You are on page 1of 40


A mutual fund is a type of professionally managed collective investment scheme

that pools money from many investors to purchase securities. While there is no
legal definition of the term mutual fund, it is most commonly applied only to those
collective investment vehicles that are regulated and sold to the general public.
Each investor owns shares, which represent a portion of the holdings of the fund.
Thus, a mutual fund is one of the most viable investment options for the common
man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.
Mutual funds are in the form of Trust (usually called Asset Management Company)
that manages the pool of money collected from various investors for investment in
various classes of assets to achieve certain financial goals. We can say that Mutual
Fund is trusts which pool the savings of large number of investors and then
reinvests those funds for earning profits and then distribute the dividend among
the investors. In return for such services, Asset Management Companies charge
small fees. Every Mutual Fund / launches different schemes, each with a specific
objective. Investors who share the same objectives invests in that particular
Scheme. Each Mutual Fund Scheme is managed by a Fund Manager with the help
of his team of professionals (One Fund Manage may be managing more than one
scheme also).
Mutual fund represent one of the most important institutional forces in the
market. They are institutional investors. They play a major role in todays financial
market. A mutual fund is the most suitable investment for the cautious investor as
it offers an opportunity to invest in a diversified professionally managed basket of
securities at a relatively low cost. A mutual fund is a trust that pools the savings of
a number of investors who share a common financial goal.

Mutual fund in India:-
The Indian corporate companies must equally be informed that the mutual funds
companies of the exact funds gained by pooling all the public savings. The mutual
funds are comparatively invested in those portfolios, which are commonly
diversified in nature with the main objectives of sharing the risk. The Indian small-
scale investors cannot be able to get their funds from the comparative big corporate
companies can equally gain there working funds from the mutual funds.
However, the modern concept of the mutual funds was developed in 1968 in
London by the foreign and colonial government trust of London. By which it gained
its invention in India in early 1980, even if it was exactly started in 1964 by the
United Trust of India. The Indian corporate companies can only benefit from the
mutual fund on gaining saving for investment, better yield low cost on investment,
tax benefits, flexible on investment, promoting industrial development reducing the
cost of new issue and many more other advantages. On the other side, Indian
Corporate companies must be informed on the kind of risk involved in the mutual
fund like market risk, scheme risk, business risk, investment risk and even the
political nature of the risk. While the investors are selecting the funds must take into
the account the objectives of the fund, consistency of performance of the fund.
Historical background of the fund, cost of operation, capacity for innovation, the
investors servicing, market trends and even the transparence of the fund
management. For the Indian mutual fund who have good future they must be full
support of SEBI better control of capital issue, better interest rate, investor must
have good choose, tax concessions, and many more.

Origin of Mutual Fund:-
The origin of mutual fund industry in India is with the introduction of the concept
of mutual fund by UTI in the year 1963. Through the growth was slow, but it
accelerated from the year 1987 when non UTI players entered the industry. Mutual
fund go back to the time of Egyptians and Phoenicians when they sold shares in
caravans and vessels to spread the risk of these ventures. The foreign and colonial
government Trust of London of 1868 is considered to be the fore-runner of the
modern concept of mutual fund. The USA is, however, considered to be the Mecca
of modern mutual funds.

Mutual fund means unit trust and unit means the smallest shares in a unit trust.
Mutual fund is an investment company that raises money by selling its own stock to
the public and investing the proceeds in other securities, with the value of its stock
fluctuating with its experience with the securities in its portfolio.
The mutual fund is managed by a professional investment manager who buys and
sells securities for the most effective growth of the fund. As a mutual fund
investor, you become a "shareholder" of the mutual fund company. When there
are profits you will earn dividends. When there are losses, your shares will
decrease in value. Stocks, bonds, and money market funds are all examples of the
types of investments that may make up a mutual fund

The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund
established in the form of a trust by a sponsor to raise monies by the Trustees
through the sale of units to the public under one or more schemes for investing in
securities in accordance with these regulations.
According to the above definition, a mutual fund in India can raise resources
through sale of units to the public. It can be setup in the form of a trust under the
Indian trust act. The definition has been further extended by allowing mutual funds
to diversify their activities in the following areas:
Portfolio management
Management of pensioner provident funds
Management of venture capital funds
Management of money markets funds
Management of real estate funds

Mutual fund constituents:-

1. Sponsor :-
The sponsor initiates the idea to setup a mutual fund. It would be a registered
company, scheduled bank or financial institution. A sponsor has to satisfy certain
conditions, such as capital, record, default-free dealings and a general reputations of
fairness. The sponsor forms a trust, appoints the board of trustees, and has the right
to appoint the asset management company (AMC) or fund manager.
The sponsor is affiliated to the promoter group of a company as he gets the mutual
fund registered with SEBI. The sponsor as defined under SEBI Regulations, 1996
as "A person who, acting alone or in combination with another body corporate,
establishes a mutual fund."
2. Trustees:-
The mutual fund can be managed by either a Board of Trustees, if registered under
Indian Trust Act, or a Trust Company, if registered under Companies Act, 1956.
The trustees act as a protector of unit holders' interests. Trustees ensure the full
compliance of SEBI's guidelines and regulations. The portfolio of securities is not
directly managed by trustees and appoint an AMC (with approval of SEBI) for fund
management. If an AMC wishes to float different schemes, it will need to be
approved by the trustees. Trustees play a critical role in ensuring full compliance
with SEBI's requirements.

3. Asset Management Company:-
The AMC is established for managing fund schemes and different corpus of funds.
An AMC has its own Board of Directors (BOD) and it also works under the
directions of trustees and supervision of SEBI.
The AMC is appointed by trustees for managing fund schemes and corpus. An
AMC functions under the supervision of its own board of directors and also under
the directions of trustees and SEBI. The market regulator has mandated the limit of
independent directors to ensure independence in AMC workings.
The major obligations of AMC include: ensuring investments in accordance with
the trust deed, providing information to unit holders on matters that substantially
affect their interests, adhering to risk management guidelines as given by the
Association of Mutual Funds in India and SEBI, timely disclosures to unit holders
on sale and repurchase, NAV, portfolio details, etc.
4. Custodian and depositories:-
The mutual fund should appoint a custodian to carry out the custodial services for
the schemes of the fund and sent intimation of the same to the Board within fifteen
days of the appointment of the custodian. The fund management includes buying
and selling of securities in large volumes. Therefore, keeping a track of such
transactions is a specialist function.
The custodian is appointed by trustees for safekeeping of physical securities while
dematerialized securities holdings are held in a depository through a depository
participant. The custodian and depositories work under the instructions of the AMC,
although under the overall direction of trustees.

5. Registrar and transfer agents:-
R&TA maintains record of the unit holders account. A fund may choose to hire an
independent party who is registered with the SEBI to provide such services or
carryout these activities in-house. If the work is processed in-house the charges at
competitive market rates may be debited to the scheme.
The registrar and transfer agent form the most vital interface between the unit
holders and mutual fund. Most of the communication between these two parties
take place through registrar and transfer agent.
These are responsible for issuing and redeeming units of the mutual fund as well as
providing other related services, such as preparation of transfer documents and
updating investor records. A fund can carry out these activities in-house or can
outsource them. If it is done internally, the fund may charge the scheme for the
service at a competitive market rate.

How to invest in mutual fund? [Diagram ]
First time investors in Mutual Funds act in the face of imperfect information and
often get overwhelmed by uncertainties characterizing the investment situation. But
there is more to Mutual Fund investing than market timing.
The first thing an aspiring unit holder must do is to establish what type of portfolio
he wants to build. In other words, to decide the right asset allocation. Asset
allocation is a method that determines how you invest your money in different
investments with the proper mix of various asset classes. Remember, the type or
class of security you own i.e. equity, debt or money market, is much more
important than the particular security itself. The popular thumb rule for asset
allocation says that whatever the investors age, he should keep that percentage of
his portfolio in debt instruments. For example, if an investor is 25, he should have
25% of his investments in debt instruments and the rest in equity. However, in
reality, different circumstances and financial position for each individual may
require different allocation. Portfolio variable is another factor that one needs to
understand to practice asset allocation. These are age, occupation, number of
dependents in the family. Usually the younger you are, the more risky the
investments you can hold for getting superior returns.
For example an individual can invest in SIP i.e., Systematic Investment Plan
What is SIP?
Systematic Investment Plan (SIP) is a smart financial planning tool that helps you to
create wealth, by investing small sums of money every month, over a period of
time. It is just like a recurring deposit with the post office or bank where you put in
a small amount every month, except the amount is invested in a mutual fund. The
minimum amount to be invested can be as small as INR100 (100 Indian Rupees)
and the frequency of investment is usually monthly or quarterly. Investing at an
early stage of life lets you enjoy the benefits of two powerful strategies, rupee cost
averaging and the power of compounding.

How SIP works?
SIP is a method of investing a fixed sum, regularly, in a mutual fund scheme. A SIP
is a flexible and easy investment plan. The money is auto-debited from the bank
account and invested into a specific mutual fund scheme. Investors are allocated
certain number of units based on the ongoing market rate (called NAV or net asset
value) for the day. SIP allows one to buy units on a given date each month, so that
one can implement a saving plan for themselves. An SIP is generally preferred for
an equity scheme and can be started with as small as Rs. 500 per month.
Every time you invest money, additional units of the scheme are purchased at the
market rate and added to your account. Hence, units are bought at different rates
and investors benefit from Rupee-Cost Averaging and the Power of Compounding.

DISCIPLINED saving ,long term gains, convenience ,flexibility.

How does a mutual fund work/operate? [ diag ]
A mutual fund company collects money from several investors, and invests it in
various options like stocks, bonds, etc. This fund is managed by professionals who
understand the market well, and try to accomplish growth by making strategic
investments. Investors get units of the mutual fund according to the amount they
have invested. The Asset Management Company is responsible for managing the
investments for the various schemes operated by the mutual fund. It also undertakes
activities such like advisory services, financial consulting, customer services,
accounting, marketing and sales functions for the schemes of the mutual fund.
Step 1: You Buy Shares
The fund companies advertise their investment schemes and issue shares of their
investment plans, along with information on expected growth rate. You can buy
these shares directly from the company or through brokers.
Step 2: Money is pooled in
The monetary contributions of all shareholders like you, are pooled in, to create
capital for investment.
Step 3: Money is invested in Different Types of Securities
The total money pool is used by fund managers to invest in diverse kinds of
securities. These securities may be in the stock market, futures market, the forex
market, or may even be investments in infrastructure.
The fund manager decides, in which areas your investments are made. You have no
say whatsoever, in the investment decisions. You are only entitled to returns on
your investment. The income or commission of the fund manager is dependent on
profits from investment. So, you have to think and invest wisely, as once the money
is invested and placed in hands of the fund manager, you have no control. So, there
is a risk in this investment, but much lesser due to diversification.
Step 4: You are Paid Profit Dividends Periodically
Periodically, the manager gives you a report of the fund's proceeds and
performance. You are paid dividends periodically, depending on profits that the
fund makes, on collective investment. The costs involved in operating of funds,
including marketing, distribution, investment advisory services, and other costs, are
also transferred to the investor. That is, the returns or dividends you get, are
calculated after these costs have been subtracted. All these charges and costs like
managements fees, non-management expenses, service fees, and brokerage
commissions are categorically called load charges.
There are many types of these funds, based on the type of securities, they invest
money in and the kind of restrictions they have on share transactions. While
investing, check the history and performance of a company in detail. Look at the
growth versus value ratio, that they are offering, and the ratings. All these details
are supplied in the prospectus, offered by mutual funds.

You buy
Money is
pooled in
Money is
invested in
types of
You are
paid profit
Types of Mutual fund:-
1. Open- ended Fund/Scheme:-
An open-ended fund or scheme is one that is available for subscription and
repurchase on a continuous basis. These schemes do not have a fixed maturity
period. Investors can conveniently buy and sell units at Net Asset Value (NAV)
related prices which are declared on a daily basis. The key feature of open-end
schemes is liquidity. The investors are free to buy and sell any number of units at
any point of time. The features of open-ended funds are:-
a. The investors are free to buy and sell units. There is no time limit.
b. These are not trade in stock exchanges.
c. Units can be sold at any time.
d. The main motive income generation say dividend etc.
e. The price are linked to the net asset value because units are not linked
on the stock exchange.
2. Close-ended Fund/Scheme:-
A close-ended fund or scheme has a stipulated maturity period example five and
seven years. The fund is open for subscription only during a specified period at the
time of launch of the scheme. Investors can invest in the scheme at the time of the
initial public issue and thereafter they can buy or sell the units of the scheme on
the stock exchanges where the units are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the units to
the mutual fund through periodic repurchase at NAV related prices. SEBI
Regulations stipulate that at least one of the two exit routes is provided to the
investor that is either repurchase facility or through listing on stock exchanges.
These mutual funds schemes disclose NAV generally on weekly basis
The size of the funds and its duration are fixed in advance. Once the subscription
reaches the predetermined level, the entry of investors will be closed. After the
expiry of the fixed period, the entries corpus is disinvested and the proceeds are
distributed to the unit holders in proportion to their holding. The feature of close
ended funds are:-
a. The period and the target amount of the fund are fixed beforehand.
b. Once the period is over and/or the target is reached, the subscription will
be closed(i.e. investors cannot purchase any more units)
c. The main objective is capital appreciation.
d. At the time of redemption, the entire investment is liquidated and the
proceeds are liquidated and the proceeds are distributed among the unit
e. Unit are listed and traded in stock exchanges.
f. Generally the prices of units are quoted at a discount of up to 40% below
the net asset value.
3. Equity funds:-
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks and they offer higher returns to investors in the
long term. They assume the risks associated with equity investment. There is no
guarantee or assurance of returns. This schemes are usually close-ended and listed
on stock exchange.
4. Index fund:-
An index fund is a mutual fund which invest in securities in the index on which it is
based- BSE or Sensex or Nifty. It invests only in those shares which comprise the
market index and in exactly in the same proportion as a company/ weightage in the
index so that the value of such index fund varies with the market index.

5. Debt schemes:-
An investment pool, such as mutual fund or exchange-traded fund, in which core
holdings are fixed income investments. A debt fund may invest in fix income
instrument such as debentures (bonds), Treasury Bills, short-term or long-term
bonds, securitized products, money market instruments or floating rate debt. The
fee ratios on debt funds are lower, on average, than equity funds because the overall
management costs are lower.

6. Gilt schemes:-
Gilt fund are mutual funds that invest only in government securities. They are
preferred by risk averse and conservative investors who wish to invest in the
shadow of secure government bonds. Since gilt fund invest have sovereign
guarantee. Hence no default risk is associated with these instrument.
These funds can have different maturity profiles. Some may be short term
while others are medium term or long term. Like any other bond funds, these funds
too have interest rate risk ingrained in them.

7. Cash Schemes / Money Market
Schemes / Liquid Schemes:-
A mutual fund that invests only in money markets such as commercial papers,
commercial bills, and treasury bills certificate of deposit and other instruments
specified by RBI. These funds have a minimum lock-in period of 15 days. Till
recently, the RBI regulated money market funds but they now come under SEBI.
A money market fund's purpose is to provide investors with a safe place to invest
easily accessible, cash-equivalent assets. It is a type of mutual fund characterized as
a low-risk, low-return investment. Because money market funds have relatively low
returns, investors such as those participating in employer-sponsored retirement
plans, might not want to use money market funds as a long-term investment option
because they will not see the capital appreciation they require to meet their financial

8. Hybrid Schemes:-
Hybrid scheme also known as balanced scheme. Occupational pension schemes
which combine money purchase and final salary benefits. Also used to describe
self-administered schemes marketed by insurance companies where some assets are
invested in insurance company's funds.

1. Professional Management:-
When you buy a mutual fund, you are also choosing a professional money manager.
When you invest in a mutual fund, your money is managed by finance
professionals. This manager will use the money that you invest to buy and sell
stocks that he or she has carefully researched. Investors who do not have the time
or skill to manage their own portfolio can invest in mutual funds. By investing in
mutual funds, investor can gain the services of professional fund managers, which
would otherwise be costly for an individual investor.
2. Diversification :-
One rule of investing, for both large and small investors, is asset diversification.
Diversification involves the mixing of investments within a portfolio and is used to
manage risk. Mutual funds provide the benefit of diversification across different
sectors and companies. Mutual funds widen investments across various industries
and asset classes. Thus, by investing in a mutual fund, investor can gain the benefits
of diversification and asset allocation, without investing a large amount of money
that would be required to build an individual portfolio.
3. Liquidity
With open-end funds, you can redeem all or part of your investment any time you
wish and receive the current value of the shares. Funds are more liquid than most
investments in shares, deposits and bonds. Moreover, the process is standardized,
making it quick and efficient so that you can get your cash in hand as soon as
possible. Mutual funds are usually very liquid investments. Unless they have a pre-
specified lock-in period, your money is available to you anytime you want subject
to exit load, if any. Normally funds take a couple of days for returning your money
to you. Since they are well integrated with the banking system, most funds can
transfer the money directly to your bank account.
4. Flexibility:-
Many mutual fund companies manage several different funds (e.g., money market,
fixed-income, growth, balanced, sector, index and global funds) and allow you to
switch between these funds at little or no charge. This enables you to change your
portfolio balance as and when your personal needs, financial goals or market
conditions change.
Investors can benefit from the convenience and flexibility offered by mutual funds
to invest in a wide range of schemes. The option of systematic (at regular intervals)
investment and withdrawal is also offered to investors in most open-ended schemes.
Depending on ones inclinations and convenience one can invest or withdraw funds.
5. Low transaction cost
Since mutual funds collect money from millions of investors, they achieve
economies of scale. The cost of running a mutual fund is divided between a larger
pools of money and hence mutual funds are able to offer you a lower cost
alternative of managing your funds.
Due to economies of scale, mutual funds pay lower transaction costs. The benefits
are passed on to mutual fund investors, which may not be enjoyed by an individual
who enters the market directly.
Equity funds in India typically charge around 2.25% of your initial money and
around 1.5% to 2% of your money invested every year as charges. Investing in debt
funds costs even less. If you had to invest smaller sums of money on your own, you
would have to invest significantly more for the professional benefits and

6. Transparency :-
The performance of a mutual fund is reviewed by various publications and rating
agencies, making it easy for investors to compare fund to another. Funds provide
investors with updated information pertaining to the markets and schemes through
factsheets, offer documents, annual reports etc. As a unit holder, you are provided
with regular updates, for example daily NAVs, as well as information on the fund's
holdings and the fund manager's strategy.
7. Well regulated:-
Mutual funds in India are regulated and monitored by the Securities and Exchange
Board of India (SEBI), which endeavors to protect the interests of investors. All
funds are registered with SEBI and complete transparency is enforced. Mutual
funds are required to provide investors with standard information about their
investments, in addition to other disclosures like specific investments made by the
scheme and the quantity of investment in each asset class.
SEBI requires the mutual funds to disclose their portfolios at least six monthly,
which helps you keep track whether the fund is investing in line with its objectives
or not. However, most mutual funds voluntarily declare their portfolio once every

Recent trends in mutual fund industry:-
Mutual Funds play vital role in resource mobilization and its efficient allocation to
the productive sources of the economic system. Throughout the world, these funds
have worked as a reliable instrument of change in financial intermediation,
development of capital markets and growth of the corporate sector. The process of
Liberalization, deregulation and reconstruction of the Indian economy has created
necessity for efficient allocation of scarce financial resources. In this process of
development, Mutual Funds have emerged as strong financial intermediaries and
are playing an important role in bringing stability to the financial system and
efficiency to the resource allocation process.
The Mutual Funds offers different investment objectives such as growth, income
and Tax planning. In the recent times the Indian Capital Market has witnessed new
trends, one of them being the spectacular growth of Mutual Funds. There are more
than 600 schemes offered by Mutual Funds, and these funds have mobilized
substantial amount of the household savings. With $15 trillion in assets, the U.S.
mutual fund industry remained the largest in the world at year-end 2013. Total net
assets increased by nearly $2 trillion from the level at year-end 2012, boosted
primarily by growth in equity fund assets. Net new cash flow into all types of
mutual funds totaled $167 billion in 2013. Investor demand for certain types of
mutual funds appeared to be driven, in large part, by improving economic
conditions in the United States and Europe, strong stock market performance, rising
long-term interest rates, continued popularity of index funds, and the demographics
of the U.S. population. Reversing five years of consecutive withdrawals, equity
funds experienced strong inflows in 2013.
Investor Demand for U.S. Mutual Funds:-
Investor demand for mutual funds is influenced by a variety of factors, not least of
which is funds ability to assist investors in achieving their investment objectives.
For example, U.S. households rely on equity, bond, and hybrid mutual funds to
meet long-term personal financial objectives such as preparing for retirement. U.S.
households, as well as businesses and other institutional investors, use money
market funds as cash management tools because they provide a high degree of
liquidity and competitive short-term yields. Changing demographics and investors
reactions to U.S. and worldwide economic and financial conditions play important
roles in determining how demand for specific types of mutual fundsand for
mutual funds in generalevolves.
U.S. Mutual Fund Assets:-
The U.S. mutual fund marketwith $15 trillion in assets under management at
year-end 2013remained the largest in the world, accounting for half of the $30
trillion in mutual fund assets worldwide the majority of U.S. mutual fund assets
were in long-term funds. Equity funds made up 52 percent of U.S. mutual fund
assets at year-end 2013. Domestic equity funds held 38 percent of total industry
assets. World equity funds accounted for another 14 percent. Bond funds accounted
for 22 percent of U.S. mutual fund assets. Money market funds (18 percent) and
hybrid funds (8 percent) held the remainder. More than 800 sponsors managed
mutual fund assets in the United States in 2013. Long-run competitive dynamics
have prevented any single firm or group of firms from dominating the market.

Future of Mutual Fund Industry:-
Mutual Fund Industry has seen a lot of changes in past few years with multinational
company coming into the country, bringing in their professional expertise in
managing funds worldwide. In the past few months there has been a consolidation
phase going on in the mutual fund industry in India. Now investor have a wide
range of schemes to choose from depending on their individual profiles. As a
mutual fund has entered into the Indian capital market, growing profitable enough
to attract competitors into this cherished territory encouraging competition among
all the mutual fund operators, there is need to take some strategy to bring more
confidence among investors for which mutual fund would be able to project the
image successfully. The following are some of the suggestions:-
Appropriate guidelines for self regulation in respect of publicity/
advertisement and interest scheme transactions within each mutual fund.
Better law to regulate the mutual fund which will provide shelter to investors.
Educating investors regarding market instrument and justifying the absence of
guaranteed income.
Fair and truthful disclosures of information to the investors so that subscribers
know what risk they are taking by investing in fund.
Mutual funds need to take advantage of modern technology like computer and
Tele-communication to render services to the investor.
Regulatory frame work for a clear demarcation between the role of
constituents, such as shelter, trustee and fund manager to protect the interest
of the small investors.

Association of mutual fund in India (AMFI):-
The Association of Mutual Fund in India [AMFI] was established in 1993 when all
the mutual funds, except the UTI, came together realizing the need for a common
forum for addressing the issues that affect the mutual fund industry as a whole.
AMFI is dedicated to developing the Indian mutual fund industry on professional,
health and ethical lines and to enhance and maintain standard in all areas with a
view to protecting and promoting the interests of mutual fund and their unit holders.
The Association of Mutual Fund in India (AMFI) is dedicated to developing the
Indian Mutual Fund Industry on professional, healthy and ethical lines and to
enhance and maintain standards in all areas with a view to protecting and promoting
the interested of Mutual Fund and their unit holders.
AMFI, The association of SEBI registered Mutual Fund in India of all the registered
asset management companies, was incorporated on august 22, 1995, as a non-profit
organization. As of now, all the 46 asset management companies that are registered
with SEBI, are its member.
Mr. H.N.Sinor - Chief Executive
Mr. Balkrishna Kini - Executive vice president

Objectives of AMFI:-
1. To define and maintain high professional and ethical standards in all areas of
operation of Mutual Fund Industry.
2. To recommend and promote best business practices and cord of conduct to be
followed by members and others engaged in the activities of Mutual Fund and
Asset Management including agencies connected or involved in the field of
capital markets and financial services.
3. To interact with the securities and stock exchange bode of India(SEBI) and to
represent to SEBI on all matters concerning the Mutual Fund industry.
4. To represent to the government, Reserve Bank of India and others bodies on
all matters relating to the Mutual Fund Industry.
5. To develop a cadre of well trained Agent distributors and to implement a
programme of training and certification for all intermediaries and others
engaged in the industry.
6. To undertake nation-wide investors awareness programme to so as to promote
proper understanding of the concept and working of the Mutual Fund.
7. To disseminate information on Mutual Fund Industry and to undertake studies
and research directly and/ or in association with other bodies.
8. To take regulate conduct of distributers including disciplinary action
(cancellation of ARM) for violations of code of conduct.
9. To protect the interest of investors / unit holders.

Unit Trust of India [UTI] which has a structural different from the three tiered
structure of other mutual fund in India was established by the government of India
to encourage private savings and investment. It was formed under a special act of
parliament, viz. The Unit Trust of India act, 1963 as a corporate body. The
promoter- sponsor of UTI is the government of India through the reserve bank and
financial institutions. The management structure of UTI is thus distinct from the
remaining mutual fund in more than one way. First, unlike other mutual fund, it is a
statutory body corporate and not a Trust under the Indian Trusts Act. Second, there
is no separate asset management company with a separate Board of director of
AMC to manage the Schemes.
The functions of Board of directors of AMC, and trustees are combined in the
executive committee and Board of UTI. The sponsors exist in the form of
Government and IDBI, though they do not hold any equity in the Trustee Company
or AMC for none exists. SEBI at present regulates UTI through a special regulatory
dispensation effective from July 1, 1994 which inter alia requires UTI to file offer
documents in according with the SEBI [Mutual Fund] regulation and allows SEBI
to inspect UTI. This arrangement in SEBIs view is only an intermediate step and
according to SEBI, it would be desirable to amend or repeal the UTI Act to bring
UTI and other mutual fund under common regulatory framework.

Features of mutual fund:-
Mutual Fund possesses the following features:
1.Economic Development: Mutual funds contribute to the economic
development of a country.
2.Fund mobilization: Mutual fund mobilizes funds from small as well as large
investors by selling units.
3.Investment oppurnity: Mutual fund provides an ideal oppurnity to small
investors an ideal avenue for investment.
4.Low cost: The cost of purchase and sell of mutual fund units is low.
5.Maximum return - Minimum risk: Mutual fund invests the savings collected
in a wide portfolio of securities in order to maximize return and minimize risk
for the benefit of investors.
6.Professional Management: Mutual fund enables the investors to enjoy the
benefit of profession and expert management of their funds.
7.Regulation: In India mutual funds are regulated by agencies like SEBI.
8.Switching Schemes: Mutual funds provide switching facility to investors who
can switch from one scheme to another.
9.Tax Benefits: Various schemes offered by Mutual Fund provide tax benefits
to the investors.

Objective of Mutual fund:-
1. To mobilize savings of people: Mutual fund is a trust that pools together the
resources of investors to make a foray into investment in the capital market
there by making the investors to be a part owner of the assets of the mutual
2. To offer a convenient way for the small investors to enter the capital and the
money market.
3. To tap domestic saving and channelize them for profitable investment. If the
value of the mutual fund investments goes up, the return on them increases
and vice versa.
4. To enable the investors to share the prosperity of the capital market. The net
income earned on the funds, along with capital appreciation of the investment,
is shared amongst the unit holders in proportion to the units owned by them.
Mutual fund is therefore an indirect vehicle for the investor investing in
capital market.
5. To act as agents for growth and stability of the capital market.
6. To attract investments from the risk averters.
7. To facilitate the orderly development of the capital market.

NAV calculation and pricing of mutual

Mutual fund are required by law to determine the price of the shares each
business day. NAV is nothing but the total market value of all the assets held
in mutual fund portfolio less the liabilities, divided by all outstanding units.
That amount to nothing but the book value. The NAV measures how much
each shares of mutual fund in worth. So essentially, the NAV of mutual fund
is the cost of one share of the mutual fund

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. A funds net asset
value (NAV) per share is the current value of all the funds assets, minus
liabilities, divided by the total number of shares outstanding. A funds share
price, or offering price, is its NAV per share plus any applicable sales charges.
The value of all the securities in the portfolio in calculated daily. From this, all
expenses are deducted and the resultant value divided by the number of unit in
the fund is the funds NAV.

NAV is determined by dividing the net asset of the fund by the total number
of outstanding shares. The total asset of a mutual fund usually falls into two
categories- cash and securities. Securities include stocks and bonds. So the
total asset will include the market value of all its cash, stocks, and bonds.
Liquid assets, dividend to be received, interest accrued also need to be
included in the total asset. At the same time the mutual fund will have some
money that it will owe to some creditors. That is its liabilities. There will be
some expenses that has accrued over time and yet to be paid, that also need to
be included. The NAV must computed at least once a day. The NAV is
calculated at the end of trading on the stock exchange. To calculate the NAV
of mutual fund, remember the following formula:

NAV= Assets-liabilities/number of outstanding shares

Assets= market value of the funds investments+ receivables+
accrued income;

Debts= liabilities+ accrued expenses

The market value of stocks and debentures is taken as the closing price on the
major stock exchange where it is listed.

1. No guarantee of return:-
There are 3 issue involved
a) All mutual funds cannot be winners. There may be some who may
underperform the benchmark index i.e., it may not even perform well
as a beginner who invests in the stocks constituting the index.
b) A mutual fund may perform better than the stock market but this does
not necessarily need to again for the investor. The market may have
risen and the mutual fund scheme increased in value but the investor
would have got the same increase had he invested in risk free
investment than in mutual fund
c) Investors may forgive if the return is not adequate. But they will not
do so if the principal is eroded. Mutual fund investment may
depreciate in value.
2. Diversification:-
Diversification may minimized risk but does not guarantee higher return
3. Selection of proper fund:-
It may be easier to select the right share rather than the right fund. For
stocks, one can base his selection on the parameters of economic, industries
and company analysis. In case of mutual fund, past performance are the
only criteria to fall back upon. But past can not predict the future.
4. Cost factor/high management fee:-
Mutual funds carry a price tag. Fund Managers are the highest paid
executives. While investing one has to pay for entry load and when leaving
he has to pay for exist load. Such coasts reduce the return for mutual fund.
The fees paid to the Asset Management Company are in no way related to
performance. The Management Fees charged by the fund reduces the return
available to the investors.

5. Unethical practices:-
Mutual fund may not play a fair game. There may be unethical practices
e.g., diversion of mutual fund amounts by mutual funds to their sister
concerns for making gains for them.
6. Other:-
a) Mutual fund systems do not maintain the kind of transparency they
should maintain.
b) Many mutual fund scheme are, at time, subject to lock in period,
therefore deny the market drawn benefits.
c) At time, the investments are subject to different kind of hidden
d) Redressal of grievances, if any, is not easy.

Mutual funds are among the most preferred investment instruments. For middle
income individuals, investing in mutual funds yields higher interest and comes with
good principal amount at the end of the maturity period of the mutual fund
investment. Another important fact is that mutual funds are safe, with close to zero
risk, offering an optimized return on earnings and protecting the interest of
investors. It is important to gain good understanding of mutual fund investments,
companies in the field, and mutual fund experts, as customers are easily misguided
by the advertisements and offers promoted by various financial institutions.
The mutual fund industry has to bring many innovative concepts such as highly
yield bond funds, principal protected funds, long short funds, arbitrate funds,
dynamic funds, precious metal funds and so on. The penetration of mutual fund can
be increased through investors education, providing investor oriented value added
services, and innovative distribution channels. Mutual funds have failed during the
bearish market conditions. To sell successfully during the bear market, there is need
to educate investors about risk-adjusted return and total portfolio return and enable
them to take informed decision. Mutual funds need to develop a wide distribution
network to increase its reach and tap investments from all corners and segments.
Increased use of internet and development of alternative channels such as financial
advisors can play a vital role in increasing the penetration of mutual funds. Mutual
funds have come a long way, but a lot more can be done.

Current news on mutual fund:-
1. Withdrawals from debt funds between 1 April and 10 July will attract the old
taxation rules of long-term capital gains of 10% (without indexation) or 20% (with
indexation) if they are held for more than a year. They would be taxed at income tax
rates if they are held for a period of less than a year.
Finance minister Arun Jaitley announced in Parliament on Friday during the debate
on the Finance Bill that the higher long-term capital tax of 20% that he announced
in the budget on 10 July will be applicable on all debt funds redeemed after 10 July.
Investments made in this period or even before will be subject to the provisions of
the budget. Budget 2014 raised long-term capital tax on all debt funds to 20%.
Earlier, withdrawal from debt funds attracted a long-term capital gains tax of either
10% (without indexation) or 20% (with indexation).

2. One of Indias Largest Mutual Funds, SBI Mutual Fund launched Gold Fund
SBI Mutual Fund, one of Indias largest mutual funds house launched Gold Fund.
Gold Fund is an open ended Fund of Fund to enable the common man to invest
systematically in gold. The NFO period is from 22 August 2011 to 5 September
The fund is designed in a way that can enable an investor to invest through a single
investment or through Systematic Investment Plan (SIP) as per their convenience.
The minimum denomination of investment is kept as Rs 100, which is very
affordable for a common man.
3. RBI extended 10 % ceiling of Bank Investment in Liquid Schemes of Mutual
The Reserve Bank of India on 5 July 2011 extended the 10 per cent ceiling of bank
investment in liquid schemes of mutual funds to include short-term debt funds.
Bank investment in debt schemes of mutual funds with weighted average maturity
of portfolio of not more than one year. The RBI in its Monetary Policy Statement
for 2011-12 had directed banks to cap their investments in the liquid schemes of
mutual funds at 10 per cent of their net worth.
RBIs decision to extend the ceiling was aimed at ensuring a smooth transition.
Banks which already have investments in liquid schemes of mutual funds in excess
of the 10 per cent limit, are allowed to comply with this requirement at the earliest
but not later than six months from the date of this circular.
Banks normally put in their surplus funds in liquid schemes of mutual funds, which
invest in short-term debt schemes of duration of less than a year. Such schemes give
banks higher returns within a short period. Mutual Funds on the other hand invest
heavily in certificates of deposit (CDs) of banks. The aim of Mutual Funds is to
provide regular and steady income to investors. Such schemes generally invest in
fixed income securities such as bonds, corporate debentures, government securities
and money market instruments. Such circular flow of funds between banks and
DoMFs could lead to systemic risk in times of stress or liquidity crunch. The RBI
observed that the weighted average maturity would be calculated as average of the
remaining period of maturity of securities weighted by the sums invested.

4. Desi Mutual Fund Inflows may keep D-St Party Going
Rising geopolitical tensions over developments as Ukraine-Russia standoff and
conflict in Gaza have impacted the amount of money pumped by foreign
institutional investors into emerging markets including India. But analysts say rising
flows into domestic mutual funds will be able to offset moderating FII inflows into
Indian Equity markets.
According to the association of mutual funds of India, domestic funds have received
Rs.20, 784 crore since the beginning of the year, reaching the highest level in July
over the past 78 months.

Comparative analysis on mutual fund:-
Different investment avenues are available to investors but mutual funds in India is
rapidly growing mainly due to the infrastructural development and also the savings
nature of Indians which helps them to go for investment in mutual fund which is
preferred to be an optimum investment vehicle. The major advantages for the
investors are reduction in risk, expert professional management, diversified
portfolio and tax benefit. By pooling of their assets through Mutual Funds,
Investors achieve economies of scale.
Mutual fund industry of India is growing at a rapid pace and is projected to touch
mark of US$ 300 Billion by 2015. To protect the interest of the investors, SEBI
formulates policies and regulates the mutual funds. It notified regulations in 1993
(fully revised in 1996) and issues guidelines from time to time. Mutual funds either
promoted by public or by private sector entities including one promoted by foreign
entities are governed by these Regulations. SEBI approved Asset Management
Company (AMC) manages the funds by making investments in various types of
Since small investors generally do not have adequate time, knowledge, experience
and resources for directly accessing the capital market, they have to rely on an
intermediary, which undertakes informed investment decisions and provides
consequential benefits of professional expertise. But stocks in which the funds are
invested are prone to unsystematic risk and systematic risk or market risk. Thus,
there is a necessity to analyze the risk and return of the Mutual Funds. Some
Mutual funds have performed well and some did not and thus investors incurred
losses due to movements of the stocks in the market. The movements of the
stocks depend on the performance of a particular firm, or the stage in which the
industry is etc. With this background, the current study has been undertaken to
find the risk and return involved in the SBI mutual funds in comparison with the
HDFC mutual funds for the investors to invest.

Literature Review:
Balanced schemes of mutual funds are the ones which are mostly preferred by
Indian investors because of their balanced portfolio in equity and debt. A total of 30
schemes offered by various mutual funds have been studied over the time period
September 2007 to August 2010 (3 years). The analysis has been made on the basis
of Sharpe ratio, Treynor ratio and Jensen Alpha. The overall analysis finds HDFC
(Growth) Mutual fund being the best performer and JM Financial (Dividend)
Mutual fund showing poor below-average performance when measured against the
risk-return relationship models. Shipley Sinha, ET Bureau (2013) SBI Mutual Fund,
owned by India's largest lender by assets, is in the final stage of negotiations to
purchase Japanese asset management firm Daiwa Mutual Fund, which manages
assets worth around Rs. 500 crore, three people familiar with the development said.
This signals the consolidation of smaller players hit by higher marketing and
distribution cost. SBI is likely to pay around 1.5% of the assets Daiwa manages as
the seller has less attractive equity schemes and more debt schemes.

Objectives of the Study
Comparative performance analysis of SBI Equity Diversified with HDFC Equity
Growth (Diversified Fund) using Sharpe Index Ration, Treynor Ratio and
Jensens Ratio
Comparative performance analysis of SBI Gilt Fund with HDFC Gilt Fund using
Sharpe Index Ration , Treynor Ratio and Jensens Ratio
Comparative performance analysis of SBI Balance Fund with HDFC Balanced
Fund using Sharpe Index Ration, Treynor Ratio and Jensens Ratio

Data analysis and interpretation
Equity fund analysis
Table 2 showing Sharpe ratio of SBI and HDFC Equity Fund
2010 7.0984 10.2433
2011 -3.4619 -3.9091
2012 5.9355 5.0531

HDFC Equity Fund is better in the year 2010 with Sharpe ratio of 10.2433
respectively when compared to SBI Equity Fund-Growth option whose Sharpe ratio
is 7.0984. In the year 2012 SBI Equity Fund (+5.9355) is marginally higher than
HDFC Equity Fund which is 5.0531.Hence SBI Equity Fund is safer than HDFC.
Higher the Sharpe ratio indicates higher safety
Table 3 showing Treynor ratio of SBI and HDFC Equity Fund
2010 1.5936 -7.5297
2011 -1.0911 -1.0845
2012 1.8283 5.6838

In the year 2010 SBI Equity Fund has a higher Treynor ratio of 1.5936 than HDFC
which is -7.5297. In the year 2011 both the SBI and HDFC equity fund has a lower
Treynor ratio of -1.0911 and -1.0845 respectively. But in 2012 HDFC has a higher
Treynor ratio of 5.6838 than SBI which is 1.8283. Hence HDFC Equity Growth
option is better because a higher Treynor Index/ ratio indicate that, we're getting a
good deal in terms of the return-to-risk ratio.

Table 4 showing Treynor ratio of SBI and HDFC Equity Fund
2010 0.7751 6.8317
2011 34.7388 303.4922
2012 -0.8703 6.1075

In the year 2010 HDFC has a higher Jensens ratio of 6.8317 than SBI which is
0.7751. But in the year 2011 HDFC has a higher Jensens ratio of 303.4922 than
SBI which is 34.7388. In the year 2012 also HDFCs Jensen ratio which is 6.1075 is
higher than that of SBI which is -0.8703. Hence HDFC is a better option.

Table 6 showing Sharpe Ratio of SBI and HDFC Balance Fund
2010 3.9761 10.3386
2011 -3.9537 -2.5298
2012 9.7851 6.1569

HDFC Balanced fund was better in the year 2010 with 10.3386 Sharpe ratio
compared to 3.9761 Sharpe ratio of SBI Balanced fund. But in the year 2011 both
the balanced funds have shown negative Sharpe ratio which may be due to the
adverse market condition (Recession). In 2012 SBI balance Fund is showing a
higher Sharpe ratio of 9.7851 than HDFC Balanced fund. SBI Balanced fund is
having higher Sharpe ratio indicating that it is safer than HDFC Balanced fund.

Table 7 showing Treynor Ratio of SBI and HDFC Balanced Fund
2010 4.9333 1.3126
2011 -9.9387 -1.0942
2012 -8.4529 -1.3190

In the year 2010, SBI Balanced fund had higher Treynor ratio of 4.9333 when
compared to Treynor ratio of 1.3126 of HDFC Balanced fund respectively. But in
the year 2011 and 2012 both SBI and HDFC has a negative Treynor ratio (SBI: -
9.9387 and -8.4529, HDFC: -1.0942 AND -1.3190). A lower Treynor Index
indicates that there is a low return to risk ratio.
Table 8 showing Jensens Ratio of SBI and HDFC Balanced Fund
2010 0.4445 0.8442
2011 4.0964 23.8938
2012 1.2462 1.0529

In the year 2011 HDFC has a higher Jensens ratio of 23.8938 than SBI which is
4.0964. In the year 2010 HDFC has a marginally higher Jensens ratio of 0.8442
than SBI which is 0.4445. In the year 2012 SBIs Jensen ratio which is 1.2462 is
higher than that of HDFC which is 1.0529. Comparing all the three years HDFC is a
better option.

Table 10 showing Sharpe Ratio of SBI and HDFC Gilt Fund
2010 6.2425 9.3609
2011 7.3884 0.4310
2012 11.3985 13.6673

In the year 2010 HDFC has a higher Sharpe ratio of 9.3609 than SBI (6.2425). But
in the year 2011 HDFC has a lower Sharpe ratio of 0.4310 than SBI which is
7.3884.But in the year 2012 both HDC and SBI has a higher Sharpe Ratio which
indicates higher safety.
Table 11 showing Sharpe Ratio of SBI and HDFC Gilt Fund
2010 1.300 10.400
2011 0.1789 0.3357
2012 2.0143 22.100

A high Treynor Index/ ratio indicate that, we're getting a good deal in terms of the
return-to-risk ratio. In the years 2010 and 2011, HDFC Gilt fund has performed
better with 10.400 and 0.3357 respectively when compared to SBI Magnum Gilt
Fund with only 1.300 & 2.0143 Treynor ratio. In the year 2012 also HDFC Gilt
fund has shown better performance with of 22.100 compared to SBI Gilt Fund of

Table 11 showing Sharpe Ratio of SBI and HDFC Gilt Fund
2010 -0.0035 0.0478
2011 0.0251 0.0444
2012 0.0694 0.1386

In the year 2010 HDFC has a higher Jensens ratio of 0.0478 than SBI which is -
0.0035. In the year 2011 HDFC ihas a marginally higher Jensens ratio of 0.0444
than SBI which is 0.0251. In the year 2012 HDFCs Jensen ratio which is 0.1386 is
higher than that of SBI which is 0.0694. Comparing all the three years HDFC is a
better option. However, overall we can infer from the analysis that