present in the underlying index in the
same proportion and doesn’t change the portfolio composition. Since Index Funds track a
market index, the returns are approximately similar to those offered by the index. Hence,
investors who prefer predictable returns and want to invest in the equity markets
without taking a lot of risks prefer these funds.

B. Suggestions for Mr. Venkatraman: Mr.Venkatraman has decided to invest ₹10 lakh in
mutual funds, but he is very conservative and not ready to take much risk. Alok is the son of
Mr.Venkatraman who also have his own goals by investing in the mutual fund.
Mr.Venkatraman wants to get regular income but also does not want to risk his principal
amount. So I, as a Mutual Fund advisor Mr.Ranjan would recommend Mr.Venkatraman to
invest his money on Large Cap-oriented Equity funds.

As he is very conservative and risk-averse investor, Debt schemes will be more suited to his
requirements. Debt schemes such as Long-term glit funds, Long-term debt funds will be
appropriate for Mr. Venkatraman.

Suggestions for Mr. Alok:

Mr.Alok wants high capital appreciation in medium term. As Alok wants to increase his
capital with medium duration he may have to face more risk than his father Mr.Venkatraman.
So I, as a Mutual Fund advisor Mr.Ranjan would recommend Mr.Alok to invest his money on
Balanced funds. .

Alok seems to be risk taker and active investor as per his mindset. He is ready to take risk to
appreciate his capital in short to medium term.

C. Portfolio of Mr. Venkatraman: As stated in the case, regular income and security of the
capital is pre-requisite for him, his total capital of 15 lakh can be divided in below given
schemes which will fulfil his requirements:

1. 500000 (for highly liquid schemes): Invested in Consistent-performers debt funds

and Long-term guilt funds to invest in corporate bonds and government securities.
2. 1000000: Invested in long-term income funds which will allow him to receive regular
interest payments along with capital appreciation.
3. 250000: Invested in Balanced funds to get the benefit of debt instruments as well as
equity instruments.