A Project on

FINANCIAL ADVISOR’S ROLE FOR INVESTORS IN MUTUAL FUND

Submitted to meet some of the requirements for the three-year, full-time

Bachelor of Commerce (Honours) programme.

(2021-2024)

Under The Guidance of: Submitted By:

Ms. Aishwariya saxena Ritik tyagi
Assistant Professor B.com (Honours)
Department of commerce 2021-2024
S.C.M., IIMT 2167005074

School of commerce and management

(IIMT UNIVERSITY O’ POCKET GANGA NAGAR, MEERUT -250001

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 ORIGINALITY CERTIFICATE

We hereby declare that this project report is entirely original work of mine, with th

e exception of passages where appropriate credit has been given within the text. It

also reproduces no previously published or written work that has been approved f

or the granting of any other master's degree.

Student's name: Ritik Tyagi;

Roll number: 2167005074

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 APPROVED

This certifies that Ritik Tyagi, a student at IIMT University, Meerut, B.Com (Hons) (2021–2024
Batch), completed the project report on the "ROLE OF FINANCIAL ADVISOR IN MUTUAL FUND
INVESTMENT." To the best of my knowledge, the student completed the survey, data gathering,
and analysis work for the project under my direction and supervision, partially fulfilling the
requirements for the granting of B.Com (Honours).

Date: Name of the Faculty Mentor: Ms. Aishwarya Saxena

Signature:

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 Acknowledgement

This kind of project presentation is difficult and time-consuming. I am unable to express how
much I appreciate and acknowledge the generosity and assistance that so many people have
given me in this endeavour. I shall be grateful for each and every one of them.

I have always been grateful to my family, my friends, and my God for being there for me,
supporting me, and guiding me in the right directions. My colleagues also helped me out a lot
during the project by offering constructive criticism and encouragement. Finally, I am grateful
to my God for helping me see the bigger picture, developing my personality beyond its typical
bounds, and realising my own abilities.

I am incredibly appreciative of my mentor, Ms. Aishwarya Saxena, an associate professor in the

commerce department, for his advice.

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 Table of Contents

S. No Particulars
1. The Indian mutual fund industry’s history

2. Regulatory structure

3. Finance management and entity

4. Plans for investment

5. Performance of mutual fund

6. Assessing Financial Performance

7. Investments strategy’s

8. The Mutual Fund’s Classification

9. An investment

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 10. Mutual Fund Investing Benefits

11. Conclusion

12. Suggestion

13. Bibliography

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 OVERVIEW
A mutual fund is an investment pool that is gathered from investors and allocated based on
predetermined criteria. A mutual fund is a trust that combines the savings of several investors
with similar investment objectives. The creation of a mutual fund occurs when investors pool
their capital. As a result, it is an investor’s fund pool. Following this method of collection, the
funds are invested in stocks, debentures, and other capital market products. The income
generated by these investments and the realised capital gains are distributed to the unit
holders in accordance with the quantity of units they possess.
The realisation that a fund’s contributors and beneficiaries are members of the same social
class—investors—is one of its most crucial features. The word “mutual fund” refers to an
arrangement in which investors both contribute to and profit from the pool. The monies are
not being claimed by anyone else. A mutual fund is a collective of investor-held funds.
The purpose of a mutual fund company is to invest the money so raised in accordance with the
preferences of the investors who established the pool. Typically, investors designate qualified
investment managers to oversee their money. When qualified investment managers develop a
product and present it to an investor for investment, the same goal is accomplished. This
product prostates investing goals and represents a portion in the pool. Therefore, a mutual
fund is the best option for the average investor since it provides a cost-effective way to
participate in a professionally managed, diverse basket of securities.
38 mutual funds, a total of almost 500+ products, are currently available to investors in the
mutual fund business. Even though there are roughly a dozen general categories under which
the products are marketed, industry competitiveness has prompted creative modifications to
common products. Selecting products that align with an investor’s risk tolerance and return
requirements is the primary advantage of product choice. Investors can put the options
together to create a mutual fund portfolio that meets their goals for financial planning.

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8
 The Indian Mutual Fund Industry’s History
The Indian government and Reserve Bank took the initiative to form Unit Trust of India in 1963,
which marked the beginning of the mutual fund business in India. There have been four major
periods in the history of mutual funds in India:
The initial Period: 1964–1987.
An act of parliament from 1963 formed the Unit Trust of the Republic of India (UTI). It was
developed by the Reserve Bank of India, which also oversaw its administrative and regulatory
functions. The Industrial Development Bank of India (IDBI) replaced the RBI as the regulatory
and administrative body when UTI was severed from the RBI in 1978. Unit system 1964 was
the initial UTI system to be introduced. UTI managed assets worth Rs. Six thousand seven
hundred cores at the end of 1988, as amended.
Phase Secondly, 1987–1993 (Public Sector Funds Arrive).
Public sector banks, the Life Insurance Corporation of India (LIC), the insurance company
General Insurance Corporation of India (GIC), and other entities launched non-UTI mutual
funds in 1987. The first non-UTI mutual fund was established by SBI in June 1987. Different
mutual funds that were established in that manner have been Can Bank in December 1987,
Punjab National Bank in August of that year, Indian Bank in November that year, Bank Of India
in June 1990, Bank Of Baroda in October 1992, LIC in June 1989, and GIC in December 1990.
The mutual fund sector handled assets totaling 47,004 crores of rupees by the end of 1993.
Third Phase: Private Sector Fund Entry, 1993–2003
The 1993 their arrival of private sector funds marked the start of a new era in the mutual fund
market in India, providing investors in that nation a greater selection of fund families. The first
Mutual Fund Regulations, which required administration and regulation of all mutual funds
with the possible exception of UTIs, were also established in 1993. Registered in July 1993, the
private sector mutual fund used to be known as Kothari Pioneer, although has now merged
with Franklin Templeton.

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A more thorough and updated version of the Mutual Fund Regulations from 1996 replaced the
SEBI (Mutual Fund) regulations from 1993. The 1996 SEBI (Mutual Fund) Regulation currently
governs the industry.
In addition to numerous overseas mutual funds opening accounts in India, the industry has
seen a number of mergers and acquisitions as the number of mutual fund houses continued to
rise. 33 mutual funds with 1,21,805 cores in total assets were available as of the end of January
2003. In terms of assets under management, the Unit Trust of India surpassed other mutual
funds with Rs. 44, 540 cores.
Phase IV: commenced in February 2003
After the Unit Trust of India Act of 1963 was repealed in February 2003, UTI split into two
different organisations. One is the designated Undertaking of the Unit Trust of India, which as
of the end of January 2003 had assets under management a total of Rs 29,835 cores. The
assets in question actually correlate to the assets of the US 64 scheme, assured return, and a
few additional schemes. The Unit Trust of India is an entity that operates under administrators
and follows regulations established through the Indian government. It is not covered by the
Mutual Fund Regulations.
The second is the SBI, BOB, and LIC-sponsored UTI Mutual Fund Ltd. It operates under the
Mutual Fund Regulations and holds a SEBI approval. The mutual fund industry has entered its
current phase of consolidation and growth with the bifurcation of the earlier UTI, which had
more than Rs. 76, 000 cores of assets under management in March 2000. In addition, the
formation of a UTI Mutual Fund, compliant with the SEBI Mutual Fund Regulations, and several
mergers including private sector funds have all taken place recently. There were 29 funds
managing assets under 421 projects totalling Rs. 151108 crores as of the end of September
2004.

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The laws and regulations controlling mutual funds in India
The SEBI Regulations, 1996 manage the mutual fund business in India. Mutual funds are
needed under the circumstances to have a three-tier structure. The asset management
company (AMC) serves as the sponsor-trustee. The mutual fund promoters, whose function as
the sponsor, identify the AMC to look after the investment portfolio. The mutual fund’s
business face is the AMC. Therefore it monitors each element of the mutual fund. Either the
AMC and the mutual fund need to be registered with SEBI.
The following structures are acceptable for mutual funds:
Form of company. Where by investors purchase mutual fund shares. Within this structure, an
elected board takes responsibility for overseeing the fund and hires investment managers for
supervising it. On behalf of the investors, a trust from which the investors are held. With the
goal to protect the best interest of the investors, the selects investment managers and analyses
their results.
In the United States of America, enterprises have an increasingly prevalent form of institution.
Mutual funds have been set up as trusts in India. The sponsors, who are the actual persons
interested in launching the mutual fund enterprise, construct the trust. A trustee company
incorporated specifically for this purpose, or a board of trustees, administers the trust. The
trust receives the money received from investors.

The mutual fund, or trust, has the AMC as its operational face. The appointment of the AMC is
a starting point in the procedure of choosing all other functionaries. The mutual fund products

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are arranged, promoted, funds are engaged, and investor services are offered by the AMC. For
the purpose to complete these responsibilities, it turned to the functionaries for cooperation.
Every worker submit to the trustees, who formulate rules and regulations and remain an eye
on them during their work.

Regulatory Structure
Authority over ragulations: SEBI is the most powerful authority governing capital markets
regulations. The mutual fund sector in India is regulated under the SEBI (mutual fund)
Regulations, 1996, which were enacted by SEBI. It is necessary for all mutual funds to be
registered with SEBI. The SEBI laws set up a variety of investment restrictions, compliance and
penalties, rights and obligations of investors and functionaries, suggestion of key employees,
operation of the mutual funds, structure and formation of mutual funds, accounting and
disclosure requirements, and more. Mutual funds are needed to submit all operational data
and submit every six months compliance reports to SEBI.
Regarding RBI’s regulatory jurisdiction:
In addition to overseeing the banking sector, the RBI is the nation’s monetary authority. In the
past, SEBI and the RBI had separate regulatory authority over bank-sponsored mutual funds.
These clauses have become outdated. All mutual funds are regulated by SEBI. The RBI is
currently only partially active in the mutual fund business, acting as a regulator of the
companies that provide bank-sponsored mutual funds.
Function of the Ministry of Finance in Mutual Funds:
The Ministry of Finance oversees SEBI and the RBI. According to SEBI Regulations, the Ministry
of Finance also serves as the appellate authority. Parties who experience wrongdoing by SEBI

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decisions on mutual fund transactions have the option to appeal the outcomes to the Ministry
of Finance.
The Companies Act plays an important role in mutual funds:
If the asset management company and the Trustee of the Corporation have been set up as
limited companies, they can be liable to the Company Law Board’s (CLB) requirements. For
these company kinds of entities, the requirements of the Companies Act, 1956 apply. The
highest regulatory body for firms is the Company Law Board. To get the grievances against the
trustee firm or the AMC resolved, they can file them with the firm Law Board.

Role of Stock Exchanges:

If a mutual fund is listed its schemes on stock exchanges, such listings are subject to the listing
regulation of stock exchanges. Mutual funds have to sign the listing agreement and abide by its
provisions, which primarily deal with periodic notifications and disclosure of information that
may impact the trading of listed units.

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 FINANCE MANAGEMENT AN ENTITY
The Asset Management Committee (AMC) is responsible for monitoring the trust’s
investments. The AMC is chosen by the sponsors or the trustees, if permitted by the trust
deed. SEBI approval is a prerequisite for the appointment of an AMC. After approval, the AMC
operates under the trustees’ and SEBI’s direction alongside to the responsibility of its own
directors. With the prior authorization of SEBI and unit holders, the trustees have authority to
remove the AMC from administration by a majority vote and appoint a new one.
In the trust’s name, the AMC would flog and thereafter oversee various investment plans in
accordance with SEBI regulations and the terms of the Investment Management Agreement it
executes with the trustees. Chapter IV of the SEBI (MF) Regulations, 1996 outlines the matters
pertaining to appointment, qualifying requirements, and limitations on the AMC’s business
activities and responsibilities.

Categorization of Shared Fund Plans

The goal of any mutual fund is to raise the value of investors’ investments and/or generate
objective income for investors. Mutual funds use a variety of approaches to accomplish these
goals, and as a result, provide a range of investment plans. Based on these principles, the most
straightforward way to classify systems would be to divide them into two major categories:
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  The classification of operations.
 Portfolio Categorization.

Operational Categorization
a) Open ending schemes: In maintaining with their name, that kind of scheme (fund) includes
an open size, suggesting it is neither fixed nor specified. Investors can invest at their
convenience and have perpetual access to the fund. This type of fund is always open to
purchasing or disposing of its assets. It means investors are continuously buying and selling
shares, which is reflected in the fund’s capitalization. Additionally, the units or shares are
typically repurchased by the fund at predetermined rates rather than being traded on the stock
exchange.
b) A closed-ended schemes:
The shares as well as units in these types of programmes are convertible after a set period of
time. These funds, compared to open ended funds, have fixed capitalization, meaning that
their total assets typically does not fluctuate over time. Due to their requirement to be quoted
on stock exchanges, closed-ended fund units can be traded among investors in the secondary
market. The market’s supply and demand characteristics are that dictate their pricing.

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 Funds Classification by Portfolio
The possible fund classes are listed below. This classification could be based on the following:
(a) Return; (b) Investment Pattern; (c) Specialised Investment Sector; (d) Leverage; (e) Others.
a) Classification with Returns Basis
Mutual fund schemes are designed to generate a healthy return in order to satisfy the diverse
needs of investors. Expected returns could take the shape of consistent dividend payments,
capital gains, or a mix of the two.
1) Income Funds: These are floating-rate funds that cater to investors that are more
interested in returns. To maximise existing income is their goal. These funds disburse
their earnings on a periodic basis. These funds can be further divided into two groups:
those that prioritise consistent income at a low risk and those that make an effort to
maximise revenue even in the face of leverage. Naturally, an investment’s potential risk
increases with expected returns.

2) Growth Funds: These funds seek to improve the underlying investments’ value through
capital gains. These funds make investments in growth-oriented securities that, over
time, may appreciate due to increased production capacity. A higher-than-average level
of risk should be acceptable to an investor who chooses these funds.

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 3) The conservative Funds: This fund, which operates on a “all things to all” tenet, issues
an offer document outlining its goals as follows: (I) Offer a reasonable rate of return; (ii)
Protect investment value; and (iii) Achieve capital appreciation in line with the
accomplishment of the first two goals.

b) Classification Based on the Value of Investments

Mutual funds can also be categorised according to the securities they invest in. In essence,
return-based classification subcategories are being renamed.
Stock funds: As the name suggests, these funds allocate a majority of their investable shares to
company stock shares and assume the risk involved in doing so. Since these funds invest nearly
all of their capital in equity, it is obvious that they will do better than other funds in the rising
market. Once more, there are several types of equity funds: those that only make investments
in prestigious “blue chip” corporations and those that only make investments in start-ups. The
anticipated capital growth of these funds is their main strength. Consequently, the level of risk
is increased.
Bond funds: These funds’ holdings comprise bonds, debentures, and other securities. They are
known for their high level of security, regular income, and minimal to nonexistent probability
of capital growth. In these funds, risk is obviously minimal.
Balanced Fund: Funds with a suitable proportion of bonds and equity in their portfolio are
referred to as balanced funds. When the outlook is favourable, these funds will prioritise
investments in equity shares; but, when a terrible outlook is anticipated for shares, they will
typically convert to debentures.
Funds with a Focus on a Particular Company:
A variety of funds allocate the money they invest to a particular industry. While putting all of
their eggs in one basket gives these funds the disadvantage of minimal diversification, the
specialised approach has the benefit of giving fund managers a thorough understanding of the
businesses in which they are making investments.

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 CLASSES OF SPEECH IMPACTS
Either open ended or closed ended, with a load or none at all, would be the case for every
mutual fund. These groups are broad in nature. All open-end funds, for instance, function in
the same way. In the event of a load, the investor’s subscription or redemption amount is
deducted, and only the net amount is used for calculating the number of shares that are
bought or sold.
Investing goals and the kinds of assets invested in are the main ways that funds can be
identified from one another. The principal categories of funds offered are:-
Money Market Funds
Funds invest insecurities of short term nature which generally means securities of less than
one year maturity.The typical short term interest bearing instruments these funds invest in
Treasury Bills issued by governments, Certificate of Deposits issued by banks and Commercial
Paper issued by companies.The major strengths of money market funds are the liquidity and
safety of principal that the investors can normally expect from short term investments.
Stays Funds

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Government securities referred to as gilts have medium- to long-term maturities, usually more
than a year (money market securities have maturities less than a year). Government securities,
often known as gilt funds, have recently become more popular in India. These funds invest in
dated securities, which are government paper. These funds provide superior principal
protection because there is less chance of default because the government is the issuer.
Investors must be aware, though, that changes in the market price of debt securities held by
the funds due to variations in the market price of debt securities quoted on stock exchanges
could result in changes in the values of the debt securities held by the funds.
Income Funds (the debt Funds)
These funds make investments in debt instruments issued by governments as well as private
businesses, banks, and other financial institutions, as well as other organisations like
infrastructure firms. These funds invest in debt with the primary goals of providing investors
with minimal risk and steady income.
Since debt funds seek high current income rather than capital appreciation and give investors a
significant percentage of their surplus, they are primarily categorised as income funds. Since
the income funds normally invest in debt instruments that generate fixed income, they are
primarily classified as debt funds.
Fund for diversified debt
A suitably diversified debt fund is one that makes investments in every category of debt
instruments that are accessible, issued by companies in every industry and sector. Although
debt funds have a higher income stream and a lower risk in comparison with equity funds,
investors must recognise that debt securities can be subject to the issuer’s default on interest
or principal payments.
Concentrated Debt Fund
Some debt funds invest in fewer assets with a more focused approach. Specialised, offshore,
and industry debt funds are a few examples. They are less riskier and more income-oriented
than equity funds, which makes them very similar.
HY Funds for Debt
Debt funds often manage the risk of borrower default by purchasing securities issued by
borrowers who have received a “investment grade” rating from credit rating organisations.
Nonetheless, some high yield debt funds aim to increase interest rates by allocating capital to
debt instruments deemed to be “below investment grade.” The risks associated with these
funds are higher.
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Absolute Return Funds: An Alternative in India
Mutual funds, at their core, hold assets for investors in trust. Investors bear full
responsibility for all risks and returns. The fund manager’s job is to guarantee the best return
in line with the fund’s investment objective and to offer expert management services. Investors
are not guaranteed a minimum return by the trustees or the fund manager.
But traditionally, the UTI in India guaranteed the investor’s return. The sponsor will
cover any gap that occurs.
Series of Fixed Term Plans
Typically, a mutual fund is classified as either close ended or open ended. In response to
investor needs, mutual funds have developed an inventive middle choice between the two in
India.
The essence of Fixed Term Plan Series is fundamentally closed ended. Because the
mutual fund AMC shuts the issue after the initial offering period, similar to a close-end scheme
offering, it issues a set number of units for each series just once.
Funds for Equity
Investors incur higher risk when they switch from the debt fund category to the equity fund
category. Nonetheless, there is a wide range of equity funds available, and not all of them are
equally risky. Investors and their advisors must sort through and choose the best equity fund
based on their level of risk tolerance.
Diverse investment strategies are employed by equity funds, leading to varying degrees of risk.
As a result, they are typically divided into several categories according to their investment
philosophies. Here are a few of these equity funds.
Funds for Growth
Growth funds make investments in businesses whose profits are anticipated to increase on
average. These businesses might be involved in fields like technology, which are seen as having
room to develop but aren’t totally unproven and speculative. Over a three to five-year period,
capital appreciation is the growth fund’s main goal. As a result, growth funds are less volatile
than funds that aim for rapid growth.
Particular Funds
These funds invest exclusively in businesses that satisfy preset criteria, giving them a more
focused portfolio direction. Certain funds might construct a portfolio that doesn’t include

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tobacco companies. Certain funds in the speciality funds category may include a wide range of
investments in their portfolio. However, because diversification is restricted to a single
investment class, the majority of speciality funds are typically concentrated funds. Speciality
funds that are clearly more concentrated tend to be more volatile than diversified funds.
Funds for Diversified Equities
Diversified equity funds are those that aim to invest primarily in stocks with a very small
percentage in liquid money market instruments, without being overly concentrated in any one
or a small number of industries or shares. Diversified equity funds aim to mitigate sector or
stock-specific risks by implementing diversifications, even if they remain exposed to all equity
risks. Their exposure is primarily to market risk. Clearly, these diversified yet general purpose
funds have less risk than growth funds.
Savings Plan with an Equity Link
Through these unique programmes, investors in India are encouraged to participate in the
equities markets by way of tax breaks. Participation in these schemes gives investors the
opportunity to receive a refund of income taxes, but there is typically a lock-in period before
funds may be withdrawn. These funds fall into the Diversified Equity Fund category and are
governed by the normal SEBI investment criteria applicable to all equity funds. Although there
are no particular constraints on the industries in which these funds must invest, investors
should carefully consider the AMC's proposed investment locations and assess the associated
level of risk.
Funds with an Equity Index
An index fund monitors an individual stock market index’s performance. By following an index
that reflects the entire market, the goal is to replicate the stock market’s performance. In
proportion to the index, the fund invests in shares that make up the index. These funds only
assume market risks as they typically invest in diversified market index portfolios, mitigating
sector- and stock-specific risks via diversification.
Funds Investing in Equities Index
An index fund monitors the progress of a certain stock market index. By following an index that
is representative of the entire market, the goal is to replicate the performance of the stock
market. The fund makes investments in index-complementing shares in the same proportion as
the index. These funds only assume market risks because they typically invest in broad market
index portfolios, which diversify to lower sector and stock-specific risks.
Value-Added Funds
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The growth funds that we previously examined are largely focused on capital appreciation and
owning shares of businesses with strong or improving profit potential. They may be willing to
pay premium prices or earnings multiples for companies deemed to have good potential since
they are focused on future growth prospects. Other funds use the value investing approach,
which is different from growth investing.
Mixed Funds
We’ve seen that there are three main categories of mutual funds: money market, debt, and
equity, depending on the kind of financial securities held. These several security types are
frequently combined in mutual fund portfolios. Because money market securities provide
essential liquidity, most funds, whether they are debt or equity, always include some of these
securities in their portfolios. Nonetheless, money market assets will make up a smaller
percentage of the total portfolios. These are the funds that aim to have a portfolio that is
reasonably balanced between debt and equity. Because they focus on both bonds and
equities, these products are known as “hybrid funds.”
Fair Funds
A fund that has debt instruments, convertible securities, preference and equity shares, and
other securities in its portfolio is considered balanced. Typically, a roughly equal amount of
debt and money market instruments are held by them in addition to stocks. Balanced funds,
which invest in a combination of these kinds, are best suited for long-term, conservative
investors who want to achieve the goals of income, modest capital growth, and capital
preservation.
Mutual Funds for Growth and Income
These funds aim to balance capital appreciation and income for investors, unlike income- or
growth-oriented funds. They mix businesses with potential for capital appreciation with those
that have a strong track record of delivering dividends in their portfolios. Though riskier than
income funds, these funds would be less hazardous than pure growth funds.

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 PLANS FOR INVESTMENT
In general, the word “investment plans” refers to the services that funds offer investors that
give them a variety of investing options. The various investment plans influence the amount of
flexibility accessible to investors, which makes them a crucial factor to take into account when
making investment selections. With regard to investing once or on a regular basis, transferring
funds to other schemes within the same fund family, getting income at predetermined
intervals, and accruing payouts, the fund’s alternative investment plans give the investor
flexibility. The following are a few of the available investment plans:
Automatic Plans for Reinvestment (ARP)
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The dividend option and the growth option are two alternatives offered by several funds in
India under one scheme. Instead of getting the dividends or other distributions from the fund
in cash, the investor can reinvest them in additional units by using the dividend option or
Automatic Reinvestment Plans (ARP). At the ex-dividend NAV, reinvestment occurs. The ARP
makes sure that investors profit from their investments multiplying. Reinvestments into other
schemes within the fund family are permitted for some funds.

Plans for Automatic Investments (AIP)

These force the investor to make fixed-sum investments on a regular basis, allowing the
investor to save gradually and disciplinedly. The investor's bank account or pay could be
debited as an investment method. Systematic Investment Plans are another name for these
programmes. However, not all mutual fund programmes provide this capability. Usually, they
limit it to their basic programmes, which include balanced, income, and diversified equity
funds. In equity funds, SIP performs best. It lets you profit from market volatility and promotes
saving discipline by having you purchase more units during down markets and fewer during
high markets.

Methodical Withdrawal Schedule (SWP)

The same benefit as monthly income is provided by this type of plan, which enables the
investor to take systematic withdrawals from his fund investment account on a periodic basis.
With the option to have withdrawal amounts deposited directly into his bank account or mailed
to his home via check, the investor is required to take out a minimum amount. The sum taken
out is considered to be redeemed for units at the relevant NAV, as stated in the offer document.
On the first day of the payment month, for instance, the withdrawal can occur at NAV.Under
this strategy, the investor often has to keep a minimum amount in his bank account. Investors
and agents alike should be aware that, whereas monthly income plans only pay the income
portion on a regular basis, stock purchase plans (SWPs) allow investors to recoup their original
investment amount.

Organising Transfer Plans (STP)

Within the same fund family, that is, two schemes run by the same AMC and included in the
same fund, these plans enable customers to move a predetermined amount on a regular basis
across schemes. Redeeming units from the scheme into which a transfer is made and investing
in units from the scheme into which a transfer is made are two different ways to interpret a
transfer. The offer document specifies the applicable net asset value (NAV) for each plan, at
which point the redemption or investment will occur.In order for the transfer to be made, the
investor must keep a minimum balance in the plan.These days, investors in India typically have
access to these services through UTI and other private funds. The service enables the investor to

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actively maintain his investment in order to meet his goals. For this service, many funds don’t
even alter their transaction fees.

EQUAL FUND
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 An equity scheme that is open-ended

Features of the fund:

Who should invest?

This strategy is appropriate for investors who want to spread their risks and still get good returns on their
investments.
Investment Goal: Providing investors with long-term capital appreciation is the goal.
Possibility for investment: 1. Growth, 2. Dividend
Availability of liquid assets: Purchase and sale on all working days.
NAV calculating : Every working day.
Redemption moves forward: Will be dispatched within 3 business days.
Benefits of taxes: Benefits of Indexation, Absence of wealth tax and gift tax.

The Index Fund

An unlimited index scheme

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Elements of funds

Who wants to make investments? The plan is appropriate for those looking to invest in
capital market.

Investment Goal: To achieve outcomes consistent with the Nifty, the goal
is to invest in securities that comprise the S&P the National Stock Exchange Nifty in the same
proportion.

The accessibility of liquid assets: The buying and selling on all working days.

The redemption process continues: will be shipped out in three working days.

Tax advantages: receives advantages from indexation, absence of wealth

tax and gift tax.

TAXES
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When choosing the right assets, investors frequently take the tax aspect into account. This
section looks at the taxation of mutual funds, including how investors' income (such as
dividends and capital gains) is taxed and how the fund taxes the income that its investors
receive.

Income tax within the control of the funds

For taxes purposes, a mutual fund refers to the duly established trust that houses the capital of
the investors. Through the investments it makes on behalf of the investors, this trust generates
and receives revenue. The trust is exempt from taxation in the majority of nations since the
money it makes is intended for the investors. The trust is regarded as merely an entry point that
passes through. If the tax is paid by the trust and then the investor is also obligated to pay it, it
would be considered double taxation. The trust is often free from taxes, and the investor is
responsible for paying taxes on his portion of income sources. Investors are completely exempt
from paying any tax on the dividend income they earn from mutual funds after the 1999–2000
budget of Finance Minister Mr. Yashwant Sinhala, while some schemes have some tax
implications. This section addresses the tax payments made by the fund or trust.

Provisions for taxes

Any mutual fund registered with SEBI is generally immune from tax on its revenue.

However, a closed-end or debt fund’s income distribution to unit holders is subject to a 10.2%
tax, which consists of a 10% dividend distribution tax plus a 2% surcharge. Distributions made
by open-end equity funds, or funds with more than 50% of their portfolio in equity, on or after
April 1, 2002, are likewise subject to this tax.

The investor’s personal taxation

Mutual fund subscriptions are eligible for an individual investor’s tax refund.

Section 88 of the Income Tax Act states that investments made in an ELSS up to the amount of
Rs. 10,000 are eligible for a 20 percent tax refund.

A 20 percent tax refund is available for investments up to the amount of Rs. 80,000 in “the
infrastructure” mutual fund units.

Nevertheless, the total amount of investments eligible for Section 88 tax rebates cannot exceed
the amount of Rs. 60,000 (or 80,000 rupees if the investments meet certain requirements).

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Earnings from Mutual Fund Distributions

Recipient income from a fund is exempt in the eyes of investors as of the accounting year
1999/2000.

Gains on sale of units capitalised

But if the investor sells his units and makes “Capital Gains,” he or she is liable for the following
Capital Gains Tax:

The treatment of units as long-term capital assets will differ depending on whether they are held
for more than 12 months or less. With the exception of shares and listed securities, this term is
36 months.

 Sale consideration less (acquisition + improvement + transfer costs) is the definition of

capital gains under tax law.

Investors who hold their units for more than a year are eligible for "indexation," which results in
a reduction in their capital gains because their purchase price is adjusted for inflation based on
an inflation index. The cost of acquisition or improvement, after indexation, is calculated as
follows: cost of acquisition or improvement * cost inflation index for year of transfer/cost
inflation index for year of acquisition or improvement, or for 1981, whichever is later. This
represents the purchase price of a long-term capital asset.

29
 Performance of Mutual Funds

The Viewpoint of the Investor

Whether the investor makes direct market investments or indirect ones through mutual funds, he
would genuinely be interested in monitoring the value of his holdings. He would have to make
wise choices about whether to move to a different fund or whether he receives a sufficient
return on his investments in the funds he has chosen. As a result, he must learn the
fundamentals of the many metrics used to assess a fund’s performance as well as the foundation
for suitable performance assessment for the funds. Then and only then would he be able to
accurately assess whether or not his fund is functioning successfully.

The Advisor’s Opinion

A potential investor would expect you to provide him with appropriate advise on which mutual
funds have a strong performance history if you were acting as an intermediary and suggesting
them. To become a successful investment advisor, you too must be able to assess and gauge the
performance of the many funds that investors can choose from. The advisor’s understanding of
the proper and accurate metrics for assessing fund performance is necessary in order to compare
the performance of the various funds.

Various Performance Indexes

Keep in mind that assessing the fund’s performance can be done in many different ways. The
best measure must be determined based on a number of factors, including the fund’s declared
investment aim, type, and current health of the financial markets. Now let’s talk about a few
standard protocols.

Goal: An investor can easily determine the change in the NAV value between the two dates in
both absolute and percentage terms by using the Per Unit Net Assets Value at the beginning and
end periods while calculating the Return on Investment.

The formula for shifting NAV in absolute terms is:

30
 The difference between the beginning and end of the period’s NAV is the period’s NAV.

Regarding the % change in NAV:

(Complete variations in NAV /NAV at start)*100.

If the time frame covered is less than or greater than a year, the annualised NAV Change (the
total change in NAV/NAV at the start)/months

The appropriateness: According to mutual fund managers, NAV change is the most often used
metric by investors to assess the performance of their funds, making it a suitable choice. Easily
comprehensible and applicable to almost any kind of fund, this metric has the advantage.

The interpretation: Considering the fund’s investment objective, the state of the market, and
the returns on other investments, one should determine whether or not the return in terms of
NAV growth is adequate. Therefore, in its early years, a long-term growth fund or infrastructure
fund will yield poor returns. When the market is in a gloomy period, all equity funds may yield
reduced returns.

Limitations: Nevertheless, in situations where the fund has paid out a sizable dividend to
investors during the interim period, this measure may not always provide the accurate picture. If
the year-end net asset value (NAV) in the aforementioned example was twenty-two rupee
following the announcement and payment of a 1 rupee dividend, then the ten percent (%)
change in NAV presents an imprecise image.

As such, it is appropriate for assessing growth funds and debt and equity fund accumulation
plans, but it should be avoided for income funds and funds that have withdrawal plans.

Goal: By adding the fund’s dividend distributions between the two NAV dates to the NAV
change in order to calculate the total return, this measure makes up for the drawbacks of the
NAV Change measure.

The formula is: [(the distributions + change in NAV)/NAV at start of period].

Suitability: The total return metric is appropriate for all fund kinds. The Total Return metric
can be used to compare the performance of various fund types. As a result, one can determine
whether a debt fund has outperformed an equity fund over a certain time frame. Because it
accounts for distribution during the period, it is also more accurate than a simple NAV change.

A limitation: The simple Total Return as computed above is still insufficient as a performance
metric, although being more accurate than NAV change, since it fails to account for distributed
dividends that are reinvested if they are received during the year. Reinvesting interim dividends
should be factored into the investor’s overall return.
31
Goal: the total return with dividends reinvested in the funds at the NAV on the distribution date
offsets the shortcomings of the simple total return. Thus, return on investment is a suitable
indicator of how much an investor’s mutual fund holdings have grown.

The suitability: Mutual fund tracking companies like Residence in Mumbai and Value Project
in New Delhi accept the total return with distributions reinvested at NAV as a metric. It is
suitable for gauging the effectiveness of accumulation plans and income schemes that pay
interim dividends on a monthly or quarterly basis.

Fund Monitoring the Performance of Mutual

The difficult part of managing mutual funds on the market is keeping track of performance on a
regular basis after suitable benchmarks and measurements have been determined. It’s true that
this is the secret to investing in mutual funds to maximise wealth. When it comes to managing
his fund portfolio, an investor can make well-informed and prompt decisions with proper
tracking, including choosing which funds to buy, selling underperforming funds, and switching
between plans and funds.

Finding pertinent data on NAV, costs, cash flow, suitable indexes, and other topics is the first
step towards being able to monitor fund performance. The information sources in India are as
follows:

The websites for Mutual Funds: Due to the growing popularity of the internet as a media,
every mutual fund has a website. Even the disclosure of certain information on these websites—
like the Portfolio Composition—is mandated by SEBI. In a similar vein, AMFI maintains a
website that shows the NAV of each of its member funds.

Yearly and A Periodic Reports for Mutual Funds: These contain information on the
financial performance of the fund, which may be used to calculate metrics like Total Return and
Income/Expense Ratios. A list of the fund’s portfolio holdings at market value, a statement of
income and expenses, the unrealized appreciation or depreciation at year’s conclusion, and
changes in net assets are all included in the annual report. In addition to calculating returns,
investors can form an opinion about the quality of the fund’s assets, portfolio concentration, and
risk profile based on the annual report. By examining the performance of each of their schemes,
he can also evaluate the calibre of the fund management organisation. The annually report’s
profit and loss account will include information on transaction charges including stamp duties,
custodian/registrar fees, and brokerage fees.

32
Financial documents: Share prices of closed end listed schemes and daily NAV values for
open end schemes are provided by daily publications like the Economic Times. Furthermore,
further analytical data on the performance of the funds can be found in the weekly supplements
of the economic publications. For instance, in addition to fund size and rankings with other
funds individually for equity, balanced, debt, money market, short-term debt, and tax planning
funds, Business Standard’s Smart Investor provides total returns over three-month, one-year,
and three-year periods. Similar to this, the weekly supplement of Economic Times provides
performance statistics on closed-end schemes and further information on open-end schemes
such loads and dividends in addition to NAV and other data.

Newspapers: A lot of banks, mutual fund agents, stockbrokers, other non-ranking companies
that serve retail investors release their own newsletters with recommendations and fund
performance information. These are sometimes available for free, but they are usually only
available to subscribers.

The prospectors: As mandated by SEBI regulations for mutual funds, compels fund sponsors
to reveal performance information about the scheme under management by the relevant AMC,
including annual and quarterly totals.

Funds tracking the agencies: Credence and Value Project are two Indian agencies that provide
mutual fund performance statistics and analysis. This information can only be obtained upon
request and payment.

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 Assessing Financial Performance
Benchmarking Is Essential for Assessing Fund Performance

All of the previously listed metrics are out of date, so none of them should be used to assess the
performance of the fund on its own. The performance of a fund can only be assessed in light of
investor expectations. But it’s crucial for the investor to set reasonable expectations based on
the “guideposts” that indicate what can be accomplished, or to temper his ambitions with the
practical investment options that the financial market offers. These benchmarks, often known as
the performance indicators, serve as standards by which the performance of a fund should be
evaluated. For example, an investor’s expectations of returns from equity funds should be
evaluated, and whether the fund delivered a return better or worse than the index movement,
should be determined by looking at the overall performance of the stock market, or more
precisely, how much the stock market index fluctuated. The performance of the investor’s
mutual fund can be evaluated in this situation by utilising “benchmarks” like the BSE SENSEX
market index or the S&P CNX Nifty.

To assess a fund’s performance, the advisor must choose the appropriate benchmark so that he
may contrast the measured performance metrics with the chosen benchmark. Historically, UTI
schemes or bank fixed deposit interest rates were the only ways for investors in India to assess
the success of the units. In the past, UTI had a tendency to “benchmark” its profits on the
interest rates offered on bank deposits with maturities of three to five years. Investors would be
pleased if the Dividend Yield on US 64 units exceeded the interest rate on equivalent deposits,
34
as a result for a considerable amount of time, the dividends under the US 64 scheme were
compared to bank interest rates. Bank interest rates, however, shouldn’t always be utilised to
assess a mutual fund’s performance due to the proliferation of investment possibilities available
in the market. Consequently, let us examine how to select appropriate mutual fund performance
benchmarking.

Rationale for Selecting the Correct Performance

Measure
Any fund’s suitable benchmark shall be chosen in accordance with:

Its investments portfolio. The performance of a debt fund should be compared to the benchmark
for the debt market, and vice versa. Additionally, the fund’s declared investing aim must be
considered when evaluating an equity fund. A fund’s performance should be compared to a
benchmark that accurately represents the performance of growth stocks, for instance, if it
invests in long-term growth equities.

1. The performance of a fund can really be compared to three other types of benchmarks.
2. The overall market, other mutual funds, similar financial products, or the investor’s
available investment options.

35
 Stock fund
Basis: An investor can anticipate receiving the same return on his investments from an Equity
Fund, now available in India, as from the return on the stock index that serves as the fund’s
benchmark, known as the Base Index. In order to track changes in the index, the fund would
invest in index companies and anticipates that NAV changes would also occur. Instead of
aiming to outperform the benchmark, the investor and the fund would only hope to achieve an
index-level return.

Monitoring Error: An index fund invests in every stock in the index calculation in the same
proportion as the stock’s weight age in the index in order to achieve the same returns as the
index. The fund manager faces practical challenges when attempting to consistently buy or sell
equities in order to maintain the weight age that the stock enjoys in the index, which leads to
tracking inaccuracy.

Equity funds labelled as “active”: Are index funds that follow a certain index through passive
management. The fund managers actively handle the majority of the other equity funds and
schemes, nevertheless. The fund manager of an actively managed equities fund would not, as
with an index fund, predetermine the benchmark by which the investor is expected to perform.
Even so, the investor must still be aware of how well the fund is performing. So, in order to
assess the performance of the equity scheme, we still need to choose a suitable benchmark and
compare the equity scheme’s return to the benchmark’s return; typically, this calls for the use of
a suitable market index.

The size and makeup of the fund’s portfolio should be taken into consideration when selecting
the right index to utilise for assessing broad-based equity funds. If the fund in question has a
large portfolio, it could be necessary to utilise a broader market index instead of S&P CNX
36
NIFTY or BSE 30, such as BSE 200, 100, or NSE 105. An actively managed fund aims to
outperform the index, meaning it will yield returns that are higher than the index’s.The selection
of benchmarks for Sector Funds is less complicated than that of Index Funds. It is evident that
an investor in Parma or Infotech sector funds, for instance, can only anticipate a return equal to
that of the relative sectoral indices. If there is an Infotech or Parma sector index, he should
anticipate returns that are equal to or greater than that index in these situations. Stated
differently, the fund’s investment aim influences the selection of the appropriate equity index as
a benchmark as well. The small cap index must be used to evaluate a small cap fund’s
performance. Only the proper growth index, if available, should be used to evaluate a growth
fund that invests in new growth areas while being diversified in many other sectors. Otherwise,
only a broad-based index or a collection of sector-specific indexes can be used to compare the
results.

Investments tactics
An investor’s actions are guided by their investing strategy, which takes into account their
objectives, risk tolerance, and projected capital needs. There are investing plans that focus on
capital appreciation and rapid growth, or low-risk methods that emphasise wealth accumulation.

Recognising Investment Techniques: Dollar-cost averaging, dividend reinvestment, and low-

cost, diversified index funds are popular choices among investors. The investment technique
known as dollar-cost averaging

On a regular basis, a specific investment or a predetermined amount of stocks are purchased,

independent of the share price or cost. When stocks are cheap, the investor buys more, and
when they are expensive, they buy less. Averaging returns over time, certain investments will
perform better than others.

Using individual firm analysis and share price predictions, some seasoned investors choose
individual stocks and construct a portfolio.

Benjamin Graham, in “The Intelligent Investor,” published in 1949, listed five strategies
for investing in common stock market.

37
1. Wholesale trading: Similar to dollar-cost averaging, the investor forecasts market
movements and takes part in them.

2. Trading with preference: The investor chooses equities that they believe will perform well
in the market in the near future—a year, for instance.

3. Purchasing low and selling high: When prices are low, the investor joins the market, and
when they are high, they sell stock.

4. Extended-pull choice: The investor chooses stocks they believe will increase in value over
the course of several years more quickly than other stocks.

5. Purchasing deals: Using certain methods, the investor chooses equities that are undervalued
relative to their actual worth.

Every investor has to make a decision on how they wish to manage their portfolio, according to
Graham.

Buy cheap and sell high is a strategy that seasoned investors may find more comfortable and
appealing, while investors with limited time to monitor and conduct research on the market may
profit more from

Putting money into funds with a long-term focus and market tracking.

The management of a portfolio is a personal choice, but investors ought to act logically,
supporting their decisions with facts and figures, while trying to keep risk to a minimum and
preserve adequate liquidity.

Risk and Investing Strategy

An investing strategy’s main component is risk. While certain people are risk-takers, others
have a low tolerance for it. But one general guideline is that investors should take on only the
risk they can afford to lose. An additional generalisation is that certain investments have a
larger risk than others and that the possible return increases with increasing risk. Certain
investments ensure that the investor will not lose money, but the likelihood of making a profit
will also be low.
38
 Plan for Systematic Investments: This allows for the monthly investment of a set amount on
a predetermined date. In a high NAV environment, investors receive fewer units; in a low NAV
environment, they get more units. Rupee Cost Averaging (RCA) benefits are known as this.

Under the Systematic Transfer Plan: An investor invests in a debt-oriented mutual fund and
instructs the fund to transfer a predetermined amount, on a predetermined interval, to an equity
plan.

A systematic withdrawal plans: allow investors to take out a predetermined amount each
month from their mutual funds.

39
 The Mutual Fund’s Classification
Mutual funds come in seven different types:

1. Funds for money markets:

These funds make investments in short-term fixed income instruments such certificates of
deposit, bankers’ acceptances, government bonds, and treasury bills. Compared to other
mutual fund kinds, they offer a smaller potential return but are generally a safer
investment. The goal of Canadian money market funds is to maintain a consistent net
asset value (net asset value) of $10 per investment.

2. Fixed-income mutual funds:

Investment with fixed rates of return, such as government bonds, investment-grade corporate
bonds, and high-yield corporate bonds, are purchased by these funds. Their goal is to have
consistent inflows of funds into the fund, primarily from interest earned by the fund. Corporate
bond with a high yield

Generally speaking, funds that hold government and investment-grade bonds are less risky than
other types of funds.

3. Mutual fund for equity:

40
 Stocks are the investment vehicles for these funds. These products carry a higher risk of loss
of capital because they are designed to grow more quickly than money market or fixed
income funds. You can select from a variety of Growth stocks, which typically don’t pay
dividends, income funds, which own large-cap . Companies, mid-cap stocks, small-cap
stocks, value stocks, and mixes of these are among the several types of equity funds.

4. Equilibrated finances:

These funds make a combination of fixed income and equity investments. They attempt
to strike a balance between the chance of losing money and the goal of obtaining larger
returns. The majority of these funds have a formula to divide funds between the various
investment kinds. Compared to pure equities funds, they often carry a higher risk profile
than fixed income funds. While conservative funds hold a higher proportion of bonds
than stocks, aggressive funds hold a higher proportion of stocks.

5. Funds that mirror:

An index’s performance, such the S&P/TSX Composite Index, are known as index funds.
In tandem with the index’s volatility, the mutual fund’s value will fluctuate. List Index
funds do not require the portfolio manager to conduct as much research or make as many
investment decisions, which usually results in cheaper expenses than actively managed
mutual funds.

6. Funds with specialised mandates:

such real estate, commodities, or socially conscious investing, are known as specialty
funds. A socially conscious fund, for instance, might put money into businesses that
Favour diversity, human rights, and environmental stewardship; they may steer clear of
businesses that deal with alcohol, tobacco, gambling, firearms, or the armed forces.

7. Fund-of-funds:

Investments in other funds are made by these funds. They aim to facilitate investor asset
allocation and expansion, much as funds with balance. Compared to independently
mutual funds, fund-of-funds typically have a higher MER.

41
Mutual funds fall into the following categories:

Considering their arrangement:

 Open-ended the funds: Units in the fund may be purchased and sold by investors at any
time.
 Closed-ended the funds: These funds only ever solicit contributions from investors
once. Consequently. New investments into the fund cannot be made beyond the offer
period. The units of the funds, such as the Morgan Stanley Growth Fund, can be
exchanged like stocks if they are listed on a stock market. The majority of new fund
offers have recently been close-weekly. Units may be redeemed at predetermined
periods. Consequently, these funds have a limited level of liquidity.

Considering their goal for the investment:

42
Funds for equity investments: these funds make bets on stocks and securities. Such funds
exhibit erratic performance, including losses, due to shifting share values. But in the short run
Long-term market fluctuations typically flatten out, providing bigger returns with
comparatively lower volatility. However, because stocks have historically outperformed all
other asset classes in the long run, these funds can produce significant financial appreciation. As
a result, investing in equity funds have to be thought about for a minimum of three to five years.

It falls under one more category:

i. Index funds: here referring to a significant stock market index such as the Nifty or BSE
Sensex Gets monitored. Their portfolio’s composition and individual stock weightings
are identical to those of the benchmark index.
ii. Equity Diversity Funds: All capital is invested in stocks and sectors of the equity
market, accounting for 100% of the total.
iii. A dividend yield fund: Akin to an equity diversified fund, with the exception that it
invests in businesses that offer high dividend yields.
iv. Thematically funds: Place all 100% of the assets in industries that share a common
theme.For instance, investments in the cement, power, and building industries are made
by infrastructure funds.

43
 An investment
Purchasing an asset or item with the intention of making money or appreciating in value is
known as investing. Value growth of an asset over time is referred to as appreciation. Buying an
investment good means that the buyer intends to use it to generate wealth instead of using it for
consumption now. In order to receive a larger payout later on, an investment always requires
the outlay of some asset today, such as time, money, or effort.

An investor might buy a financial asset today, for instance, with the expectation that it will
increase in value over time and generate income or that it will be sold for a profit at a later date.

 Any asset or thing that is bought with the expectation that it will increase in value or
produce income in the future is called an investment.
 The outflow of an asset today, such as time, money, effort, etc., is always involved in an
investment.
 In the hopes of earning a larger payout later on than what was first invested. An
investment can be any tool used to generate income in the future, such as stocks, bonds,
real estate, businesses, or real estate.

The Operation of an Investment:

Investing is done with the intention of making money and building value over time. Any
method of producing income in the future might be considered an investment. This includes,
among other things, buying stocks, bonds, or real estate.

44
Generally speaking, any activity made with the intention of generating income in the future
qualifies as an investment. For instance, deciding to seek further education frequently has the
intention of improving knowledge and abilities (with the eventual goal of earning more money).

As investing is focused on the possibility of future income or growth, there is always a certain
amount of risk involved. It’s possible for an investment to lose value over time or to produce no
income at all. For instance, there’s also a chance that you will spend money on a

A project that is never completed or a corporation that goes bank crept. Savings and investing
can be distinguished primarily by the following: saving is the process of building up funds for
future use, whereas investing. As investing is focused on the possibility of future income or
growth, there is always a certain amount of risk involved. It’s possible for an investment to lose
value over time or to produce no income at all.

Investment categories

Financial Investing

Investments are linked to economic growth inside a nation or a country. Sound business
investment strategies are usually associated with economic benefits for corporations and other
entities departments

If an organisation produces things, for instance, it might create new machinery or manufacture
new commodities to increase output faster. This would increase the company’s overall output of
items. When combined with the endeavours of numerous other organisations, this growth in
output has the potential to boost the country’s gross domestic product (GDP).

Investment Vehicles:

An investment bank offers both individuals and organisations a range of services, many of
which are intended to help them in the process of boosting their Prosperity.

A specific branch of banking that deals with raising cash for other businesses, governments, and
other organisations is known as investment banking. Investment banks assist in the selling of
securities, underwrite new debt and equity securities for all kinds of firms, and arrange mergers

45
and acquisitions, reorganisations, and broker trades for both institutional and individual
investors. Investment banks may also offer advice to businesses thinking about making their
first public share offering, or initial public offering (IPO).

Speculation vs. Investing

Speculation is not the same as investment. Purchasing assets with the intention of holding them
for a long time is known as investing, whereas trying to profit from

Market imperfections for transient financial gain. Speculators typically don’t want to be owners,
but investors frequently aim to gradually increase the amount of assets in their portfolios.

Despite the fact that speculators frequently make well-informed selections, speculating is
typically not classified as traditional investing. Generally speaking, speculation carries a higher
level of risk than regular investing, however this might change based on the specifics of the
transaction. Some experts liken speculating to gambling, however whether this is a valid
comparison may depend on your point of view.

Review of the literature

1. Mutual fund investments

Two explanatory factors have been used in the majority of mutual fund research: risk and
Revert. Other potentially significant factors in the mutual fund investing decision are implicitly
given no weight in this method. Several academics have looked into whether mutual funds
perform better than the market under this purely economic framework.

A large body of early studies (e.g., Sharpe, 1966; Jensen, 1968) demonstrated that mutual funds
underperform the market when risk is taken into account. More recent research finds some
indication of higher mutual fund returns, such as studies by Ippolito (1989) and Grinblatt and
Titman (1989, 1992).

Another question to ask is if past performance of mutual funds indicates future performance,
focusing just on return and risk. According to a number of scholars (Elton and Gruber, 1989;
Goetzmann and Ibbotson, 1991; Grinblatt and Titman, 1989, 1992; Hendricks, Patel, and
46
Zeckhauser, 1993; Ippolito, 1989;), previous risk-adjusted mutual fund performance helps
forecast future risk-adjusted performance.(1987, Lehmann and Modest). While some evidence
is stronger than others, some is really weak.

In a similar vein, there is some empirical evidence to support the idea that investors base their
decisions to buy mutual funds on historical performance. Prior fund performance, according to
Patel, Zeckhauser, and Hendricks (1992) and Kane, Snatini, and Aber (1991).

Appears to be related to net inflows into mutual funds when risk is taken into account. Sirri and
Tufano (1992, to 33) discover that fund growth appears to be driven by raw returns, which are
not risk-adjusted. They contend that “naive retail trend chasers” are considerably more
susceptible to the unadjusted performance’s “noisier” metric.

Even while return and risk received a lot of attention in the studies mentioned above, there is
evidence that these factors don’t fully account for why people choose to participate in mutual
funds. Closed-end mutual funds, for instance, typically sell for significant

Discounts or premia to the component securities’ underlying net asset values (Lee, Shliefer, and
Thaler, 1991). Furthermore, money coming into well-performing open-end funds is
substantially higher than money leaving continuously underperforming funds, according to Sirri
and Tufano (1992). Additionally, Sirri and Tufano (1992) show that greater service levels are
positively correlated with net fund inflow using proxy variables for services. These findings led
Goetzmann, Greenwald, and Huberman to make some decisions.

An investigation conducted by Consumer Reports in 1990 among mutual fund investors offers
proof that return and risk by themselves are insufficient as the only explanatory factors for
investing decisions. Despite the fact that risk (safety) and historical performance ratings.
Besides the two most significant factors overall, a number of other factors were also significant:
sales charge amount, management fees, reputation of fund managers, fund family (e.g.,
Vanguard, Fidelity), clarity of the fund’s accounting statement, suggestion from a financial
newsletter or magazine, the accessibility of phone shifting the fact that the funds are already
owned in that family, and suggestions from a close associate.

In summary, a narrow focus on return and risk alone seems to be telling only a portion of the
whole picture when it comes to mutual fund investment selections. Because it has ramifications
for the prevailing paradigm of investor behaviour, academic academics find it extremely
important to understand which mutual fund attributes investors actually utilise when making
investment decisions. Additionally, the practical the implications are vast. Presumptions
regarding investor behaviour are becoming more and more important as the mutual fund
47
business concentrates and major firms spend even more substantially on creating and managing
funds, as well as distributing and promoting these funds to investors in order to build and secure
their market positions.

In this exploratory study, we examine how individual investors purchase mutual funds from the
standpoint of consumer behaviour. By analysing post-purchase investor self-reports of their
mutual fund investing decisions, we aim to provide light on which qualities are thought to be
significant. Specifically, we investigate the connections between four sets of variables:
customer data on demographics, selection criteria for choosing between alternative mutual
funds, information sources used for mutual fund purchases, and mutual fund buy behaviour.
Data gathered from over three thousand mutual fund investors across the continental United
States served as the basis for this study.

2. How consumers behave

The research of individual purchasing decisions has a long history in the research on consumer
behaviour. Supported by the comprehensive model developed by Howard and Sheth in 1969,
consumer Behaviourists have created and examined a wide range of constructs that they believe
make up the decision-making process for purchases. Three of the more common ones—
information sources, selection criteria, and purchase—are the subject of this study. We look at
the relationships between these constructs while making decisions about buying mutual funds.

The following approach is a common way that academics studying consumer behaviour have
modelled the process of making purchases. Firstly, customers obtain data about the product
category of interest (mutual funds in this case) from internal sources (such as recollections of
prior both internal (such as personal experience) and external (such as advertisements,
pamphlets, and newspaper articles) sources (these two sources can just be called information
sources). With this data at hand, they formulate a set of criteria (such as cost, functionality, and
quality of service) for products and services that are crucial to them when evaluating the many
substitute product offers.

In order to forecast purchase behaviour, consumer behaviour researchers work hard to create
models of construct mutual dependence. In a similar spirit, we investigate the relationships
between information sources and selection criteria as well as how they connect to the buying of
mutual funds as well as the demographic characteristics of investors. By examining these
connections, we intend to gain a deeper comprehension of the mutual fund investment choice.

48
 3. Sources of information:

Both interpersonal and impersonal (mass) communication can be received by consumers during
the decision-making process for a purchase.

Both informal (such as from family and friends) and formal interpersonal communication as
well as formal sources (such organisations). There is little research on the connection between
information sources and other constructs related to purchasing decisions (Engel, Blackwell, and
Miniard, 1986, pp. 259-299). The Vinson and McVandon (1978) study is a noteworthy
exception, as it demonstrated a robust correlation between the participants' knowledge sources
and their recollection of product concepts.

Related studies have demonstrated that customer satisfaction levels are influenced by how
personalised a service interaction is (Surprenant and Solomon, 1987). Carroll (1990) contends
that a bank’s retail client mix may have an impact on be improved by presenting information
selectively, and Crosby and Stephens (1987) show that insurance buyers prefer private data
sources over impersonal ones.

Private the sources for the decision to buy mutual funds include advertising, direct mail, and
publicly available fund performance statistics; informal interpersonal sources include relatives
and close friends; formal social sources involve fee-based advisors, or planners, who charge a
fixed fee for their services irrespective of the volume of transactions; and Commission-based
49
consultants, who obliquely levy fees for each transaction. Unfortunately, despite these sources
of information being vital to mutual fund managers who have to devote resources to distribution
and communication, there is a dearth of hard data regarding the proportional weight that
investors place on them.

4. Two selection standards:

The selection criteria encompass the range of features related to products or services that buyers
take into account while choosing between different options. These characteristics could be less
precise conceptions like responsiveness, or they could be clearly specified physical
characteristics like the size of a mutual fund family (i.e., the number of funds). Or the idea that
a mutual fund sales person is secretive. Consumer researchers may most frequently refer to
Fishbein & Azjen’s (1975) attempt to model the decision-making process. The total of each
alternative’s perceived values across a number of (importance-weighted) qualities determines
the choice in their multi-attribute model.

The option that receives the highest score on weighted, independently scored criteria is chosen.
A multi-attribute model of consumer choice presented by Wharton (1966) may be more
recognisable to economists and financial experts. According to him, consumer usefulness is
found in the Attributes that a good has as opposed to the good itself. Preferences sequences are
therefore just indirect rankings of products; rather, they are rankings of groups of traits, or
attributes. We make an effort to pinpoint the features or qualities of mutual funds that matter to
investors when they’re choosing which investments to make.

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Three sets of variables—the individual, the brand or product characteristics, and the purchasing
context—jointly influence the specific selection criteria used for a given purchase.

According to Maheswaran and Meyers-Levy (1990), individual determinants include a range of

decision makers’ demographic and psychographic traits. Features and properties of the product,
such as cost, effectiveness, and quality, are examples of brand or product characteristics.

Return and risk for the acquisition of mutual funds) are generally thought to have a major
influence on how the selection criteria are weighted (Gupta, 1988). Last but not least, selection
criteria are greatly influenced by the purchasing context, such as how the decision is framed
both internally and externally (Kahneman and Tversky, 1974).

As previously mentioned, prior research has examined the decision to invest in mutual funds by
concentrating on two factors: return and risk. We anticipate that, in light of the studies
mentioned above, investors use additional selection criteria, either in addition to or as an
alternative to risk and return on investment.

5. Mutual fund purchases:

Our general working hypothesis is that for the mutual fund Investment decision, information
sources, selection criteria, and mutual fund purchase are related. It seems that it should also be
possible to identify groups of investors who Display intragroup homogeneity and intergroup
heterogeneity regarding the use of information sources and selection criteria in their mutual
fund investment decisions. Such “market segments” might exhibit unique mutual fund
investment behavior and possess Unique demographic characteristics. These market segments
might provide an important Perspective on the structure of the mutual fund market, as well as
provide insight Valuable to mutual fund managers for developing marketing strategies for their
firms.

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 6. Evaluation

Subjects were grouped according to similarities in their a scree test depicts the eigenvalues
associated with each cluster and proposes how many clusters to maintain based on additional
variance explained. The information source and selection criteria ratings were used to
determine the number of clusters picked. Cluster integrity was well-supported by a split half
test that showed a high degree of replication between the two sample half. Clusters created
using this method were evaluated for variations between them in terms of information source
and selection criteria. The associations between a single composite set of clusters and mutual
fund investment behaviour were investigated.

7. Results

The results are presented in four sections. First, we present a series of descriptive results of
information sources and selection criteria used in the mutual fund purchase, and of Mutual
fund investor behavior. Second, we develop two sets of groups, one based on use Of
information sources, and one based on selection criteria; we then combine these groups Into
a single set of composite groups. Third, we examine a set of demographic variables for
Differences across the five major composite groups. Finally, we examine mutual fund
Investment behavior across the same five groups.

8. Talk About

3386 investors in mutual funds provided self-report data for this analysis. Analysis of the
association between these process aspects and investor demographics and mutual fund
investing behaviour was conducted with a focus on sources of information and criteria for
selection used in the investment process. A fundamental aspect of the examination involved
the division of the sample into two groups: the first group consisted of individuals who used
similar information sources, and the second group included individuals who met the same
selection criteria. Following the merging of these two sets of overlapping groups, five
composite groups—which together accounted for 85.8% of the sample—were investigated
with respect to investor demographic and mutual fund investment behaviour.

Overall, the findings provided credence to our working hypothesis, which holds that there is
a relationship between mutual fund investment behaviour, selection criteria, and information
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 sources. First, the expected association between information sources and selection criteria
was validated by the strong degree of interrelationship between the four information-source
groups and the three selection-criteria groups. Second, the connection between data sources
and that substantial disparities observed for the five composites
information-source/selection-criteria groupings across a number of mutual fund investment
behaviour variables showed the relevance of selection criteria to mutual fund investing
behaviour. Lastly, a comparable demonstration of correlations to investor demographics was
made.

Performance and risk have been the main factors that investors consider when choosing
between mutual funds, according to the study that has already been done on the subject. This
strategy is generally supported by the self-report data from the study. The investment
performance track record and published performance rankings were found to be the most
significant information sources and selection criteria, respectively. These performance-
related elements were the most significant for two of the criteria used for selection groups
and three of the four data source groups.

Financial performance is simply one of many aspects that investors take into account when
making decisions about mutual fund investments, according to the combined results as well
as the findings from the creation of information source and selection-criteria groups.

A significant definitional role was played by variables other than performance for each of
the four information-source and three selection-criteria groups. Moreover, published
performance rankings held comparable significance for the Commission-Based Advisees
(IS) that are group, whereas other variables took precedence over the investment
performance track record for the Service-Sensitive (SC) group.

Altogether, these findings point to the possibility of a multi-attribute model of mutual fund
investor behaviour, one that incorporates features (attributes) in addition to risk return.

In fact, focusing only on risk return may be highly deceptive for investors, such as those in
the Service-Sensitive (SC) category

It was surprising to see the tiny but very knowledgeable group appear. This group differed
significantly from the other four groups not only in terms of investment expertise but also in
terms of how they invested in mutual funds.They were the group with the highest percentage
of liquid assets, the highest number of mutual funds, the highest number of fund families,
53
 and the highest probability of making more investments in the future. Likewise Additionally,
there were a number of variations in the investment practices of the other four composite
groups.

Lastly, the tiny but well-informed group was different from the other four groups in a
number of significant demographic aspects; the most notable of these were the members’
predominately northeastern region and the relatively small percentage of invested monies
from salaries. As was already mentioned, there were a few variations between the other
groups as well.

We investigated various process characteristics in this study that may be part of a multi-
attribute investor choice model. Factors like promptness in answering questions, privacy,
extra features, and scope (amount of family finances invested) could have a much greater
impact on an investment decision than a single performance point. The goal of future study
should be to identify all of these characteristics and the marginal trade-offs associated with
them.

Furthermore, even though closed-end mutual funds have a different sales process than open-
end funds, a multi-attribute strategy could be a helpful mechanism to deal with the unusual
selling prices of these funds, which are significantly lower than the underlying net asset
values of the securities that make up the fund. While De Long, Shellfire, Summers, and
Waldman (1990) created a model with two categories of investors—i.e., noise traders and
rational traders—to explain the closed-end mutual fund conundrum, perhaps a more
comprehensive approach that took into account all of the factors involved in purchase and
redemption decisions could shed some light on this unusual situation.

Notwithstanding the significance of these findings for finance theory, the research’s
conclusions have a big impact on mutual fund companies’ business plans. The discovery of a
small number of groupings (segments) based on the process dimensions of the information
source and selection criteria was possibly the most significant finding.

Merely focusing on investment performance strategies are likely to appeal to a small but
highly engaged group of customers who truly comprehend the financial aspects of their
investments. It appears that other investors also pay attention to non-performance-related
sources of information and criteria for selection.

Assuming that mutual fund firms have resource constraints and set profitability targets, part
of their operational goals should be to maximise fund inflow and minimise fund outflow due
to the significant economies in size that come with managing larger funds (Dermine and
Roller, 1992). Managers of mutual funds need to be aware of the very real trade-offs
between using resources to boost fund performance and using those same resources to boost
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 performance on a range of other Characteristics pertaining to investors (Sirri and Tufano,
1992).

Our findings align with recent developments in the mutual fund market. Leaders in the
industry, including Vanguard, Fidelity, and Dreyfus, bundle mutual fund products with
package services. Nowadays, almost every significant fund family provides a restricted
quantity of no-(or low-) fee swaps between funds within the same family; phone calls for
mutual fund investments are typical among large fund families. Smaller participants offer
more assistance. The San Francisco-based bank Wells Fargo has launched a new service via
its automated teller machines (ATMs). Customers of Wells Fargo can now use any of the
bank’s 1700 ATMs to buy, redeem, or transfer money inside the Stagecoach family of bond
and equities mutual funds. These acts unmistakably prioritise convenience and service over
conventional risk and return components.

Selling funds—any fund—to new mutual fund investors is crucial, as evidenced by the
discovery that investors focus their investments in mutual funds on a relatively small number
of fund families. The activities of companies like Fidelity and Dreyfus in particularly
Marketing low-cost, high-yield money market funds—like Spartan—as “loss leaders” is in
line with this discovery. It also shows how important it is to have marketing-focused
consumer data bases that provide cross-selling opportunities to fund family investors and
hold onto information on prospective investors who show interest in a fund so that direct
marketing campaigns can go on.

Recently developed hub and spoke mutual funds align with the identification of market
groups that use differently weighted selection criteria and depend on distinct information
sources. These funds use a single investment vehicle, but they obtain assets from various
investor categories or groups in a variety of methods.

Though we haven’t covered mutual fund redemptions or the moving of money between
accounts within or outside the fund family, we think our introduction of the consumer
behaviour perspective is a useful addition to the research that is currently being done in the
finance and economics literature. This study has only touched the surface of the decision-
making process concerning mutual fund investments.

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 Who Are Agents and Advisors for Mutual Funds?

It is essential to comprehend the duties of Mutual Fund Advisors and Agents when it comes
to investing management. These experts are committed to helping customers navigate the
ever-changing mutual fund industry.

Individuals with the knowledge to offer suggestions and guidance on finances are known as
mutual fund advisors. They collaborate closely with clients to comprehend their investment
preferences, risk tolerance, and financial objectives. Advisors design customised investment
plans, suggest portfolios, and keep an eye on results all the time. They are crucial to
financial planning because they assist clients in creating diversified portfolios that support
their goals.

Conversely, the primary function of mutual fund agents is to assist in the purchase of mutual
fund products. They give their clients important insights, walk them through the investing
process, and educate them about various mutual fund possibilities. Agents put a lot of effort
into helping their customers make informed investing decisions by fostering a relationship
based on trust and openness.

The mutual fund sector depends on both advisors and agents, and their responsibilities are
complementary. It’s important to remember that in order to protect the interests of their
customers, these professionals are subject to strict laws and requirements.

The obligations of advisors for mutual funds

Advisors for mutual funds are responsible for a great deal when it comes to helping clients
with their investing adventures. Here are a few important tasks they complete:

Financial Planning: Advisors help their customers establish attainable financial objectives
and design thorough plans to reach those objectives. This entails being aware of the client’s
time horizon and risk tolerance.

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 Risk Evaluation: After determining the client’s level of comfort with risk, they suggest
appropriate investment possibilities.

Portfolio Administration: Advisors create and oversee investment portfolios based on the
specific requirements of each customer. To do this, pick suitable mutual funds, keep an eye
on their performance, and tweak as needed.

Clients depend: Advisors to provide them with regular updates on the performance of their
assets and adjustments in response to market conditions. Openness and communication are
essential.

Compliance and Ethical Regulations: Advisors are required to follow industry rules and
ethical guidelines, making sure that the interests of their clients are always put first.

Mutual fund agents’ responsibilities and roles

Mutual fund agents play a crucial role in guiding customers through the mutual fund industry.
Their main responsibilities are to assist clients in purchasing mutual fund products and to
inform them of their possibilities.

Instructors and information providers: roles and duties as educators, mutual fund agents
provide information on different mutual fund schemes, their track record of success, and the
hazards involved. They give their clients a thorough grasp of the investments they are making.

Agents who cultivate strong: Trusting relationships with their clients are known as client
relationship builders. They take the time to learn about the particular financial objectives and
risk tolerance of each customer, than adjust their recommendations accordingly.

Assistance with the Investing Process: From choosing the best mutual funds to completing
paperwork and arranging transactions, agents assist customers with every step of the investment
process. For clients, they streamline the procedure.

Trust and Transparency: Upholding transparency is crucial to an agent’s job. In all facets
of mutual fund investing, clients depend on them to be truthful and transparent.

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 Updates on a regular basis: Agents notify their clients on market circumstances,
performance of their investments, and chances to make portfolio adjustments. These
frequent updates are essential to help consumers make wise choices. In conclusion, mutual
fund agents are essential in helping customers make investing easier. They put a lot of effort
into fostering enduring bonds with their clients, providing insightful education, and making
sure their clients are comfortable making investing decisions.

Requirements and Guidelines

To protect the interests of clients, candidates for Mutual Fund Agent positions must fulfil
specific requirements and follow industry rules.

Eligibility: Education: In order to work as an agent, a bachelor’s degree is normally

required. Having a degree in economics, finance, or a similar subject is frequently preferred.

Licencing: In order to conduct business lawfully, mutual fund agents must acquire the
required licences and certificates. Regulation authorities’ guidelines govern the requirements
for licences, which differ depending on the location.

Training: To stay current on market trends, legislative changes, and product expertise, one
must pursue ongoing education and training.

Rules: Compliance with Regulatory Bodies: Agents are required to abide by the rules
established by the securities and exchange board of India (SEBI) and other financial
authorities in their respective regions.

Rules of Ethics: They must adhere to the highest moral standards, prioritising the needs of
their clients, and avoiding conflicts of interest.

Client Documentation: Agents must keep thorough records of all conversations,

transactions, and other pertinent data pertaining to their clients.

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 To protect client interests and uphold the integrity of the mutual fund sector, certain
standards and rules have been put in place.

How to Select the Appropriate Agent or Advisor

Choosing the best Mutual Fund Advisor or Agent is an important choice that will have a big
effect on your financial future. When making this decision, take into account the following
crucial factors:

Qualifications and The credentials: Seek out Agents or Advisors with the required
certificates and licences. They must to be knowledgeable with financial planning and mutual
fund products. Their credentials can be checked with the appropriate regulatory agencies.

The Experience: In the financial sector, experience counts. Look for experts that have a
history of assisting clients in reaching their financial objectives. To evaluate their efficacy,
request case studies or references.

Fees and Remuneration: Recognise the methods used to pay your advisor or agent. While
some operate on a fee-basis, others get paid through commissions on sales of their products.
Make sure the way they are compensated suits your needs.

Client-centered strategy: The appropriate advisor or agent should put your financial
security first. In order to customise their advice to your particular needs, they should take the
time to learn about your objectives, level of risk tolerance, and financial status.

Transparency is a fundamental quality of a reliable advisor or agent. They ought to be

transparent about their costs, any possible conflicts of interest, and the goods they endorse.

Communication Skills: It’s critical to have effective communication. Complex financial topics
should be easy for you to understand when explained by your advisor or agent. They ought to
give you regular information on your investments as well.

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Reviews and Reputation: Find out about the professional’s track record and, if it’s available,
go through any client testimonials. A company’s credibility and level of client happiness can be
inferred from online reviews and platforms.

The degree to which your advisor or agent is available and approachable should be taken into
consideration. If you have any queries or issues, is it easy to get in touch with them?
Communicating clearly and promptly is important.

Fit with Your Investment Goals: Make sure that the financial advisor’s or agent’s strategy fits
your financial goals. They ought to adjust their advice based on your preferences, whether
you’re looking for steady development, steady income, or a mix of both.

Regulation Compliance: Confirm that the advisor or agent abides by all legal obligations and
upholds the highest moral and professional standards. This guarantees that the professional
abides by the law and safeguards your interests.

A Mutual Fund Advisor Is Who?

A fund advisor is a trained specialist who evaluates your existing financial situation,
comprehends your investment objectives, and helps you choose the best mutual fund to invest
in in order to create a portfolio that meets your needs and financial objectives. They can assist
you in choosing the best fund for your investment because they have a thorough understanding
of the several kinds of mutual funds and are up to date on current market conditions.

An advisor’s fiduciary duty is to disclose to their clients all relevant information about an
investment in an ethically and morally sound manner.

The Distinction Between A Fund Manager And An Advisor

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A fund manager is in charge of making investment-related choices on a certain fund, whereas a
fund advisor assists you in choosing the appropriate fund and creating the appropriate portfolio.

What a Fund Advisor Does

Filling the Void Between Objectives and Danger

First, a fund advisor will assess the client’s existing circumstances. They evaluate their financial
objectives, risk tolerance, financial responsibilities, and personal preferences in addition to
financial facts. A competent fund advisor will inform the customer on how to close this gap and
achieve their goals based on the study.

Creating an Investment Plan

The fund advisor will assess the state of the market and create the best possible investment
portfolio for the customer based on the demands of the client. They monitor the most recent
developments and patterns in finance. They provide their client with advice on portfolio
diversification as a way to reduce risk.

Adjusting the Course

The smallest aspects of your financial situation will be monitored by your fund advisor. They
keep track of your portfolio’s contents and use that information to gauge how well it is
performing in order to confirm that you are headed in the right direction financially and to
recommend any necessary course corrections.

What Qualities Should A Fund Advisor Have?

A fund manager is in charge of making investment-related choices for a specific fund, whereas
a fund advisor assists you in choosing the appropriate fund and creating the appropriate
portfolio.

A Successful, Experienced, and Paid:

In order to be classified as a qualified advisor, a mutual fund investment advisor must first
receive certification from the National Institute of Securities Markets (NISM). Second, while
some fund advisers provide their services without charge, reputable advisors charge for their
services, either in the form of set fees or commissions. Finally, fund advisors need to be
informed and stay up to date on current events.

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Recognises Risk:

Spreading your investments over a number of possibilities is the best method to lower risk. We
call this diversity. By diversifying your portfolio, your fund advisor should be able to limit risks
and optimise returns.

Accessibility:

Your mutual fund advisor needs to have a thorough understanding of your objectives before
recommending what’s ideal for you. They need to stay in regular contact with you in addition to
the initial analysis in order to monitor both your short- and long-term objectives. Above all,
they ought to be within your reach.

Active Investment Management:

Depending on your present objectives, a fund manager need to be ready to make updates to
your portfolio. They ought to exercise caution and quickly exit any hazardous or unsuccessful
ventures.

Comprehending Mutual Funds

An investment vehicle known as a mutual fund combines the capital of several investors to
purchase a range of securities, including stocks, bonds, and other financial instruments. A
mutual fund is essentially the owner of a portfolio of investments that is funded by all of the
investors who have acquired shares in the fund. This pooling enables individuals to diversify
their investments and access a wider range of strategies or assets than they might be able to on
their own. Thus, a person who invests in a mutual fund becomes a partial owner of all the
underlying assets held by the fund. In contrast to what they would be able to do, this exposes
the individual investor to a far larger portion of the market with a single mutual fund
investment.

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The underlying assets that a mutual fund owns determine its performance. The value of the
fund’s shares rises in proportion to the net worth of these assets. On the other hand, if the assets
lose value, the shares also lose value.

In charge of managing the portfolio, the fund manager chooses how much money to distribute
among various companies, sectors, and industries in accordance with the fund’s declared
strategy. Investors can participate in a professionally managed, diverse group of securities that
they would not typically have access to as individuals by pooling their money into a sizable
fund. One of the main advantages of mutual funds for individual investors is this access and
diversification.

How Do Mutual Fund Returns Get Calculated?

A mutual fund can yield returns to investors in one of three ways:

Dividends on stocks and interest on bonds held in the fund’s portfolio generate income, which
is distributed to fund owners almost entirely throughout the course of the year. Mutual funds
often offer investors the option to reinvest their earnings to buy more shares of the fund or to
get a cheque for distributions.

Portfolio The distributions: When a fund sells securities that have appreciated in value, it
makes a capital gain, which is typically distributed to investors.

Capital Increases: You may sell your mutual fund shares in the market for a profit when the
value of the fund’s shares rises.

Investors looking at mutual fund returns are usually interested in “total return,” which is the net
change in value of an investment over a given time period, whether it is up or down. This
covers the fund’s interest, dividends, and capital gains in addition to the shift in its market value
over time. Total returns are often computed for one, five, and ten-year periods in addition to the
date of fund commencement, or the day the fund started.

How to Invest in Mutual Funds ?

Today, investing in mutual funds is a fairly straightforward process that involves the following
steps:

Make sure you have a brokerage account with enough cash on hand, and with access to mutual
fund shares.

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Identify specific mutual funds that match your investing goals in terms of risk, returns, fees, and
minimum investments. Many platforms offer fund screening and research tools.

Determine how much you want to invest initially and submit your trade. If you choose, you can
often set up automatic recurring investments as desired.

Monitor and review performances periodically, making adjustments as needed.

When it is time to close your position, enter a sell order on your platform.

How Shares of Mutual Funds Are Valued ?

The performance of the securities the mutual fund invests in determines its value. An investor
purchases a portion of the portfolio performance, or more accurately, a unit or share, of a
mutual fund. Purchasing a mutual fund share is not the same as purchasing stock shares. Shares
of mutual funds do not entitle their holders to vote, unlike stocks. A share of a mutual fund is an
investment in numerous stocks and other securities.

The net asset value (NAV) per share, frequently abbreviated as NAVPS, is the cost of a mutual
fund share. The net asset value (NAV) of a fund is calculated by dividing its portfolio’s entire
value by the total number of shares that are outstanding. All shareholders, institutional
investors, officers of the corporation, and insiders own outstanding shares.

Generally, shares of mutual funds can be bought or sold at the fund’s current net asset value
(NAV), which is settled at the conclusion of each trading day and is not subject to change
during market hours. A mutual fund’s price is also updated upon settlement of the NAVPS.

Shareholders of mutual funds benefit from diversification because the average mutual fund
holds a variety of securities. Think about an investor who solely purchases Google stock and is
dependent on the company's financial performance. Gains and losses are dependent on the
performance of the one company as all of their money is invested in it. Nonetheless, Google
might be part of a mutual fund portfolio where the gains and losses of one stock are mitigated
by the gains and losses of other firms in the fund.

Pros and Cons of Mutual Fund Investing

There are a variety of reasons that mutual funds have been the retail investor’s vehicle of
choice, with an overwhelming majority of money in employer-sponsored retirement plans
invested in mutual funds.
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 Mutual Fund Investing Benefits

The act of diversification

Investing in mutual funds has the benefit of diversification, which is the process of combining
assets and investments to lower risk. Bonds with a range of maturities and issuers, as well as
assets with varied capitalizations and industries, make up a diversified portfolio. Purchasing
individual assets will take longer and cost more money to achieve diversification than using a
mutual fund.

Simple to Reach

Mutual funds are very liquid investments since they can be purchased and sold very easily and
are traded on the major stock markets. Also, mutual funds are frequently the most practical—
and even the only—way for individual investors to participate in particular asset classes, such
as foreign stocks or exotic commodities.

Scale Economies

Additionally, mutual funds offer economies of scale by eschewing multiple commission fees in
order to build a diverse portfolio. Purchasing a single security at a time results in high
transaction costs. Dollar-cost averaging is made possible for investors by the smaller
denominations of mutual funds.

A mutual fund’s transaction costs are less than what an individual would pay for buying and
selling assets since it buys and sells huge quantities of securities at once. A mutual fund has
more options for investments and can take on bigger stakes than a single investor.

Expert Administration

A seasoned investment manager makes use of both thorough study and deft trading. A modest
investor can hire a full-time manager to make and oversee investments for them at a reasonable
cost by using mutual funds. Mutual funds offer individual investors an affordable means of
65
experiencing and reaping the rewards of professional money management, with far lower
investment minimums.

Flexibility

Investors are allowed to investigate and choose from a range of management philosophies and
styles of managers. Among many other investing approaches, a fund manager may concentrate
on value, growth, income, developed, emerging, or macroeconomic investing. Through
specialised mutual funds, this type enables investors to acquire exposure to commodities,
foreign assets, and real estate in addition to equities and bonds. Mutual funds offer domestic
and international investment options that might not otherwise be readily available to regular
investors. Industry regulation of mutual funds guarantees investor fairness and accountability.

Cons of Investing in Mutual Funds

Mutual funds are appealing solutions because of their liquidity, diversification, and expert
management; nevertheless, they also have disadvantages.

No Promises

The value of your mutual fund could always decline, just like many other investments with no
guarantee of return. Prices of equity mutual funds fluctuate, just like the stocks that make up the
fund’s portfolio. The FDIC, the Federal Deposit Insurance Corporation, does not guarantee
investments made with mutual funds.

Money Drag

Mutual funds need to keep a sizable portion of their portfolios in cash on hand in order to cover
daily share redemptions. Funds usually have to hold more cash in their portfolio than the
average investor does in order to preserve liquidity and the ability to handle withdrawals. Cash
is commonly referred to as a “cash drag” since it yields no return.

Expensive Prices

Professional management is offered to investors through mutual funds; however, fees are
charged to investors regardless of the fund’s performance, lowering the fund’s total payout.
Since actively managed funds incur transaction expenses that accumulate over the course of
each year, it can be detrimental to your long-term financial situation to ignore the fees, which
vary greatly amongst funds.

“Dilution” and “Diworsification”

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The word play “diworsification” refers to the idea that investing or portfolio strategy can be
made worse by too complex approaches. Many investors in mutual funds have a tendency to
overcomplicate things. That is, they lose the advantages of diversification because they own an
excessive number of closely held funds.

It is required by the Securities and Exchange Commission (SEC) that funds have a minimum of
eighty percent of their assets in the specific sort of investment that is represented by their
names. The fund manager makes the investment decisions for the remaining assets.

Nevertheless, the various classifications that are eligible for eighty percent of the assets could
be ambiguous and broad. Thus, a fund’s title can be used to trick potential investors. For
instance, a fund with a restricted emphasis on Argentine equities can be marketed under a broad
heading such as “International High-Tech Fund.”

Only at the end of the day

You can ask to have your shares converted to cash at any time when you own a mutual fund,
but unlike stocks, which trade all day, most mutual fund redemptions happen at the close of
each trading day.

Taxes

A capital-gains tax is due when a fund manager sells a security. Investing in tax-sensitive funds
or keeping non-tax-sensitive mutual funds in a tax-deferred account, like an IRA or 401(k), can
help reduce taxes.

Assessing Resources

Comparing and researching funds can be challenging. Mutual funds, in contrast to equities, do
not provide investors with the ability to compare key data such as sales growth, earnings per
share (EPS), price to earnings (P/E) ratio, and others. The net asset value of mutual funds can
provide some foundation for comparison, but even among funds with similar names or stated
aims, it can be challenging to compare “apples to apples” due to portfolio variability. The only
legitimately comparable index funds are those that track the same markets.

A Mutual Fund Example

The Magellan Fund (FMAGX) from Fidelity Investments is among the most well-known
mutual funds. The fund was founded in 1963 with the goal of investing in common stocks to
increase wealth.

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 The fund reached its zenith while Peter Lynch managed its portfolio, which happened from
1977 and 1990. Magellan's assets under management rose from $18 million to $14 billion under
Lynch's tenure.

As a result of Fidelity's consistent outstanding performance, assets under management (AUM)

increased to around $110 billion in 2000. The fund grew to such an extent by 1997 that Fidelity
closed it to new participants, and it wouldn't reopen until 2008. With around $28 billion in
assets as of March 2022, Fidelity Magellan has been under Sammy's management since
February.

Index funds against mutual funds

Mutual funds that attempt to mimic the performance of an index, or market benchmark, are
known as index funds. An S&P 500 index fund, for instance, replicates the 500 firms in the
same ratios to track that index. Index funds aim to precisely mimic their index as much as
possible by minimising expenses.

Actively managed mutual funds, on the other hand, change allocations and choose stocks in an
effort to outperform the market. The fund management uses their research and investing
technique to make decisions that will yield returns higher than a benchmark.

ETFs against mutual funds

Pooled investment funds, such as mutual funds and exchange-traded funds (ETFs), provide
investors with a share in a diverse portfolio. The primary resemblance between them is that they
function as managed “baskets” of distinct securities, such as different stocks or bonds, offering
exposure to a broad spectrum of markets and asset classes. There are, nevertheless, a few
significant variations.

The most obvious is that, unlike mutual fund shares, which are exchanged just once a day after
the markets close, ETF shares are traded on stock exchanges like ordinary equities. This implies
that ETFs, which provide greater liquidity, flexibility, and real-time pricing, can be traded at
any time during market hours. Furthermore, because ETFs are exchanged on exchanges, short
sells and margin purchases may be permitted for them.

Pricing and valuation are two more significant distinctions. Like stocks, the values of exchange-
traded funds (ETFs) fluctuate throughout the day based on supply and demand. Conversely, the
pricing of mutual funds is determined solely by the net asset value (NAV) of the underlying

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portfolio at the conclusion of each trading day. This implies that, in comparison to mutual
funds, ETFs may have higher premiums or discounts to NAV.

ETFs typically have certain tax advantages over mutual funds. Additionally, ETFs are typically
more economical.

Are Investments in Mutual Funds Safe?

When buying securities like stocks, bonds, or mutual funds, all investments have some level of
risk. The real risk of a given mutual fund will vary depending on its investing strategy,
holdings, and management skill. In contrast to deposits held in FDIC- and NCUA-insured banks
and credit unions, money invested in securities is usually not covered by federal insurance.

Are Shares in Mutual Funds Saleable at Any Time?

Indeed, shares of mutual funds are tradable at any moment and are regarded as liquid assets.
Investors can make orders to sell their mutual fund shares at any time, even though mutual
funds only price their shares once a day based on net asset value. Examine the fund’s
regulations on redemption or exchange charges. Capital gains from the redemption of a mutual
fund may potentially have tax ramifications.

A Target Date Mutual Fund: What Is It?

A common choice for investing in a 401(k) or other retirement savings account are target-date
funds, often known as life-cycle funds. Selecting a fund with a target year for retirement—such
as the hypothetical FUND X 2050, which aims for a 2050 retirement year—means committing
to rebalancing and changing the risk profile of its investments as the fund gets closer to its goal
date. This usually means taking a more conservative stance.

The Final Word

If you want to diversify your investments, mutual funds offer a flexible and affordable choice.
These funds combine the capital of multiple investors to buy a variety of securities, including
stocks, bonds, and other assets, under the supervision of qualified money managers. Access to
professionally managed, diversified portfolios and a variety of investment categories catered to
varying risk tolerances and goals are among the main advantages. Mutual funds do, however,
have costs and fees associated with them, such as commissions, expense ratios, and yearly fees,
which can affect overall results.

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Mutual funds come in a variety of forms, each with a specific investment goal and approach,
including stock, bond, money market, index, and target-date funds. The distributions of income
from interest or dividends, the proceeds from the sale of fund securities at a profit, and the
growth in the fund’s share price are used to compute the returns on mutual fund investments.

Characteristics of Mutual Funds and Investor Behaviour I research the cash flow dynamics of
investors in mutual funds that practise social responsibility. The monthly volatility of investor
cash flows is lower in socially responsible funds than in conventional funds, which is consistent
with anecdotal evidence of loyalty. I find less evidence supporting the idea that cash outflows
from socially conscious funds are less sensitive to lagged negative returns, and stronger
evidence supporting the idea that cash flows into socially responsible funds are more sensitive
to lagged favourable returns than cash flows into traditional funds.

These findings suggest that the socially conscious quality is useful to investors, particularly in
the event of positive returns. Companies that offer mutual funds frequently launch new fund
varieties in an attempt to draw in investor capital and optimise assets under management.
Demand from investors for the fund’s features is one of the factors that influences the decision
to launch a new kind of fund.

Khorana and Servaes (1999) contended that novel fund categories with significant demand
bring in money and increase revenue for the fund management company. However, further
investor actions could have an impact on the new funds’ profitability and running costs. For
example, if a new fund type attracts myopic investors, shareholder subscription and redemption
behaviour can become more unpredictable and challenging to control. In order to investigate
investor decision making in new funds, I focus on a particular fund type in this paper: socially
responsible equity mutual funds.

As per the findings of the Social Investment Forum (2001, referred to as “SIF”), the total assets
invested in socially screened portfolios in 2001 were over $2 trillion, of which $136 billion was
put in mutual funds. This indicates that the investment community has become more cognizant
of social responsibility and business ethics. Socially conscious investing, which is most evident
when it comes to investing with social filters, combines individual beliefs and societal concerns
with the decision to make an investment.

In addition to exposing corporations to qualitative criteria concerning social or environmental

concerns, social screens frequently disqualify securities of companies in specific industries. As
an example, take a look at the Domini Social Index developed by Kinder, Lydenberg, Domini &
Company in 1990. It combines qualitative and exclusionary screening.

The securities of companies whose revenues come from the manufacturing of alcohol or
tobacco products, from the provision of gambling products or services, or from military
70
weapons systems, as defined by Statman (2000), cannot be included in the index. The history of
an organisation with regard to diversity, labour relations, and environmental issues are among
the qualitative screens. Because of its subpar environmental and safety record, CSX
Corporation was removed from the index in 1998; on the other hand, Compuware Corporation
was included in 1999 because to its successful relations with staff members and diversity
programme.

Up until now, all research on socially responsible (or “SR”) investing has concentrated on
determining if the performance of traditional funds as well as socially screening portfolios
differs. Per Markowitz (1952), social screens could impede the optimisation of a portfolio.
Whether these restrictions have an impact on performance, that is, if the risk-adjusted returns of
socially screened investment vehicles are lower than those of traditional investments, is a
reasonable subject to investigate. As an alternative, social screens could produce better risk-
adjusted returns by acting as filters for management calibre.

For instance, Derwall et al. (2005) discover that businesses with high environmental
performance ratings do better than those with low ratings. Comparing the risk-adjusted returns
of SR mutual funds to the risk-adjusted returns of matched conventional funds, other research
on SR investing, such as Hamilton et al. (1993), Statman (2000), and Bauer et al. (2005),
conclude that SR mutual funds do not perform any differently than traditional funds.

According to Bauer et al., there may have been a learning period in SR mutual funds as they
outperformed their conventional counterparts in the early years of their sample, from 1990 to
1993. A different method of gauging performance is employed by Geczy et al. (2003), who
make use of Pastor and Stambaugh's (2002) Bayesian framework. Geczy et al. also establish
that the performance of SR and traditional funds is equal, assuming that investors have a
dispersed prior judgement about managerial competency and utilise the Capital Asset Pricing
Model to select funds.

Based on current research, it can be concluded that there is no statistically significant difference
between the performance of mutual funds that screen based on social factors and those that do
not. If investors in SR mutual funds behave differently from investors in conventional funds,
that is another crucial point that has not yet been answered by the research. Analysing SR
investors’ actions is crucial from the standpoint of the industry:

Both passive mutual fund shareholders and fund managers may face significant challenges due
to the inflow and outflow of capital from shareholder subscriptions and redemptions. Mutual
fund companies should therefore be interested in finding reliable sources of investment. From
an academic standpoint, it is also crucial to study SR investors since the SR attribute offers a
natural behavioural experiment.

Geczy et al. (2003) present anecdotal evidence indicating that during the 1999–2001 period, SR
investors withdrew capital at a slower rate than investors in conventional funds, implying that
71
SR investors are more devoted. In this research, I examine SR investors’ behaviour in further
detail while adjusting for additional variables that could account for variations between SR and
conventional funds. Investors in socially responsible funds may have done so as a part of a
typical risk-reward optimisation, on the one hand.

What Is an Advisory Programme for Mutual Funds?

A portfolio of mutual funds chosen to correspond with a predetermined asset allocation makes
up a mutual-fund advice programme, sometimes referred to as a mutual fund wrap. Based on
the goals of the investor, the pre-set asset allocation model is provided in a single investment
account along with the assistance of a qualified investment adviser.

Investors usually pay periodic (monthly, quarterly, or annual) asset-management fees that are
determined by the average price of the assets kept in the account instead than discrete
transaction fees.

Important key

 A portfolio of mutual funds chosen to correspond with a predetermined asset allocation

makes up a mutual-fund advice programme, sometimes referred to as a mutual fund
wraps.
 Together with an advisor, the investor creates an asset allocation plan that takes into
account the investor’s goals, investing preferences, risk tolerance, and time horizon.
 Lower trading expenses and a professionally advised portfolio tailored to each investor’s
unique investing objectives are two advantages of participating in mutual-fund advising
programmes.
 Instead of paying separate transaction costs, investors will receive periodic asset-
management fees determined by the average value of the assets maintained in the
account.
 Robo-advisor services, available from numerous brokerage firms, provide investors with
an alternative to mutual-fund advice programmes.

How an Advisory Programme for Mutual Funds Operates?

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An easy approach for investors to obtain securities under expert management is through mutual
funds. But with thousands of mutual funds available, choose one to invest in can be challenging
and perplexing. Mutual fund advising programmes streamline the procedure by entrusting a
professional with making the decision according to your own standards.

In contrast to managed accounts, which grant the financial advisor complete control over all
investment choices, mutual-fund advising programmes let the client collaborate with the adviser
to create the best possible asset allocation plan. The advisor will offer continuing advice and
investing support while assisting in the determination of the optimal model based on a number
of variables, including the investor’s objectives, risk tolerance, time horizon, and income.

Advantages of an Advisory Programme for Mutual Funds:

A professionally recommended portfolio based on their individual investing objectives and

reduced trading expenses are two advantages for investors in mutual-fund advising
programmes. The program’s assets determine how the annual wrap fee is usually tier-based. It
is in addition to the annual operation costs that the funds in the portfolio levy, and it can vary
from roughly 0.25% to 3%, depending on the programme.

Mutual advisory programmes are an excellent means for new investors to enter the market since
they offer cheap fees, low minimum investment amounts, and the assistance and professional
guidance of a seasoned advisor in finance.

The advisors’ role in mutual funds

a. Making the investor(s) aware

Based on the client’s financial objectives and guidance on how to attain them, the advisor must
create a financial plan for them. Investigating various investing opportunities is part of this. As
a result, assessing how each might support or impede the client’s financial objectives is simple.

b. Analysing the ability to take risks

Advisors recommend the best course of action for investors based on their tolerance for risk.
For example, some investors may not want stock funds because they are riskier than debt funds.
Before creating an investment strategy, the advisor takes into account the client’s age, family

73
status, present financial obligations, investment tenure, long- and short-term financial goals, and
other factors.

c. Creating an appropriate investment plan

The fund advisor develops an appropriate investment strategy after assessing the customer’s
potential investment possibilities. In order to limit risks and increase rewards, the portfolio is
diversified by mixing various investment alternatives. Combining equities with bonds and
IRAs, for example If the client’s objectives change, the advisor may need to reevaluate their
plan. For this reason, the advisor closely monitors the client’s portfolio and makes adjustments
recommendations as needed.

d. Maintaining Records

Managing a client’s private financial information is a vital part of a fund advisor’s job
description. As a result, he keeps track of all of their service-related transactions, invoices, and
service data. When regulatory agencies are auditing the company, this documentation is crucial.

How to choose an advisor for mutual funds ?

Generally speaking, the advisor has responsibility for whatever advice or comments he makes
to you. He needs to follow the Mutual Fund Intermediaries Code of Conduct as mandated by
SEBI and AMFI. The expectations that investors have of advisors are expounded upon.

For instance, they are unable to downplay a fund’s risk and provide you with misleading
information (oral explanations are not relevant). You can report them to AMFI or SEBI if they
do. It might even lead to the cancellation of their licence. Look for a financial advisor with at
least ten years of expertise; experience counts when it comes to financial advice, especially
experience during market ups and downs. Use the ARN Number to see how his previous clients
have rated him. Ask the advisor to describe the various asset classes in the funds and the
possible results of combining them. This can all take some time. Therefore, the fund advisor is
not the right one for you if you feel that he is pressuring you to make a decision.

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 COMMUNICATION OF FUNDS
A mutual fund is an expertly managed investment vehicle that invests in a diverse portfolio of
stocks, bonds, and other securities by pooling the money of several individuals. Purchasing
units of a mutual fund signifies a proportionate ownership stake in the fund’s underlying assets,
and this is how investing in mutual funds works. Purchasing a mutual fund unit is comparable
to purchasing a “share” of a business.

Adding mutual funds to your portfolio aids in investment diversification. This is due to the fact
that, depending on the mutual fund type you choose, your money may be invested in a variety
of equities, fixed income instruments, or other securities.

Investing in mutual funds through vesting is a good method of investment diversification. This
is mostly because, depending on the particular mutual fund you choose to invest in, mutual fund
managers distribute your money among a variety of equities, fixed income instruments, and
other securities. Mutual funds are designed to spread your investment across a variety of assets,
thereby lowering the risk of investing in a single security. This diversification technique may
lessen losses and improve the stability of the portfolio as a whole.

ARE THEY DISTINGUISHABLE FROM MANAGERS OF MUTUAL FUND?

75
Investors mistakenly get confused between mutual fund advisors and mutual fund managers. In
fact, there is a huge difference between both in terms of roles and responsibilities. The major
differences between them are as follows:

 While the mutual fund adviser is the one who recommends the best mutual fund for you
based on your investment profile, the mutual fund manager oversees and executes the
mutual fund’s trading strategy.

 The advisor helps you allocate your assets, makes recommendations for individual
investment guidance, and chooses appropriate mutual funds. Conversely, the mutual fund
manager is in charge of choosing which securities to acquire and sell inside an asset
management company (AMC) or portfolio.

 Unlike the fund manager, who deals with you indirectly, the advisor deals with you
personally.

ESSENTIAL DUTY OF A MUTUAL FUND ADVISOR

Advisors for mutual funds have the following obligations to you, their client. These
responsibilities are listed below:

Tailored Investment Guidance

Every investor has different time horizons, risk tolerances, and financial objectives. An advisor
for mutual funds adopts a personalised strategy to comprehend your unique situation and
creates a tailored investment plan in response. To create a portfolio that meets your unique
needs, they take into account things like your age, income, financial responsibilities, and
investment preferences. Under their supervision, you can assemble a diverse mutual fund
portfolio that strikes a balance between prospective returns and risk, guaranteeing that your
investments are in line with your long-term objectives.

76
Expert Portfolio Administration

Maintaining a mutual fund portfolio involves constant observation, investigation, and time. This
duty is assumed on your behalf by a mutual fund advisor, who uses their expertise to make sure
your investments are managed well. They keep an eye on market conditions, continuously track
the funds’ performance, and make the appropriate modifications to maximise the success of
your portfolio. Their proactive strategy allows you to concentrate on your everyday
responsibilities, with the oversight of your investments by a qualified advisor.

Asset Allocation and Risk Management

A mutual fund advisor assists you in choosing the right asset allocation plan for your goals and
risk tolerance. To spread your risk, they can help you choose funds from a variety of asset
types, including bonds, money market instruments, and stocks. By spreading out your
investments, you can lessen your portfolio’s susceptibility to possible losses and market
volatility, which will ultimately increase portfolio stability.

Emotional control and behavioural guidance

Investing may be an emotional process, particularly when there are market swings. A mutual
fund advisor can help you maintain discipline in tumultuous times by acting as a calming
presence and offering behavioural coaching. They assist you in avoiding rash financial
decisions motivated by greed or fear, which may have a detrimental effect on your long-term
investment returns. Their impartial viewpoint and expertise can assist you in navigating market
challenges while upholding a disciplined investing strategy.

A mutual fund investment consultant will not only assist you in reaching your financial
objectives, but will also shield you from making poor investment decisions, such as investing in
the wrong company or buying or selling at the wrong times, as can be seen by carefully
examining the aforementioned characteristics.

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A Mutual Fund Advisor’s Crucial Duties and Responsibilities

Now that the obligations of a mutual fund advisor have been established, let’s examine the
many facets, functions, and jobs of a mutual fund investment consultant or advisor and discover
why they are crucial to your financial journey:

 Finding the Investor’s Objectives

A mutual fund advisor’s first task is to ascertain the investor’s financial objectives. It entails
conducting in-depth conversations with the investor to determine their goals, both short- and
long-term, including asset growth, retirement planning, and financing for school. The advisor
can better coordinate the investing strategy by obtaining a clear understanding of the investor’s
objectives.

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  Finding the Investor’s Risk Appetite: Each investor has a different threshold fo

risk. An investor’s age, financial status, prior investing experience, and level of comfort with
market volatility are among the variables that a mutual fund consultant takes into account when
determining their level of risk appetite. In order to make sure the client is comfortable with the
amount of risk involved, it helps the adviser provide investment options that fit the investor’s
risk profile.

 Advising on a Suitable Investment Strategy: A mutual fund advisor develops

suitable investment strategy based on the investor’s objectives and risk tolerance. They examine
the different mutual fund schemes that are on the market, taking into account things like
investment style, asset allocation, and fund performance. After that, the advisor suggests a
diverse mutual fund portfolio that fits the investor’s goals and risk tolerance.

 Keeping an eye on the Investor’s Portfolio

Following the investor’s investment in the suggested mutual funds, the advisor assumes the
duty of continuously observing the portfolio. They monitor the funds’ performance, assess how
they are allocated among their assets, and make sure the portfolio stays in line with the
investor’s objectives.

 Frequently Providing Reports and Updates

Through frequent updates and reports, a mutual fund advisor informs the client on the success
of their portfolio. These reports offer information about the performance of the funds, asset
allocation, and overall investor goals progress. Any modifications to the portfolio are explained
by the advisor, who also offers details on any fund-specific happenings or market trends that
might have an effect on the investor’s holdings.

 Providing Regular Evaluations and Adjustments

The investor’s risk tolerance or financial objectives may alter over time. An investor and a
mutual fund advisor meet on a regular basis to examine the investor’s goals and make any
required changes to the investment plan. In order to preserve the intended asset allocation and

79
meet the changing demands of the investor, this may include rebalancing the portfolio by
purchasing or selling money.

 Financial Planning

They frequently offer their clients full financial planning services. They assist investors in
developing a strategy to reach their financial objectives, setting reasonable goals, and
incorporating mutual fund investments into their larger financial planning.

 Investor Education

: They are essential in providing investors with information on different investment ideas, kinds
of mutual funds, and how the financial markets function. They assist investors in
comprehending the advantages and hazards of mutual funds, empowering them to make
knowledgeable investment choices. Additionally, they inform investors of any changes to
industry trends or regulations that could affect their investments.

 Relationship Management with Clients

For a mutual fund advisor, cultivating and sustaining excellent connections with investors is
essential. They guarantee efficient correspondence, promptness, and accessibility to attend to
investors’ worries and inquiries. They offer individualised attention and counsel while taking
into account each investor’s particular financial situation and investing goals.

The distinction between fund managers and mutual fund advisors

It’s critical to understand that a fund manager and an advisor are very different from one
another. You cannot use the terms interchangeably because they are not the same. Keeping an
investment account up to date is the responsibility of a fund manager, sometimes referred to as
a portfolio manager. In addition, he constructs a portfolio while considering the client’s long-
term financial objectives.

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Financial advisors are in charge of advising clients on the best investment strategy based on
their financial objectives. As a result, effective advisors have exceptional analytical capabilities,
subject-matter knowledge, and client service talents. This aids clients in outlining their financial
goals. It would be ideal if you were also fully aware of the advisor’s potential fee schedule
including any combination of fixed fee and commission. This is not the same as the fund house
fee or expense ratio.

In summary, the experience and expertise of a qualified fund advisor can have a significant
impact. Recall that an advisor is not the same as a distributor. Clear Tax Invest, for example, is
a distributor that personally selects the top-performing funds from the leading fund houses. It
saves a tonne of time and work and is instantaneous. Thus, begin making investments.

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 Methodology for the Project
Any survey’s ability to be successful hinges on its resources, timing, quality, and surveyor
integrity when it comes to compiling the core data. Hence, managing all of the resources that
are available and have an impact on survey quality is a crucial responsibility.

Project Schematic:

The conceptual framework within which the project is carried out is known as the project
design. As a result, the design comprises a description of the Projecter’s duties. The two
primary projects utilised to obtain the data are the exploratory and descriptive projects.

Instrument:

To gather data from the population of the selected sample size, the interview method was used.
They used the questionnaire that was provided to them to aid with this.

Acquisition of Information Primary and secondary sources provided data needed to complete
the study.

Using the questionnaire, primary data was gathered from the respondent.

We gathered secondary data from journals, books, magazines, and the internet.

Examination of the information:

Simple percentage bases serve as the foundation for the data’s analysis and interpretation.

Analysing and Interpreting Data

Only 52 of the 100 recipients of the surveys replied. Based on the responses from these
respondents, I have examined my survey. Following the completion of the questionnaire, the
data analysis process is the next task. It turns out that a greater number of businessmen were
interested in investing in the current account. Women are more likely to invest their money on
jewellery such as gold. However, retired fellows and members of the service class have a
82
stronger preference for fixed deposits or savings accounts. Shares and mutual funds are
preferred by those with high incomes who are yet young enough to take calculated risks.

In a similar vein, people are curious about the returns on their investments. A sizable portion of
the public is likewise concerned about the security of their money. Some people like simple
access to money, and these individuals are primarily business owners who must constantly deal
with liquid funds. Remarkably, only 5 out of the 34 respondents express interest in the tax
benefits, despite the fact that a considerable proportion of them (34), are aware of them.

Even while a lot of people know about mutual funds, relatively few actually invest in them.
When asked where they learned about mutual funds, a lot of them said it was through print
media. These days, banks often play the part of investment advisors. Few people ever obtain
any information from friends, family, or the electronic media.

As a result, AMCs need to spread the word about their product via electronic media (such as
TVs, radios, and cables) in addition to print advertisements. For whatever reason, those who
don’t read newspapers or magazines can nevertheless watch or listen to the commercials.

A significant portion of respondents stated that their lack of understanding of mutual funds
prevents them from investing in them, while another group thought government bonds were far
superior.

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 INVESTORS’ PRIORITIES WHEN MAKING INVESTMENTS

Safety High return Liquidity

Interpretation:

100 investors, 69% wanted safety, 20% wanted a larger return, and 11% wanted liquidity when
making an investment.

84
 AVAILABILITY OF INVESTMENTS

15%

31%

Regular
Once a while
None of these

54%

Interpretation:

100 investors, 52% invest occasionally, 33% do so on a regular basis, and 15% do not.

85
 THE PURPOSE OF INVESTMENT

7%

29%

Income generation
Tax savings
other

64%

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Interpretation:

The 100 respondents, 64% of them stated that their goal was to generate money, 29% said they
wanted to save taxes, and 7% said they had other motives for investing.

AWARENESS SOURCES

Newspaper/Magazines
Friends
T.v Advertisement
Facts sheet
Other

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Interpretation:

100 investors, 48 percent obtained information from magazines or newspapers, 18% from TV
commercials, 12 percent from fact sheets, 13 percent from acquaintances or workers, and 9
percent from other sources.

PARTICULAR PERCEPTIONS ABOUT PARTICIPATING IN MUTUAL FUNDS

Lack of awareness
Luck of trust
Inconvenience
Others

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Interpretation:

100 investors, 10% lack confidence in mutual funds, 12% do so because of inconvenience, 21%
do so because they are unaware, and 49% do so for other reasons.

THE AMOUNT OF TIME TO INVEST

Less than 1 year 1to 2 year 2to 5 year more than 5 years

21%

49%

15%

16%

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Interpretation:

Among the 100 investors, 49% invested for less than a year, 16% for between one and two
years, 21% for between two and five years, and 15% for more than five years.

AN INVESTOR’S PRIORITY SET FOR VARIOUS FINANCIAL PRODUCTS

90
 Bank deposits Mutual funds Government bonds Equity market

19%

52%

18%

11%

Interpretation:

Out of 100 investors, only 11% prefer to invest in mutual funds, 19% in the stock market, 18%
in government bonds, and 51% in bank savings.

REASONS WHY ONE SHOULD NOT BUY MUTUAL FUNDS

91
 Confidence Knowledge Better bonds Other

Interpretation: Those who do not invest in mutual funds, 11% do so because they lack
confidence, 13% because they lack understanding, 27% because they prefer bonds, and 53% for
various reasons.

AGE RANK OF PARTICIPANTS?

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 Age Distribution

10% 10%

15% 15%

<=30
31-35
36-40
41-45
46-50
50>

20%

30%

Interpretation:

Based on this data, the majority of Raipur’s 100 mutual fund investors are between the ages of
36 and 40. That is, 30% of investors are between the ages of 41 and 45. i.e., 20% of
investments, with the youngest investors being under 30 years old.

INFORMATION YOU GOT FROM?

93
 source of information

Advertisement Coliague Banks Financial advisor

Interpretation:

The above graphic illustrates how investors in mutual funds learned about them. Of 100
persons, 55% learned about mutual funds from banks, 25% from financial advisors, 15% from
colleagues, and only 5% from advertisements.

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 Finding a Mutual Funds Analysis
The Projector has also examined the following points based on findings:

 Today, shares and debentures cover the majority of the capital market.

 Merely 23% of the market is comprised of the Mutual Fund sector.

 In the Mutual Fund industry, the government-owned UTI business holds a dominant

position.

 It was discovered that there is still a need to raise awareness about mutual funds because

even 24% of dealers and brokers stated that they would rather not deal with mutual funds
because they are unaware of them, and 43% stated that investors would rather not invest in
mutual funds because they are unaware of them.

 Those that are knowledgeable about mutual funds choose to invest in them in order to

minimise risk.

 When dealing with UTIs, brokers and dealers—whether they deal in mutual funds or

not—prefer to work with RELIANCE, which ranks second on their list of preferences.

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 Conclusion
In recent times, when the stock markets have shown to be more volatile and government bonds
are hardly keeping up with inflation, diversification and investing in different types of
investments have gained importance.

Even in times of market turmoil, investors seek to place their money in assets that yield
respectable returns. For instance, regardless of how the stock markets perform, the value of an
artwork may increase if inflation is rising.

For instance, over the past three years, real estate investments in Delhi’s National Capital
Region have regularly yielded returns of more than 10% in both the commercial and residential
divisions.

This is a significant increase over the 7-8% yield offered by fixed deposits and government
bonds. The returns, however, are not as erratic as those seen in the stock markets. In conclusion,
it can be claimed that investing styles have changed significantly over time, and it is certain that
these changes will continue in the future.

When considering the current state of the capital market, ten years ago, not so much. Prior to
the 1990s, there was a low level of public knowledge of the capital market, physical security
dealings were handled with any governance authority, and the nation's capital formation rate
was low.

Apart from being distinct from previous eras, the present-day status of the Indian Capital
Market allows for internet trading, is governed by the SEBI Act, 1992, and has witnessed a rise
in the country’s capital formation rate. Before the 1990s, the only two trading instruments
offered on the capital market were shares and debentures. Subsequently, the mutual fund is
introduced as a capital market tool.

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 SUGGESTIONS
Investors’ perspective

Regardless of age or financial situation, the concern that all customers have is: Are mutual
funds a safe option? Why are they secure? The legal restrictions and the definition of the
business form the foundation of the safety of the mutual fund sector. Since mutual funds make
investments in capital market instruments, it is vital to have the necessary understanding.

Therefore, having a knowledgeable supplier and a similarly informed customer is crucial. The
crucial prerequisites are someone who can comprehend the product and assist them in doing so
(in this case, the money market and the capital market).

A savvy investor would do the following:

 Get information about several schemes from their representative and match the right
ones.

 If you have any questions or concerns after speaking with the agents, get in touch with
the business or the fund house.

 Investors should constantly monitor the scheme’s performance as well as that of other
commendable programmes that are on the market for a closed comparison.

 Never make an investment without first reading the company’s fact sheets, annual
reports, etc.;

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  under SEBI guidelines, AMCs are required to provide investors with all pertinent
information needed to make an informed decision.

Businesses’ perspective

 The company may implement the following strategies to increase investments in

mutual fund schemes.

 Provide appropriate training to the salespeople or agents to enable them to handle

consumer inquiries in an efficient manner.

 Establish distinct customer service departments where clients can contact them at any
time with questions about the plan, the current NAV, etc. These customer service
departments are able to adjust to the needs of the client and help him select the plan
that best fits his budget.

 Organise seminars or programmes on mutual funds wherein every detail of the

product, including the risk factor related to the various asset classes, is explained.

 Created, create distinct schemes for semi-urban and rural areas, and reduce the
minimum investment amount from Rs. 500.

 A suitable number of agents should be recruited for semi-urban and rural/urban areas.

 Provide consumer support more quickly.

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  Select relevant media, such as TV advertisements, newspapers, and magazines, to
market the goods and inform the public.

Bibliography

Books and Periodicals

 Third edition of R. Sharan's "Indian Financial System," published by Sultan Chand &
Sons.

 Thomson Publishing, Madura "Financial Institution & Market," 7th ed., 2007.

 Project Methodology by KOTHARI C.R. Analyst magazine

Business Standard Astute financiers.

 Analyst publication

 Standard Business

 Skilled investors

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 Websites by:

 camsindia.com,
 investments.com.ph,
 mfea.com.

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