1.

1 INTRODUCTION OF MUTUAL FUNDS

A mutual fund is a type of financial vehicle made up of a pool of money collected

from
many investors to invest in securities like stocks, bonds, money market instruments,
and other assets. Mutual funds are operated by professional money managers, who
allocate the fund's assets and attempt to produce capital gains or income for the fund's
investors. A mutual fund's portfolio is structured and maintained to match the
investment objectives stated in its prospectus

Mutual funds give small or individual investors access to professionally managed

portfolios of equities, bonds, and other securities. Each shareholder, therefore,
participates proportionally in the gains or losses of the fund. Mutual funds invest in a
vast number of securities, and performance is usually tracked as the change in
the
total market cap of the fund4derived by the aggregating performance of the
underlying
investment
Mutual funds give small or individual investors access to professionally
managed
portfolios of equities, bonds, and other securities. Each shareholder, therefore,
participates proportionally in the gains or losses of the fund. Mutual funds invest in a
vast number of securities, and performance is usually tracked as the change in
the
total market cap of the fund4derived by the aggregating performance of the
underlying
investment

A mutual fund is a type of investment vehicle consisting of a portfolio of stocks,

bonds, or other securities.
• Mutual funds give small or individual investors access to diversified,
professionally managed portfolios at a low price.
• Mutual funds are divided into several kinds of categories, representing the kinds
of securities they invest in, their investment objectives, and the type of returns
they seek.
• Mutual funds charge annual fees (called expense ratios) and, in some cases,
commissions, which can affect their overall returns.
• The overwhelming majority of money in employer-sponsored retirement plans
goes into mutual funds.

Mutual funds pool money from the investing public and use that money to buy other
securities, usually stocks and bonds. The value of the mutual fund company depends
on the performance of the securities it decides to buy. So, when you buy a unit or
share
of a mutual fund, you are buying the performance of its portfolio or, more precisely, a
part of the portfolio's value. Investing in a share of a mutual fund is different
from
investing in shares of stock. Unlike stock, mutual fund shares do not give their holders
any voting rights. A share of a mutual fund represents investments in many different
stocks (or other securities) instead of just one holding. That's why the price of a
mutual
fund share is referred to as the net asset value (NAV) per share, sometimes expressed
as NAVPS. A fund's NAV is derived by dividing the total value of the securities in
the
portfolio by the total amount of shares outstanding. Outstanding shares are those held
by all shareholders, institutional investors, and company officers or insiders. Mutual
fund shares can typically be purchased or redeemed as needed at the fund's
current
NAV, which unlike a stock price doesn't fluctuate during market hours, but it is
settled
at the end of each trading day.

The average mutual fund holds hundreds of different securities, which means mutual
fund shareholders gain important diversification at a low price. Consider an investor
who buys only Google stock before the company has a bad quarter. He stands to lose
a
great deal of value because all of his dollars are tied to one company. On the other
hand,
a different investor may buy shares of a mutual fund that happens to own some
Google
stock. When Google has a bad quarter, it loses significantly less because Google is
just a small part of the fund's portfolio

Mutual funds also have inherent traits that follow investment principles such as asset
allocation and diversification. Another commonly faced challenge is the indecision on
investing, which has been addressed by the Systematic Investment Plan (SIP) which
instills
the discipline to invest regularly and over different market cycles. By opting for our
Smart SIP, you could mix your investments with financial protection by way of life
insurance embedded. This serves the dual purpose of life protection and wealth
creation.

Income tax is yet another challenge faced by investors for which also mutual funds
have
optimum solutions. For instance, there is a unique mutual fund category known as
ELSS
(equity-linked savings scheme), which not only can work towards wealth creation, but
also act as a tax saver. ELSS fund, qualify for tax benefits under Section 80C up to
Rs.
1.5 lakh in a financial year and come with a three-year lock-in. The overall taxation
on
mutual fund redemptions are also straightforward, making it easy for individuals
to
manage.

1.1.1 History Of Mutual Funds

The first modern investment funds (the precursor of today's mutual funds) were
established in the Dutch Republic. In response to the financial crisis of 177231773,
Amsterdam-based businessman Abraham (or Adriaan) van Ketwich formed a
trust
named Eendragt Maakt Magt ("unity creates strength"). His aim was to provide small
investors with an opportunity to diversify.

Mutual funds were introduced to the United States in the 1890s. Early U.S. funds
were
generally closed-end funds with a fixed number of shares that often traded at prices
above the portfolio net asset value. The first open-end mutual fund with redeemable
shares was established on March 21, 1924 as the Massachusetts Investors Trust (it is
still in existence today and is now managed by MFS Investment Management).
In the United States, closed-end funds remained more popular than open-end
funds
throughout the 1920s. In 1929, open-end funds accounted for only 5% of the
industry's
$27 billion in total assets.

After the Wall Street Crash of 1929, the United States Congress passed a series of acts
regulating the securities markets in general and mutual funds in particular.

• The Securities Act of 1933 requires that all investments sold to the public, including
mutual funds, be registered with the SEC and that they provide prospective
investors with a prospectus that discloses essential facts about the investment.
• The Securities and Exchange Act of 1934 requires that issuers of securities,
including mutual funds, report regularly to their investors. This act also created the
Securities and Exchange Commission, which is the principal regulator of mutual
funds.
• The Revenue Act of 1936 established guidelines for the taxation of mutual funds.
• The Investment Company Act of 1940 established rules specifically governing
mutual funds.
These new regulations encouraged the development of open-end mutual funds
(as
opposed to closed-end funds).
• The Securities Act of 1933 requires that all investments sold to the public, including
• The Securities Act of 1933 requires that all investments sold to the public, including
mutual funds, be registered with the SEC and that they provide prospective
investors with a prospectus that discloses essential facts about the investment

• The Securities and Exchange Act of 1934 requires that issuers of securities,
including mutual funds, report regularly to their investors. This act also created the
Securities and Exchange Commission, which is the principal regulator of mutual
funds.
• The Revenue Act of 1936 established guidelines for the taxation of mutual funds.
• The Investment Company Act of 1940 established rules specifically governing
mutual funds.
These new regulations encouraged the development of open-end mutual funds
(as
opposed to closed-end funds).

Growth in the U.S. mutual fund industry remained limited until the 1950s,
when
confidence in the stock market returned. By 1970, there were approximately 360
funds
with $48 billion in assets.

The introduction of money market funds in the high interest rate environment of the
late 1970s boosted industry growth dramatically. The first retail index fund, First
Index
Investment Trust, was formed in 1976 by The Vanguard Group, headed by John
Bogle;
it is now called the "Vanguard 500 Index Fund" and is one of the world's largest
mutual
funds. Fund industry growth continued into the 1980s and 1990s.

According to Robert Pozen and Theresa Hamacher, growth was the result of
three
factors:
1. A bull market for both stocks and bonds,
2. New product introductions (including funds based on municipal bonds, various
industry sectors, international funds, and target date funds) and
3. Wider distribution of fund shares. Among the new distribution channels were
retirement plans. Mutual funds are now the preferred investment option in
certain types of fast-growing retirement plans, specifically in 401(k), other
defined contribution plans and in individual retirement accounts (IRAs), all of
which surged in popularity in the 1980s.

In 2003, the mutual fund industry was involved in a scandal involving unequal
treatment of fund shareholders. Some fund management companies allowed favoured
investors to engage in late trading, which is illegal, or market timing, which is a
practice
prohibited by fund policy. The scandal was initially discovered by former New York
Attorney General Eliot Spitzer and led to a significant increase in regulation. In a
study
about German mutual funds Gomolka (2007) found statistical evidence of illegal time
zone arbitrage in trading of German mutual funds. Though reported to regulators
BaFin
never commented on these results.

1.1.2 Primary Structure Of Mutual Funds

Primary structures of mutual funds include open-end funds, unit investment trusts,
and
closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit
investment
trusts that trade on an exchange. Some close- ended funds also resemble
exchange
traded funds as they are traded on stock exchanges to improve their liquidity. Mutual
funds are also classified by their principal investments as money market funds, bond
or
fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be
categorized as index funds, which are passively managed funds that match the
performance of an index, or actively managed funds. Hedge funds are not mutual
funds;
hedge funds cannot be sold to the general public as they require huge investments.

a) Types of Mutual Funds based on structure

• Open-Ended Funds: These are funds in which units are open for purchase or
redemption through the year. All purchases/redemption of these fund units are done
at prevailing NAVs. Basically these funds will allow investors to keep invest as long
as they want. There are no limits on how much can be invested in the fund. They also
tend to be actively managed which means that there is a fund manager who picks the
places where investments will be made. These funds also charge a fee which can be
higher than passively managed funds because of the active management. They are an
ideal investment for those who want investment along with liquidity because they are
not bound to any specific maturity periods. Which means that investors can withdraw
their funds at any time they want thus giving them the liquidity they need.

• Close-Ended Funds: These are funds in which units can be purchased only during
the initial offer period. Units can be redeemed at a specified maturity date. To provide
for liquidity, these schemes are often listed for trade on a stock exchange. Unlike
open ended mutual funds, once the units or stocks are bought, they cannot be sold
back to the mutual fund, instead they need to be sold through the stock market at the
prevailing price of the shares.

• Interval Funds: These are funds that have the features of open-ended and close-
ended funds in that they are opened for repurchase of shares at different intervals
during the fund tenure. The fund management company offers to repurchase units
from existing unitholders during these intervals. If unitholders wish to they can
offload shares in favour of the fund.

b) Types of Mutual Funds based on asset class

• Equity Funds: These are funds that invest in equity stocks/shares of

companies.
These are considered high-risk funds but also tend to provide high returns. Equity
funds can include specialty funds like infrastructure, fast moving consumer goods
and banking to name a few.

• Debt Funds: These are funds that invest in debt instruments e.g. company
debentures, government bonds and other fixed income assets. They are considered
safe investments and provide fixed returns. These funds do not deduct tax at source
so if the earning from the investment is more than Rs. 10,000 then the investor is
liable to pay the tax on it himself.

• Money Market Funds: These are funds that invest in liquid instruments e.g. T-Bills,
CPs etc. They are considered safe investments for those looking to park surplus funds
for immediate but moderate returns. Money markets are also referred to as
cash
markets and come with risks in terms of interest risk, reinvestment risk and credit
risks.

• Balanced or Hybrid Funds: These are funds that invest in a mix of asset classes. In
some cases, the proportion of equity is higher than debt while in others it is the other
way round. Risk and returns are balanced out this way. An example of a hybrid fund
would be Franklin India Balanced Fund-DP (G) because in this fund, 65% to 80% of
the investment is made in equities and the remaining 20% to 35% is invested in the
debt market. This is so because the debt markets offer a lower risk than the equity
market

c) Types of Mutual Funds based on investment objective

• Growth funds: Under these schemes, money is invested primarily in equity stocks
with the purpose of providing capital appreciation. They are considered to be risky
funds ideal for investors with a long-term investment timeline. Since they are risky
funds they are also ideal for those who are looking for higher returns on their
investments.
• Income funds: Under these schemes, money is invested primarily in fixed-income
instruments e.g. bonds, debentures etc. with the purpose of providing capital
protection and regular income to investors.
• Liquid funds: Under these schemes, money is invested primarily in short-term or
very short-term instruments e.g. T-Bills, CPs etc. with the purpose of providing
liquidity. They are considered to be low on risk with moderate returns and are ideal
for investors with short-term investment timelines.
• Tax-Saving Funds (ELSS): These are funds that invest primarily in equity shares.
Investments made in these funds qualify for deductions under the Income Tax Act.
They are considered high on risk but also offer high returns if the fund performs well.
• Capital Protection Funds: These are funds where funds are are split between
investment in fixed income instruments and equity markets. This is done to ensure
protection of the principal that has been invested.
• Fixed Maturity Funds: Fixed maturity funds are those in which the assets are
invested in debt and money market instruments where the maturity date is either the
same as that of the fund or earlier than it.
• Pension Funds: Pension funds are mutual funds that are invested in with a really
long term goal in mind. They are primarily meant to provide regular returns around
the time that the investor is ready to retire. The investments in such a fund may be
split between equities and debt markets where equities act as the risky part of the
investment providing higher return and debt markets balance the risk and provide
lower but steady returns. The returns from these funds can be taken in lump sums, as
a pension or a combination of the two

d) Types of Mutual Funds based on specialty

• Sector Funds: These are funds that invest in a particular sector of the market e.g.
Infrastructure funds invest only in those instruments or companies that relate to the
infrastructure sector. Returns are tied to the performance of the chosen sector. The
risk involved in these schemes depends on the nature of the sector.
• Index Funds: These are funds that invest in instruments that represent a particular
index on an exchange so as to mirror the movement and returns of the index e.g.
buying shares representative of the BSE Sensex
• Fund of funds: These are funds that invest in other mutual funds and returns depend
on the performance of the target fund. These funds can also be referred to as multi
manager funds. These investments can be considered relatively safe because the
funds that investors invest in actually hold other funds under them thereby adjusting
for risk from any one fund.
• Emerging market funds: These are funds where investments are made in
developing countries that show good prospects for the future. They do come with
higher risks as a result of the dynamic political and economic situations prevailing in
the country.
• International funds: These are also known as foreign funds and offer investments
in companies located in other parts of the world. These companies could also
be
located in emerging economies. The only companies that won9t be invested in will
be those located in the investor9s own country.
• Global funds: These are funds where the investment made by the fund can be in a
company in any part of the world. They are different from international/foreign funds
because in global funds, investments can be made even the investor's own country.
• Real estate funds: These are the funds that invest in companies that operate in the
real estate sectors. These funds can invest in realtors, builders, property management
companies and even in companies providing loans. The investment in the real estate
can be made at any stage, including projects that are in the planning phase, partially
completed and are actually completed.
• Commodity focused stock funds: These funds don9t invest directly in the
commodities. They invest in companies that are working in the commodities market,
such as mining companies or producers of commodities. These funds can, at times,
perform the same way the commodity is as a result of their association with their
production
• Market neutral funds: The reason that these funds are called market neutral is that
they don9t invest in the markets directly. They invest in treasury bills, ETFs
and
securities and try to target a fixed and steady growth.
• Inverse/leveraged funds: These are funds that operate unlike traditional mutual
funds. The earnings from these funds happen when the markets fall and when markets
do well these funds tend to go into loss. These are generally meant only for those
who are willing to incur massive losses but at the same time can provide huge returns
as well, as a result of the higher risk they carry.
• Asset allocation funds: The asset allocation fund comes in two variants, the target
date fund and the target allocation funds. In these funds, the portfolio managers can
adjust the allocated assets to achieve results. These funds split the invested amounts
and invest it in various instruments like bonds and equity.
• Gilt Funds: Gilt funds are mutual funds where the funds are invested in government
securities for a long term. Since they are invested in government securities, they are
virtually risk free and can be the ideal investment to those who don9t want to take
risks.
• Exchange traded funds: These are funds that are a mix of both open and close ended
mutual funds and are traded on the stock markets. These funds are not
actively
managed, they are managed passively and can offer a lot of liquidity. As a result of
their being managed passively, they tend to have lower service charges (entry/exit
load) associated with them.

e) Types of Mutual Funds based on risk

• Low risk: These are the mutual funds where the investments made are by those who
do not want to take a risk with their money. The investment in such cases are made
in places like the debt market and tend to be long term investments. As a result of
them being low risk, the returns on these investments is also low. One example of a
low risk fund would be gilt funds where investments are made in government
securities.
• Medium risk: These are the investments that come with a medium amount of risk to
the investor. They are ideal for those who are willing to take some risk with
the
investment and tends to offer higher returns. These funds can be used as an
investment to build wealth over a longer period of time.
• High risk: These are those mutual funds that are ideal for those who are willing to
take higher risks with their money and are looking to build their wealth. One example
of high risk funds would be inverse mutual funds. Even though the risks are high
with these funds, they also offer higher returns

1.1.3 Definition Of Key Terms Of Mutual Funds

• Average annual total return

Mutual funds in the United States are required to report the average annual
compounded
rates of return for one-, five-and ten year-periods using the following formula:
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of ₹1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical ₹1,000 payment made at
the
beginning of the one, five, or ten year periods at the end of the one, five, or ten year
periods (or fractional portion).

• Market capitalization
Market capitalization equals the number of a company's shares outstanding multiplied
by the market price of the stock. Market capitalization is an indication of the size of a
company. Typical ranges of market capitalizations are:
 Mega cap - companies worth ₹14000 billion or more
 Big/large cap - companies worth between ₹700 billion and ₹14000 billion
 Mid cap - companies worth between ₹140 billion and ₹700 billion
 Small cap - companies worth between ₹21000 million and ₹140 billion
 Micro-cap - companies worth between ₹3500 million and ₹21000 million
 Nano cap - companies worth less than ₹50 million
• Net asset value
A fund's net asset value (NAV) equals the current market value of a fund's holdings
minus the fund's liabilities (this figure may also be referred to as the fund's "net
assets").
It is usually expressed as a per-share amount, computed by dividing net assets by the
number of fund shares outstanding. Funds must compute their net asset value
according
to the rules set forth in their prospectuses. Most compute their NAV at the end of each
business day.
Valuing the securities held in a fund's portfolio is often the most difficult part
of
calculating net asset value. The fund's board typically oversees security valuation.

• Share classes
A single mutual fund may give investors a choice of different combinations of front-
end loads, back-end loads and distribution and services fee, by offering several
different
types of shares, known as share classes. All of them invest in the same portfolio of
securities, but each has different expenses and, therefore, a different net asset value
and
different performance results. Some of these share classes may be available only
to
certain types of investors.
Typical share classes for funds sold through brokers or other intermediaries in
the
United States are:
 Class A shares usually charge a front-end sales load together with a small
distribution and services fee.
 Class B shares usually do not have a front-end sales load; rather, they have a
high contingent deferred sales charge (CDSC) that gradually declines over
several years, combined with a high 12b-1 fee. Class B shares usually convert
automatically to Class A shares after they have been held for a certain period.
 Class C shares usually have a high distribution and services fee and a modest
contingent deferred sales charge that is discontinued after one or two years
Class C shares usually do not convert to another class. They are often called
"level load" shares.
 Class I are usually subject to very high minimum investment requirements and
are, therefore, known as "institutional" shares. They are no-load shares.
 Class R are usually for use in retirement plans such as 401(k) plans. They
typically do not charge loads but do charge a small distribution and services
fee.
• Portfolio Turnover
Portfolio Turnover is a measure of the volume of a fund's securities trading. It
is
expressed as a percentage of average market value of the portfolio's long-term
securities. Turnover is the lesser of a fund's purchases or sales during a given
year
divided by average long-term securities market value for the same period. If the
period
is less than a year, turnover is generally annualized.

1.1.4 Benefits Of Investing In Mutual Funds

1. Professional Management : <Portfolio Manager= invests money on

investor9s
behalf with the responsibility of growing it and making profits for unitholders.
So
investors don9t need to be an expert on stock fundamentals or market technicalities.
Portfolio manager performs research to unveil new profitable stock ideas. He keeps a
tab on economic activities in regions/countries and accordingly decides his investment
exposures.
2. Diversification : A mutual fund provides diversification by investing in a variety
of stocks. Imagine you want to buy a Google stock which will cost you ~$800 for
one stock so it is expensive. Now think of investing $800 in an MF, that holds
Google stock along with many other stocks. This is a very important advantage in
investing through an MF. A typical portfolio holds between 40-100 stocks
depending on the manager9s objective. A manager invests in stocks of various
industries or countries to reduce the risk of losing the money.
3. Liquidity : Investing in a mutual fund can be considered as closer to holding cash
as investors can sell the units anytime and receive cash. Portfolio manager always
keeps cash handy for redemption requirements. So if you place a sell order today,
you will get cash in next one or two days. The fund documents generally mention
the settlement period e.g. T+2 means 2 days from a trading day (T). A portfolio
manager also invests a portion of money in stocks which he can easily sell to meet
redemption requests.
4. Ease of Investing & Affordability : Investing in an MF has become less painful
over the years with the help of technology. Anyone can buy a fund by simply
visiting the fund or broker website. One can buy and sell an MF and perform tasks
like generating a statement, making incremental investments at a click of a button.
Investing in a mutual fund is not very expensive. To open an account minimum
amount
could be a $1000 or less. For incremental purchases, the minimum amount is $100.
Also, investors have a choice of investing in a fund through options like systematic
investment or withdrawal which could be used for regular saving or to meet expenses

1.1.4a. Advantages To Investors

1. Increased diversification
Mutual funds spread their holdings across a number of different
investment vehicles, which reduces the effect any single security or class
of securities will have on the overall portfolio. Because mutual funds can
contain hundreds or thousands of securities, investors aren9t likely to be
fazed if one of the securities doesn9t do well.

2. Daily liquidity
Mutual funds, unlike some of the individual investments they may hold,
can be traded daily. Though not as liquid as stocks, which can be traded
intraday, buy and sell orders are filled after market close.

3. Professional investment management

Open-and closed-end funds hire portfolio managers to supervise the fund's
investments.
4. Reinvestment of Income
Another benefit of mutual funds is that they allow you to reinvest your
dividends and interest in additional fund shares. In effect, this allows you
to take advantage of the opportunity to grow your portfolio without paying
regular transaction fees for purchasing additional mutual fund shares.

5. Service and convenience

Funds often provide services such as check writing.

6. Government oversight
Mutual funds are regulated by a governmental body.

7. Transparency and ease of comparison

Not All mutual funds are required to report the same information to
investors, which makes them easier to compare to each other.

1.1.5 Drawback Of Investing In Mutual Funds

Liquidity, diversification, and professional management all make mutual funds

attractive options for younger, novice, and other individual investors who don't want
to
actively manage their money. However, no asset is perfect, and mutual funds
have
drawbacks too
1. Fluctuating Returns
Like many other investments without a guaranteed return, there is always the
possibility
that the value of your mutual fund will depreciate. Equity mutual funds experience
price
fluctuations, along with the stocks that make up the fund. The Federal Deposit
Insurance Corporation (FDIC) does not back up mutual fund investments, and there is
no guarantee of performance with any fund. Of course, almost every investment
carries
risk. It is especially important for investors in money market funds to know that,
unlike
their bank counterparts, these will not be insured by the FDIC
2. Cash Drag
Mutual funds pool money from thousands of investors, so every day people are
putting
money into the fund as well as withdrawing it. To maintain the capacity to
accommodate withdrawals, funds typically have to keep a large portion of their
portfolios in cash. Having ample cash is excellent for liquidity, but money that is
sitting
around as cash and not working for you is not very advantageous. Mutual funds
require
a significant amount of their portfolios to be held in cash in order to satisfy
share
redemptions each day. To maintain liquidity and the capacity to accommodate
withdrawals, funds typically have to keep a larger portion of their portfolio as cash
than
a typical investor might. Because cash earns no return, it is often referred to as a "cash
drag."
3. High Costs
Mutual funds provide investors with professional management, but it comes at a cost4
those expense ratios mentioned earlier. These fees reduce the fund's overall payout,
and
they're assessed to mutual fund investors regardless of the performance of the fund.
As
you can imagine, in years when the fund doesn't make money, these fees only
magnify
losses. Creating, distributing, and running a mutual fund is an expensive undertaking.
Everything from the portfolio manager's salary to the investors' quarterly statements
cost money. Those expenses are passed on to the investors. Since fees vary widely
from
fund to fund, failing to pay attention to the fees can have negative long-term
consequences. Actively managed funds incur transaction costs that accumulate
over
each year. Remember, every dollar spent on fees is a dollar that is not invested to
grow
over time.
4. Diversification and Dilution
"Diversification"4a play on words4is an investment or portfolio strategy that implies
too much complexity can lead to worse results. Many mutual fund investors tend to
overcomplicate matters. That is, they acquire too many funds that are highly related
and, as a result, don't get the risk-reducing benefits of diversification. These investors
may have made their portfolio more exposed. At the other extreme, just because you
own mutual funds doesn't mean you are automatically diversified. For example, a
fund
that invests only in a particular industry sector or region is still relatively risky.
5. Active Fund Management
Many investors debate whether or not the professionals are any better than you or I at
picking stocks. Management is by no means infallible, and even if the fund
loses
money, the manager still gets paid. Actively managed funds incur higher fees,
but
increasingly passive index funds have gained popularity. These funds track an index
such as the S&P 500 and are much less costly to hold. Actively managed funds over
several time periods have failed to outperform their benchmark indices, especially
after
accounting for taxes and fees.
6. Lack of Liquidity
A mutual fund allows you to request that your shares be converted into cash at any
time,
however, unlike stock that trades throughout the day, many mutual fund redemptions
take place only at the end of each trading day.
7. Taxes
When a fund manager sells a security, a capital-gains tax is triggered. Investors who
are concerned about the impact of taxes need to keep those concerns in mind when
investing in mutual funds. Taxes can be mitigated by investing in tax-sensitive funds
or by holding non-tax sensitive mutual funds in a tax-deferred account, such as a
401(k)
or IRA.
8. Evaluating Funds
Researching and comparing funds can be difficult. Unlike stocks, mutual funds do not
offer investors the opportunity to juxtapose the price to earnings (P/E) ratio,
sales
growth, earnings per share (EPS), or other important data. A mutual fund's net asset
value can offer some basis for comparison, but given the diversity of
portfolios,
comparing the proverbial apples to apples can be difficult, even among funds
with
similar names or stated objectives. Only index funds tracking the same markets tend
to
be genuinely comparable.

1.1.5a Disadvantages To Investors

1. No Control Over Portfolio
If you invest in a fund, you give up all control of your portfolio to the mutual
fund money managers who run it.
2. Capital Gains
Anytime you sell stock, you9re taxed on your gains. However, in a mutual
fund, you9re taxed when the fund distributes gains it made from selling
individual holdings 3 even if you haven9t sold your shares.
3. Fees and Expenses
Some mutual funds may assess a sales charge on all purchases, also known as
a <load= 3 this is what it costs to get into the fund. Plus, all mutual funds charge
annual expenses, which are conveniently expressed as an annual expense ratio
3 this is basically the cost of doing business.
4. Over-diversification
Although there are many benefits of diversification, there are pitfalls of being
over-diversified. Think of it like a sliding scale: The more securities you hold,
the less likely you are to feel their individual returns on your overall portfolio.
5. Cash Drag
Mutual funds need to maintain assets in cash to satisfy investor redemptions
and to maintain liquidity for purchases. However, investors still pay to have
funds sitting in cash because annual expenses are assessed on all fund assets,
regardless of whether they9re invested or not

1.1.6 Investment Objectives Of The Mutual Fund

Kid9s college education or marriage, retirement planning or medical expenses are

some
of the things many of us are planning through our working lives. I would like to list a
few investment objectives of Mutual funds below that may help readers in making an
investment decision.
• Goal-Based Investing : This is the top investment objective of Mutual fund. As
mentioned above, one can plan future expenses and invest accordingly. Many
fund complexes offer <Target Date Funds= or customized <Fund of Fund=
which basically allocates the assets to equity and bond MF9s. Difference
between two is target date funds are non-discretionary i.e. investor can only
invest in one of the available plans and can9t choose the exposure according to
his/her needs. Fund of Funds could be dynamic and invests according to target
asset mix suitable for investors after looking at his/her risk profile and liabilities
etc. However, the mix will be rebalanced as the holder is approaching the target
date. The basic rule is to invest more money in equities and as a holder grows
old; allocate more money to debt mutual fund e.g. at 30 years old investor
should invest a 30% in debt and a 70% in equities (this is a thumb rule).
• Investment Growth : Many mutual funds investment objectives nclude
Investment Growth model. Investors who are retirement ready and looking for
aggressive returns can do so by taking some extra risk. Mutual Fund sufficing
this objective invests money in fast-growing companies like small caps or
companies with positive trends in stock price (price momentum) etc.
• Tax Savings : Tax Savings is also one of the popular investment objectives of
Mutual fund. Mostly wealthy clients, Institutional investors, and corporates
have an objective to minimize the tax outlays. Taxes can eat into returns making
it negative or trivial. Citing the importance of after-tax returns, few products
can help investors gaining the 8tax alpha9. These products are built by
combinations of MFs, Index funds or ETF9s and stocks or bonds. Typically
individual account is handled by an investment manager who knows the long
and short-term tax implications. Buying and selling is driven by tax alpha gains.
Suppose you are holding fund A and Fund B then
• If you have capital gains in both A&B, you will be taxed for both at applicable
income tax.
• If you have a capital gain in A and loss in B, then you can set off the losses
against the gains of A and thus reduce the tax liability.

Thus by taking appropriate exposures, tax outgo can be optimized to produce overall
gains in An account.

• Marketability/Liquidity : Many of the investments we have discussed are

reasonably illiquid, which means they cannot be immediately sold and easily
converted into cash. Achieving a degree of liquidity, however, requires the
sacrifice of a certain level of income or potential for capital gains.
• Income :The safest investments are those likely to have the lowest rate of
income return or yield. Investors must inevitably sacrifice a degree of safety if
they want to increase their yields. As yield increases, so does the risk.
• Fund Types : There are three basic types of mutual funds. Equity funds invest
exclusively in stock. Fixed-income funds invest in bonds, and money market
funds invest in Treasury bills and short-term, liquid, high-quality securities. All
mutual funds are made up of one or more of these three asset classes. Funds are
sometimes named, ostensibly, for their objective and have catchy names such
as Global, International, Growth and Overseas. Evaluate the prospectus rather
than drawing a conclusion from the fund's title.
CHAPTER – 2
RESEARCH METHODOLOGY
2.1 INTRODUCTION
<A research is a careful investigation or enquiry, especially through search foe
new
facts in any branch of knowledge. It is a systemized effort to gain more knowledge.=
<Research Methodology is a way to systematically solve the research problem.
It
includes not only the research methods, but also the logic behind using the methods.=
The methods of research used in this project were as follows:-

2.2 OBJECTIVES OF THE STUDY

➢ To study and understand parameters for investment in Mutual Fund investment.

➢ To study the fund management process of mutual funds.
➢ To study about the regulations governing mutual funds.
➢ To study the factors affecting Mutual fund choice of Investor.
➢ To analyze and determine the market position of companies for investment
purpose.
➢ To understand and analyze the investment pattern which exists among investors
in mutual funds from customer perspective.
➢ To study the characteristics of mutual fund which attracts the investor.
➢ What an investor should consider for safe investment and better returns

2.3 SCOPE OF THE STUDY

➢ To make people aware about concept of mutual fund.

➢ To provide information regarding advantages and demerits of mutual fund.
➢ To advice where to invest or not to invest.
➢ To provide information regarding types of mutual fund this is beneficial for
whom.
➢ The survey was conducted on investors/customers having or not having mutual
fund share covering the area of Navi Mumbai
2.4 SAMPLING

➢ Sampling unit: The sampling unit for research is Navi Mumbai.

➢ Sample size: The sample size taken for survey is 100 respondents

➢ Sampling procedure: Random sampling technique is used in the research.

2.5 TOOLS AND TECHNIQUES

Different types of graphs and charts are used to present the data collected
through
questionnaire

Pie charts: Pie charts display data and statistics in an easy-to-understand pie slice
format
and illustrate numerical proportion.

2.6 SOURCES OF DATA COLLECTION

Source of data collection

Primary data Secondry data

2 .7 PRIMARY DATA
Data used in research originally obtained through the direct efforts of the researcher
through surveys, interviews and direct observation. Primary data is more costly
to
obtain than secondary data, which is obtained through published sources, but it is also
more current and more relevant to the research project.
1. Structured questionnaire is used as the research instrument and shared to 100
people
2. Observation method is used for collecting primary data. Observation of
market
fluctuation and behaviour of investors is used as a source of collection of data.
3. Respondent characteristics used in this analysis include: name, gender, age,
occupation, investment options, etc.
4. Questionnaire was send through different social medias.

2.7a Questionnaire:
The questionnaire contained questions regarding the general and socio-economic
characteristics of the respondents such as age, educational qualification, etc.
And
various questions asking about the Awareness about mutual fund, SIPs and apps.
On the basis, of responses from respondents some of the Questions were modified and
modified questionnaire was used to responses from 100 respondents. A sample size of
100 respondents was used for detailed study because it is not possible to cover whole
city for the collecting responses from respondents. This is type of questionnaire which
is segmented to collected relevant and accurate information relating to the title
of
r2.7b Observation Method:
The collection of primary data was also done by Observation of the
investors/customers
of mutual fund. Observation Research is of various types and has various types and
has
various strengths and weakness. This type of research is mostly done in social science
and marketing sector. This is social research techniques that involve the direct
observation of phenomena

2.8 SECONDARY DATA

Secondary data analysis can save time that would otherwise be spent collecting data
and, particularly in the case of quantitative data, can provide larger and higher-quality
databases that would be unfeasible for any individual researcher to collect on
their
own. In addition, analysts of social and economic change consider secondary
data
essential, since it is impossible to conduct a new survey that can adequately capture
past change and/or developments. However, secondary data analysis can be less
useful
in marketing research, as data may be outdated or inaccurate
esearch.
• Qualitative method : Content analysis, Thematic analysis, Discourse analysis
• Quantitative method : Sampling method, existing data

2.9 LIMITATIONS OF THE STUDY

• Research cannot be taken for entire population.

• The data collection was strictly confined to secondary sources. Primary
data was associated with only the survey conducted on the investors.
• Collecting historical NAV is very difficult.
• Selection of schemes for study is very difficult because lot of Varieties
in equity Schemes
• To get an insight in the process of risk and return and deployment of
funds by fund manager is difficult.
• The project is unable to analyse each and every equity scheme of mutual
funds to create awareness about risk and return. The risk and return of
mutual fund equity schemes can change according to the market
conditions.
• Questionnaire method which is adopted for collecting data has its own
limitations.
• It may be hard for participants to recall information or to tell the truth
about a controversial question.
• Sample size is also the limited.
• Some of the respondents of the survey were unwilling to share
information.
• Some of the respondents could not answer the questions due to lack of
knowledge.
2.10 HYPOTHESIS
• H0- Investor should consider mutual fund safe for investment
• H1- Investor should consider mutual fund is not safe for investment

3. LITERATURE REVIEW
CHAPTER – 3
LITERATURE REVIEW
A large number of studies on the growth and financial performance of Mutual Fund
have been carried out during the past, in the developed and developing countries.
Brief
reviews of the following research works reveal the wealth of contributions towards
the
performance evaluation of Mutual Fund systematic investment plan.

1. Malkiel, B.J. (1995) says in his study utilizes a unique data set including
returns from all equity mutual funds existing each year. These data enable us
more precisely to examine performance and the extent of survivorship bias. In
the aggregate, funds have underperformed benchmark portfolios both after
management expenses and even gross of expenses. Survivorship bias appears to
be more important than other studies have estimated. Moreover, while
considerable performance persistence existed during the 1970s, there was no
consistency in fund returns during the 1980s.

2. Louis, K.C and Lakonishok, C.C. (1999) have discussed <they provide an
exploratory investigation of mutual funds9 investment styles. Funds9 styles tend
to cluster around a broad market benchmark. When funds deviate from the
benchmark they are more likely to favour growth stocks with good past
performance. There is some consistency in styles, although funds with poor past
performance are more likely to change styles. Some evidence suggests that
growth funds have better style-adjusted performance than value funds. The
results are not sensitive to style identification procedure, but an approach based
on fund portfolio characteristics performs better in predicting future fund
returns.2.

3. Carhart,M.M. , Carpenter , J.N. LynchW.A. and Musto.K.D. (2000) they

have estimates of the returns to different mutual fund portfolios for 3-year, 5-
year and 10-year holding period intervals. Finally explained that how the
relation between performance and fund characteristics can be affected by the
use of a survivor-only sample and show that the magnitudes of the biases in the
slope coefficients are large for fund size, expenses, turnover and load fees in
our sample. Because survivorship issues are relevant for many data sets used in
finance, the analysis in this paper has potential applications in areas of financial
economics beyond just mutual fund research.
4. Redman, A.L. and Manakyan,H. (2001) have given information the risk-
adjusted returns using Sharpe9s Index, Treynor9s Index, and Jensen9s. The
results show that for 1985 through 1994 the portfolios of international mutual
funds outperformed the U. S. market and the portfolio of U. S. mutual funds
under Sharpe9s and Treynor9s indices. During 1985-1989, the international fund
portfolio outperformed both the U. S. market and the domestic fund portfolio,
while the portfolio of Pacific Rim funds outperformed both benchmark
portfolios. Returns declined below the stock market and domestic mutual funds
during 1990-1994.

5. Bullen.& Busse,J.A.(2004) they have given the information that investor cash
flows can distort inference in mutual fund performance. The impact of cash flow
on performance can be controlled for using conditional methods, as in Edelen
(1999).

6. Sindhu,K.P.& Kumar,S.R(2008) have discussed that <the stock market

provides higher returns than any of the investment options available in the
financial market. A prudent investor can earn a lot from the stock market
operations. But there is a chance of high risk and uncertainty. As we know,
higher the return, higher will be the risk. Those investors with lack of knowledge
and expertise may lose their money while investing in financial assets,
especially in securities. This is where mutual funds come into picture. Mutual
Fund is the most suitable investment for a common man as it offers an
opportunity to invest in a diversified professionally managed basket of
securities at a relatively low cost. A mutual fund is an investment company or
a trust that pools the resources of a large number of its9 shareholders and invest
on behalf of them in diversified portfolios to attain the objectives of the
investors which in return achieve income or growth or both. Thus mutual funds
become a major investment vehicle for mobilization of savings particularly
from small and household sectors for the investment in security market. At
present the importance of mutual funds in India has been increasing in the
capital market by expanding the investors9 base. At the same time, investment
in mutual fund is to be considered as a long term investment. Hence, it is
important to know their investment horizon. The present paper tries to
understand the investment horizon by analyzing their periodical investment
plans and investment duration.=
7. Sharma P. (2010) In this paper they found that Mutual Funds markets are
constantly becoming more efficient by providing more promising solutions to
the investors. Mutual funds industry is responding at a good pace and
understanding the investor9s perception ,still they are continuously following
this race in their attempt to differentiate their products responding to sudden
changes in the economy.

8. Singhal’s .& Goel, M .(July, 2011) : The Empirical result reported that SIP
Plans has performed better than the one time investment .

9. Shelly Singhal (2011) have stated that Systematic Investment Plans (SIP) is
among the most successful financial innovations grown at a fairly rapid pace in
emerging markets and India is no exception to it .

10. Dr. Ravi Visa, (2012) says that mutual funds were not that much known to
investors, still investor rely upon bank and post office deposits, most of the
investor used to invest in mutual fund for not more than 3 years and they used
to quit from the fund which were not giving desired results. Equity option and
SIP mode of investment were on top priority in investors9 list. It was also found
that maximum number of investors did not analyze risk in their investment and
they were depend upon their broker and agent for this work
11. Paul .T. (July 2012) have observed Mutual funds have evolved over the years,
in keeping with the changes in the economic and financial systems, as well as
the legal environment of the country. New products have launched according to
the requirements and changes in the investors‟ perceptions and expectations.
Understanding the investors‟ expectations and meeting those expectations are
the key area of interest of marketing experts.

12. Amarnath , Dr. .Reddy, R.S. & Krishna,K.T (2012), have observed that if
there is broad agreement that appropriately regulated Mutual Fund activity can
play a large part in financial development in all its dimensions, these barriers
can surely be addressed in a collaborative way between the three stakeholders
3 the investors, the fund managers and the regulators

13. Tahseen, A.A and Narayana. (2012) have discussed consumer attitudes
towards financial investments have always been a challenge for the finance
companies due to limited risk appetite of consumers which are largely attributed
to both cognitive and affective components of attitude.

14. Kandpa .V & Kavidayal, P.C. (2013) have given the information for
restriction of mutual fund investment in top cities or Urban areas is the lack of
awareness level in the rural and semi urban areas. The absence of product
diversification and confusion in the market has been enlarged by the lack of
marketing initiatives for Mutual Funds. The role of mutual fund agents or
distributors is to educate the investor community. Therefore the spread of
Mutual Fund market has been limited.

15. Vyas, R. (2013) have mentioned in his study that mutual fund companies
should come forward with full support for the investors in terms of advisory
services, participation of investor in portfolio design, ensure full disclosure of
related information to investor, proper consultancy should be given by mutual
fund companies to the investors in understanding terms and conditions of
different mutual fund schemes, such type of fund designing should be promoted
that will ensure to satisfy needs of investors, mutual fund information should be
published in investor friendly language and style, proper system to educate
investors should be developed by mutual fund companies to analyze risk in
investments made by them, etc.

16. Juwairiya, P.P(2014) says systematic investment plan is the best option
planned for small investors who wish to invest small amounts regularly to build
wealth over a long period of time.

17. Kumar, S.& Kumar. (2014) in their study it is mention that <Mutual fund is
a kind of investment that uses money from many investors to invest in stocks,
bonds or other types of investment and the fund manager decides how to invest
the money.

18. Goswami, A.G.(2014) has observed mutual fund investment is a diversified

portfolio of securities, which can include equity securities (such as common and
preferred shares), debt securities (such as bonds and debentures), and other
financial instruments issued by corporations and governments, according to the
stated investment objectives of the fund. The benefit to investors in buying shares of
the mutual fund comes primarily from diversification, professional money
management and capital gain and dividend reinvestment at relatively low cost.
CHPTER- 4
DATA ANALYSIS AND INTERPRETATION
DATA ANALYSIS AND INTERPRETATION
1. Gender

Answer % Count

Male 33.2% 33
Female 66.8% 67

Interpretation:

According to this among people respondents males are 33.2% and females are
66.8%
Interpretation:
According to this among people respondents males are 33.2% and females are
66.8%

2. Age
Answer % Cout
Above 18 years 32.2% 32
24 years – 40 years 24% 24
41 years – 60 years 33.8% 34
 Above 60 years 9.2% 9

Interpretation:
The majority of the people who responded belonged to those above 18 years i.e.
32.20%. 24% people
respondents belong to 25 years 3 40 years, 33.8% people respondents are belongs
to 41 years 3 60 years and 9.2% belong to the above 60 years category of age group.

3. Occupation
Answer % Count
Salaried 66.2% 66
Business 9.2% 9
Student 16.9% 17
Homemaker 4.6% 5
Retired 3.1% 3

Interpretation:
According to this diagram among people respondents 66.2% are Salaried, 9.2%
are
Business, 16.9% of students, 4.6% are homemakers and 8.1% are Retired.

4. Which income group do you belong to (per annum)?

Answer % count

Below 2 Lakhs 38.5% 38

2 -10 Lakhs 40% 40

11 -20 Lakhs 10.8% 11

Above 20 Lakhs 10.8% 11

Interpretation:
According to this diagram among people respondents 38.5% are earning below
2,00,000 , 40% are earning 2,00,000 3 11,00,000 , 10.8 % are earning
11,00,000 3
20,00,000 and 10.8% are earning above 20 lakhs