MUTUAL FUNDS

Presented By :-
Rahul Surapalli
Priya Surwade
Preeti Yadav
Mamta Jarwal
Dhruti Bhatia
 INTRODUCTION
● A mutual fund is a professionally managed investment fund that pools
money from many investors to purchase securities.
● These investors may be retail or institutional in nature.
● The money thus collected is then invested in Capital market instruments
such as Shares, Debentures and other Securities.
● The income earned through these Investments and the capital
appreciation realised are shared by its unit holders in proportion to
the number of units owned by them.
● Thus a mutual fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.
● A mutual fund is also known as an open-ended investment fund,
which means the fund sells units (of this pool on money) upon
request.
WORKING OF MUTUAL FUND
Association of Mutual Funds in India(AMFI)
Association of Mutual Funds in India (AMFI) was incorporated on
22ndAugust, 1995. AMFI modelled on the lines of a Self Regulating
Organization (SRO)with a view to promoting and protecting the interest of
mutual funds and their unit-holders, increasing public awareness of mutual
funds, and serving the investor’s interest by defining and maintaining high
ethical and professional standards in the mutual funds industry
Association of Mutual Funds India has brought down the Indian mutual
fund industry to a professional and healthy market with ethical lines
enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interests of mutual funds as well as their unit
holders.
HISTORY OF MUTUAL FUND
● Phase I -1964-87: In 1963, UTI was setup by a parliament under UTI
act and given by a monopoly.The first equity fund was launched in
1986.

● Phase II -1987-93: Non-UTI, public sector mutual funds like-SBI

Mutual Funds,Canbank Mutual Funds,LIC Mutual Funds, Indian bank
Mutual Funds,GIC Mutual Funds and PNB Mutual Funds.
● Phase III-1993-96: Introducing private sector funds.As well as open-end
funds.

● Phase IV- 1996: Investors friendly regulatory measures action taken by

SEBI to protect the investors.And to enhance investor's returns through tax
benefits.
 Myths of Mutual Funds
● Mutual Fund only invests in shares.
● Mutual Funds prone to very high
risks.
● Mutual Funds are very new in
financial market
● Mutual Funds are not reliable and
people rarely invest in them
Facts of Mutual Funds
● Mutual funds invests in equity & fixed
income securities.
● Mutual funds are there in India since
1964 and same is the market for more
than 60 years in Global Market.
● Mutual Funds are best solutions for
the people who want to manage risks
and get good returns.
STRUCTURE OF MF IN INDIA
TYPES OF MUTUAL FUND
ADVANTAGES OF MUTUAL FUND
● Portfolio Diversification
● Professional Management
● Reduction of risk
● Reduction of transaction cost
● Wide choice to suit risk return profile
● Liquidity
● Convenience
● Transparency
DISADVANTAGES OF MUTUAL FUND
● No control over asset
● No tailor made portfolios
● Managing a portfolio funds
● Delay in redemption
TYPES OF RISK

• Credit Risk

• Market Risk

• Interest Risk

• Inflation Risk
VARIOUS AMCs IN INDIA
● State Bank of India Mutual Fund
● ICICI prudential Mutual Fund
● TATA Mutual Fund
● HDFC Mutual Fund
● Birla Sun Life Mutual Fund
● Reliance Mutual Fund
● Kotak Mahindra Mutual Fund, etc.
SCOPE OF MUTUAL FUNDS
WHY MUTUAL FUND
HOW TO CHOOSE FUND FOR INVESTING?
● Expense Ratio: Denotes the annual expenses of the funds, including the
management fee and administrative cost. Lower expense ratio is better.
● Sharpe Ratio: An indicator of whether an investments return is due to
smart investing decisions or a result of excess risk. Higher Sharpe Ratio
is better
● Alpha Ratio: Measures risk relative to the market or benchmark index.
For investors, the more positive an alpha is, the better it is.
● R-squared: Measures the percentage of an investments movement that
are attributable to movements in its benchmark index. A mutual fund
should have a balance in R-square and ideally it should not be more than
90 and less than 80.
WAYS TO MEASURE MUTUAL FUND RISK
1. Alpha
Alpha is a measure of an investment's performance on a risk-adjusted
basis. It takes the volatility (price risk) of a security or fund portfolio and
compares its risk-adjusted performance to a benchmark index. The excess
return of the investment relative to the return of the benchmark index is its
alpha. Simply stated, alpha is often considered to represent the value that
a portfolio manager adds or subtracts from a fund portfolio's return. An
alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, an alpha of -1.0 would indicate an under-performance of
1%. For investors, the higher the alpha the better.
2. Beta
Beta, also known as the beta coefficient, is a measure of the volatility,
or systematic risk, of a security or a portfolio compared to the market as
a whole. Beta is calculated using regression analysis and it represents the
tendency of an investment's return to respond to movements in the
market. By definition, the market has a beta of 1.0. Individual security
and portfolio values are measured according to how they deviate from
the market.
3. R-squared
R-squared is a statistical measure that represents the percentage of a fund
portfolio or a security's movements that can be explained by movements
in a benchmark index. For fixed-income securities and bond funds, the
benchmark is the U.S. Treasury Bill. The S&P 500 Index is the
benchmark for equities and equity funds.
4. Standard Deviation
Standard deviation measures the dispersion of data from its mean.
Basically, the more spread out the data, the greater the difference is from
the norm. In finance, standard deviation is applied to the annual rate of
return of an investment to measure its volatility (risk). A volatile stock
would have a high standard deviation. With mutual funds, the standard
deviation tells us how much the return on a fund is deviating from
the expected returns based on its historical performance.
5. Sharpe Ratio
Developed by Nobel laureate economist William Sharpe, the Sharpe ratio
measures risk-adjusted performance. It is calculated by subtracting
the risk-free rate of return (U.S. Treasury Bond) from the rate of return for
an investment and dividing the result by the investment's standard
deviation of its return. The Sharpe ratio tells investors whether an
investment's returns are due to wise investment decisions or the result of
excess risk. This measurement is useful because while one portfolio or
security may generate higher returns than its peers, it is only a good
investment if those higher returns do not come with too much additional
risk. The greater an investment's Sharpe ratio, the better its risk-adjusted
performance.
The Bottom Line
Many investors tend to focus exclusively on investment returns with
little concern for investment risk. The five risk measures we have
discussed can provide some balance to the risk-return equation. The good
news for investors is that these indicators are calculated for them and are
available on a number of financial websites. They are also incorporated
into many investment research reports. As useful as these measurements
are, when considering a stock, bond, or mutual fund investment, volatility
risk is just one of the factors you should be considering that can affect the
quality of an investment.