Ambition Financial Planners is a fee-based Professional Financial Planning and investment advisory services firm in India, guiding its clients to fulfil their dreams and achieve financial goals. Company offers advisory and executioner platform for the entire range of financial services ranging from Direct Equity, Insurance, Mutual Funds, Real Estate, Loans and all other small saving instruments. Ambition Financial Planners is set-up with a professional team of dedicated, experienced and highly skilled Certified Financial Planners (CFPCM Certificates) and is spearheading the Financial Planning movement in India. As professionals our Financial Planners are committed to the professional practice standards and code of ethics laid down by Financial Planning Standards Board India. The client-centric Financial Planners are committed to help our clients with diverse backgrounds achieve their financial & life goals through proper management of various components of personal finances. We are dedicated to provide competent Financial Planning services and maintain the necessary knowledge; skill and advice based on established Body of Knowledge and client requirements. Ambition Learning Solutions, a division of Ambition Group is committed to provide quality training and nurture aspiring Financial Planners and is involved in research activities. Ambition Learning Solutions is also an Authorized Education Provider for the Financial Planning Standards Board India (FPSB India). Working closely with Ambition Learning Solutions, Ambition Financial Planners ensures transfer and use of knowledge between advisory practice and training & research. The Financial Planning services are tailored to meet client's needs as determined through the process of Financial Planning. It helps create a financial path to help them meet their life goals based on a deep understanding of their needs and superior implementation. The company follows its unique process to create a financial plan for its clients, conduct a portfolio review and then to ensure asset allocation being maintained through

active review and monitoring of financial plan. We strongly believe that ―If you Fail to Plan, you are planning to fail. SERVICES OFFERED SINGLE ELEMENT PLANNING  Investment planning  Tax planning  Child future planning  Insurance planning  Retirement planning  Estate planning

SPECIFIC GOAL PLANNING  Child education & marriage  Buying a dream home  Loan & debt management  Changes in employment/ starting new business  Going to/ returning from Job Abroad  Budget & cash flow planning

1.2 How does Ambition Financial Planners select schemes and funds to invest for a particular portfolio?
At Ambition Financial Planners, we look at various factors while selecting schemes for a particular portfolio such as:  Your personal goals - If your goals require an aggressive portfolio, the schemes we select will reflect this.  Your personal preferences - You may not want to invest in say Tobacco/Shipping/Oil & Gas/Banking companies or because of the company you work for, they may be a conflict in investing in competitor companies and hence we will keep away from funds which are invested in such companies.  Your risk appetite - Your willingness to invest in more volatile or aggressive schemes.  Diversification - The portfolio needs to be well diversified without heavy exposure to any sector or market cap, unless that is doing well at that particular time. Care will have to be taken to reduce such exposure when this does not hold true.  Scheme Attributes - Objectives of the schemes; sectors and companies it plans to invest in, track record over markets ups and downs.  Fund Manager - His past track record, views and philosophy  Fund House - Philosophy, credibility and track record.

Do you enjoy handling your finances yourself but could use a second opinion or more information? Would you rather turn over most financial matters to an advisor?. . you will get a customized and flexible financial plan to help you improve all aspects of your financial life.  You could use help with all your financial needs — beyond investing While investing is an important part of any financial strategy.  You want to bridge the gap between today's needs and tomorrow's goals If the path from where you are to where you want to be seems hard to imagine. protection. From there.  You value financial advice and long-term planning If you're committed to working toward your long-term financial goals and if you could use some guidance. we can help. and sometimes conflicting financial priorities. we listen closely and take the time to understand your complete financial picture — your cash and liabilities. investments and taxes.3 WHY AMBITION PLANNERS Financial planning is a never-ending process. and with Ambition Financial Planners. The level of financial advice you receive depends on your needs and preferences. spend and invest more effectively while protecting what's important. At Ambition. Ambition is experienced in addressing a broad range of financial needs — so wherever you are in life.1. there are many other factors to consider in order to reach your goals. we can help show you how to save. Ambition Financial Planners may be able to help. we can provide the financial planning and advice to help you get where you want to go. We understand that most people have multiple.

.  Taxes. Taxes can affect your ability to reach your financial goals. breathing plan that can help forge a clear path from today's realities to tomorrow's possibilities. Managing how much you save and how much you spend is key to reaching your financial goals.Building a solid financial foundation No matter where you're coming from. investments and taxes — to create a living. We look at your entire financial situation — from cash and liabilities to protection. Saving more is usually not enough to help you reach your financial goals.  Protection. Smart strategies can help control how much you — and your heirs — will pay in taxes.  Investments. we can help you systematically address your financial needs. you want to make sure you protect the things you've worked so hard for. You need a long-term investing strategy aligned with your goals and time horizon.   Cash and liabilities. As you move ahead into the future.

 To study about the risk factors involved in the Mutual Funds and How to analyze it?  To study the performance indices that can be used for mutual fund comparison.  To discuss about the market trends of mutual fund investment.  To study the characteristics of mutual funds that attracts the customers.  To study the people in which age and income group prefer mutual funds over other investment options. The main objectives of this project are: To study about the Mutual Funds & various schemes.  To know various factors considered by the customers while going to invest in the mutual fund. . in detail the growth pattern of mutual fund industry in India and to evaluate performance of different schemes floated by most preferred mutual funds in public fund in public and private sector.4 OBJECTIVES OF THE STUDY The objectives of the study is to analyses.1.

growth & various aspects of mutual funds. .5 SCOPE  The project will provide us the better platform to understand the history.  The main purpose of doing this project was to know about mutual funds & its functioning.  The scope of the study is to inform & guide the investor about the various mutual fund schemes & help them to select the best scheme as per their requirement.  Also with the help of this project one can better understand the different types of mutual funds working in India. stage. growth & future prospect.1. This helps to know in detail about mutual fund right from inceptions.

Management in any organization needs information about potential marketing plans & to change the market place. RESEARCH PROBLEM: To know investors’ perceptions about level of satisfaction while investing in mutual funds. .1. This research is very important in strategy formulation & feedback of any organizational plan. Marketing research includes all the activities that enable an organization to obtain information.6 RESEARCH METHODOLOGY METHODOLOGY: Marketing research is the process of collecting & analyzing marketing information & ultimately arrives at certain conclusions.

7 DATA COLLECTION Secondary Data: Information collected through websites.1. fact sheet of various funds etc. . DURATION OF TRAINING: The training was carried out for a period of 2 months from 1st may to 30th June 2012.

 The project is unable to analysis each and every scheme of mutual funds to create the ideal portfolio.  The respondent were not disclosing their exact portfolio because they have a fear in their mind that they can come under tax slab.  Some respondents were reluctant to divulge personal information which can affect the validity of all responses.  Being a trainee.1.8 RESEARCH LIMITATIONS  This project is limited in scope as the survey is conducted with the shortage of time constraint & also based on secondary data. . I was not given the authority to handle any transaction myself but under the guidance of some superior.  Some of the persons were not so responsive.


risk profile and investment time horizon. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. The income earned through these investments and the capital appreciation realized by the scheme is shared by its unit holders in proportion to the number of units owned by them (pro rata). The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.1 Mutual Funds Definition of mutual fund A Mutual Fund is a trust that pools the savings of a number of investors who share a common or ―mutual‖ financial goal i. return expectations. . professionally managed portfolio at a relatively low cost. These could range from shares to debentures to money market instruments.e. Each Mutual Fund scheme has a defined investment objective and strategy.2. who have a similar investment objective.

brokerage dues and bank transactions etc. skills. inclination and time to keep track of events. understand their implications and act speedily. While the concept of individuals coming together to invest money collectively is not new. In fact. investments and transaction processing. Markets for equity shares. In effect. the mutual fund vehicle exploits economies of scale in all three areas . A mutual fund is the ideal investment vehicle for today’s complex and modern financial scenario. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. A typical individual is unlikely to have the knowledge. . the mutual fund in its present form is a 20th century phenomenon. mutual funds collectively manage almost as much as or more money as compared to banks.research. An individual also finds it difficult to keep track of ownership of his assets. investments. real estate. Price changes in these assets are driven by global events occurring in faraway places. Today. It appoints professionally qualified and experienced staffs that manage each of these functions on a full time basis.MUTUAL FUND STANDS OUT AS AN INVESTMENT OPTION. bonds and other fixed income instruments. Globally. A mutual fund is the answer to all these situations. derivatives and other assets have become mature and information driven. there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. mutual funds gained popularity only after the Second World War.

. The money thus collected is then invested in capital market instruments such as shares. debentures and other securities.2 Concept A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. professionally managed basket of securities at a relatively low cost. 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.2. The flow chart below describes broadly the working of a mutual fund. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.


These could range from shares to debentures to money market instruments. inclination & time to keep track of events & understand . Thus a mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified. The income earned through these investments & the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them (pro-rata). Each mutual fund scheme has a defined investment objective & strategy. Today. skills. A typical individual is unlikely to have the knowledge. It plays a pro-active role in identifying steps that need to be taken to protect investors and promote the mutual fund sector. The number of public sector players has reduced from 11 to 5. A mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. professionally managed portfolio at a relatively low cost. Price changes in these assets are driven by global events occurring in faraway places. the Indian mutual fund industry has 40 players. bonds & other fixed income instruments. The public sector has gradually receded into the background. A mutual fund is the ideal investment vehicle for today’s complex & modern financial scenario.3 INTRODUCTION TO MUTUAL FUNDS AND ITS VARIOUS ASPECTS The mutual fund industry in India is one of the emerging industries in India. real estate.2. passing on a large chunk of market share to private sector players. The Association of Mutual Funds in India (AMFI) is the industry body set up to facilitate the growth of the Indian mutual fund industry. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. Anybody with an inventible surplus of as little as a few thousand rupees can invest in mutual funds. Market for equity shares. derivatives & other assets have become mature & information driven.

When an investor subscribes for the units of a mutual fund. Investors of mutual funds are known as unit holders. debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. 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). . NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. brokerage dues & bank transactions etc. Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. 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. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Any change in the value of the investments made into capital market instruments (such as Shares. investments. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. An individual also finds difficult to keep track of ownership of his assets.their implications & act speedily. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced.

 Variety: Within the broad categories of stock. Mutual funds introduce diversification to your investment portfolio automatically by holding a wide variety of securities. A fund is usually managed by an individual or a team choosing investments that best match the fund’s objectives. bond. Today . since you pool your assets with those of other investors. and decide which securities to buy and sell based on extensive research. the managers often adjust the mix of the fund’s investments to ensure it continues to meet the fund’s objectives. With mutual funds. and a further commitment of time to continually monitor those investments. it takes an astute. you can choose among a variety of investment approaches.4 ADVANTAGES & DISADVANTAGES OF MUTUAL FUND ADVANTAGES  Professional Management: Even under the best of market conditions. experienced professionals manage a portfolio of securities for you full-time. and money market funds. Moreover.  Diversification: Successful investors know that diversifying their investments can help reduce the adverse impact of a single investment. In short. experienced investor to choose investments correctly. As economic conditions change. a mutual fund allows you to obtain a more diversified portfolio than you would probably be able to comfortably manage on your own—and at a fraction of the cost.2. That’s the key benefit of diversification. funds allow you the opportunity to invest in many markets and sectors.

minus liabilities. Because the fund industry consists of hundreds of competing firms and thousands of funds. tax information. over the telephone. But for most investors. including monthly or quarterly account statements. divided by the total number of outstanding shares. financial planner. You can also arrange for automatic reinvestment or periodic distribution of the dividends and capital gains paid by the fund. by mail. Mutual fund shares are liquid investments that can be sold on any business day. and increasingly by personal computer.  Convenience: You can purchase or sell fund shares directly from a fund or through a broker. The price per share at which you can redeem shares is known as the fund’s net asset value (NAV). NAV is the current market value of all the fund’s assets. the actual level of fees can vary. . and 24-hour phone and computer access to fund and account information.there are more than 1000 types of mutual fund available for the Indian investors. shares each business day. Funds may offer a wide variety of other services. mutual funds provide professional management and diversification at a fraction of the cost of making such investments independently  Liquidity: Liquidity is the ability to readily access your money in an investment. bank or insurance agent. Mutual funds are required by law to buy.  Low Costs: Mutual funds usually hold dozens or even hundreds of securities like stocks and bonds. or redeem. The primary way you pay for this service is through a fee that is based on the total value of your account.

But these laws obviously cannot help you pick the fund that is right for you or prevent a fund from losing money. they are also highly regulated by the federal government through the U. and disclose complete information to current and potential investors. observe strict antifraud rules. . all funds must meet certain operating standards. Protecting Investors: Not only are mutual funds subject to compliance with their selfimposed restrictions and limitations. Securities and Exchange Commission (SEC). As part of this government regulation.S. These laws are strictly enforced and designed to protect investors from fraud and abuse.

 Fees and Commissions All funds charge administrative fees to cover their operational expenses.DISADVANTAGES OF MUTUAL FUNDS  No Guarantees There is no guarantee that the mutual fund will always do well and provide good returns to its unit holders. He depends on the fund manager to make the right decision regarding the portfolio. the investor has to pay tax on the income he receives even if here invests the money he made. brokers etc.  Management risk The risk that an investor is taking here is that someone else is managing his money.  Taxes Most actively managed funds sell anywhere from 20% to 70% of the securities in their portfolio during a typical year. . risk is minimized to some extent by investing in mutual funds. However. If the fund makes a profit on its sales. as no investment is risk free. If the manager does not perform as one had hoped then the investor may not make as much money as he had expected. Some funds also charge sales commissions or ―loads‖ to compensate financial consultants or planners.

It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. Though the growth was slow.2. The private sector entry to the fund family raised the Amount to Rs. 1540 billion. Indian mutual fund industry had seen a dramatic improvement. both qualities wise as well as quantity wise. At the end of 1988 UTI had Rs.UTI. The first scheme launched by UTI was Unit Scheme 1964. the Assets under Management (AUM) was Rs67 billion. at the initiative of the Government of India and Reserve Bank. Before. In the past decade. In 1978 UTI was delinked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI.5 HISTORY OF MUTUAL FUNDS IN INDIA The mutual fund industry in India started in 1963 with the formation of Unit Trust of India. Second phase 1987-1993(entry of public sector funds): 1987 marked the entry of non. SBI Mutual Fund was the first non- . but it accelerated from the year 1987 when nonUTI players entered the Industry. 470 billion in March 1993 and till April 2004. The Mutual Fund Industry is obviously growing at a tremendous space with the mutual fund industry can be broadly put into four phases according to the development of the sector. it reached the height if Rs.6. 700 crores of assets under management. Each phase is briefly described as under: First phase.1964-87: Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. the monopoly of the market had seen an ending phase. public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC).

Bank of India (Jun 90). the mutual fund industry had assets under management of Rs. under which all mutual funds.47. Bank of Baroda Mutual Fund (Oct 92). Punjab National Bank Mutual Fund (Aug 89). 1. 004 crores. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. 1993 was the year in which the first Mutual Fund Regulations came into being. As at the end of January 2003. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The Unit Trust of India with Rs. with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. Indian Bank Mutual Fund (Nov 89). At the end of 1993. 21. except UTI were to be registered and governed.805 crores. Also. . The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.1993-2003 (entry of private sector funds): With the entry of private sector funds in 1993. giving the Indian investors a wider choice of fund families. LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.UTI Mutual Fund established in June 1987 followed by Can bank Mutual Fund (Dec 87). a new era started in the Indian mutual fund industry. 541 crores of assets under management was way ahead of other mutual funds. Third phase. there were 33 mutual funds with total assets of Rs.44. The number of mutual fund houses went on increasing.

conforming to the SEBI Mutual Fund Regulations. The second is the UTI Mutual Fund. The graph indicates the growth of assets over the years. assured return and certain other schemes. PNB. representing broadly. and with recent mergers taking place among different private sector funds. . With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 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. BOB and LIC. sponsored by SBI.Fourth phase since February 2003 In February 2003. It is registered with SEBI and functions under the Mutual Fund Regulations. the mutual fund industry has entered its current phase of consolidation and growth. the assets of US 64 scheme. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. 000 crores of assets under management and with the setting up of a UTI Mutual Fund. 835 crores as at the end of January 2003.76. The Specified Undertaking of Unit Trust of India.29.

The sponsor will form a Trust and appoint a Board of Trustees.2.6 Organization of Mutual Funds in India Fund Sponsor: ―The sponsor of a fund is akin to a promoter of a company as he gets the fund registered with SEBI.a body of individuals.may be managed by a board of trustees. or a Trust Company-a corporate body. Custodian: The custodian is appointed by the Board of Trustees for safekeeping of physical securities or participating in any clearing system through approved depository companies on behalf of the mutual fund in case of dematerialized securities. The sponsor will also generally appoint an Asset Management Company (AMC) as fund managers. Transfer agents: Transfer agents are responsible for issuing and redeeming units of mutual fund and provide other related services such as preparation of transfer documents and updating investor records. Trustees: The trust-Mutual Fund. AMC: The role of an AMC is to act as the Investor Manager of the trust. .

open-ended schemes do not . tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended).7 Types of Mutual Fund Schemes The mutual fund schemes can be classified according to both their investment objective (like income. growth. Investors can buy or sell units at NAV-related prices from and to the mutual fund on any business day. Classification by structure: Open ended Fund: Open-ended schemes do not have a fixed maturity period.2. These schemes have unlimited capitalization.

you can buy or sell units of the scheme on the stock exchanges where they are listed. . after the initial issue. After that such schemes can not issue new units except in case of bonus or rights issue. there is no cap on the amount you can buy from the fund and the unit capital can keep growing. Interval Funds: These funds combine the features of both open–ended and close-ended funds wherein the fund is close-ended for the first couple of years and open-ended thereafter.have a fixed maturity. safety of principal. These funds are not generally listed on any exchange. Equity Funds are those that invest in shares or equity of companies. current income or taxexempt income. The market price of the units could vary from the NAV of the scheme due to demand and supply factors. Investors can buy into these funds during the period when these funds are open in the initial issue. Classification according to investment objectives Mutual funds can be further classified based on their specific investment objective such as growth of capital. Fixed-Income Funds invest in government or corporate securities that offer fixed rates of return While funds that invest in a combination of both stocks and bonds are called Balanced Funds. investors’ expectations and other market factors. yet providing reasonable liquidity. However. Closed-end Fund: Close-ended schemes have fixed maturity periods. Some funds allow fresh subscriptions and redemption at fixed times every year (say every six months) in order to reduce the administrative aspects of daily entry or exit.

They invest in securities of foreign companies. These funds facilitate cross border fund flow. Such funds invest in shares with a potential for growth and capital appreciation. and hence growth funds provide low current income. Classification according to geographic location: Domestic funds These funds mobilize the savings of nationals within the country. Growth funds generally incur higher risks than income funds in an effort to secure more pronounced growth. there are following types of equity funds: . Offshore Funds. for 3 years or more.Growth funds primarily look for growth of capital with secondary emphasis on dividend. They attract foreign capital for investment Classification by Nature of Investment Equity Funds Equity funds are considered to be the more risky funds as compared to other fund types. In the order of decreasing risk level. They invest in well-established companies where the company itself and the industry in which it operates are thought to have good long-term growth potential. It is advisable that an investor looking to invest in an equity fund should invest for long term i. There are different types of equity funds each falling into different risk bracket. but they also provide higher returns than other funds.e.

c. Auto. Specialty funds are concentrated and thus.In Aggressive Growth Funds. The exposure of these funds is limited to a particular sector (say Information Technology. are prone to higher risk than other equity funds. Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. Banking. foreign securities funds are exposed to foreign exchange rate risk and country risk. Specialty Funds . Foreign securities funds achieve international diversification and hence they are less risky than sector funds. There are following types of specialty funds: i. Aggressive Growth Funds . Without entirely adopting speculative strategies. Because of these speculative investments Aggressive Growth Funds become more volatile and thus.Specialty Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. . Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. Growth Funds .a. Growth Funds invest in those companies that are expected to post above average earnings in the future.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.. Criteria for some specialty funds could be to invest/not to invest in particular regions/companies. fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. However. ii. are comparatively riskier than diversified funds. b.

like all other funds diversified equity funds too are exposed to equity market risk. Proper use of options can help to reduce volatility. However. 500 crores. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). 500 crores) and Small-Cap companies have market capitalization of less than Rs. Market capitalization of Mid-Cap companies is less than that of big. which generate stable income for investors. Option Income Funds write options on a large fraction of their portfolio. 2500 crores but more than Rs. ELSS usually has a lock-in period and in case of any . iv. a minimum of 90% of investments by ELSS should be in equities at all times. 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. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. high dividend yielding companies. Option Income Funds*: While not yet available in India. which is otherwise considered as a risky instrument.iii. investment gets risky. blue chip companies (less than Rs. diversified equity funds invest mainly in equities without any concentration on a particular sector(s). Diversified Equity Funds . As per the mandate. These funds are well diversified and reduce sector-specific or companyspecific risk. 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. and then sell options against their stock positions. d. 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.Except for a small portion of investment in liquid money market. These funds invest in big.

steel. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. f. Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity 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.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. to a large extent. are more risky. Equity Income or Dividend Yield Funds . it is advisable to invest in Value funds with a long-term time horizon as risk in the long term. sugar etc. Therefore.Equity Index Funds have the objective to match the performance of a specific stock market index.) which make them volatile in the short-term.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). e. Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or speciality funds. Value Funds . is reduced. Narrow indices are less diversified and therefore. g. Equity index funds that follow broad indices (like S&P CNX Nifty. Equity Index Funds . Value stocks are generally from cyclical industries (such as cement. .

on account of default by a debt .Debt / Income Funds Funds that invest in medium to long-term debt instruments issued by private companies. Although debt securities are generally less risky than equities. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors.Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. Any loss incurred. governments and other entities belonging to various sectors (like infrastructure companies etc. debt (or income) funds distribute large fraction of their surplus to investors.) are known as Debt / Income Funds. Based on different investment objectives. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. To minimize the risk of default. financial institutions. 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. In order to ensure regular income to investors. Diversified Debt Funds . there can be following types of debt funds: a. banks.

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. focused debt funds are more risky as compared to diversified debt funds. although they may earn at times higher returns for investors. High Yield Debt funds . The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. However. Although not yet available in India.As we now understand that risk of default is present in all debt funds. These funds are more volatile and bear higher default risk. But. and therefore. Because of their narrow orientation. these funds are conceivable and may be offered to investors very soon. Assured Return Funds . 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".issuer. Some examples of focused debt funds are sector. Focused Debt Funds* . is shared by all investors which further reduces risk for an individual investor. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). focused debt funds are narrow focus funds that are confined to investments in selective debt securities. b. High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below investment grade". These funds are generally debt funds and provide investors with a low-risk investment opportunity.Unlike diversified debt funds.Although it is not necessary that a fund will meet its objectives or provide assured returns to investors. funds that invest only in Tax Free Infrastructure or Municipal Bonds. the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). issued by companies of a specific sector or industry or origin. c. specialized and offshore debt funds. d. To .

Eventually.Fixed Term Plan Series usually are closedend 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. like all debt funds. fixed term plans are not listed on the exchanges. Issued by the Government of India. Fixed Term Plan Series . The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period. government had to intervene and took over UTI's payment obligations on itself. no AMC in India offers assured return schemes to investors. Unlike closed-end funds. Gilt Funds Also known as Government Securities in India. Currently. Fixed term plan series usually invest in debt / income schemes and target short-term investors. 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. gilt funds too are exposed to interest rate risk. SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. e. However.safeguard the interests of investors. these investments have little credit risk (risk of default) and provide safety of principal to the investors. In the past. though possible.e. . UTI was not able to fulfill its promises and faced large shortfalls in returns. Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI had offered assured return schemes (i.

and equity and preference shares held in a relatively equal proportion. Hybrid funds have an equal proportion of debt and equity in their portfolio. Hybrid Funds As the name suggests.Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. The level of risks involved in these funds is lower than growth funds and higher than income funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. These securities are highly liquid and provide safety of investment. Balanced funds are appropriate for conservative investors having a long term investment horizon. convertible securities. The objectives of balanced funds are to reward investors with a regular income.Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. hybrid funds are those funds whose portfolio includes a blend of equities. thus making money market / liquid funds the safest investment option when compared with other mutual fund types. debts and money market securities. The typical investment options for liquid funds include Treasury Bills (issued by governments). b. Commercial papers (issued by companies) and Certificates of Deposit (issued by banks). moderate capital appreciation and at the same time minimizing the risk of capital erosion. However. even money market / liquid funds are exposed to the interest rate risk. .The portfolio of balanced funds include assets like debt securities. Growth-and-Income Funds . Balanced Funds . There are following types of hybrid funds in India: a.

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.) or commodity companies or commodity futures contracts are termed as Commodity Funds. 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.c. money market or non-financial (physical) assets like real estate. food grains. gold futures or shares of gold mines) are common examples of commodity funds.. the success of these funds depends upon the skill of a fund manager in anticipating market trends. In other words. "Precious Metals Fund" and Gold Funds (that invest in gold. are known as Specialized Real Estate Funds. crude oil etc. 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. The objective of these funds may be to generate regular income for investors or capital appreciation. Commodity Funds Those funds that focus on investing in different commodities (like metals. . 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.Mutual funds may invest in financial assets like equity. 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. debt. Asset Allocation Funds . and therefore. commodities etc.

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

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

2. as they could well be catering to the interests of the large investors–at your expense. avoid funds that have a high exposure to a few sectors or a handful of stocks.8 SELECTION OF A MUTUAL FUND How to pick an Equity/Growth fund? Now. Avoid funds that show a volatile returns patterns. Just as the fund needs diversified investments. as you can study its track record. narrow down your investment universe by deciding which category of equity fund you would like to invest in. SEBI (Securities and Exchange Board of India) regulations stipulate that a fund must publish.2. in its half-yearly disclosures. a diversified equity fund should have an exposure to at least four sectors and seven to 10 scrip’s. That decided. You can see how the fund has performed over the years. Ideally. it does give an indication of how well a fund has capitalized on upturns and weathered downturns in the past. details of the number of investors who hold more than 25 per cent of the scheme’s corpus. Although past trends are no guarantee of future performance. 3. as it would belie the very principle of a mutual fund. Avoid such funds. but if the market crashes or the sector performs badly. This ensures that a few investors do not own a significant part of the fund. . First. Unless you are willing to take on high risk. which will facilitate historical comparison across its peer set. Track record. let’s get down to specifics: what you should look for while evaluating an equity fund. The fund’s track record also gives an indication of the volatility in its returns. Such funds will give superior returns when the selected sectors are doing well. that you have an idea of the investment profile and objective behind each type of equity fund. It’s always safer to opt for a fund that’s been around for a while. it also needs to have a diversified investor base. Diversified investor base. 1. Diversified portfolio. seek the following four attributes from a prospective fund. the fall in NAV will be equally sharp.

always go through its offer document and fact sheet. Within the fixed-income category. These funds invest in corporate bonds or government-backed mortgage securities that have a fixed rate of return. as you may not be told what will happen to your money once you invest. which seek to maximize yield by investing in lower-rated bonds of longer maturities. The first thing you need to get a fix on is your investment horizon. some care and thought has to go into picking a debt fund. funds vary greatly in their stability of principal and in their dividend yields. Here are some factors you ought to look at while scouting for a debt fund. a debt fund with a good track record is always preferable. entail less stability of principal than fixed-income funds that invest in higher-rated but lower-yielding securities. choose funds that have been in the market for at least a year. How to pick a Debt fund? It’s evident there is an element of risk associated with debt funds. avoid that fund. Some fixed-income funds seek to minimize risk by investing exclusively in securities whose timely payment of interest and principal is backed by the full faith and credit of the Indian Government. Anything above that. 2. Transparency in operations. The longer the track record. 1. Before investing in a fund. Fixed income funds primarily look to provide current income consistent with the preservation of capital. . Fixed-income funds are suitable for investors who want to maximize current income and who can assume a degree of capital risk in order to do so. you should be looking at a gilt fund or an income fund. As with equity funds. Track record. High-yield funds. Investment horizon.4. If the fund house doesn’t give out such information regularly. Funds that do not disclose details on a regular basis to their unit holders are better left alone. If you wish to invest in a debt fund for anything up to one year. Hence. opt for a liquid fund. the better–to be on the safe side.


Credit quality. One of the most important factors you need to look for

in an income fund is the credit rating of the debt instruments in its portfolio. A credit rating of AAA denotes the highest safety, while a rating of below BBB is classified as non-investment grade. Although rating agencies classify BBB paper as investment grade, you should budget for downgrades, and set the minimum acceptable rating benchmark at AA. In order to ensure the safety of your investment, opt for a fund that has at least 75 per cent of its corpus in AAA-rated paper, and 90 per cent in AA and AAA paper. 4. Diversification. In order to limit the loss from a possible default, an

income fund should be reasonably diversified across companies. Say, a fund manager invests his entire corpus in debt instruments of just one company. If the company goes under, the fund loses everything. Now, had the fund manager diversified and invested 10 per cent of his corpus in 10 companies, with one-tenth in the troubled company, his loss would be lower. Assuming the other companies meet their debt obligations, the fund’s loss would be restricted to 10 per cent. 5. Diversified investor base. Similar to the pre-condition for equity

funds, avoid debt funds where a few large investors account for an abnormally high portion of the corpus. The Balanced fund aims to provide both growth and income. These funds invest in both shares and fixed income securities in the proportion indicated in their offer documents. How to pick a Balanced fund? The same criterion that applies to selecting an equity fund holds good when choosing a balanced fund. The one additional factor you should check for a balanced fund is the equity and debt split. The offer document will state the ratio of equity and debt investments the fund plans to have. Mostly, this takes on a range, and varies from time to time depending on the fund manager’s perception of the financial markets.

Before investing in an existing balanced fund, go through a few of its past fund fact sheets, and look up the equity-debt split. If you are a conservative investor, opt for a fund where equity investments are capped at 60 per cent of corpus. However, if you are the aggressive sort, you could even go along with a higher equity holding.


Growth Plan and Dividend Plan A growth plan is a plan under a scheme wherein the returns from investments are reinvested and very few income distributions, if any, are made. The investor thus only realizes capital appreciation on the investment. This plan appeals to investors in the high income bracket. Under the dividend plan, income is distributed from time to time. This plan is ideal to those investors requiring regular income. Dividend Reinvestment Plan Dividend plans of schemes carry an additional option for reinvestment of income distribution. This is referred to as the dividend reinvestment plan. Under this plan, dividends declared by a fund are reinvested on behalf of the investor, thus increasing the number of units held by the investors. Automatic Withdrawal Plan Under the Automatic Withdrawal Plan (AWP) also called Systematic Withdrawal Plan (SWP), a facility is provided to the investor to withdraw a pre-determined amount from his fund at a pre-determined interval. Systematic Encashment Plan (SEP) As opposed to the Systematic Investment Plan, the

Systematic Encashment Plan allows the investor the facility to withdraw a predetermined amount / units from his fund at a pre-determined interval. The investor's units will be redeemed at the applicable NAV as on that day. Retirement Pension Plan Some schemes are linked with retirement pension. Individuals participate in these plans for themselves, and corporate participate for their employees.

Insurance Plan Certain Funds offer some schemes that offer insurance cover to investors. the investor is given the option for investing in a specified frequency of months in a specified scheme of the Mutual Fund for a constant sum of investment. AIP allows the investors to plan their savings through a structured regular monthly savings program. . Automatic Investment Plan / Systematic Investment Plan Under the Automatic Investment Plan (AIP) also called Systematic Investment Plan (SIP).

Market Risk: At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences." Whenever the rate of inflation exceeds the earnings on your investment. economic or other developments. international. conversely. risks would include variability. foreign investment.10 Types of risks associated with Mutual fund Identifying individual risk tolerance is one of the basic factors in determining an optimum investment strategy for a mutual fund portfolio. currency exchange rates. short-term bond. both volatility and total return potential proportionately increase. the stock prices of both an outstanding. This standard risk/reward rule is often illustrated with risk and reward both escalating over a broad spectrum beginning with cash reserves. etc. . changing to bonds and then ending with stocks: Risk is an inherent aspect of every form of investment. This change in price is due to "market risk".e. not more. interest rates.. political. Regardless of the return objectives and time horizon within a portfolio. large value. highly profitable company and a fledgling corporation may be affected.). When this happens. Inflation Risk: Sometimes referred to as "loss of purchasing power. small growth. The value of the scheme's investments may be affected by factors affecting capital markets such as price and volume volatility in the stock markets. intermediate-term bond. As the level of risk increases.2. risk tolerance affects both asset allocation and especially the selection of fund categories (i. you run the risk that you'll actually be able to buy less. as the level of risk decreases. changes in government policy. or period-by-period fluctuations in total return. both volatility and total return potential proportionately decrease. For mutual fund investments.

The fund manager may therefore be unable to quickly sell an illiquid bond and this might affect the price of the fund unfavorably. Liquidity risk is characteristic of the Indian fixed income market. or repay your principal when the investment matures? Interest Rate Risk: Changing interest rates affect both equities and bonds in many ways.Credit Risk: In short.Return Trade Off The risk-return tradeoff is the balance an investor must decide on between the desire for the lowest possible risk for the highest possible returns. Investment Risks: In the sectoral fund schemes. Accordingly. Liquidity Risk: Thinly traded securities carry the danger of not being easily saleable at or near their real values. The Risk. It’s a fact that low levels of uncertainty (low risk) are associated with low . the prices increase. Interest rate movements in the Indian debt markets can be volatile leading to the possibility of large price movements up or down in debt and money market securities and thereby to possibly large movements in the NAV. Bond prices are influenced by movements in the interest rates in the financial system. the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Generally. Changes in the Government Policy: Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund. when interest rates rise. prices of the securities fall and when interest rates drop. investments will be predominantly in equities of select companies in the particular sectors. how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised.

Whereas the equity sector funds are the most risky and hence the returns offered are also the maximum. . The following chart shows an example of the risk/return trade-off for investing. A higher standard deviation means a higher risk: Risk Return Grid We can figure out from the above diagram that. Liquid funds are the least risky and hence the expected returns are also the least.potential returns and high levels of uncertainty (high risk) are associated with high potential returns.

. provided that aggregate inter . Such investment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board of Trustees and the Board of asset Management Company. which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. The securities so transferred shall be in conformity with the investment objective of the scheme to which such transfer has been made. Transfers of investments from one scheme to another scheme in the same mutual fund shall be allowed only if.Such transfers are done at the prevailing market price for quoted instruments on spot basis. No mutual fund under all its schemes should own more than 10% of any company's paid up capital carrying voting rights.RESTRICTIONS ON INVESTMENTS A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments issued by a single issuer. All such investments shall be made with the prior approval of the Board of Trustees and the Board of Asset Management Company. A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt instruments issued by a single issuer and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. A scheme may invest in another scheme under the same asset management company or any other mutual fund without charging any fees.

No mutual fund scheme shall make any investment in: Any unlisted security of an associate or group company of the sponsor. deliver the securities and shall in no case put itself in a position whereby it has to make short sale or carry forward transaction or engage in badla finance. the limit of 10% shall not be applicable for investments in index fund or sector or industry specific scheme. which is in excess of 30% of the net assets (of all the schemes of a mutual fund) No mutual fund scheme shall invest more than 10% of its NAV in the equity shares or equity related instruments of any company. get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme.scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not exceed 5% of the net asset value of the mutual fund. Ending deployment of funds of a scheme in securities in terms of investment objectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial banks. Every mutual fund shall. or The listed securities of group companies of the sponsor. wherever investments are intended to be of longterm nature. take delivery of relative securities and in all cases of sale. The initial issue expenses in respect of any scheme may not exceed 6% of the funds raised under that scheme. Provided that. Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases. or Any security issued by way of private placement by an associate or group company of the sponsor. . A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or equity related investments in case of open-ended scheme and10% of its NAV in case of close-ended scheme.

Though past performance alone can not be indicative of future performance. but the funds record is an important indicator too. the only quantitative way to judge how good a fund is at present. However. the retail investor faces problems in selecting funds. with a plethora of schemes to choose from. These fluctuations are resultant of general market fluctuations. with about 34 players and more than five hundred schemes. frankly.Performance Measures of Mutual Funds Mutual Fund industry today. can be defined as variability or fluctuations in the returns generated by it. Worldwide. there is a need to correctly assess the past performance of different mutual funds. Beta is calculated by relating . Systematic risk. which affect all the securities. present in the market. The more responsive the NAV of a mutual fund is to the changes in the market. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. called market risk or systematic risk and. In other words. there must be some performance indicator that will reveal the quality of stock selection of various AMCs. higher will be its beta. which represents fluctuations in the NAV of the fund vis-à-vis market. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. fluctuations due to specific securities present in the portfolio of the fund. Risk associated with a fund. is one of the most preferred investment avenues in India. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. higher will be the risk associated with it. it is. is measured in terms of Beta. Therefore. in a general. on the other hand. The higher the fluctuations in the returns of a fund during a given period. Factors such as investment strategy and management style are qualitative. called unsystematic risk. good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills.

For example. Net Asset Value (NAV) A mutual fund is a common investment vehicle where the assets of the fund belong directly to the investors. On the other hand. All of the fund’s assets belong to the investors and are held in fiduciary capacity for them. systematic risk cannot. Investor’s subscriptions are accounted for by the fund not as liabilities or deposits but as Unit Capital. There are. securities custodians and registrars. as the knowledge is essential for them to perform their basic role in explaining the mutual fund performance to the investors. This report outlines the major elements of mutual fund accounting and valuation norms as applicable to mutual funds in India. he cannot use even simple measures such as NAV Change to assess the fund performance. 1961 lays down the relevant tax provisions that govern mutual funds. While unsystematic risk can be diversified through investments in a number of instruments. . Accounting And Valuation Of Mutual Funds In India mutual funds are regulated by SEBI. which lays down the Regulations for fund accounting and valuation of securities. liabilities and transactions with investors and other outside constituents such as banks. Mutual fund employees need to be aware of the special requirements concerning accounting for the fund’s assets.the returns on a mutual fund with the returns in the market. Even the mutual fund agents need to understand the accounting for the fund’s transactions with investors and how the fund accounts for its assets and liabilities. unless the agent knows how the NAV is computed. The Importance of Accounting Knowledge The balance sheet of a mutual fund is different from the normal balance sheet of a bank or a company. The Income Tax Act. the investments made on behalf of the investors are reflected on the assets side and are the main constituents of the balance sheet.

{Market value of investments + Receivables + Other Accrued Income + Other Assets -Accrued Expenses – Other Payables – Other Liabilities} No. These funds may publish NAV monthly or quarterly intervals as permitted by SEBI.  NAV for all schemes must be calculated and published at least weekly for closed-end schemes and daily for open-end schemes. it is common practice for mutual fund to compute the share of each investor on the basis of the value of Net Assets per Share per Unit. NAV’s for a day must also be posted on AMFI’s website by 8:00 p. One exception is those closed end schemes which are not mandatorily required to be listed in any stock exchange.  NAV= Net Assets of the scheme/Number of Units Outstanding. commonly known as the Net Asset Value (NAV). The fund’s Net Assets are therefore defined as the assets minus the liabilities.  A fund’s NAV is affected by four sets of factors: o purchase and sale of investment securities o valuation of all investment securities held o other assets and liabilities. liabilities of a strictly short-term nature that may be part of the balance sheet. This applies to both the open-end and closed-end funds. As there are many investors in a fund. of Units Outstanding as at the NAV date  For the purpose of NAV calculation.e. the day on which NAV is calculated by a fund is known as the valuation date. The following are the regulatory requirements and accounting definitions laid down by SEBI. on that day.however. i. An example of such a permitted scheme is the Monthly Income Schemes that are not listed on a stock exchange.m. and o units sold or redeemed .

recording may be done within 7 days of transaction. and changes in the number of units outstanding will both affect the per unit asset value. if nonaccrual does not affect the NAV by more than 1%. with the next declaration date being January 15. Nowadays. except for transactions whose value does not affect the NAV by more than 2%. If a fund calculates NAV daily. Such changes in securities and number of units must be recorded by the next valuation date. Major fee such as management fees should be accrued on a day to day basis. for example custodian fees or even the management fees payable to the AMC. Open end funds are required to declare their NAVs daily. except for small value transactions which can be reflected in the next day’s NAV subject to the 2% restriction. that all expenses and incomes are accrued up to the valuation date and considered for NAV computation. . SEBI requires. while others need not be so accrued. dividend announced by a company yet to be received). it will include all transactions concluded up to today. F example.  It can be seen from the NAV definition that additions to and sales from the portfolio of securities. Such unrecorded transactions have to be included in the next week’s NAV calculation. provided that the non-recording does not affect NAV calculations by more than 2%. If frequency of NAV declaration does not permit this.  ―Other Assets‖ include any income due to the fund but not received as on the valuation date (for example. These income and expense items have to be ―accrued‖ and included in the computation of the NAV. therefore. ―Other liabilities‖ have to include expenses payable by the fund. Such frequent computations of asset values involve valuation of all investment securities at their market prices and inclusion of other assets and liabilities. many funds calculate and announce their NAVs even daily. if a fund declares NAV every week.


*Short Term Capital Gain Tax indicated above is inclusive of surcharge and education cess **Dividend Distribution Taxes indicated above are inclusive of additional surcharge and cess. the minimum term for these schemes is 3 years and you cannot withdraw your money before that time *There would be an additional surcharge of 10% of Short Term Capital Gain Tax if the individuals’ income is more than 10 lacs per annum. Further. However. 1Lakh if you invest in Equity Linked Savings Schemes. ELSS. With reference to sale/transfer of units of equity funds: .163% with indexation Nil **28. the education cess of 3% shall be levied on all investors.995% Gain As per Income Tax As per Income Tax Slab Slab Term Nil Gain Less of 10% without Less of 10% without indexation or 20% indexation or 20% with indexation **14. Taxation Equity Funds Short Capital Tax Long Capital Tax Dividend Distribution Tax  Liquid funds/Money Debt Market Funds fund/liquid plus Funds Term *16. you can get an annual income tax benefit of up to Rs. Here is the information about taxes applicable on Mutual Funds in India.325% 80C benefits through ELSS: Under the current tax laws.Different types of Mutual Funds attract different types of taxes.

e. On units of equity oriented funds (funds having more than 65% investments in Indian equity instruments): Income in the form of dividend is tax free in the hands of the investor. DIVIDEND a. The rate of dividend distribution tax depends on who is the recipient of the dividend and is calculated as under. Short term capital gains arises out of sale of units held for less than 12 months and long term capital gains arises out of sale of units held for more than 12 months.We all invest in mutual funds and get the returns either in the form of dividends or get capital appreciation benefits under growth option.  Short Term capital Gains On units of equity oriented funds (funds having more than 65% investments in Indian equity instruments): The income arising out of short .025%.Individual and HUF .14. Moreover such a fund house is exempt from paying Dividend Distribution Tax also. the fund house needs to pay Dividend Distribution Tax (DDT) at the time of distributing the dividend. On units of funds other than equity oriented fund: Income in the form of dividends is tax free. Short term and long term capital gains. But do we know how is this income taxed in India? What are the tax implications on the income arising out of mutual fund investments? The income from mutual funds can arise out of dividend received from the fund or from the capital gains (short term or long term).44% CAPITAL GAINS Capital gain is classified into 2 categories i. However. b.Others like corporate 22.

e. Systematic Transfer Plan: . 10% or 20% or 30% for the ones falling in the highest bracket.  Long Term capital Gains On units of equity oriented funds (funds having more than 65% investments in Indian equity instruments): Tax free On units of funds other than equity oriented funds : There are 2 methods for this. INVESTMENT STRATEGIES 1.term capital gains in mutual funds is to be taxed at the rate of 10% plus applicable surcharges. Payment is made through post dated cheques or direct debit facilities. On units of funds other than equity oriented funds: Short term capital gains is added back to your income and then your total income is taxed as per the IT slab i. This is called as the benefit of Rupee Cost Averaging (RCA) 2. or The investor can calculate the capital gains without the benefit of indexation and pay tax at 10%.   The investor can calculate capital gains taking the benefit of indexation and pay tax at the rate of 20% plus surcharge. Systematic Investment Plan: Under this a fixed sum is invested each month on a fixed date of a month. The investor gets fewer units when the NAV is high and more units when the NAV is low.

Under this an investor invest in debt oriented fund and give instructions to transfer a fixed sum. . at a fixed interval. to an equity scheme of the same mutual fund. Systematic Withdrawal Plan: If someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month. 3.


10 belongs to age group of 50-60 & 2 belongs to the age group of 60-above. 4 14 35 17 70 Now 70 people doing investment out of which 35.2 What is your profession? Particulars Business Jobs in private sector Jobs in public sector Others Total No. people are from public sector.From the above table we can say that awareness for investment in youngsters has been increased & that’s why out of 70. Reason for investment by all people was to secure the future & reason given by the people doing the job in private sector was their higher salary & unsecured job. then comes age group of 3040 from which 25 people do investment & other age group are 40-50 where investors are 13. We can say that youngsters are more careful for their investments. 20 are youngsters who do investment & they come in age group of 20-30.3 Do you invest in mutual funds? Investment Yes No Total No. 4 are having their business & 17 are others which include retired people & students. of respondents 70 30 100 . Q. Q.

bond Post office Commodities Total No. Investors yes no Q. 6 15 0 5 4 30 .From 100 respondents 70 of them are doing investment in mutual fund & 30 of them are not investing in mutual fund but they do investment in other sectors for which the information is given in next question.4 If you not invest in mutual fund then where do you invest? INVESTMENT EXCEPT MUTUAL FUND? Particulars Insurance Equity market Govt.

Q. bond. govt.5 Do you compare the returns or other benefits of mutual fund scheme before investing? . commodities. More people invest in equity market due to higher returns available in it.Investment except mutual fund Insurance Equity market Post office Commodities People who were not investing in mutual fund they do invest in others like insurance. equity market.

56 knows mutual fund is a good instrument of tax saving & 14 respondents do not know.Compare returns yes No It is necessary to compare the returns & other benefits because people do invest in for higher returns so they compare with other companies. Q. Here 28 people compare the returns & other benefits of mutual fund scheme before as well as after investing to see how their investments is spread over in different segments. . of respondents 56 14 70 Investment Yes No Out of 70 respondents.6 Do you know mutual fund is a good instrument for tax saving? Investment Yes No Total No.

of respondents 20 5 10 35 . Here in this question the investors have ranked the factors on their basis of their objectives that for what reason they have invested in a particular scheme. 42 of investors has given tax saving as 1st rank because while investing in some particular scheme their amount invested is appreciated as well as they get the tax benefit. Q.7 objectives for investment in mutual fund schemes ( rank them from 1 most preferred to 4 least preferred).8 What is your source of information while investing in MF? Source of information Internet Magazine Peer group Financial Advisors No. 13 of investors had given appreciation 1st rank because they want something more including their invested amount. 15 of investors had given return/dividend 1st rank because every investor wants benefit for the risk they have taken by investing in that scheme.Q.

Q.Source of information group Magazine peer From the above chart it can be inferred that the financial advisor is the most important source of information about mutual fund.9 Which types of funds would you like to prefer for your investment in mutual fund? Investment preference Equity fund Debt fund Balanced fund Total No. of respondents 37 13 20 70 Investment preference Equity fund Debt fund Balanced fund . 20 people from bank. 5 from magazine & 10 respondents from peer group. Out of 70 respondents 35 people know about mutual fund through financial advisor.

10 Do you check out the annual reports of your scheme to evaluate the performance of your scheme? Annual report checking yes No In the annual report of the scheme all the information of that particular scheme are given information about the performance of the scheme. 61 investors do monitor the annual report & 9 investors do not monitor the annual report.From the above chart most of the respondents prefer investment in equity fund.11 What type of return do you expect? Expected type of return Percentage . 20 respondents prefer balanced fund & 13 respondents prefer debt fund. position of the scheme in the market. portfolio of scheme that where the investment has been done under this scheme. Q. profile of the fund manager is also given by this the investors can come to know the position & qualification of the fund manager. Q.

Monthly Quarterly Half yearly Annually 8% 12% 10% 40% Expected type of return Monthly Quaterly Half yearly Annually The above study shows that 40% of investors are expect annually returns. 10 preferred dividend re-investment option & 45 people preferred growth option. 10% expects half yearly returns & 8 % expects monthly returns. Q.Growth in NAV 45 From the above graph 15 people preferred dividend payout option. .12 How would you like to receive the returns every year? Option Dividend payout Dividend investment No. 12% expect quarterly returns. respondents of 15 10 re.

13 When you invest in Mutual Funds which mode of investment you prefer? Mode of investment One time investment Systematic plan(SIP) No.Q. it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings.  Around 70% of the investors invest to maximize their returns & they are ready to take the moderate risk in their investment portfolio. FINDINGS From the above analysis i have found that even though certainly not the best or deepest of markets in the world.  Highest number of investors comes from the age group 30-40. .  Most of the investors give importance to the fact that their investment should grow in value over a period of time. of respondents 44 26 investment Mode of investment One time investment systematic investment plan Out of 70 investors 44 preferred one time investment & 26 preferred through systematic investment plan.

This study has made an attempt to understand the financial behaviour of Mutual Fund investors in connection with the preferences of Brand.  Age group of above 30 years concentrates on safety & tax saving & they even take care of liquidity.  Most of the investors give importance to return. With the stock market soaring the investors are attracted towards these schemes. and Channels etc. tax saving etc. They think their money will not be secure in Mutual Fund. Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. Many of people do not have invested in mutual . I observed that many of people have fear of Mutual Fund. Products. They need the knowledge of Mutual Fund and its related terms. The Indian investors generally invest over a period of 2-3 years. CONCLUSION The mutual fund is growing at a tremendous pace.  Most of the people invest upto 6% of their annual income in mutual funds. Also there is a tendency to invest in FD due to the security attached to it.  Knowledge about mutual funds & their various schemes is moderate among investors. A large number of plans have come up from different financial resources. Growth scheme is the most preferred for investment.

 There is need to build awareness of the new funds among the investors with constantly being in contact with them. But most of the people are not even aware of. So. . Financial Advisors are the most preferred channel for the investment in mutual fund. Distribution channels are also important for the investment in mutual fund. they just see it as just another investment option.fund due to lack of awareness although they have money to invest. So the advisors should try to change their mindsets. administration charges and other charges which help to invest more funds in the security market and earn good returns. They avoid going in the debt fund because they can get same amount of return on their banks that is also without taking any risk. They can change investors’ mind from one investment option to others. The mutual fund investors prefer more of the equity fund as they want more return on their money. As the awareness and income is growing the number of mutual fund investors are also growing. the portfolio of the fund should be prepared taking into consideration the expectations of the people.  The expectation of the people from the mutual funds is high.  Try to reduce fund charges. RECOMMENDATIONS:  Mutual fund offers a lot of benefit which no other single option could offer.

 The company should advertise their tax saving plan more so that they can gain more customers.  Systematic investment plan is one of the innovative products. There is a large scope of the companies to tap the salaried persons.  Companies should give regular dividends as it depicts profitability. . though most of the prospects & potential investors are not aware about the SIP.  Mutual funds should concentrate on differentiating the portfolio of their MF than their competitors MF  Companies should give handsome brokerage to brokers so that they get attracted towards distribution of the funds  Some of investors have asked for periodical market report about stock market so that they can get the knowledge properly. Different campaigns should be launched to educate people regarding mutual funds. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI.

000 - Q. 50.Rs2.ANNEXURE Personal details Name: ……………………………………………………………… Qualification: Marital status: Annual income: .1 What is your age? (a) 20-30 (b) 30-40 (c) 40-50 (d) 50-60 .

5 Do you compare the returns or other benefits of mutual fund scheme before investing? (a) yes (b) No Q.6 Do you know mutual fund is a good instrument for tax saving? .(e) 60-above Q.4 If you not invest in mutual fund then where do you invest? (a) Insurance (c) Govt.3 Do you invest in mutual funds? (a) Yes (b) No Q.2 What is your profession? (a) Business (b) Job in private sector (c) Job in public sector (d) Retired Q. bond (e) commodities (b) Equity market (d) post office Q.

Q.10 Do you check out the annual reports of your scheme to evaluate the performance of your scheme? (a) yes (b) No .9 Which types of funds would you like to prefer for your investment in mutual fund? (a) Equity fund (c) Balanced fund (b) Debt fund Q.8 What is your source of information while investing in MF? (a) Internet (c) Peer group (b) Magazine (d) Financial Advisors Q.(a) yes (b) No Q.7 objectives for investment in mutual fund schemes ( rank them from 1 most preferred to 4 least preferred).

13 When you invest in Mutual Funds which mode of investment you prefer? (a) One time investment (b) systematic investment plan .11 What type of return do you expect? (a) Monthly (c) Half yearly (b) Quarterly (d) annually Q.Q.12 How would you like to receive the returns every year? (a) Dividend payout (c) Growth in NAV (b) Dividend re-investment Q.

BIBLIOGRAPHY Websites www.dspblackrock.mutualfundsearchonline.com http://www.valueresearchonline.ambitionfp. Tata McGraw Hill.com www.mutualfundsindia. 1999 .com/ www.) Fund Management in India. Susan (Ed. publication house Excel books Thomas.com Report Indian Mutual Fund Industry –The Future in a Dynamic Environment – A report by KPMG The AMFI Mutual Fund Manual BOOK Chapter 3 from mutual fund in India by Nalini Prava Tripathy.com www.

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