CHAPTER 1 – INTRODUCTION

1
A mutual fund is a financial vehicle that pools assets from shareholders 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 Executive
Summary produce capital gains or income for the fund’s investors.

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 fund—derived by
the aggregating performance of the underlying investments

DEFINITION
A mutual fund is a company that brings together money from many people and invests it in
stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund
owns are known as its portfolio. Each investor in the fund owns shares, which represent a part
of these holdings.

HISTORICAL BACKGROUND
A strong financial market with broad participation is essential for a developed economy. With
this broad objective India’s first mutual fund was establishment in 1963, namely, Unit Trust of
India (UTI), at the initiative of the Government of India and Reserve Bank of India ‘with a view
to encouraging saving and investment and participation in the income, profits and gains
accruing to the Corporation from the acquisition, holding, management and disposal of
securities’.

In the last few years the MF Industry has grown significantly. The history of Mutual Funds in
India can be broadly divided into five distinct phases as follow:

 First Phase – 1964 – 1987

 The first phase was marked by the setting up of the UTI. Though it was a

collaboration between the RBI and the Indian Government, the latter was soon

delinked from the day-to-day operations of the Unit Trust of India. In this phase, the

2
 company was the sole operator in the Indian mutual fund industry. In 1971, the UTI

launched the Unit Linked Insurance Plan or the ULIP. From that year until 1986, UTI

introduced several plans and played a very big role in introducing the concept of

mutual funds in India.

 When UTI was set up several years ago, the idea was to not just introduce the

concept of mutual funds in India; an associated idea was to set up a corpus for

nation-building as well. Therefore, to encourage the small Indian investor, the

government built in several income-tax rebates in the UTI schemes. Not

surprisingly, the investible corpus of UTI swelled from 600 crore in 1984 to 6,700

crores in 1988. Clearly, the time had come for the Indian mutual industry to move

into the next phase.

 Second Phase – 1987 – 1993 (Entry Of Public Sector Mutual Funds)

 By the end of 1988, the mutual fund industry had acquired its own identity. From

1987, many public sector banks had begun lobbying the government for starting

their own mutual fund arms. In November 1987, the first non-UTI Asset

Management Fund was set up by the State Bank of India. This AMC was quickly

followed by the creation of other AMCs by banks like Canara Bank, Indian Bank,

Life Insurance Corporation, General Insurance Corporation, and Punjab National

Bank.

 This opening up of the mutual fund industry delivered the desired results. In

1993, the cumulative corpus of all the AMCs went up to a whopping Rs. 44,000

crores. Observers of this industry say that in the second phase, not only the base

of the industry increased but also it encouraged investors to spend a higher

percentage of their savings in mutual funds. It was evident that the mutual fund

industry in India was poised for higher growth.

3
 Third Phase – 1993- 1996 (Entry of Private Sector Mutual Funds)

 In the period 1991-1996, the Government of India had realized the importance
of the liberalization of the Indian economy. Financial sector reforms were the
need of the hour. India needed private sector participation for the rebuilding of
the economy. Keeping this in mind, the government opened up the mutual fund
industry for the private players as well. The foreign players welcomed this move
and entered the Indian market in significant numbers. In this period, eleven
private players launched their Asset Management Funds in collaboration with
foreign entities.
 Few of the top AMCs in the private sector were: i. ICICI Prudential AMC- This
Company is a joint venture between ICICI Bank of India and Prudential Place of
UK. It manages a corpus of INR 2, 93,000 crores and has an inventory of more
than 1400 schemes. ii. HDFC Mutual Fund- Launched in the 1990s, the HDFC
Mutual Fund manages more than 900 different kinds of funds. iii. Kotak
Mahindra Mutual Fund- This AMC has an asset base of more than Rs. 1,19,000
crores. It is a joint venture of Kotak Financial Services and the Mahindra

 Fourth Phase – Since Feb 2003 – April 2004

 The Unit Trust of India was split into two separate entities in February 2003,
following the repeal of the original UTI Act of 1963. The two separated entities
were the UTI Mutual Fund (which is under the SEBI regulations for MFs) and the
Specified Undertaking of the Unit Trust of India (SUUTI). Following this
bifurcation of the former UTI and occurrence numerous mergers among
different private sector entities, the mutual fund industry took a step towards
the phase of consolidation. After the global economic recession of 2009, the
financial markets across the globe were at an all-time low and Indian market was
no exception to it. Majority of investors who had put in their money during the
peak time of the market had suffered great losses. This severely shook the faith
of investors in the MF products. The Indian Mutual Fund industry struggled to
recover from these hardships and remodel itself over the next two years. The
situation toughened up more with SEBI abolishing the entry load and the lasting
repercussions of the global economic crisis. This scenario is evident from the
sluggish rise in the overall AUM of the Indian MF industry.

 Fifth Phase – Since May 2014

4
  SEBI launched numerous progressive measures in September 2012 recognizing
the lack of penetration of mutual funds in India. The idea behind these measures
was to bring more transparency and security for the interest of the stakeholders.
This was SEBI’s idea to reenergize’ the Indian Mutual Fund Industry and boost
the overall penetration of mutual funds in India. The measures bore fruit in the
due course by countering the negative trend that was set because of the global
financial crisis. The situation improved considerably after the new government
took charge at the centre. Since May ’14, the Indian MF industry has experienced
a consistent inflow and rise in the overall Assets under Management as well as
the total number of investor accounts. The Indian mutual fund industry can grow
immensely if Indians can think about parking a higher percentage of their savings
in Mutual Funds. The market observers say that Indians have begun shifting a
part of their savings from physical assets like gold and land to financial
instruments like bonds and silver. But the AMFI and the government need to
encourage Indians even more for investments in mutual funds.

TYPES OF MUTUAL FUND

Mutual funds offer one of the most comprehensive, easy and flexible ways to create a
diversified portfolio of investments. There are different types of mutual funds that offer
different options to suit investors diverse risk appetites. Let us understand the different types
of mutual funds available currently in the market to help you make an informed investment
decision.

Broadly, any mutual fund will either invest in equities, debt or a mix of both. Further, they can
be open-ended or close-ended mutual fund schemes.

 Open-ended fund

According to the Securities and Exchange Board of India (SEBI), an open-ended fund or scheme
is one that is available for repurchase and subscription continuously. The key feature of open-
ended funds is liquidity. Moreover, these funds do not have any fixed maturity period. Investors
can conveniently purchase and sell units at the Net Asset Value (NAV), which is declared daily.

How do open-ended funds work?

5
Mutual funds are floated in the market through a new fund offer (NFO). In the case of open-
ended mutual funds, an investor can buy or sell units even after the NFO period ends. Also,
there is no limitation on the number of units that can be issued nor do these mutual funds have
a set maturity date. However, an investor may have to pay an exit load for selling their units in
a scheme
Advantages or Benefits of open-ended funds
Following are some of the advantages of investing in open-ended mutual funds:
a. Liquidity
As an investor, you can redeem the units of your open-ended mutual fund on any working day.
While several investment options offer good returns to investors, they are often accompanied
by a lock-in period that makes your investments illiquid until maturity. However, most open-
ended funds do not have any lock-in period, with the exception of (equity-linked savings
scheme) and solution-oriented plans, such as a children’s funds or retirement funds.
b. Different systematic options available
Open-ended funds allow investors to make use of systematic plans, both for investment and
withdrawal purposes. Unlike close-ended funds, an investor can choose from between
the SIP (systematic investment plan), SWP (systematic withdrawal plan), or STP (systematic
transfer plan) methodologies.
c. Availability of track record and past performance
The performance track record of an open-ended mutual fund across different market cycles is
available to investors. A glance at this data can give investors a glimpse of the fund’s historical
performance. This data can help investors make an informed

Tax benefits of Open-Ended Funds

The tax treatment on open-ended funds depends on whether it is an equity- or debt-oriented
fund.
Short-term capital gains tax Long-term capital gains tax
Type of fund Particulars
(STCG) (LTCG)

Holding
Equity-oriented Up to 1 year More than 1 year
period
scheme
Tax rate 15% 10%*

Debt-oriented Holding
Up to 3 years More than 3 years
scheme period

Tax rate According to the tax slab of the 20% after indexation

6
 investor

LTCG on equity funds are exempt from tax for up to Rs1 lakh p.a.
Open-ended mutual funds also offer tax benefits to investors. Investments in ELSS mutual
funds, a type of open-ended mutual scheme, are eligible for a tax deduction of up to Rs. 1.5 lac
on the invested amount. An investor can thus save up to Rs. 46,800 per annum by investing in
ELSS funds provided that they fall under the 30% tax bracket.

Who should invest in Open-Ended funds?

Investment in any mutual fund scheme should depend on an investor’s objectives. Open-ended
mutual funds are best suited for investors who are looking for liquid investment options and
are willing to undertake cash flow risk and market risk for higher returns.
Additionally, an investor should also meet SEBI’s standard eligibility criteria to invest in mutual
funds in India

Risk factor in open-ended funds

Following are some of the disadvantages of investing in open-ended mutual funds:

1. Unlike close-ended schemes, open-ended schemes are vulnerable to large inflows and
outflows. A sudden outflow could force a fund manager to sell units at unfavourable prices,
causing a loss to all investors in the scheme.
2. Open-ended funds also carry an amount of market and cash flow risk. The NAV of these
funds fluctuates every day in response to the volatilities in the financial markets.

How to invest in open-ended funds?

Open-ended mutual funds allow you to invest via the lumpsum, SIP, STP, or SWP methods. If
you are wondering how to buy open-ended funds, follow these simple steps:

Create a mutual fund account with an AMC (Asset Management Company.)

Complete your KYC (know your customer) formalities if you have not already done it

Input all the necessary details, as required

Identify the fund(s) you wish to invest in based on your personal and financial goals, risk
tolerance, and investment horizon

7
 Select the apt open-ended fund(s) that best suits your requirements and choose the method
of investment, i.e. lumpsum, SIP, etc.

You can give standing instructions to your bank in case you want to invest via the SIP mode.

Open-ended funds can be a useful investment option for those who have minimal or no
knowledge of the markets. It is always recommended to seek the advice of a professional
before selecting the right fund(s) for your portfolio. Happy Investing!

 Close Ended Fund

What is a close-ended fund?
The Securities and Exchange Board of India (SEBI) defines close-ended funds as mutual funds
that have a stipulated maturity period. These mutual funds are available for subscription during
a specified period at the time of the scheme’s launch. Investors can invest in these mutual
funds during this New Fund Offer (NFO) period, post which, they can list the units on the stock
exchanges.
How do close-ended funds work?
After an asset management company (AMC) sets up a new fund offer (NFO), investors purchase
units of the scheme at a specific price. Once the NFO period ends, no new investor can enter
the scheme. Additionally, investors are not allowed to exit the fund before the scheme
matures. At maturity, the scheme is dissolved, and the money is returned to the investors at
the prevailing NAV (net asset value) on that date.
Investors who wish to exit the scheme before the maturity period ends can trade their units on
the stock exchanges.
Benefits of close-ended funds
Following are some of the benefits of investing in close-ended mutual fund schemes:

a. Stability: As investors cannot redeem their units before maturity, as with open-ended
schemes, close-ended funds are stable in terms of their asset valuation. This stability helps the
fund managers to create a steady asset base and devise the right investment strategy. They are
also not worried about maintaining liquidity as there are no redemptions.

b. Freedom from significant flows: Unlike open-ended mutual funds, close-ended schemes are
immune to large inflows or outflows. A sudden outflow of cash from a mutual fund scheme can
force a fund manager to make impulsive investment decisions and sell the securities at
unfavourable prices. With close-ended schemes, the investor’s money is locked-in until
maturity, which allows the fund manager to make rational decisions.

8
1. Trading on the stock exchanges: Investors can trade their units in a close-ended scheme on
stock markets like equity shares. This opportunity to buy or sell fund units is based on real-
time prices. The trading price can be above (premium) or below (discount) the fund’s NAV.
Investors can also make use of stock trading strategies such as limit/market orders and
margin trading.
2. Unique portfolio: Close-ended funds allow the fund manager to create a unique portfolio
that has the potential to fetch returns. Owing to the lock-in period of close-ended schemes,
fund managers can explore undervalued debt and equity securities that would otherwise not
feature in the portfolio.

Tax benefits of Close-ended funds

The tax treatment of open-ended funds depends on whether it is an equity fund or a debt fund.
Short term capital gains tax Long term capital gains tax
Type of fund Particulars
(STCG) (LTCG)
Holding
Equity-oriented Up to 1 year More than 1 year
period
scheme
Tax rate 15% 10%*
Holding
Up to 3 years More than 3 years
Debt-oriented period
scheme According to the tax slab of the
Tax rate 20% after indexation
investor

Relation between NAV and closed funds

One of the unique features of close-ended schemes is how they are priced. The price at which it
is traded on the stock exchanges depends entirely on the demand and supply. Investors’
demand could result in close-ended mutual funds being traded either at a discount or a
premium to their NAV. A discount price means that the price of the share is below the NAV,
while a premium price means it’s above the NAV.
Close-ended schemes could be traded at premium or discount for several reasons as they could
be focused on a popular sector and reflect the sentiments of that sector. They might also trade
at a premium if a historically successful fund manager manages the scheme. Conversely, a poor
risk versus return profile or lack of investor demand for the fund can also lead to the fund
trading at a discount to its NAV
Who should invest in Close-ended funds?
Given the mandatory lock-in period, close-ended funds are ideal for investors with a long-term
investment horizon. Also, close-ended mutual funds require lumpsum investment and do not

9
provide redemption facility until maturity. Hence, investors with an investment horizon and
investible corpus in sync with the maturity date can consider investing in these mutual funds
Risk factor in close-ended funds
As you can buy the units of a close-ended fund only during the initial launch period, an investor
is mandated to make a lumpsum investment. This can be a risky approach to deal w.r.t mutual
fund investments. Additionally, a large number of salaried individuals are unable to afford
lumpsum investments and prefer SIP (systematic investment plan) as it is affordable and
spreads the risk.
How to invest in close-ended funds?
If you are wondering how to buy close-ended funds, follow these simple steps:

Create a mutual fund account with an AMC (Asset Management Company)

Complete your KYC (know your customer) formalities if you have not done it already Input the
necessary details, as required

Identify the fund(s) you wish to invest in based on your personal and financial goals, risk
tolerance, and investment horizon

Select the apt close-ended fund that best suits your portfolio and transfer the required
amount

(N.B.: Unlike open-ended schemes, close-ended funds do not allow investments via SIP
(systematic investment plan), STP (systematic transfer plan), or SWP (systematic withdrawal
plans), but just through lumpsum investments.)
The performance of a scheme, whether close-ended or open-ended, depends on the fund
management, the fund category, and the investment style. Several investors investing in open-
ended schemes are often quick to redeem their units and book their profits after the NAV
appreciates by 5-10%. This affects investors who are invested in the scheme. Thus, close-ended
mutual funds are a better option in such situations as the lock-in period prevents early
redemption and protects the interests of all investors. Happy investing!

 TYPES OF EQUITY AND DEBT FUND

1. Equity or growth schemes

These are one of the most popular mutual fund schemes. They allow investors to participate in
stock markets. Though categorized as high risk, these schemes also have a high return potential
in the long run. They are ideal for investors in their prime earning stage, looking to build a
portfolio that gives them superior returns over the long-term. Normally an equity fund or

10
diversified equity fund as it is commonly called invests over a range of sectors to distribute the
risk.

Equity funds can be further divided into three categories:

a. Sector-specific funds

These are mutual fund that invest in a specific sector. These can be sectors like infrastructure,
banking, mining, etc. or specific segments like mid-cap, small-cap or large-cap segments. They
are suitable for investors having a high risk appetite and have the potential to give high returns.

b. Index funds

Index funds are ideal for investors who want to invest in equity mutual fund but at the same
time don't want to depend on the fund manager. An index mutual fund follows the same
strategy as the index it is based on.
Index funds promise returns in line with the index they mirror. Further, they also limit the loss
to the proportional loss of the index they follows, making them suitable for investors with a
medium risk appetite.

c. Tax saving funds:

These funds offer tax benefits to investors. They invest in equities and are also called Equity
Linked Saving Scheme (ELSS). These type of schemes have a 3 year lock-in period. The
investments in the scheme are eligible for tax deduction u/s 80C of the Income-Tax Act, 1961.

 Money market funds or liquid funds:

These funds invest in short-term debt instruments, looking to give a reasonable return to
investors over a short period of time. These funds are suitable for investors with a low risk
appetite who are looking at parking their surplus funds over a short-term. These are an
alternative to putting money in a savings bank account

 Fixed income or debt mutual funds:

These funds invest a majority of the money in debt - fixed income i.e. fixed coupon bearing
instruments like government securities, bonds, debentures, etc. They have a low-risk-low-
return outlook and are ideal for investors with a low risk appetite looking at generating a steady
income. However, they are subject to credit risk.

 Balanced funds:

As the name suggests, these are mutual fund schemes that divide their investments between
equity and debt. The allocation may keep changing based on market risks. They are more
11
suitable for investors who are looking at a combination of moderate returns with comparatively
low risk.

 Hybrid / Monthly Income Plans (MIP):

These funds are similar to balanced funds but the proportion of equity assets is lesser
compared to balanced funds. Hence, they are also called marginal equity funds. They are
especially suitable for investors who are retired and want a regular income with comparatively
low risk.

 Gilt funds:

These funds invest only in government securities. They are preferred by investors who are risk
averse and want no credit risk associated with their investment. However, they are subject to
high interest rate risk

Benefits of investing in mutual funds

1) Professional expertise

When you invest in a mutual fund, a professional fund manager handles your investments. A
team of researchers who track the market on a real-time basis supports every fund manager.
Based on their inputs, fund managers make necessary changes to your mutual fund portfolio to
maximize returns. This option can become a suitable option for salaried people (and business
owners) who do not have the time to track markets or make timely investments.

2) Convenience

Investing in mutual funds can be a hassle-free and straightforward exercise. The entire process
is paperless, and you can complete it from the comfort of your home. And once you begin your
investment journey, you can follow your holdings and make necessary adjustments, if needed,
through your computer or smartphone.

3) Begin with small investments

Many people assume you can only invest in mutual funds if you have a large sum of money. In
reality, you can begin investing with just Rs. 500 per month. A Systematic Investment Plan (SIP)
can help you invest small amounts regularly. And if your income rises over time, you can also
increase your SIP allocation. This way, you not only lower your investment costs but also
benefit from the power of compounding.

4) Diversification

Diversifying your portfolio is vital if you are looking to minimize your exposure to risk and loss.
An adequately diversified portfolio can weather the poor performance of a single stock or

12
sector, thus cushioning your total investments. Mutual funds are designed in a way to provide
adequate diversification.

For instance, a mutual fund that tracks the S&P BSE 100 index could open your investment to as
many as 100 securities in a single fund. This can be a simple and cost-effective way of
diversifying your portfolio.

5) Tax benefits

Section 80C of the Income Tax Act provides tax deductions on investments made in specific
financial instruments. This includes mutual funds too.

Currently, you can claim a tax benefit of up to Rs. 1.5 lakh per year in Equity Linked Saving
Scheme (ELSS) that offer one of the shortest lock-in period. These reasons make ELSS fund a
popular tax-saving option among investors.

Things to consider as a first-time investor

1) Have an investment goal

When you invest in mutual fund, invest with specific goals in mind. List down your financial
goals, budget and the time horizon to achieve these goals. This exercise can help you determine
the amount you need to set aside each month towards your investments. Sometimes, you may
have to reduce your expenses in other areas to achieve your financial targets. And these
calculations can only be possible if you put pen to paper and list your financial goals.

2) Choose the investment profile carefully

There are many mutual fund types and categories – equity funds, debt funds, hybrid funds,
among other fund types. Funds are also segregated based on their market capitalization.
Choose the fund type carefully to ensure you reach your desired goals. If you are new to
investing, it may be a good idea to start with debt funds or hybrid funds to minimize your risk
exposure. Subsequently, pick a fund that matches your investment goals and risk profile.

3) Don’t focus too much on past returns

Past performance is undoubtedly a crucial factor to consider before investing in a mutual fund.
But it need not be the sole criterion. Many new investors invest in a fund based on the past
one-year performance that could be a poor strategy. This is because some new and unknown
funds may offer reasonable returns in the short-term but not for the long-term. A reliable way
to ensure a fund’s steadiness is to see its performance for the past five years or more. Also
consider other factors such as the expense ratio, the fund manager’s track record and the track
record of the AMC. This can help you make a better investment decision.

13
4) Tax-saving is not the only purpose of investment

You can avail tax deductions of Rs. 1.5 lakh each year by investing in ELSS. However, you may
want to know that mutual funds offer a lot more than tax subsidies. , investment discipline and
the potential to earn a significant corpus for your future are some of its benefits. So, consider
your mutual fund investments for the long-term rather than a last-minute recourse before the
tax deadlines.

5) SIP instead of lump-sum investments

You can invest in mutual funds through Systematic Investment Plans (SIPs) or a lump sum. But
as a new investor, SIP could be the better option. You can use a SIP calculator to calculate and
estimate the returns on your SIP investment.

Investing through a lump sum requires timing the market and investing at the right moment. If
you invest when the market is at a high, you could risk losing money. Generally, lump-sum
investments are suited for experienced investors.

But in the case of SIPs, you can invest a fixed amount of money (monthly, quarterly, semi-
annually etc.) regardless of how the market performs. This method ensures you get the
opportunity to invest at different market levels. As a result, you may earn higher returns over
time.

6) Returns are not guaranteed

Mutual funds have the potential to offer reasonable yields. But that does not mean you are
guaranteed returns. Since the returns are linked to the market’s performance, you could lose
money on your investments when the market performs poorly. This is why it is critical to
choose your funds carefully.

7) Consult an advisor

There are many different mutual funds in the market. Choosing the right fund among all the
varied options can confuse new investors. In case you are unsure about how and where to
invest, consult a financial advisor. A financial advisor can help you decide based on your goals
and finances.

How to invest in mutual funds?

Investing in mutual funds is uncomplicated and straightforward.

Follow these steps to get started on your mutual fund investment journey:

Step #1: Sign up for a mutual fund account on www.franklintempletonindia.com

Step #2: Complete your KYC formalities (ignore this step if you have already done it)

14
Step #3: Enter the necessary details

Step #4: Identify the funds you wish to invest based on your financial goals

Step #5: Select the appropriate fund and transfer the amount

Step #6: Issue a standing instruction with your bank in case you invest through a SIP every
month.

PROBLEMS OF MUTUAL FUND

Mutual Funds Have Hidden Fees

fees were hidden, those hidden fees would certainly be on the list of If disadvantages of mutual
funds. The hidden fees that are lamented are properly referred to as "12b-1 fees." While these
fees are no fun to pay, they are not hidden. The fee is disclosed in the mutual fund prospectus
and can be found on the mutual funds’ websites. Many mutual funds do not charge a 12b-1 fee.
If you find the 12b-1 fee onerous, invest in a mutual fund that does not charge the fee.

Mutual Funds Lack Liquidity

How quickly can you get your money if you sell a mutual fund, compared to ETFs, stocks, and
closed-end funds? If you sell a mutual fund, you typically have access to your cash the day after
the sale. ETFs, stocks, and closed-end funds require you to wait two days after you sell the
investment.1 The “lack of liquidity” disadvantage of mutual funds is a myth.

Mutual Funds Have High Sales Charges

Should a sales charge be included in the list of disadvantages of mutual funds? It’s difficult to
justify paying a sales charge when you have a plethora of no load mutual fund. But then again,
it’s difficult to say that a sales charge is a disadvantage of mutual funds when you have
thousands of mutual fund options that do not have sales charges. Sales charges are too broad
to be included on the list of disadvantages of mutual funds.

Mutual Funds Have Poor Trade Execution

If you buy or sell a mutual fund, the transaction will take place at the close of the market,
regardless of the time you entered the order to buy or sell the mutual fund. The trading of
mutual funds can be a simple, stress-free feature of the investment structure. However, many
advocates and purveyors of ETFs will point out that you can trade throughout the day with
ETFs. If you decide to invest in ETFs over mutual funds because your order can be filled at 3:50
p.m. EST with ETFs rather than receive prices as of 4:00 p.m. EST with mutual funds.
15
 Mutual Funds Have High Capital Gains Distributions

If all mutual funds sell holdings and pass the capital gains on to investors as a taxable event,
then we have found a winner for the list of disadvantages of the mutual funds, but not all
mutual funds make annual captain gain distribution Index mutual funds and tax-efficient mutual
funds do not make these distributions every year. Yes, if they have the gains, they must
distribute the gains to shareholders.2

In addition, retirement plans (e.g., IRAs, 401ks) are not impacted by capital gains distributions.
There are also strategies to avoid capital gains distributions, including tax-loss harvesting and
selling a mutual fund prior to a distribution.

There are advantages and disadvantages of mutual funds as there are advantages and
disadvantages to each and every investment vehicle. However, if you come across a list of the
disadvantages of mutual funds, scrutinize them and determine whether each applies as a
disadvantage of mutual funds in general or a disadvantage of a particular example (or to
investment vehicles as a whole, regardless of the structure).

 Benefits of Mutual Fund

While you may be well aware of some of the common mutual fund benefits, there are a few
lesser-known advantages that you mightn’t know about. It is pivotal to know all the benefits
offered by mutual funds prior to investing in order to derive the maximum benefit from your
investment. Here is the list of all the benefits that mutual funds offer to the investors:
 Smart investment option

When you invest in an investment tool which invests in one specific sector there is a risk of
losing money in one go. If the industry where you have invested fails, then you might lose all
your money. However, this is not the case with mutual fund investments. When you invest in
a mutual fund the associated risk is relatively low as most of the mutual fund schemes spread
the investment in multiple assets and sectors for reducing the risk. Hence, if any one of the
sectors faces a loss then the gains from the other sectors will compensate the amount that
you have lost. This risk mitigation benefit makes mutual fund investments a smart investment
option compared to other investments.
 Low-cost investment

This is a very interesting feature of mutual funds. Since mutual funds get money from
multiple investors, the asset management services provided by the company come at a
comparatively low cost or charge since the amount is equally divided between all the
investors.
 Well-regulated funds

16
 Mutual fund investments are regulated by the Securities and Exchange Board of India (SEBI).
SEBI has laid down certain rules and regulations which all the mutual fund providers in the
country have to follow. All the investments made in the funds have to be according to the
SEBI guidelines. This ensures that the investment works in favour of both investors and
providers without any unfair treatment. Being monitored and supervised by an authorised
body like SEBI, the investments under mutual funds are safe and well-regulated.
 Professionally managed

Investing in mutual funds is easy. These funds are professionally managed by expert and
experienced fund managers who have extensive experience in managing funds. Hence, even
beginners who don't have any knowledge about the market can invest in such funds with the
help of expert managers. Since experienced professionals manage all activities related to
these funds you can be assured that your money will be invested in safe places. Not only
that, an entire team of experts will take care of your investment, design your portfolio,
strategise on your behalf, and will guide you through every step of investment.
 Multiple investment options

Investors get a variety of investment options while investing in a mutual fund. Not only can
they choose funds as per their investment objective but they can also pick funds based on the
amount of returns they want to derive. For instance, if you want to receive returns in a short
period of time, you should ideally invest in short-term funds but when you have some future
expenses to meet, investing in long-term funds will be ideal to serve your purpose. Mutual
funds also offer the option of having a regular income flow throughout the tenure in the form
of dividend payout facility. If your investment objective is to grow your capital throughout
the investment tenure you can choose the growth option and for earning a regular income
you have to go for the dividend facility.
 Lump sum investment or in installments

Mutual fund investments offer investment options for people who don't have a large amount
of money to invest at a go. Suppose you are very young or just don't have sufficient money to
invest in mutual funds in one shot, in both the cases you can still invest in mutual funds by
opting for the SIP investment option. A SIP is a Systematic Investment Plan which allows the
investors to invest in mutual funds in installments (EMIs). When you invest in a SIP there will
not be much pressure on your finances. Contrarily, if you have a large amount of money you
can invest a lump sum amount.
 Low investment requirement
Since mutual funds offer SIP investment facility, the investors can start investing in these
funds with as little as Rs.500 every month. When you opt for the Systematic Investment Plan
(SIP) under a scheme you don't have to invest thousands of rupees in the fund in one go.
Instead, you can start your investment with a minimum of Rs.500 by opting for an SIP. Later,

17
 if you have a lump sum amount and feel the need to increase the invested amount you can
invest more money in your fund.
 Diversification of risk

Though mutual fund investments are subject to market risks, the advantage is that the
associated risk can be diversified. It is completely up to the risk appetite of the investor to
decide how much risk he/she is ready to take. While a high-risk fund tends to offer higher
returns, the chances of loss in these are equally high. So, if you are not willing to take a huge
risk you have the option to choose low or medium-risk funds. A medium-risk fund tends to
balance the risk and give out a medium return and a low-risk fund has lower risks and gives
the lowest returns. Thus, based on your risk-taking ability you can diversify the risk by
choosing a suitable fund matching your requirement.

 Growth-oriented investment
Since most of the mutual funds invest in the growth-oriented equity market, the investors get
a chance to benefit from the growing Indian economy. Though investments in equity and
equity-related securities of companies are prone to certain risks, the chances of generating
returns from such funds are considerably higher. Moreover, such a fund invests in the stocks
and bonds of high-grade companies the investors can do their individual research and then
invest in the desired stocks on their own without any involvement of the intermediary.
 Easy liquidity options
When making investments in mutual funds, an investor gets options for liquidity as well.
Being an investor you will have the flexibility to choose between regular funds and tax-saving
funds which are different from each other in terms of liquidity. While in a regular plan you
can liquidate your income a few months after making the investment, in a tax-saver fund, the
principal, as well as the dividend, can be withdrawn only after the completion of a 3-year
lock-in period. As a result of the higher lock-in period in a tax-saver scheme, you can plan
your future finances in a better way while generating high capital growth by the end of the
investment tenure.

 Ease of purchase and redemption

The units of a mutual fund scheme can be easily purchased and redeemed at the pertinent
NAV prices on all the working days. Except for the mutual funds which are locked for a
certain period of time, like ELSS, the units of the open-ended mutual funds can be purchased
or redeemed on any of the business days unless specified otherwise by the fund house. Since
there is no restriction on the liquidation of the units, the subscribers have easy access to their
invested money.

 Flexibility of switching funds

18
 Mutual funds come with an option of fund switching. This means the investors can switch
between schemes or between funds to avail better terms and/or better returns from their
investment. However, in most of the cases, the fund switching option is available only
between schemes of the same fund and not between the funds offered by a particular
company.
 Easy to track funds
It is not an easy task to regularly review the mutual fund investment portfolios as the fund
units are purchased and liquidated by the subscribers on a regular basis. This is why the
mutual fund companies provide clear statements of all investments thus making it easy for
investors to keep a track of their investment. You can ask for the statement from the
executives or can download it from the official website of the fund house that you have
invested in.
 Tax-saving advantages
A mutual fund investment also provides tax-saving benefits to investors. If you invest your
money in mutual funds such as equity-linked savings schemes (ELSS) then you will be eligible
to get tax-deduction benefits under Section 80C of the Income Tax Act, 1961. As per the
Income Tax Act, a mutual fund investor is permitted to have tax deduction benefits up to the
amount of Rs.1,5000. Hence, when you invest in such tax-saving schemes you will get the
benefit of not paying income tax for the amount of money that you have invested in the
mutual fund scheme. In this way, such investments will bring down your taxable income.
So, these are some of the advantages of investing in mutual funds. Mutual funds are indeed
better than other investment options since most of the benefits are exclusive and help the
investors gain high returns with less risk. However, since mutual funds are subject to market
risks, choose funds that are suitable according to your risk appetite and take guidance of the
experts before investing.

Why Mutual is Best ?

Mutual fund and stocks (or shares) are two very distinct financial products that are often
misconstrued as identical. You may have asked what is more suitable for you? A mutual fund
investment or a share market investment. This is one of the biggest dilemmas several investors
face when embarking on their investment journey.

Let’s understand these two unique financial products in detail to decide which is ideal for you.

Stocks are a representation of the total share capital of the company that are traded over the
share market. This means that if you are a shareholder, you own a stake in the company.

When companies go public to garner funds for their business, they can receive the same in two
ways:

19
 1. They can borrow from a financial institution or raise debt, or;
2. They can raise capital from the general public

On the other hand, mutual funds are a collection of different securities such as money market
instruments (participatory notes, treasury bills, etc.), debt instruments (government bonds,
corporate bonds, etc.), equities (stock), etc. It is an investment vehicle that pools the money of
various investors and invests it in these securities.

Thus, mutual fund investments are a form of investment into various financial instruments that
are managed by an Asset Management Company (AMC) or a fund house. On the other hand,
when you invest in stocks or shares, you are directly handling the buying and selling of the
financial instrument. Hence, it is a more active form of investment as compared to mutual
funds, which are passive. However, mutual funds being run by a fund manager are actively
managed.

In simple words, shares constitute a part of a business, whereas mutual funds are a cumulative
investment vehicle that invest in shares, among other asset classes. Before you try to figure out
the ideal investment avenue for you, let’s understand the difference between mutual funds and
shares.

Mutual Fund vs. Stocks: Which is Better Investment?

1) Professional Management
Leveraging the expertise and knowledge of a mutual fund expert to is one of the primary
reasons why individuals consider investing in mutual funds. Investment in shares without prior
experience or knowledge about the working of the financial markets can be quite disastrous. It
could even easily drain your capital. Hence, experts often advise those new to the investing
world to invest in mutual funds via a fund manager.

2) Save tax on mutual fund

When it comes to ELSS mutual funds, Section 80C of the Income Tax Act, 1961, offers tax
deduction on investments up to Rs1.5 lakh towards such schemes. Individuals and HUF can use
this deduction to reduce their tax liabilities. You can save up to Rs46,800 by investing in ELSS
mutual funds. This is one way you save tax on mutual fund investments.

3) Disciplined investment
Another major advantage of investing in mutual funds is financial discipline, which you get to
learn by investing through the SIP (Systematic Investment Plan). In an SIP, the investor is
required to invest a fixed amount periodically. This automated form of investing in a mutual
fund requires an individual to decide the quantum of payment and the frequency of the
investment at the start of the SIP investment tenure.

On the other hand, investing in stocks this way can be quite tricky as each transaction would
need to be timed and initiated by the investor himself.

20
4) Cost of Investing
Unlike stocks, which you can buy individually, actively managed mutual funds demand a small
fee to be paid to the fund manager(s). However, one often forgets the concept of ‘economies of
scale’ that tips their weight in the favour of mutual funds. Active management of funds surely
requires extra capital from the investor’s pockets, but due to their large size, mutual funds only
ask a insignificant fraction of the brokerage charge from an individual shareholder.

5) Investment Horizon
Mutual fund investments often require a tenure of 5-7 years or more to generate considerate
returns. This is because these investment vehicles have a long-term growth trajectory. On the
other hand, investing in stocks can fetch you quick and substantial returns if you choose the
right stocks and time the buying and selling part correctly.

21
CHAPTER 2 – A LITERATURE REVIEW ON MUTUAL FUND

22
 Monika Saini
ABSTRACT : A Mutual fund is a pure intermediary which performs a basic function of
buying and selling securities on behalf of its unit holders, which the latter also can
perform but not as easily, conventionally, economically and profitably. The aim of this
article is to review the existing literature on Mutual Funds. I have reviewed the studies
conducted on various aspects of mutual funds. I have summarized the conclusions of all
the studies so that the reader will get the idea on what studies has been conducted on
mutual funds. I have categorized the studies into different sub topics. All the related
studies are presented under one head. Due to tremendous growth of Mutual fund
Industry it has gained the interest of investors as well as researchers. Lots of studies
have been conducted on various areas of mutual funds. The objective of this article is to
throw a light on the existing literature on mutual funds.

 Martin P. and McCann B. (1998)

In their book titled “The Investor’s Guide to Fidelity Funds – Winning Strategies for
Mutual Fund Investing” have very nicely guided investors regarding issues related with
mutual fund investing.
They have advised that Investors should focus on sectors of the global economy that
have the greatest potential for profit in order to beat the market averages. By
combining this approach with the safety provided by mutual funds’ inherent
diversification, mutual fund become an investment vehicle with all the advantages of
trading individual securities and none of the disadvantages.
Like any other investment, it is essential to develop a strategy for selecting which funds
to buy and sell – and when. These decisions should not be left to the emotions or to
chance.

 Gremillion L (2005)
In his book “Mutual Fund Industry Handbook – A Compehensive Guide for Investment
Professionals” has given detailed information about working of mutual fund industry. It
has also mentioned the different type of challenges faced by various professionals
connected with this industry. The book has provided a broad and comprehensive sweep
of information and knowledge, which will help everybody who has serious interest in
the industry.

 Tyson E (2007)
In his book “Mutual Funds for DUMMIES” (5th edition) has provided practical and
profitable techniques of mutual fund investing that investors can put to work now and
for many years to come. By proper selection investor can identify good schemes, where
fund managers invest in securities as per that match investors’ financial goals. Investors
23
 can spend their time doing the activities in life that they enjoy and are best at. Mutual
Funds should improve investors’ investment returns as well as their social life. The book
helps investors how to avoid mutual fund investing pitfalls and maximizing their chances
for success. Whenever any investor wants to buy or sell a mutual fund, the decision
needs to fit his overall financial objectives and individual situation.

 Vanaja V. and Karrupasamy R (2013)

In the article “A study on the performance of select Private Sector Balanced Category
Mutual Fund Schemes in India” from International Journal of Management Sciences and
Business Research have mentioned that Out of five private sector balanced category
mutual funds (under study) two earned a return above the average returns. Two have
made negative returns. All the private sector balanced category funds selected for the
study have a positive Sharpe ratio. The range of excess returns over risk free return per
unit of total risk is wide. All the funds selected for the study have a positive Treynor
ratio. All the funds selected for the study has positive Jensen’s alpha indicating superior
performance.

 Jank S (2010)
In his Discussion Paper on “Are there disadvantaged clieneles in mutual funds?” has
mentioned that mutual fund investors chase past performance, even though
performance is not persistent over time. This means that investors buy mutual funds
that had a high return in the past. On the other hand, investors are reluctant to
withdraw their money from the worst performing funds. This behavior has often been
attributed to the irrationality of mutual fund investors. Sophisticated investors rationally
chase past performance, because high past performance is a signal for managerial
ability. No significant difference was found between investor composition of the worst
performing funds and those with average performance.

 Sharma R and Pandya N K (2013)

In the article “Investing in Mutual Fund: An overview” from Asian Research Journal of
Business Management mentioned that still number of people are not clear about
functioning of Mutual Funds, as a result so far they have not made a firm opinion about
investment in mutual funds. As far existing investors, return potential and liquidity have
been perceived to be most attractive. There is a lot of scope for the growth of mutual
funds in India. People should take decision based on performance of Mutual fund rather
than considering whether it is private sector or public sector.

24
CHAPTER 3 - RESEARCH AND METHODOLOGY

25
 Objective of Mutual Fund

1) To study a brief idea about the benefits available from Mutual Fund investment
2) To study an idea of the types of schemes available
3) To analyse about the market trends of Mutual Fund investment.
4) To study some of the mutual fund schemes and analyses them
5) To study an idea about the regulations of mutual funds

 Scope of the Study

In my project the scope is limited to some prominent mutual funds in the mutual
fund industry. I analyzed the funds depending on their schemes like equity, income,
balance. But there is so many other schemes in mutual fund industry like specialized
(banking, infrastructure, pharmacy) funds, index funds etc.

My study is mainly concentrated on equity schemes, the returns, in income schemes

the rating of CRISIL, ICRA and other credit rating agencies.

The Study will be done in the questionnaire form which will circulated in,Mulund
area. The Questionnaire will be floated through google forms to personal contacts.

 Limitations Of The Study

Although mutual fund is full of virtues yet it has some limitations. There is a no. of
factors which mutual funds investors should consider before investing to any
scheme. The investors should go through the policy documents thoroughly to know
all the aspects of offered scheme.

They should enquire about the Degree of Risk associated with fund, Lock in Period,
Investment avenue, Fund Managers Profile, Past Performances of the Scheme ( if it
an existing scheme), Past Performance of the Fund Managers, Earlier Schemes
launched by the AMC, Current Liquidity and Solvency Position of the Company,
Minimum Investment limit, Exit Charges, NAV Updating Policy.

 Significance of the Study

26
 Mutual funds provide a host of benefits which make them important. Let’s look
of mutual funds. For investors, one of the most prominent benefits that mutual
funds provide is convenience.

By investing in a single fund, they can gain access to a broad range of the
financial market. A typical diversified equity fund can spread out the money
across tens of stocks with some portion invested in fixed income securities as
well. Investor wants to focus on one segment of the market, for instance, large-
cap stocks, funds focused on this segment can spread out the investment across
multiple large-cap stocks in just one transaction of purchasing the fund.

If the investor were to try to do that themselves, it would take a lot of effort,
transaction cost, and time to create an individual large-cap stock portfolio. The
situation with investing in bonds is even more difficult if one tries to do it
individually rather than taking the fund route.

 Selection of the Problem

The main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about mutual fund industry right from
its inception stage, growth and future prospects.
It also helps in understanding different schemes of mutual funds. Because my
study depends upon prominent funds in India and their schemes like equity,
income, balance as well as the returns associated with those schemes.
The project study was done to ascertain the asset allocation, entry load, exit
load, associated with the mutual funds. Ultimately this would help in
understanding the benefits of mutual funds to investors.
 Sample Size
The sample size of our study will be around 20-30 people equally distributed
among the three age group that 20-25,25-30-35-40 and above. The sample will
be collected equally from Mulund area. It will be equally distributed among
genders.

 Data Collection
Data on mutual funds is usually collected the same way that most financial
market data is collected. Various sources are involved in mutual funds data
collection, including news aggregators, brokers, investors, traders, securities
exchanges and markets, research firms and online services.
There are Two Methods of collecting data: Primary Data
and Secondary Data
27
 1)Primary data is a type of data that is collected by researchers directly from
main sources through interviews, surveys, experiments, etc. Primary data are
usually collected from the source—where the data originally originates from and
are regarded as the best kind of data in research.

The sources of primary data are usually chosen and tailored specifically to meet
the demands or requirements of particular research. Also, before choosing a
data collection source, things like the aim of the research and target population
need to be identified.

2)Secondary data is used to increase the sampling size of research studies and is
also chosen for the efficiency and speed that comes with using an already
existing resource. Secondary data facilitates large research projects, in which
many research groups working in tandem collect secondary data. The main
researcher is then allowed to focus on primary research or particular areas of
interest. This division of labor helps researchers learn more in less time.

The benefit of using secondary data is that much of the preliminary work
is done. The data may have already been sorted in an electronic format,
published and reviewed with case studies already conducted. Secondary data
can quickly become more or less public knowledge through use in the media.
Due to its exposure and public examination, secondary data can carry more
legitimacy than primary research data and is often used as verification of primary
data.

For Mutual Fund will go for Primary Data. In Primary Data will use Questionnaire
Method which is easy to collect accurate data.

I Have Used following questions for Collecting the data:

1) How do you come to know about Mutual Fund?
a. Advertisement b. Banks c. Peer Group
2) At which age did you start Investing?
a. 20 b. 30 c. 40
3) How do you invest in mutual fund?
a. Agents b. finance app c. directly
4) On what basis do you choose investments for your portfolio?
a. Word of mouth b. Advertisement c. Expert advice
5) For how long do you invest in mutual fund?
a. Short term b. Medium term c. long term
6) Do you invest in mutual fund through SIP?
a. Yes b. No
7) Do you invest in mutual fund lumpsum?

28
 a. Yes b. No
8) Which payment mode do you prefer while purchasing mutual fund Scheme?
a. Cheque b. Demand Draft c. Cash
9) Which types of Mutual Fund do you prefer?
a. Hybrid Scheme b. Equity Saving c. Arbitrage funds

10) According to you, what are the benefits of investing in growth funds?
a. Diversification b. Reinvestment c. Both (a & b)

11) Which fund do you prefer during the initial offer period?
a. Open ended fund b. Close ended fund c. Intervals fund

12) What is your opinion about a close ended mutual fund has a fixed?
a. NAV b. Fund Size c. Rate of return

13) Which of the following investment do you think are less risky
than mutual fund ?
a. Real estate b. Stock c. None

14) According to you, which fund considered high risks but also tends
to provide high returns?
a. Debt fund b. Money market Fund c. equity Fund

15) What are the advantage of money market fund?

a. Instant diversification b. fixed interest rate
c. None of the above

16) Which close ended funds are quoted at a discount to their NAV?
a. quick capital appreciation b. high regular income
c. safety of principal
17) According to you, which of the following risks do not affect a debt fund?
a. Price fluctuations of debt securities b. Share Price movement
c. Interest Volatility

18) Which of the following is not an equity instrument?

a. Preference shares b. Ordinary debentures

29
 c. Equity Warrants
19) Have you ever incurred gain in mutual fund?
a. Yes b. No

20) Have you ever incurred loss in mutual fund investment ?

a. Yes b. No

21) 18. In which of the following do debt funds not inves

22) Some close-ended funds are quoted at a discount
23) to their NAV because

24) The most important advantage of a money market

25) mutual fun
26) The most important advantage of a money market
27) mutual fund i
28) 9. The "load" charged to an investor in a mutual fund
29) 9. The "load" charged to an investor in a mutual fund
30) 9. The "load" charged to an investor in a mutual fund
31)
 Tabulations of Data

Tabulation is a systematic and logical representation of numeric data in rows and

columns to facilitate comparison and statistical analysis. It facilitates comparison by
bringing related information close to each other and helps in statistical analysis and
interpretation.
Variation of Tabulation

Univariate – This tabulation can be univariate wherein only one variate is involved in
tabulation such as “ GIRLS” is only used. For e.g. 15 out of 20 girls -75% have responded
positively ta particular question.

Multi-variate – When two or more variables are involved in tabulating the data, it is
called as multivariate tabulation. For e.g. Males and age Group – 8 females out of 10
(60%) in the age group of 13-19 years responded positively to a particular question and
males out of 10 (50%) in the age group of 20 to 39 have responded positively to a
particular question.

30
Methods of Tabulation

Manual Tabulation : When the tabulation is done manually without the help of
computers , it is called as Manual tabulation . Manual Tabulation is possible when the
number of variables is few and the sample size is limited.

Mechanical Tabulation : When tabulation is done with the help of computers, it is called
as mechanical tabulation. Mechanical Tabulation is necessary when the number of
variables is large and also the sample size is large.

 Graphic Presentation of data

The research data needs to be presented effectively for quick and clear understanding
by Bar Graphs, Pie-charts,

 Pie Chart

A pie chart is circular chart used to compare parts of the whole. It is divided into sectors
that are equal in size to the quantity represented. With the help of Pie chart the reader
can understand at a glance the relationship between various parts of Pie – chart

31
  Bar Diagram

A bar chart or bar graph is a chart with rectangular bars with lengths proportional to the
values that they represent. The bars can be plotted vertically or horizontally. A bar chart
is very useful for recording discrete data. Bar Charts have a discrete range. Bar charts
are usually scaled so that all data can fit on the charts. Bar on the charts can be placed in
any order.

 Techniques and tools to be used

It is difficult to remember the value of all items in the data. Therefore, it is better to
have a single item which is the representative of all the items in the data. Such a Single
value is called an Average or a measure of central tendency. Thus, a Single Value within
the range of the data is used to reveal the general tendency and to represent the entire
data is Known as a Measure Of central Tendency.

32
CHAPTER 4 – DATA ANALYSIS INTERRPRETATION
& PRESENTATION

33
 Graphic Presentation of Data
The research data needs to be presented effectively for quick and clear understanding
Pie-chart and other pictorial data.
A pie-chart is a circular chart used to compare parts of the whole. It is divided into
sectors that are equal in size to the quantity represented with the help of pie-chart the
reader can understand at a glance the relationship between various parts of Pie-chart.

 Tabulations of Data
Tabulation is a systematic and logical representation of numeric data in rows and
columns to facilitate comparison and statistical analysis. It facilitates comparison by
bringing related information close to each other and helps in statistical analysis and
interpretation.
We have collected the data through google form and circulated to different age group
people but the most of respondents are from the age group of 20-30 (i.e 90%) who are
very aware about internet and active on social media. 80% of the respondents are Girls
and 20% of the respondents are Boys. As per this survey it seems Girls are more aware
about Investments and its Schemes.

34
This research is done in different age groups like 20 -30 , 30-40 and 40 above, its collected
through google form. In this age group 90% have responded who are in between 20 - 30, 5%
who are in 30 - 40 and 5% who comes under 40 & above. In The age of 20-30 80% are Girls and
10% are Boys.

35
4.1

Mutual fund companies attract investors with performance advertisements, which highlight a
fund's past returns. The funds featured in performance advertisements are not randomly
selected. Instead, advertisements announce funds that have performed well in the past.
70% People are aware about Mutual fund through advertisement as now a days e-marketing is
the best way of advertisement, as people are more active on social media and Internet.

Peer groups refer to companies that are in the same industry or sector. These are competitors
that are roughly the same size. Peer groups can be found in analyst research reports or an
individual company's financial statements.
But in the generation of technology still there are some people who are influenced by Peer
group.

Banks don't generally specialize in investing since they are more about savings, day-to-day
financial transactions, and loans. That means that a bank might have a more limited pool of
mutual fund families—multiple funds managed by the same company—for their customers to
choose from.
When we visited in the banks there is someone who always give us guidance about there new
schemes and policy, so some are aware through banks also.

36
4.2

There is no minimum age when one can start investing. The moment one starts earning and
saving, one can start investing in Mutual Funds. In fact, even kids can open their investment
accounts with Mutual Funds out of the money they receive once in a while in form of gifts
during their birthdays or festivals.
You cannot hold shares or investment funds yourself until you are 18. However, that does not
mean you cannot benefit from starting at a younger age, as long as parents or guardians are
involved too.
By starting investments early in life, one gains a key advantage – time. Investors who start
investing in their 20s will have more time to grow their wealth, so they will be in a better
position to reach all their financial goals easily. Stocks, bonds, and mutual funds can all be good
places to start investing in your 20s. But don't count out other alternative investments outside
these markets. Real estate is one example of an alternative investment that can be attractive to
some investors.
As per this survey most of people have started investing in Mutual fund in the age of 20-30.
So majority of people are started investing after the age 20 and some have started investing
after the age of 30.

4.3

37
One can invest in mutual funds by submitting a duly completed application form along with a
cheque or bank draft at the branch office or designated Investor Service Centres (ISC) of mutual
Funds or Registrar & Transfer Agents of the respective the mutual funds.
One may also choose to invest online through the websites of the respective mutual funds.
Further, one may invest with the help of through a financial intermediary i.e., a Mutual Fund
Distributor registered with AMFI OR choose to invest directly i.e., without involving or routing
the investment through any distributor.
A Mutual Fund Distributor may be an individual or a non-individual entity, such as bank,
brokering house or on-line distribution channel provider.
One may also invest either online mode or via conventional paper based mode through MF
Utilities Pvt. Ltd. (MFU) – a technology based shared service platform for MF transactions
promoted by the mutual fund industry in respect participating mutual funds.

We have various option to Invest in Mutual fund but as per this survey most of people use
finance app for investing.
Some people are still investing their money through Agents and some are directl

38
4.4

A well-diversified portfolio is vital to any investor's success. As an individual investor, you need
to know how to determine an asset allocation that best conforms to your personal investment
goals and risk tolerance. In other words, your portfolio should meet your future capital
requirements and give you peace of mind while doing so. Investors can construct portfolios
aligned to investment strategies by following a systematic approach. Here are some essential
steps for taking such an approach.
As per the survey most of investors Choose Expert Advice for their Portfolio which is good it
helps them to know about its schemes and other things.
Some Investors Choose their portfolio on Advertisement basis and Some by Word of Mouth.

39
4.5

Short-term mutual funds are suitable for those investors having an investment horizon of
shorter than three months. These funds are a better option than a regular savings bank to park
your surplus funds. Short-term funds are capable of providing much higher returns than bank
deposits and provide much-needed liquidity.
Since the Macaulay duration of the portfolio of a medium duration fund is between 3 and 4
years, it is best suited to investors with an investment horizon of little over three years and
a lower risk preference. Further, these funds tend to offer better returns than a fixed deposit
for a similar tenure.
With long-term investments, your mutual funds are compounded for more number of times.
This enhances the returns earned. Hence, investing with a long-term horizon not only mitigates
market volatility and risk but also helps in maximising the profits.
Investment in mutual fund for long term is risky but then there is chances for high returns also.
According to this survey majority are not ready to take high risk so they invest their money for
Medium term Only and some are investing their money for short term only. There are so less
people who are ready to take high risk for high returns.

40
4.6

If you are well-aware of how to invest in SIP and have invested a major part of your savings
in it, your returns will invariably be zeroed down. It may even become negative. If you have
financial liabilities like personal loans or home loans etc. to repay, that may not be very
likable since a high inflation period like this may hamper your financial position.

Moreover, you can avert such situations with Systematic Investment Plan (SIP) as it allows
you to monitor your fund’s performance from time to time. SIP is beneficial as it will allow
you to invest in a fund in periodic installments. After that, you get to decide your level of
savings if you have already set aside a significant amount of money for your insurance
premiums and future emergencies. And the, you can decide upon how to invest in SIP in
India. However, you must be careful with fund allocation as it is an important step in SIP
investment. Always be choosy in the selection of funds and make sure that you do not have
an excess number of equity mutual funds. Instead of investing in too many funds, it is
advisable to invest only in three to four funds that have been consistently performing well
over the past years. In the beginning, it is important to build a well-diversified as well as a
balanced portfolio. This will ensure a good start for your investment. Investing in a

41
combination of large-cap-oriented, small- and mid-cap funds, multi-cap funds can be a good
call.

Majority of people invest in mutual fund through SIP and but there are some investors who
don’t invest through SIP.

4.7

Investment has become a huge part of an individual’s life. People are finding ways to earn
money even when they are asleep, they are not only earning active income but also passive
income by uploading videos online and getting millions of views or by simply investing their
money in the right financial security. However, to earn passive income via investing, you need
to have the proper knowledge to place your eggs in the right basket. This article will not only
help you gain that knowledge but also tell you about the Best Mutual Funds for Lumpsum
Investment .
Investment in MF Lump sum do not occur at regular intervals, instead one can make these at
their disposal. Majority people invest their money in MF lump sum and there are less people
who don’t invest in mf lump sum they prefer to invest through SIP.

42
4.8

Investing in mutual funds has become easier ever since investors were allowed to carry out
transactions online. You can now transact online using Virtual Payment Address.
Existing mutual fund investors as well as new ones can use UPI as a payment option. You can
invest a lump sum amount or via SIP (first installment) using the UPI interface.
But According to AMFI guidelines, investments made through third-party cheques are not to be
processed by mutual funds. A cheque is-sued by and signed by any other person other than the
first holder of the investment is a third-party cheque
The payment can be made through cheque or demand draft. It can take 4-5 working days for
the fund house to allot the fund units to your name. Alternatively, the investment form, along
with the cheque or demand draft, can also be submitted at any of the POS (Point of Sale) of
registrars like CAMS or Karvy.
Cash investments up to INR 50,000 per investor, per mutual fund, per financial year can be
made in mutual funds. However, any repayment (redemption/dividend) is made only through
bank channel.

43
As per this survey most of people use cheque while purchasing mutual fund scheme. As
compared to cash there are some less people who still use Demand Draft for Purchasing Mf
Scheme. Existing Mf investors as well as new investors can buy MF scheme through UPI as a
payment option.

4.9

The payment can be made through cheque or demand draft. It can take 4-5 working days for
the fund house to allot the fund units to your name. Alternatively, the investment form, along
with the cheque or demand draft, can also be submitted at any of the POS (Point of Sale) of
registrars like CAMS or Karvy.
Hybrid means ‘anything made by combining two different elements’. Such hybrid mutual funds
are a mixture of equity and fixed income mutual funds. These mutual funds create a mixed
balance between the number of equity and mutual funds. This not only creates a balanced risk
exposure according to the set financial objectives but also provide lucrative returns on the
investment. These funds are often tailored according to the pre-determined needs of the
investors so that they can reach their individual financial goals.
The objective of Arbitage funds is to earn a safe and fixed amount of returns on their
investments. They invest significantly in fixed-income securities like corporate bonds,
government securities, and debentures, etc. These securities invest in secured debt funds which
provide a steady fixed income to its investors. By investing in relatively safe avenues, the
investor can lower the risk factor in investment. The reward on such securities is pre-stated and
fixed. Generally, the return received on such secured funds is often lower than returns received

44
on equity stocks but so is the risk. They are often suitable for people who have a low-risk
appetite and want to earn a steady income.
As the name suggests, these funds deal with the investment in funds of publicly traded equity
shares. They are also credited with generating better returns than term deposits or debt-based
funds. However, owing to the high volatility of the capital market, such funds often have higher
associated risks than the other two options. Such funds participate in various equity shares of
corporates operating in different sectors to minimize the underlying risks. There are various
sub-categories of equity funds, some of the popular ones are- growth funds, income funds, and
index funds. Each has its investment objectives and characteristics.
There are various types of MF bt according to this survey Equity Saving is best type of MF.
Hbybrid Scheme is used by less people only and Arbitage Fund type is also prefered by Some
people.

4.10

Growth funds are a type of mutual funds that invest in growth stocks. Growth funds aim to
earn returns through capital appreciation than dividends. These funds majorly invest in
companies with good revenue growth and proven track record or young companies with the
potential to grow.
This fund attracts a lot of investors due to its potential for capital appreciation. Professional
fund managers spend a considerable amount of effort in identifying and picking out these
stocks.

45
Benefits of investing in growth fund is Diversification. But I think majority people are not much
aware about growth funds because according to them Reinvestment and Diversification both
are the benefits of Growth fund.
Only 20% investors know the benefits of growth fund and according to 33% investors benefits
of growth fund is reinvestment.

4.11

new fund offer (NFO) is the first time subscription offer for a new scheme launched by the
asset management companies (AMCs). A new fund offer is launched in the market to raise
capital from the public in order to buy securities like shares, govt. bonds etc. from the market.
Open ended funds are always open to investment and redemptions, hence, the name open
ended funds. Open ended funds are the most common form of investment in mutual funds in
India. These funds do not have any lock-in period or maturities; therefore, it is open
perennially.
The closed-ended fund is a type of mutual fund which issues a fixed number of shares through a
single IPO for raising capital.
An interval fund is a non-traditional type of closed-end mutual fund that periodically offers to
buy back a percentage of outstanding shares from shareholders. Shareholders are not,
however, often required to sell their shares back to the fund.
As per this survey people are preferring Open ended fund, Close ended fund and Intervals Fund
equally.

46
4.12

A closed-end fund is a type of mutual fund that issues a fixed number of shares through a
single initial public offering (IPO) to raise capital for its initial investments. Its shares can then
be bought and sold on a stock exchange but no new shares will be created and no new money
will flow into the fund.

In contrast, an open-ended fund, such as most mutual funds and exchange-traded funds
(ETFs), accepts a constant flow of new investment capital. It issues new shares and buys back
its own shares on demand.

Many municipal bond funds and some global investment funds are closed-end funds.

Close ended fund hass a fixed NAV. But as per survey according to 40% people Fund size has a
fixed close ended MF.Only 23% people are really aware about Close ended fund others are
having less knowledge about this.

47
4.13

According to investment experts, generally long term mutual funds investment gives at least 12
per cent return whereas real estate investment gives around 8 per cent return in long term.
However, there is rental income involved in real estate that an investor can further invest in
mutual funds SIP.
Unless you are dealing in a significant number of stocks at the same time, your money will be at
high risk. Mutual funds have a longer-term growth trajectory and will give good returns only
after 5-7 years, while shares could give you quick returns if you buy and sell at the right time
and choose high-growth stocks.
According to survey 50% Investors think that Investing in Stock Market is less risky than MF
which is right but remaining 26.7% think that Real Estate is less risky but 23.3% are not aware
about this.

48
4.14

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.
In the realm of mutual-fund-like investments, money market funds are characterized as a low-
risk, low-return investment. Many investors prefer to park substantial amounts of cash in such
funds for the short-term. However, money market funds are not suitable for long term
investment goals, like retirement planning.
Mutual Funds invest in securities, be it equity or debt, whose values fluctuate along with
market movement. This makes them risky because NAV of the fund depends on the individual
security values held in the fund's portfolio.
70% investors think that Money market fund has high risk but it also tends to high returns
which is wrong. It means people arenot aware abut this But on the other hand side 23%
investors think same for Equity fund also, only 7% investors think that debt fund tends to high
returns and high risk both.

4.15

49
A money market account is a higher-interest deposit account offered by financial institutions,
including banks and credit unions. If you’re saving for a future goal or want your money to grow
more quickly while avoiding unsecured market investments, a money market account may be
the right choice for you.
An individual might not have sufficient funds or mental bandwidth for a diversified portfolio.
Mutual funds provide instant diversification. Since you buy units of the fund that invests across
several stocks, you receive diversification benefit without investing a huge corpus
D interest rates are fixed, so the returns on them are also fixed. MFs are not on a fixed rate, so
returns are not fixed and can vary. Since FD interest rates do not change during the tenure, the
return will be constant throughout the tenure of the deposit.According to 60% investors Fixed
interest rate is the advantage of Money market fund as it gives fixed rate of interest. But 30%
investors think instant diversification is sthe advantage f money market fund. Only 10%
Investors think both are not the advantage of Money market fund.

50
4.16

A discount to net asset value is a pricing situatioon that occurs when an exchange traded fund
or mutual fund’s market trading price is loweer than its daily net asset value.
Several facactormay trigger a discount, including instances where the market hass a
pessimistics future outlook on the underlying holdings of a fund.Discount to NAV can be
contrasted with premium to NAV.
A discount to net asset value refers to when the market price of a mutual fund or ETF is trading
belowits net asset value.A discount to NAV is most often diven by a bearish outlook on the
securitiesin a fund.
Since a fund NAV only represented the total value of the asset in the fund at the end of the day,
there is significant latitude for funds trading on exchange to fluctuate from their NAv.
Approximately 37% investors think that high returns income funds are quoted at a discount to
their NAV in Close ended funds while quick capital appreciation (33%) and saftey of Principal
(30%) are also quoted at a discount to their NAV respectively.

51
4.17

Intrest rate movements poses a risk to debt MF investors. Interest rate typically rise when the
economy is growing, and fall during economic downturns. Bond prices and interest rates are
inversely realted. When interest rate rise bond prices fall and vice versa.
All these instrument have a predeccided maturity date and interest rate that the buyer can earn
on maturity. Hence the name fixed income security. The return arer usually not affected by
fluctuations in the market. Therefore debt securities are considered to be low- risk investment
options.
Risk which is not affected to a debt fund is share price movements according to this survey.
After price fluctuations debt securities is also affected by less % and Interest volatilty is not
much affected to a debt fund.

52
4.18

Equtiy warrants are instruments that bestow upon the holder of the instrument the holder of
the instrument the righgt to buy particular stock at a predetermind price within a stipulated
time frame. However, to gain this right, the buyer of such warrants usually need to make an
upfront payment to the warrants issuer.
Warrants are derivated that give the right, but not the obligation, to buy or sell a seurity most
commonly an equity at a certain price before expiration.The price at which the underrlying
security can be bought or sold is reffered o as the excerrcise price or srtike price.
As per this survey people are not much aware about equity warrants and equity instruments
because they have responded equally.

53
4.19

In mutual fund investments people gained Profit as well as loss both.

According to this survey majority of people gained profit and less no. of people gained loss.
From the above analysis we find that approximately 80% of the people have gained profit in
Mutual fund i.e 25 respoondents out of the 30 respoondentshave gained profit or thr
valuatioon of the money hass been increased. This has encouraged many others to invest their
money in Mutual fund even knowing thata they are subject to High Risk.
We also find that young generation are seem to be interested in investing in mutual fund.

54
4.20

From the above anylasis its clear that few people have also incurred loss or their valutaion of
money hass fall.
This shows that lack of knowldege realted to Capital Market has let to loss for them. We find
that out of the 30 respondents approximately 50% of the respoondent have neither gain profit
nor loss.
The mutual fun companies should now come and make aware to the people about the correct
investing pattern in mUtual fund. This is a High time to make people literate about the benefits
of investing in Mutual fund.

55
CHAPTER 5 – CONCLUSIONS & SUGGESTIONS

56
1. Findings
 Young investors are more who invest in mutual funds as they are ready to take some
sort of risk for high returns whereas people above 40 years are not ready to take risk.
 Salaried persons, the professionals, and the businessmen are the people who are
dealing with the mutual funds to some extent and obviously there are many reasons for
investment and tax is the main reason.
 Mostly people do not rely upon the sources like relatives, friends.
 Major numbers of investors prefer SIP investment as in SIP there is flexibility of
investment.
 Investors do not prefer long term investment as they want the money immediately
when they require.
 Major numbers of investors agree that mutual funds gives high returns
 Investors of major portion say that diversified investment increases average rate of
return.
 Most of people has gained profit in Mf and Less no. of people gained Loss
 Overall the satisfaction level of investors is good.
 People of Mulund are very much sensitive on analyzing the past many private
investment companies enter into the city, they get the money from the people but with
the passage of time most of the companies were fraudulent companies and they ran
away after getting a huge sum of money, most among them were the local companies
also. So people are afraid of putting their money in other investment alternate rather
than the bank deposits and the post office time deposits, and people mostly rely and
believe upon the public sector
 It is a trend of the whole India that the majority of the people prefer the open ended
schemes so is the case in the Mulund. People prefer the liquidity of the investment also
because in the open ended schemes they can withdraw their money at any time of their
need.

2. Conclusions
For achieving heights in the financial sector, the mutual fund companies should formulate
the strategies in such a way that helps in fulfilling the investors’ expectations. Today the
main task before mutual fund industry is to convert the potential investors into the reality
investors. New and more innovative schemes should be launched from time to time so that
investor’s confidence should be maintained. All this will lead to the overall growth and
development of the mutual fund industry.
There are an incredibly large number of mutual funds. While some mutual funds aim to
produce short term, high yield profits, others look for the long term profit. But, large
segment of people are scared to invest in the capital market. Some personal and family
factors are pulling them in deciding different type of investments.

57
Age, Gender and marital status are some of the socio demographic factors that share the
investors’ decision and preference in making investments. Many studies have shown that
age interact with financial information and issues
According to this survey it came to know that people are not much aware about Mutual
fund and their schemes, benefits and other information.
Mutual fund Company has to do some marketing about this that outsiders people should
know atleast basic benefits of mutual fund.
Due to high risk in Mutual fund most of people go with Fixed deposit so
they should know if there is high risk then there is chances for high
returns also. As per my survey most of people are not aware about mutual
fund Investment, and their investment ratio in mutual fund is less than
Fixed deposit.
So for spreading awareness in market about Mutual fund they has to
do something. Investors should take the help of agents for gathering
more information about Mf.

3. Suggestions
Some suggestions for the promotion of mutual funds in Mulund and in local Areas as
given as follows:
 The trend is changing now, people are getting more aware and the knowledge regarding
the mutual fund investment is also increasing among the people day by day.
 Govt, of Maharashtra must do some awareness programmes with the mutual fund
companies in order to make the people more knowledgably and aware.
 The mutual funds which are already running in the Local areas must upgrade, enhance
their programmes, their transparency and must educate the people of the city to some
extent.
 Media or other source of advertisement can also play their role in the publicity of these
investment alternatives. Still it a beginning of mutual fund in the local areas,it means
that there is a lot of scope for this particular business and I suggest other companies to
enter into the cities and get the benefit of the business.

58
 Webliography
- https://www.amfiindia.com/investor-corner/knowledge-center/introduction-to-mutual-
funds.html
- https://www.amfiindia.com/research-information/mf-history
- https://www.google.com/search?
q=introduction+on+investment+in+mutual+funds&rlz=1C1CHBD_enIN979IN979&oq=IN
TRODUCTION+ON+INVESTMENT+IN+M&aqs=chrome.1.69i57j33i160l4.13350j0j15&sour
ceid=chrome&ie=UTF-8
- https://www.google.com/search?
q=definition+of+investment+in+mutual+fund&rlz=1C1CHBD_enIN979IN979&oq=definiti
on+of+investment+in+mutual+&aqs=chrome.1.69i57j33i160l2j33i22i29i30.16293j1j15&
sourceid=chrome&ie=UTF-8
- www.franklintempletonindia.com/investor-education/new-to-mutual-funds/video/all-
about-open-ended-mutual-funds?
utm_source=google&utm_medium=cpc&utm_campaign=ft-s-a-core-questions-lsv-em-
bmm-rs&utm_adgroup=a-cr-

Appendix / Attachment
1) How do you come to know about Mutual Fund?
a. Advertisement b. Banks c. Peer Group
2) At which age did you start Investing?
a. 20 b. 30 c. 40
3) How do you invest in mutual fund?
a. Agents b. finance app c. directly
4) On what basis do you choose investments for your portfolio?
a. Word of mouth b. Advertisement c. Expert advice
5) For how long do you invest in mutual fund?
a. Short term b. Medium term c. long term
6) Do you invest in mutual fund through SIP?
a. Yes b. No
7) Do you invest in mutual fund lumsum?
a. Yes b. No
8) Which payment mode do you prefer while purchasing mutual fund Scheme?
a. Cheque b. Demand Draft c. Cash

9) Which types of Mutual Fund do you prefer?

a. Hybrid Scheme b. Equity Saving c. Arbitrage
funds
10)According to you, what are the benefits of investing in growth funds?
59
 a. Diversification b. Reinvestment c. Both (a & b)
11) Which fund do you prefer during the initial offer period?
a. Open ended fund b. Close ended fund c. Intervals fund

12) What is your opinion about a close ended mutual fund has a fixed?
a. NAV b. Fund Size c. Rate of return

13) Which of the following investment do you think are less risky
than mutual fund ?
a. Real estate b. Stock c. None

14) According to you, which fund considered high risks but also tends to provide high
returns?
a. Debt fund b. Money market Fund c. equity Fund

15) What are the advantage of money market fund?

a. Instant diversification b. fixed interest rate
b. None of the above

16) Which close ended funds are quoted at a discount to their NAV?
a. quick capital appreciation b. high regular income
c. safety of principal
17) According to you, which of the following risks do not affect a debt fund?
a. Price fluctuations of debt securities b. Share Price movements
c. Interest Volatility

18) Which of the following is not an equity instrument?

a. Preference shares b. Ordinary debentures c. Equity Warrants
19) Have you ever incurred gain in mutual fund?
a. Yes b. No

20) Have you ever incurred loss in mutual fund investment ?

a. Yes b. No

60