DECLARATION

I, TUSHAR RANA, hereby declare that the project work entitled

“Mutual funds market in India” is a record of independent and
bonafide project work carried out by me under the supervision and
guidance of Dr. Mukesh Gupta, Professor, Department of Commerce,
Rukmani Devi Institute of Advance Studies.
The information and data given in the report is authentic to the best
of my knowledge. The report has not been previously submitted for
the award of any Degree, Diploma, Associateship or other similar title
of any other university or institute, IPU, Delhi.

Place: Delhi Tushar

Rana
Date:
10615901722
 ACKNOWLEDGEMENT

I would like to take the opportunity to express my sincere gratitude

to all people who have helped me with sound advice and able
guidance.
I would like to express my sincere obligation to Dr. Namita Garg
Professor & Dean.
I am thankful to Dr. Mukesh Gupta, my assigned mentor, for providing
proper help and encouragement in the preparation of this report. I
I would like to express my gratitude to all the faculties of the
Department for their interest and cooperation in this regard.
I extend my hearty gratitude to the librarian and other library staffs
of my college for their wholehearted cooperation.
I express my sincere thanks to my friends and family for their support
in completing this report successfully
 INDEX
S.NO Content Page No.
.
1 INTRODUCTION TO MUTUAL 1
FUNDS
2 WORKING OF MUTUAL FUNDS
3 MUTUAL FUNDS IN INDIA
4 RELIANCE MUTUAL FUNDS VS
UTI MUTUAL FUNDS
5 MUTUAL FUNDS VS OTHER
INVESTMENTS
6 FUTURE PROSPECT OF
MUTUAL FUNDS IN INDIA
7 CONCLUSION

8 BIBLOGRAPHY
 INTRODUCTION TO
MUTUAL FUNDS
WHAT IS A MUTUAL FUND?
A mutual fund is a collective investment vehicle
that collects & pools money from a number of
investors and invests the same in equities, bonds,
government securities, money market
instruments.

The money collected in mutual fund scheme is

invested by professional fund managers in stocks
and bonds etc. in line with a scheme’s investment
objective. The income / gains generated from this
collective investment scheme are distributed
proportionately amongst the investors, after
deducting applicable expenses and levies, by
calculating a scheme’s “Net Asset Value” or NAV.
In return, mutual fund charges a small fee.
In short, mutual fund is a collective pool of money
contributed by several investors and managed by
a professional Fund Manager.

Mutual Funds in India are established in the form

of a Trust under Indian Trust Act, 1882, in
accordance with SEBI (Mutual Funds) Regulations,
1996.

The fees and expenses charged by the mutual

funds to manage a scheme are regulated and are
subject to the limits specified by SEBI.

HOW MUTUAL FUNDS WORK?

One should avoid the temptation to review the
fund's performance each time the market falls or
jumps up significantly. For an actively-managed
equity scheme, one must have patience and allow
reasonable time - between 18 and 24 months - for
the fund to generate returns in the portfolio.
When you invest in a mutual fund, you are pooling
your money with many other investors. Mutual
fund issues “Units” against the amount invested at
the prevailing NAV. Returns from a mutual fund
may include income distributions to investors out
of dividends, interest, capital gains or other
income earned by the mutual fund. You can also
have capital gains (or losses) if you sell the mutual
fund units for more (or less) than the amount you
invested.

Mutual funds are ideal for investors who –

lack the knowledge or skill / experience of
investing in stock markets directly.
want to grow their wealth, but do not have the
inclination or time to research the stock market.
wish to invest only small amounts.

WHY INVEST IN MUTUAL FUNDS?

As investment goals vary from person to person –
post-retirement expenses, money for children’s
education or marriage, house purchase, etc. – the
investment products required to achieve these
goals too vary. Mutual funds provide certain
distinct advantages over investing in individual
securities. Mutual funds offer multiple choices for
investment across equity shares, corporate bonds,
government securities, and money market
instruments, providing an excellent avenue for
retail investors to participate and benefit from the
uptrends in capital markets. The main advantages
are that you can invest in a variety of securities for
a relatively low cost and leave the investment
decisions to a professional manager.
 WORKING OF
MUTUAL FUNDS
Mutual funds pool money from different investors
to invest in securities like shares, bonds,
government securities, etc. Each mutual fund
scheme has a strategy that is set at the time of the
NFO (New Fund Offer). Once the strategy is
decided, the fund must follow it. Starting from the
launch of NFO to the distribution of returns,
mutual fund investing is a cycle of 4 steps.

NFO Launch
In a New Fund Offer (NFO), investors get an
opportunity to subscribe to a mutual fund scheme
and say invested in it right from its inception.
However, they can subscribe only for a limited
time. Once the NFO closes, the investors will only
be able to purchase the units. Moreover, the
fund’s strategy is disclosed at the time of the NFO
launch. Once the fund manager fixes the fund
strategy, it cannot be changed. It is because
investors invest in the fund based on the strategy.
NFO’s are cheaper than existing funds as it’s new
to the market. However, mutual funds investors
need to consider the fund houses’ reputation,
objectives of the fund, cost of investment, risk,
minimum subscription amount, and the
investment tenure before investing in an NFO.

Money is Pooled
Mutual funds pool money from many small
investors to invest in securities. Investors invest
small amounts of money from their savings.
Mutual funds allow small investors to invest
money in large portfolios, which they otherwise
cannot. It can be due to the lack of money or lack
of time to perform mutual fund research in detail.
Thus, mutual funds are the solution to such
investors.

Invest Money in Securities

The pooled money is invested in securities like
shares, bonds, and government securities. The
fund manager decides the portfolio of the fund
based on the strategy of the fund. The portfolio
manager has the expertise and time to do a
thorough research of the securities. Also, they
perform a company, industry, and economy level
analysis. In order to find the securities that best fit
the fund’s strategy and maximize the return for
the mutual funds investors. And at any point in
time, if the selected securities are
underperforming, they replace them with better-
performing securities. They sometimes use
multiple strategies to choose the securities for a
fund. And sometimes, they also use a combination
of investing and trading strategies to take
advantage of the stock market situations. All these
efforts put by the fund managers give investors
access to large portfolios.

Fund Returns
The portfolio manager continuously strives to earn
returns from the investments they make on behalf
of the fund investors. Thus, all their efforts in
mutual fund research, monitoring, and
rebalancing the portfolio increases the fund’s NAV.
Once the fund makes returns, they are either
distributed or invested back into the fund. While,
for dividend funds, the returns are distributed in
the form of dividends. For growth funds, the
returns are reinvested into the fund to enhance
the wealth of the fund investors. It is the critical
step of mutual fund investing as this completes
the cycle of investing. The returns, if retained in
the fund, are further invested in creating more
wealth for investors.
Hence, mutual fund investing is a continuous
process that channelizes small savings of many
investors in productive securities to maximize
their wealth.

EXAMPLE

For instance, let’s assume that Aditya Birla Mutual

Fund launches a mutual fund scheme. Let us say,
ABSL Top 25 Fund. For the ease of understanding,
let’s assume the scheme collects INR 1 crore from
100 investors. Investment per investor being INR 1
lakh. The fund house allots the units at a NAV of
INR 10. Therefore, each investor gets 10,000 units.
Thus, the total number of units issued and
allocated by the fund house is 10 lakh units.

ABSL Top 25 Fund’s objective is to invest across 25

stocks. To follow the fund’s objective, the fund
manager does his research and pick the top 25
stock. The fund manager believes that buying
stocks that fit the criteria will contribute
significant returns to the portfolio. Upon selecting
the shares, the fund manager invests equal
amounts across each stock. Thus, the equity fund
comprises of top 25 shares.

As the Assets Under Management (AUM) of the

fund is INR 1 crore, investment in each stock is
approximately INR 4 lakh. Thus these stocks
become part of the equity fund portfolio. Also, in
reality, the fund manager deals and invests in high
proportions. All the investments are backed by
research. The fund manager believes in buying
stocks that give good returns. Additionally, the
fund also maintains a cash balance. It is to deal
with redemption from investors.

Increase in Net Asset Value (NAV)

After a month, the portfolio doesn’t witness any

changes concerning holding and the number of
investors. Eventually, as the price of the stocks
starts to move, the portfolio value keeps changing.
As the prices move up, the total value of the
portfolio increases. In this scenario, the value of
the portfolio grows to INR 1.25 crores. Since there
is no change in the fund units of 10,000, the new
NAV now is INR 12.5 (INR 1.25 crore/10 lakh
units).

As a result, the investment value for investors

grows to INR 1.25 lakh (10,000 units * INR 12.5
NAV. In other words, investors gain INR 25,000
(INR 1.2 Lakh – INR 1 Lakh). Also, in percentage
terms, the gains are 25% [(INR 25,000/INR 1
Lakh)*100].

Redemption

Investors redeem or sell their investments. For

this fund, an overall 1,00,000 units were
redeemed. In terms of value, the total outflow is
INR 12.5 lakh (INR 12.5*1,00,000 units). As a
result, the Assets Under Management (AUM) of
the fund fell to INR 1.125 crore. And, the total
number of units comes down to 9 lakh units. Thus
the NAV remains at INR 12.5 per unit.

Firstly, the fund manager uses the cash balance in

the portfolio to pay investors to deal with
redemptions. Additionally, he may also sell some
shares, if needed. However, selling shares would
be of those companies that do not have the
potential to move higher. These decisions are
backed by proper research.

Fall in NAV
Let’s assume that the stock prices are falling. As a
result, there would be a fall in the portfolio value.
Here it falls from INR 1.25 crore to 1.10 crore.
Therefore the NAV is now INR 12.22 per unit (INR
1.10 crore/9 lakh units).

Now, another investor invests in the fund. The

value of his investment is INR 1 lakh. However, this
time for the same investment amount, he only
gets 8,183.306 units. As a result of this new
investment, the portfolio value increases to 1.11
crore. Therefore the total number of units now
are increased by 8,183.306 units.

It is important to remember that the above

scenario is just a small example of how mutual
funds work. In reality, investments/purchases and
redemptions are made daily. Hence, the NAV of
the fund changes daily. However, the basis of
calculations revolves around the same concept.

MUTUAL FUNDS IN
INDIA