MUTUAL FUND:

CONCEPT OF MUTUAL FUNDS

A mutual fund is a common pool of money into which investors place their contributions that are
to be invested in accordance with a stated objective.
The ownership of the fund is thus joint or ³mutual´; the fund belongs to all investors. A
single investor’s ownership of the fund is in the same proportion as the amount of the
contribution made by him or her bears to the total amount of the fund. Mutual Funds are trusts,
which accept savings from investors and invest the same in diversified financial instruments in
terms of objectives set out in the trusts deed with the view to reduce the risk and maximize the
income and capital appreciation for distribution for the members.

A Mutual Fund is a corporation and the fund manager’s interest is to professional manage the
funds provided by the investors and provide a return on them after deducting reasonable
management fees.

The objective sought to be achieved by Mutual Fund is to provide an opportunity

for lower income groups to acquire without much difficulty financial assets. They cater mainly to
the needs of the individual investor whose means are small and to manage investors portfolio in a
manner that provides a regular income, growth, safety, liquidity and diversification
opportunities.
HISTORY OF MUTUAL FUNDS IN INDIA:

 
The mutual fund industry in India started in 1963 with the formation of Unit Trust
of India, at the initiative of the Government of India and Reserve Bank. The history of mutual
funds in India can be broadly divided into four distinct phases
 
FIRST PHASE -1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set
up by the Reserve Bank of India and functioned under the Regulatory and administrative control
of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial
Development Bank of India (IDBI) took over the regulatory and administrative control in place
of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI
hadRs.6,700 corers of assets under management.

 
SECOND PHASE - 1987-1993 (ENTRY OF PUBLIC SECTOR FUNDS):

1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector  banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation
of India(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987
followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89),
Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct
92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in
December 1990.At the end of 1993, the mutual fund industry had assets under management of
Rs.47,004crores.
 

THIRD PHASE -1993-2003 (ENTRY OFPRIVATE SECTOR FUNDS):

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed.
The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private
sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were
substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The
industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual
fund houses went on increasing, with many foreign mutual funds setting up funds in India and
also the industry has witnessed several mergers and acquisitions. As at the end of January 2003,
there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with
Rs.44,541 crores of assets under management was way ahead of other mutual funds.

FOURTH PHASE - SINCE FEBRUARY 2003:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of
India with assets under management of Rs.29,835 crores as at the end of January 2003,
representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The
Specified Undertaking of Unit Trust of India, functioning under an administrator and under the
rules framed by Government of India and does not come under the purview of the Mutual Fund
Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It
is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets
under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI
Mutual Fund Regulations, and with recent mergers taking place among different private sector
funds, the mutual fund industry has entered its current phase of consolidation and growth.

As at the end of September, 2004, there were 29 funds, which manage assets of
Rs.153108 corers under 421schemes.
 *The graph indicates the growth of assets under management over the years.
 

GROWTH IN ASSETS UNDER MANAGEMENT

*(Source: www.amfiindia.com)
STRUCTURE OF MUTUAL FUND
There are many entities involved and the diagram below illustrates the structure of
mutual funds: -

SEBI

The regulation of mutual funds operating in India falls under the preview of authority of the “Securities and

Exchange Board of India” (SEBI). Any person proposing to set up a mutual fund in India is required under the SEBI

(Mutual Funds) Regulations, 1996 to be registered with the SEBI.

Sponsor

The sponsor should contribute at least 40% to the net worth of the AMC. However, if any person holds 40% or

more of the net worth of an AMC shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria in

the Mutual Fund Regulations. The sponsor or any of its directors or the principal officer employed by the mutual fund

should not be guilty of fraud or guilty of any economic offence.

Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two third of the trustees should be

independent persons who are not associated with the sponsors in any manner. An AMC or any of its officers or
employees are not eligible to act as a trustee of any mutual fund. The trustees are responsible for - inter alia –

ensuring that the AMC has all its systems in place, all key personnel, auditors, registrar etc. have been appointed

prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the assets of the mutual fund. Under

the mutual fund regulations, the applicant must satisfy certain eligibility criteria in order to qualify to register with SEBI

as an AMC.
1. The sponsor must have at least 40% stake in the AMC.
2. The chairman of the AMC is not a trustee of any mutual fund.
3. The AMC should have and must at all times maintain a minimum net worth of Cr.
100 million.
4. The director of the AMC should be a person having adequate professional
experience.
5.The board of directors of such AMC has at least 50% directors who are not
associate of or associated in any manner with the sponsor or any of its
subsidiaries or the trustees.

The Transfer Agents

The transfer agent is contracted by the AMC and is responsible for maintaining the
register of investors / unit holders and every day settlements of purchases and redemption of units. The role of a transfer agent is
to collect data from distributors relating to daily purchases and redemption of units.

Custodian

The mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the

custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service

capability in terms of computerization and other infrastructure facilities are approved to act as custodians. The

custodian must be totally delinked from the AMC and must be registered with SEBI.

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary
of the income earned by the mutual funds.
UNDERSTANDING MUTUAL FUND:
Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and
invest the money thus collected into asset classes that match the stated investment objectives of the
scheme. Since the stated investment objectives of a mutual fund scheme generally forms the basis for an
investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated
objectives at any point of time.

Every Mutual Fund is managed by a fund manager, who using his investment management skills and
necessary research works ensures much better return than what an investor can manage on his own. The
capital appreciation and other incomes earned from these investments are passed on to the investors
(also known as unit holders) in proportion of the number of units they own.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the
assets of the fund in the same proportion as his contribution amount put up with the corpus (the
total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a
unit holder.
Any change in the value of the investments made into capital market instruments (such as
shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined
as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is
calculated by dividing the market value of scheme's assets by the total number of units issued
to the investors.
BROAD TYPES MUTUAL FUND TYPES

1.Equity Funds
Equity funds are considered to be the more risky funds as compared to other fund types, but
they also provide higher returns than other funds. It is advisable that an investor looking to
invest in an equity fund should invest for long term i.e. for 3 years or more. There are different
types of equity funds each falling into different risk bracket. In the order of decreasing risk level,
there are following types of equity funds:

a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for
maximum capital appreciation and invest in less researched shares of speculative
nature. Because of these speculative investments Aggressive Growth Funds become
more volatile and thus, are prone to higher risk than other equity funds.
b. Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of
3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they
invest in companies that are expected to outperform the market in the future. Without
entirely adopting speculative strategies, Growth Funds invest in those companies that
are expected to post above average earnings in the future.
c. Speciality Funds - Speciality Funds have stated criteria for investments and their
portfolio comprises of only those companies that meet their criteria. Criteria for some
 speciality funds could be to invest/not to invest in particular regions/companies.
Speciality funds are concentrated and thus, are comparatively riskier than diversified
funds.. There are following types of speciality funds:
i. Sector Funds: Speciality Funds have stated criteria for investments and their
portfolio comprises of only those companies that meet their criteria. Criteria for
some speciality funds could be to invest/not to invest in particular
regions/companies. Speciality funds are concentrated and thus, are
comparatively riskier than diversified funds.. There are following types of
speciality funds:
ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to
invest in one or more foreign companies. Foreign securities funds achieve
international diversification and hence they are less risky than sector funds.
However, foreign securities funds are exposed to foreign exchange rate risk and
country risk.
iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower
market capitalization than large capitalization companies are called Mid-Cap or
Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that
of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500
crores) and Small-Cap companies have market capitalization of less than Rs.
500 crores. Market Capitalization of a company can be calculated by multiplying
the market price of the company's share by the total number of its outstanding
shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as
liquid as of Large-Cap Companies which gives rise to volatility in share prices of
these companies and consequently, investment gets risky.
iv. Option Income Funds*: While not yet available in India, Option Income Funds
write options on a large fraction of their portfolio. Proper use of options can help
to reduce volatility, which is otherwise considered as a risky instrument. These
funds invest in big, high dividend yielding companies, and then sell options
against their stock positions, which generate stable income for investors.
d. Diversified Equity Funds - Except for a small portion of investment in liquid money
market, diversified equity funds invest mainly in equities without any concentration on a
particular sector(s). These funds are well diversified and reduce sector-specific or
company-specific risk. However, like all other funds diversified equity funds too are
exposed to equity market risk. One prominent type of diversified equity fund in India is
Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of
investments by ELSS should be in equities at all times. ELSS investors are eligible to
claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax
return. ELSS usually has a lock-in period and in case of any redemption by the investor
before the expiry of the lock-in period makes him liable to pay income tax on such
income(s) for which he may have received any tax exemption(s) in the past.
e. Equity Index Funds - Equity Index Funds have the objective to match the performance
of a specific stock market index. The portfolio of these funds comprises of the same
companies that form the index and is constituted in the same proportion as the index.
Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky
than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX
Bank Index etc). Narrow indices are less diversified and therefore, are more risky.
f. Value Funds - Value Funds invest in those companies that have sound fundamentals
and whose share prices are currently under-valued. The portfolio of these funds
comprises of shares that are trading at a low Price to Earning Ratio (Market Price per
Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio.
Value Funds may select companies from diversified sectors and are exposed to lower
 risk level as compared to growth funds or speciality funds. Value stocks are generally
from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in
the short-term. Therefore, it is advisable to invest in Value funds with a long-term time
horizon as risk in the long term, to a large extent, is reduced.
g. Equity Income or Dividend Yield Funds - The objective of Equity Income or Dividend
Yield Equity Funds is to generate high recurring income and steady capital appreciation
for investors by investing in those companies which issue high dividends (such as Power
or Utility companies whose share prices fluctuate comparatively lesser than other
companies' share prices). Equity Income or Dividend Yield Equity Funds are generally
exposed to the lowest risk level as compared to other equity funds.

2. Debt / Income Funds

Funds that invest in medium to long-term debt instruments issued by private companies, banks,
financial institutions, governments and other entities belonging to various sectors (like
infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk
profile funds that seek to generate fixed current income (and not capital appreciation) to
investors. In order to ensure regular income to investors, debt (or income) funds distribute large
fraction of their surplus to investors. Although debt securities are generally less risky than
equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or
principal payment. To minimize the risk of default, debt funds usually invest in securities from
issuers who are rated by credit rating agencies and are considered to be of "Investment Grade".
Debt funds that target high returns are more risky. Based on different investment objectives,
there can be following types of debt funds:

a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best
feature of diversified debt funds is that investments are properly diversified into all
sectors which results in risk reduction. Any loss incurred, on account of default by a debt
issuer, is shared by all investors which further reduces risk for an individual investor.
b. Focused Debt Funds* - Debt funds that invest in all securities issued by entities
belonging to all sectors of the market are known as diversified debt funds. The best
feature of diversified debt funds is that investments are properly diversified into all
sectors which results in risk reduction. Any loss incurred, on account of default by a debt
issuer, is shared by all investors which further reduces risk for an individual investor.
c. High Yield Debt funds - As we now understand that risk of default is present in all debt
funds, and therefore, debt funds generally try to minimize the risk of default by investing
in securities issued by only those borrowers who are considered to be of "investment
grade". But, High Yield Debt Funds adopt a different strategy and prefer securities
issued by those issuers who are considered to be of "below investment grade". The
motive behind adopting this sort of risky strategy is to earn higher interest returns from
these issuers. These funds are more volatile and bear higher default risk, although they
may earn at times higher returns for investors.
d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives
or provide assured returns to investors, but there can be funds that come with a lock-in
period and offer assurance of annual returns to investors during the lock-in period. Any
shortfall in returns is suffered by the sponsors or the Asset Management Companies
(AMCs). These funds are generally debt funds and provide investors with a low-risk
investment opportunity. However, the security of investments depends upon the net
worth of the guarantor (whose name is specified in advance on the offer document). To
safeguard the interests of investors, SEBI permits only those funds to offer assured
return schemes whose sponsors have adequate net-worth to guarantee returns in the
 future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans
of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill
its promises and faced large shortfalls in returns. Eventually, government had to
intervene and took over UTI's payment obligations on itself. Currently, no AMC in India
offers assured return schemes to investors, though possible.
e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes
having short term maturity period (of less than one year) that offer a series of plans and
issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are
not listed on the exchanges. Fixed term plan series usually invest in debt / income
schemes and target short-term investors. The objective of fixed term plan schemes is to
gratify investors by generating some expected returns in a short period.

3. Gilt Funds
Also known as Government Securities in India, Gilt Funds invest in government papers (named
dated securities) having medium to long term maturity period. Issued by the Government of
India, these investments have little credit risk (risk of default) and provide safety of principal to
the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk.
Interest rates and prices of debt securities are inversely related and any change in the interest
rates results in a change in the NAV of debt/gilt funds in an opposite direction.

4. Money Market / Liquid Funds

Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt
instruments. These securities are highly liquid and provide safety of investment, thus making
money market / liquid funds the safest investment option when compared with other mutual fund
types. However, even money market / liquid funds are exposed to the interest rate risk. The
typical investment options for liquid funds include Treasury Bills (issued by governments),
Commercial papers (issued by companies) and Certificates of Deposit (issued by banks).

5. Hybrid Funds
As the name suggests, hybrid funds are those funds whose portfolio includes a blend of
equities, debts and money market securities. Hybrid funds have an equal proportion of debt and
equity in their portfolio. There are following types of hybrid funds in India:

a. Balanced Funds - The portfolio of balanced funds include assets like debt securities,
convertible securities, and equity and preference shares held in a relatively equal
proportion. The objectives of balanced funds are to reward investors with a regular
income, moderate capital appreciation and at the same time minimizing the risk of
capital erosion. Balanced funds are appropriate for conservative investors having a long
term investment horizon.
b. Growth-and-Income Funds - Funds that combine features of growth funds and income
funds are known as Growth-and-Income Funds. These funds invest in companies having
potential for capital appreciation and those known for issuing high dividends. The level of
risks involved in these funds is lower than growth funds and higher than income funds.
c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt,
money market or non-financial (physical) assets like real estate, commodities etc.. Asset
allocation funds adopt a variable asset allocation strategy that allows fund managers to
switch over from one asset class to another at any time depending upon their outlook for
specific markets. In other words, fund managers may switch over to equity if they expect
equity market to provide good returns and switch over to debt if they expect debt market
to provide better returns. It should be noted that switching over from one asset class to
another is a decision taken by the fund manager on the basis of his own judgment and
 understanding of specific markets, and therefore, the success of these funds depends
upon the skill of a fund manager in anticipating market trends.

6. Commodity Funds
Those funds that focus on investing in different commodities (like metals, food grains, crude oil
etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds.
A commodity fund that invests in a single commodity or a group of commodities is a specialized
commodity fund and a commodity fund that invests in all available commodities is a diversified
commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund"
and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common
examples of commodity funds.

7. Real Estate Funds

Funds that invest directly in real estate or lend to real estate developers or invest in
shares/securitized assets of housing finance companies, are known as Specialized Real Estate
Funds. The objective of these funds may be to generate regular income for investors or capital
appreciation.

8. Exchange Traded Funds (ETF)

Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-
end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock
exchanges like a single stock at index linked prices. The biggest advantage offered by these
funds is that they offer diversification, flexibility of holding a single share (tradable at index linked
prices) at the same time. Recently introduced in India, these funds are quite popular abroad.

9. Fund of Funds
Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund
schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a
portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds
maintain a portfolio comprising of equity/debt/money market instruments or non financial assets.
Fund of Funds provide investors with an added advantage of diversifying into different mutual
fund schemes with even a small amount of investment, which further helps in diversification of
risks. However, the expenses of Fund of Funds are quite high on account of compounding
expenses of investments into different mutual fund schemes.

* Funds not yet available in India

Risk Heirarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and investors should
know the level of risks associated with these schemes before investing. The graphical
representation hereunder provides a clearer picture of the relationship between mutual funds
and levels of risk associated with these funds:
SOME OF THE TERMS USED IN MUTUAL FUNDS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per
unit NAV is the net asset value of the scheme divided by the number of units outstanding on
the Valuation Date.
 
Sale Price :   It is the price you pay when you invest in a scheme and is also called "Offer
Price".   It may include a sales load.
 
Repurchase Price : -  It is the price at which a Mutual Funds repurchases its units and it
may include a back-end load. This is also called Bid Price.
 
Redemption Price :  It is the price at which open-ended schemes repurchase their units
and close-ended schemes redeem their units on maturity. Such prices are NAV related.
 
Sales Load / Front End Load :  It is a charge collected by a scheme when it sells the
units. Also called, ‘Front-end’ load. Schemes which  do not charge a load at the time of
entry are called ‘No Load’ schemes.
 
Repurchase / ‘Back-end’ Load :

It is a charge collected by a Mufual Funds when it buys back / Repurchases  the units from
the unit holders.

What is NET ASSET VALUE ?

The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is
calculated by subtracting liabilities from the value of a fund's securities and other items of value and
dividing this by the number of outstanding shares. Net asset value is popularly used in newspaper
mutual fund tables to designate the price per share for the fund.

The value of a collective investment fund based on the market price of securities held in its portfolio. Units
in open ended funds are valued using this measure. Closed ended investment trusts have a net asset
value but have a separate market value. NAV per share is calculated by dividing this figure by the number
of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or
discount to NAV.

Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the
closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities,
then dividing the result (total net assets) by the total number of shares outstanding.

Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market
value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number
of shares outstanding. So if a fund had net assets of Rs.50 lakh and there are one lakh shares of the
fund, then the price per share (or NAV) is Rs.50.00.

]
ADVANTAGES OF MUTUAL FUNDS:

 
If mutual funds are emerging as the favorite investment vehicle, it is because of the many
advantages they have over other forms and the avenues of investing, particularly for the
investor who has limited resources available in terms of capital and the ability to carry out
detailed research and market monitoring. The following are the major advantages offered by
mutual funds to all investors:

 
Portfolio Diversification:

Each investor in the fund is a part owner of all the fund’s assets, thus enabling him to hold
a diversified investment portfolio even with a small amount of investment that would otherwise
require big capital.

 
Professional Management:

Even if an investor has a big amount of capital available to him, he benefits from
the professional management skills brought in by the fund in the management of the
investor’s portfolio.
The investment management skills, along with the needed research into available investment
options, ensure a much better return than what an investor can manage on his own. Few investors
have the skill and resources of their own to succeed in today’s fast moving, global and
sophisticated markets.

Reduction/Diversification Of Risk:

When an investor invests directly, all the risk of potential loss is his own, whether he places
a deposit with a company or a bank, or he buys a share or debenture on his own or in any other
from. While investing in the pool of funds with investors, the potential losses are also shared
with other investors. The risk reduction is one of the most important benefits of a collective
investment vehicle like the mutual fund.
Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When
they invest in the units of a fund, they can generally cash their investments any time, by selling
their units to the fund if open-ended, or selling them in the market if the fund is close-end.
Liquidity of investment is clearly a big benefit 
Convenience And Flexibility:

  Mutual fund management companies offer many investor services that a direct market
investor cannot get. Investors can easily transfer their holding from one scheme to the other; get
updated market information and so on.

 Tax Benefits:

Any income distributed after March 31, 2002 will be subject to tax in the assessment of all
Unit holders. However, as a measure of concession to Unit holders of open-ended equity-
oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a
concessional rate of 10.5%.In case of Individuals and Hindu Undivided Families a deduction up
to Rs. 9,000 from the Total Income will be admissible in respect of income from investments
specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes
are not subject to Wealth-Tax and Gift-Tax.

 Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 
Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of strict
regulations designed to protect the interests of investors. The operations of Mutual Funds are
regularly monitored by SEBI.

Transparency:

You get regular information on the value of your investment in addition to disclosure on
thespecific investments made by your scheme, the proportion invested in each class of assetsand
the fund manager's investment strategy and outlook.
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:

No Control Over Costs:

 
An investor in a mutual fund has no control of the overall costs of investing. The
investor pays investment management fees as long as he remains with the fund, albeit in return
for the professional management and research. Fees are payable even if the value of his
investments is declining. A mutual fund investor also pays fund distribution costs, which he
would not incur indirect investing. However, this shortcoming only means that there is a cost to
obtain the mutual fund services.

 
No Tailor-Made Portfolio:
 
Investors who invest on their own can build their own portfolios of shares and bonds and
other securities. Investing through fund means he delegates this decision to the fund managers.
The very-high-net-worth individuals or large corporate investors may find this to be a constraint
in achieving their objectives. However, most mutual fund managers help investors overcome this
constraint by offering families of funds- a large number of different schemes- within their own
management company. An investor can choose from different investment plans and constructs
a portfolio to his choice.

Managing A Portfolio Of Funds:

Availability of a large number of funds can actually mean too much choice for the investor.
He may again need advice on how to select a fund to achieve his objectives, quite similar to the
situation when he has individual shares or bonds to select.

The Wisdom Of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better
at picking stocks than the average nonprofessional, but charges fees.
 

 No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of
somebody else's car
 Dilution:

Mutual funds generally have such small holdings of so many different stocks thatinsanely
great performance by a fund's top holdings still doesn't make much of a difference in amutual
fund's total performance.

Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who do notmake
those costs clear to their clients.
 BIBLIOGRAPHY

Websites:

 Search website, www.google.co.in

 Article base, Finance, Investing,www.articlebase.com

 Association of Mutual in India,www.amfiindia.com

 Business Maps of India, Mutual Fund, Performance,http://business.mapsofindia.com

 Deccan herald, National, Detailed Story,www.deccanherald.com

 Domain-b, Markets, Mutual Fund,www.domain-b.com

 Economic Times, Personal Finance, Mutual

fundnews,http://economictimes.indiatimes.com/Personal_Finance/Mutual_Funds/MF_Ne
ws/Mutual_ funds_assets_jump_4_pc_in_Dec_add_Rs_16300_cr/articleshow/3926747.c
ms

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Kurien,www.amfiindia.com

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