NAME – TANVI MAYUR SHAH

ROLL NO- HTBAF251

Course – TYBAF
FINANCIAL MANAGEMENT
PROJECT TOPIC – MUTUAL FUNDS

THE CONCEPT OF MUTUAL FUNDS

A mutual fund is an investment option where money from many people is pooled together to
buy a variety of stocks, bonds, or other securities. This mix of investments is managed by a
professional money manager, providing individuals with a portfolio that is structured to
match the investment objectives stated in the fund's prospectus.

By investing in a mutual fund, individuals gain access to a broad range of investments,

which can help reduce risk compared to investing in a single stock or bond. Investors earn
returns based on the fund's performance minus any fees or expenses charged. In this way,
mutual funds can give small or individual investors access to professionally managed
portfolios of equities, bonds, and other asset classes.

A mutual fund is a type of investment that pools money from many people to invest in a
variety of assets like stocks, bonds, or other securities. This pooling allows individuals to
diversify their investments and access a broader range of strategies or assets than they might
be able to on their own.

A mutual fund effectively owns a portfolio of investments that is funded by all the investors
who have purchased shares in the fund. So when an individual buys into a mutual fund, they
gain part-ownership of all the underlying assets that fund owns. This gives the individual
investor exposure to a much wider swath of the market through a single mutual fund
investment compared to what they might be able to buy individually.
The performance of the mutual fund depends on the underlying assets that it holds. If these
assets increase in value on net, so does the value of the fund's shares. Conversely, if the
assets decrease in value, so does the value of the shares.

The fund manager oversees the portfolio, making decisions about how to allocate money
across sectors, industries, companies etc. based on the stated strategy of the fund. By pooling
money into a large fund, investors can participate in a professionally-managed, diversified
group of securities that they wouldn't usually have access to as individuals. This
diversification and access is a key benefit of mutual funds for individual investors.

How Are Returns Calculated for a Mutual Fund?

1. Income is earned from dividends on stocks and interest on bonds held in the
fund's portfolio, and it pays out nearly all of the income it receives over the year
to fund owners in the form of a distribution. Funds often give investors a choice
either to receive a check for distributions or to reinvest the earnings to purchase
additional shares of the mutual fund.
2. Portfolio Distributions: If the fund sells securities that have increased in price,
the fund realises a capital gain, which most funds also pass on to investors in a
distribution.
3. Capital Gains: When the fund's shares increase in price, you can sell your
mutual fund shares for a profit in the market.

Different Types of Mutual Funds

There are several types of mutual funds available for investment, though most mutual funds
fall into one of four main categories which include stock funds, money market funds, bond
funds, and target-date funds.

Stock Funds
As the name implies, this fund invests principally in equity or stocks. Within this group are
various subcategories. Some equity funds are named for the size of the companies they
invest in: small-, mid-, or large-cap. Others are named by their investment approach:
aggressive growth, income-oriented, value, and others. Equity funds are also categorised by
whether they invest in domestic (U.S.) stocks or foreign equities. To understand the universe
of equity funds is to use a style box, an example of which is below.

Funds can be classified based on both the size of the companies, their market caps, and the
growth prospects of the invested stocks. The term value fund refers to a style of investing
that looks for high-quality, low-growth companies that are out of favour with the market.
These companies are characterised by low price-to-earnings (P/E) ratios, low price-to-
book (P/B) ratios, and dividend yields. Conversely, growth funds look to companies with
strong earnings, sales, and cash flow growth. These companies typically have high P/E ratios
and do not pay dividends.

A compromise between strict value and growth investment is a "blend," which refers to
companies that are neither value nor growth stocks and are classified as somewhere in the
middle. Large-cap companies have high market capitalisation, with values over $10 billion.
Market cap is derived by multiplying the share price by the number of shares outstanding.
Large-cap stocks are typically blue-chip firms that are often recognisable by name. Small-
cap stocks refer to those with a market cap ranging from $250 million to $2 billion. These
smaller companies tend to be newer, riskier investments.

Mid-cap stocks fill in the gap between small- and large-cap. A mutual fund may blend its
strategy between investment style and company size. For example, a large-cap value fund
would look to large-cap companies that are in strong financial shape but have recently seen
their share prices fall and would be placed in the upper left quadrant of the style box (large
and value). The opposite of this would be a fund that invests in startup technology
companies with excellent growth prospects: small-cap growth. Such a mutual fund would
reside in the bottom right quadrant (small and growth).

Bond Funds
A mutual fund that generates a minimum return is part of the fixed income category. A
fixed-income mutual fund focuses on investments that pay a set rate of return, such as
government bonds, corporate bonds, or other debt instruments. The fund portfolio generates
interest income that is passed on to the shareholders.Sometimes referred to as bond funds,
these funds are often actively managed and seek to buy relatively undervalued bonds to sell
them at a profit.

These mutual funds will likely pay higher returns but aren't without risk. For example, a
fund specialising in high-yield junk bonds is much riskier than a fund that invests in
government securities. Because there are many different types of bonds, bond funds can vary
dramatically depending on where they invest, and all bond funds are subject to interest rate
risk.

Index Funds

Index funds invest in stocks that correspond with a major market index such as the S&P 500
or the Dow Jones Industrial Average (DJIA). This strategy requires less research from
analysts and advisors, so fewer expenses are passed on to shareholders, and these funds are
often designed with cost-sensitive investors in mind.

Balanced Funds

Balanced funds invest in a hybrid of asset classes, whether stocks, bonds, money market-
instruments, or alternative investments. The objective of this fund, known as an asset
allocation fund, is to reduce the risk of exposure across asset classes. Some funds are
defined with a specific allocation strategy that is fixed, so the investor can have a predictable
exposure to various asset classes. Other funds follow a strategy for dynamic allocation
percentages to meet various investor objectives. This may include responding to market
conditions, business cycle changes, or the changing phases of the investor's own life.The
portfolio manager is commonly given the freedom to switch the ratio of asset classes as
needed to maintain the integrity of the fund's stated strategy.

Money Market Funds

The money market consists of safe, risk-free, short-term debt instruments, mostly
government Treasury bills. An investor will not earn substantial returns, but the principal is
guaranteed. A typical return is a little more than the amount earned in a regular checking or
savings account and a little less than the average certificate of deposit (CD).

Income Funds

Income funds are named for their purpose: to provide current income on a steady basis.
These funds invest primarily in government and high-quality corporate debt, holding these
bonds until maturity to provide interest streams. While fund holdings may appreciate, the
primary objective of these funds is to provide steady cash flow to investors. As such, the
audience for these funds consists of conservative investors and retirees.

International/Global Funds

An international fund, or foreign fund, invests only in assets located outside an investor's
home country. Global funds, however, can invest anywhere around the world. Their
volatility often depends on the unique country's economy and political risks. However, these
funds can be part of a well-balanced portfolio by increasing diversification, since the returns
in foreign countries may be uncorrelated with returns at home.

Specialty Funds

Sector funds are targeted strategy funds aimed at specific sectors of the economy, such as
financial, technology, or healthcare. Sector funds can be extremely volatile since the stocks
in a given sector tend to be highly correlated with each other.

Regional funds make it easier to focus on a specific geographic area of the world. This can
mean focusing on a broader region or an individual country.

Socially responsible funds, or ethical funds, invest only in companies that meet the criteria
of certain guidelines or beliefs. For example, some socially responsible funds do not invest
in "sin" industries such as tobacco, alcoholic beverages, weapons, or nuclear power. Other
funds invest primarily in green technology, such as solar and wind power or recycling.
Mutual Fund Fees

A mutual fund has annual operating fees or shareholder fees. Annual fund operating fees are
an annual percentage of the funds under management, usually from about 1–3%, known as
the expense ratio. A fund's expense ratio is the summation of the advisory or management
fee and its administrative costs.

Shareholder fees are sales charges, commissions, and redemption fees paid directly by
investors when purchasing or selling the funds. Sales charges or commissions are "the load"
of a mutual fund. When a mutual fund has a front-end load, fees are assessed when shares
are purchased. For a back-end load, mutual fund fees are assessed when investors sell their
shares.

Sometimes, however, an investment company offers a no-load mutual fund, which doesn't
carry any commission or sales charge. These funds are distributed directly by an investment
company, rather than through a secondary party. Some funds also charge fees and penalties
for early withdrawals or selling the holding before a specific time has elapsed.

How to Invest in Mutual Funds?

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

1. Make sure you have a brokerage account with enough cash on hand, and with access
to mutual fund shares.
2. 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.
3. 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.
4. Monitor and review performances periodically, making adjustments as needed.
5. When it is time to close your position, enter a sell order on your platform.
Advantages of Mutual Fund Investing

Diversification

Diversification, or the mixing of investments and assets within a portfolio to reduce risk, is
one of the advantages of investing in mutual funds. A diversified portfolio has securities
with different capitalisation and industries and bonds with varying maturities and issuers. A
mutual fund can achieve diversification faster and more cheaply than buying individual
securities.

Easy Access

Trading on the major stock exchanges, mutual funds can be bought and sold with relative
ease, making them highly liquid investments. Also, when it comes to certain types of assets,
like foreign equities or exotic commodities, mutual funds are often the most feasible way,
sometimes the only way for individual investors to participate.

Economies of Scale

Mutual funds also provide economies of scale-by forgoing numerous commission charges to
create a diversified portfolio. Buying only one security at a time leads to large transaction
fees. The smaller denominations of mutual funds allow investors to take advantage of dollar-
cost averaging.Because a mutual fund buys and sells large amounts of securities at a time,
its transaction costs are lower than what an individual would pay for securities transactions.
A mutual fund can invest in certain assets or take larger positions than a smaller investor
could.

Professional Management

A professional investment manager uses research and skilful trading. A mutual fund is a
relatively inexpensive way for a small investor to get a full-time manager to make and
monitor investments. Mutual funds require much lower investment minimums, providing a
low-cost way for individual investors to experience and benefit from professional money
management.
Transparency

Investors have the freedom to research and select from managers with a variety of styles and
management goals. A fund manager may focus on value investing, growth investing,
developed markets, emerging markets, income, or macroeconomic investing, among many
other styles. This variety allows investors to gain exposure to not only stocks and bonds but
also commodities, foreign assets, and real estate through specialised mutual funds. Mutual
funds provide opportunities for foreign and domestic investment that may not otherwise be
directly accessible to ordinary investors.Mutual funds are subject to industry regulation that
ensures accountability and fairness to investors.

Disadvantages of Mutual Fund Investing

Liquidity, diversification, and professional management all make mutual funds attractive
options, however, mutual funds have drawbacks too.

No Guarantees

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 in the fund's portfolio. The Federal Deposit Insurance
Corporation (FDIC) does not guarantee mutual fund investments.

Cash Drag

Mutual funds require a significant amount of their portfolios to be held in cash 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."

High Costs

Mutual funds provide investors with professional management, but fees that reduce the
fund's overall payout are assessed to mutual fund investors regardless of the performance of
the fund. Since fees vary widely from fund to fund, failing to pay attention to the fees can
have negative long-term consequences as actively managed funds incur transaction costs that
accumulate over each year.

"Diversification " and Dilution

"Diversification "—a play on words—is 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, lose the benefits of diversification.

Dilution is also the result of a successful fund growing too big. When new money pours into
funds that have had strong track records, the manager often has trouble finding suitable
investments for all the new capital to be put to good use.

The Securities and Exchange Commission (SEC) requires that funds have at least 80% of
assets in the particular type of investment implied in their names. How the remaining assets
are invested is up to the fund manager. However, the different categories that qualify for
80% of the assets may be vague and wide-ranging. A fund can, therefore, manipulate
prospective investors via its title. For example, a fund that focuses narrowly on Argentinian
stocks could be sold with a far-ranging title like "International High-Tech Fund."

End of Day Trading Only

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.

Taxes

When a fund manager sells a security, a capital-gains tax is triggered. 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.

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. SBI MUTUAL FUND

The SBI Mutual Fund Trustee Company Private Limited was set up as a trust under the
Trust Act of 1882. This Trust controls the SBI Mutual Fund, one of India’s largest and
oldest MFs. The SBI Mutual Fund is a Joint Venture (JV) between one of India’s largest and
most profitable banks, the State Bank of India, and Amundi, which is a French asset
management company.
The SBI Mutual Fund was set up on June 29, 1987 and was incorporated on February 7,
1992. It was India’s second Mutual Fund after the Unit Trust of India started operations in
1963. In July 2004, SBI decided to divest 37% of the Fund and roped in Amundi as a
partner.
Amundi is an asset management major created jointly by Credit Agricole and Société
General. SBI MF has many firsts to its name. It was the first Indian Mutual Fund player to
launch a ‘Contra’ fund, called the SBI Contra Fund. In 2013, SBI Mutual Fund India
acquired Daiwa Mutual Fund, part of the Daiwa Group of Japan.
SBI Mutual Fund is the first in India to launch an ESG Fund. An acronym for Environment,
Social and Governance, the fund provides resources for sustainable investment in major
markets.
In 2015, the Employees’ Provident Fund of India invested Rs 5,000 Crore for the first time
in a Mutual Fund in India via SBIMF Sensex ETFs or Exchange Traded Funds.
As of March 2023, the SBI Mutual Fund manages assets worth Rs. 7.22 lakh crores. In early
2019, it moved past Aditya Birla and HDFC Mutual Funds to emerge as the 3rd largest
Mutual Fund body in India based on Assets under Management or AUM.
The SBI MF is registered with the Securities and Exchange Board of India or SEBI.
Fund Performance: The fund's annualised returns for the past 3 years & 5 years has been
around 30.69% & 28.42%. The SBI Contra Fund comes under the Equity category of SBI
Mutual Funds.

Minimum Investment Amount: Lump sum minimum amount for SBI Contra Fund is
₹5,000 and for SIP, it is ₹500.

2. ICICI Prudential Mutual Fund

ICICI Prudential Mutual Fund is one of India’s top 2 largest Asset Management Companies.
It is one of the oldest and most profitable Mutual Funds. Most of their offerings are rated
“AAAmfs”, which indicates a high degree of confidence and reliability.
ICICI Prudential was set up in 1993 with ICICI Bank and Prudential Plc acting as partners.
The Prudential Group is one of the world’s oldest, largest and most influential insurance
companies.ICICI Prudential Mutual Fund has played a major role in setting up the CRISIL
rating system in India. As a CIBIL score determines the creditworthiness of an individual,
the CRISIL score determines the health of Mutual Funds in India.
According to statistics made available as of 30th September 2018, the Average Assets Under
Management or AAUM of ICICI Pro Mutual Fund, as it is also known, is
Rs 468196.92 Crore. It is managed by the trustees of the ICICI Prudential Trust Ltd and is
over 30 years old.
The Mutual Fund was set up and incorporated in the same year- 1993. As of 31 March,
2023, it manages assets worth over Rs. 5.1 Lakh Crore. The organisation has some of the
best-known fund managers in the business, and it is growing at a rapid pace.
ICICI Prudential Mutual Fund is headquartered in Mumbai and provides a wide array of
funds designed to fit every socioeconomic bracket. You can deposit a lump sum or start a
SIP with ICICI Prudential via Grow with minimal documentation and in a very short period
of time. Prudential Group has plans to offload 3.7% of its stake in the Mutual Fund to pare
down its shareholding pattern to below 25% as per SEBI rules.

3. HDFC mutual fund

HDFC Asset Management Company Ltd., or HDFC Mutual Fund, is currently the largest
mutual fund and actively managed equity mutual fund in India. It is one of the most
profitable asset management companies (AMC) in the country. The company manages assets
worth Rs. 4.8L Cr crores as of Mar 31 2023.

In the last 5 years, the CAGR of: The company serviced more than 75000 empanelled
distribution partners through 210 branches spread across more than 200 cities in India.

HDFC Asset Management Company Ltd. received approval to act as an AMC from SEBI
back on 30 June 2000 under the registration number MF/044/00/6. It also offers portfolio
management/non-binding investment advisory services since 18 September 2016 under the
registration code PM /INP000000506 from SEBI.

Fund Performance: The fund's annualised returns for the past 3 years & 5 years has been
around 25.53% & 23.92%. The HDFC Retirement Savings Fund comes under the Solution
Oriented category of HDFC Mutual Funds.

Minimum Investment Amount: Lump sum minimum amount for HDFC Retirement
Savings Fund is ₹100 and for SIP, it is ₹100.
 4. Aditya Birla Sun Life Mutual Fund

Aditya Birla Sun Life Mutual Funds (ABSLMF) is a joint-venture company co-sponsored by
the Indian company, Aditya Birla Capital Limited and Canada-based financial service
company, Sun Life AMC Investments, Inc.

Headquartered in Mumbai, it was previously named Birla Sun Life Asset Management
Company Limited. It was established in 1994 and has successfully completed 25 years in the
Indian financial landscape.

Both the parent companies, Aditya Birla Group and Sun Life Financial, Inc., are significant
financial companies with a rich legacy of wealth creation and management. The Aditya Birla
Group is the 3rd largest business conglomerate in India, with gross revenue in excess of $41
billion.

Sun Life, on the other hand, is one of the largest life insurance providers in the world, with
investment management as their other area of expertise. It ranks 236th on the Fortune 500
list.

ABSLMF is currently one of the largest asset management companies operating in India.
With cumulative average assets under management (AUM) of Rs. 2.6 Lakh Crores as of
March 31, 2023.
Aditya Birla Sun Life Mutual Fund primarily deals in four classes of funds:

i. Equity funds

ii. Income funds

iii. Debt funds

iv. ELSS funds

The primary commitment of ABSLMF is to increase mutual fund penetration in India. As of

May 2019, there are over 83.2 million mutual fund folios in India, aggregating over Rs. 25.43
trillion. It has quadrupled in the past decade alone, and ABSLMF has had a defining role in it.

BSLAMC is one of the leading asset managers in India, servicing around 7.9 million investor
folios with a pan India presence across 280 plus locations which include metropolises and
small times alike.

ABSLMF takes an active approach to make the entire mutual fund management process
straightforward and transparent to ease it for both investors and channel partners. Their
portfolio of financial products and services includes sector-specific equity options, treasury
and debt products, fund of fund schemes and hybrid income funds, to name a few.

5. Kotak Mutual Fund

Kotak Mahindra Asset Management Company Limited (KMAMC) is a public limited

company registered under the Companies Act, 1956 on August 2, 1994. The company is the
asset manager of Kotak Mahindra Mutual Fund (KMMF) and a wholly and a subsidiary of
Kotak Mahindra Bank Limited (KMBL).

Kotak Mutual Fund began its operations back in December 1998. It was the first AMC to
offer a dedicated gilt fund for investing solely in Government securities.

It provides mutual fund and portfolio management services under SEBI ('Mutual Funds')
Regulations, 1996 and SEBI (Portfolio Manager) Regulations, 1993. KMAMC also offers
pension fund management services through its subsidiary, the Kotak Mahindra Pension Fund
Limited.

Currently, the company offers around 261 schemes catering to the variable risk appetite of
investors. It primarily invests in AAA and AA rated companies and possesses a substantial
value of assets under management (AuM). KMAMC also provides customers with the option
to avail income tax benefits under Section 80C.

As of 31st March 2023, the asset under management of Kotak AMC is more than 2.86 lakh
crores.

KMAMC has 86 branches spread over 82 cities in India and has 25.9 lakh unique investors.

Conclusion
Mutual funds are becoming increasingly popular as an investment vehicle for both retail and
institutional investors. Learning about different mutual funds, how they work, and the returns
they offer can help investors make informed decisions.
A mutual fund is a versatile investment choice that can help investors gain profits and build
wealth by tapping into the opportunities presented by the markets. Mutual funds offer plans
for every investor to meet varied short-term and long-term goals. The benefits of
diversification, flexibility to invest relatively low amounts, and access to expert fund
management services are some advantages of mutual funds that attract investors to them.
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