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INTRODUCTION

WHAT IS MUTUAL FUND ?

Mutual fund is an investment company that pools money from


shareholders and invests in a variety of securities, such as stocks, bonds and
money market instruments. Most open-end Mutual funds stand ready to buy
back (redeem) its shares at their current net asset value, which depends on
the total market value of the fund's investment portfolio at the time of
redemption. Most open-end Mutual funds continuously offer new shares to
investors.

Also known as an open-end investment company, to differentiate it from


a closed-end investment company. Mutual funds invest pooled cash of many
investors to meet the fund's stated investment objective. Mutual funds stand
ready to sell and redeem their shares at any time at the fund's current net
asset value: total fund assets divided by shares outstanding.
In Simple Words, Mutual fund is a mechanism for pooling the resourcesby issuing units
to the investors and investing funds in securities inaccordance with objectives as
disclosed in offer document.

Investments in securities are spread across a wide cross-section ofindustries and sectors and
thus the risk is reduced. Diversification reducesthe risk because all stocks may not move in the
same direction in the same proportion at the same time. Mutual fund issues units to the
investors
inaccordance with quantum of money invested by them. Investors of Mutualfunds are known as
unit
holders.
The profits or losses are shared by the investors in proportion to their investments. The Mutual
funds normally come out with a number of schemes with different investment objectives which
are
launched from time to time. In India, A Mutual fund is required to be registered with
Securities
and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds
from the public

In Short, a Mutual fund is a common pool of money in to which investors


with
common investment objective place their contributions tha are to be invested in
accordance with the stated investment objective of the scheme. The investment
manager would invest the money collected from the investor in to assets that are
defined/ permitted by the stated objective of the scheme. For example, an equity
fund would invest equity and equity related instruments and a debt fund would
invest in bonds, debentures, gilts etc. Mutual fund is a suitable investment for the
common man as it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost.
OBJECTIVES OF THE PROJECT

1. To get an insight knowledge about the mutual fund.

2. To know the mutual fund performance level in the present market.

3. To analyze the comparative study between other lending mutual fund in the

Present market.

4. To know the awareness of mutual funds among the different groups of


investors.
LITERATURE REVIEW
Jack Treynor (1965) developed a methodology for performance evaluation of a

Mutual fund that is referred to as reward to volatility measure, which is defined as

Average excess return on the portfolio. This is followed by Sharpe (1966) reward to

variability measure, which is average excess return on the portfolio divided by the

deviation standard of the portfolio.

Sharpe (1966) developed a composite measure of performance evaluation and

Imported superior performance of 11 funds out of 34 during the period 1944-63.

Henriksson (1984) reported that mutual fund managers were not able to follow

an investment strategy that successfully times the return on the market portfolio.

Again Henriksson (1984) conclude there is strong evidence that the funds market

risk exposures change in response to the market indicated. But the fund managers

were not successful in timing the market.

Sadhak’s book (1997) “Mutual funds in India, Marketing strategies and

investment practices” is highly analytical & thought provoking. Much research has

gone into writing of this book and hence highly useful to researchers. An attempt is

made of the first time in presenting Marketing strategies of Mutual funds.


RESEARCH AND METHODOLOGY MOTI:

 The study of MUTUAL FUND requires technical & conceptual


understanding of term for which a good deal of information need to
collected.

 Researcher collects secondary data through various books and also from
websites (Internet).

 Secondary Data are those, which have already been collected by someone
else and which have already been passed through the statistical process.
This data is collected from the following sources.

a) Reports of mutual fund

b) Magazines

c) Journals

d) Newspapers
ADVANTAGES AND DISADVANTAGES OF MUTUAL FUND

1. Advantages of mutual fund

 Professional Management - The primary advantage of funds (at least


theoretically) is the professional management of your money. Investors
purchase funds because they do not have the time or the expertise to
manage their own portfolio. A Mutual fund is a relatively inexpensive way for
a small investor to get a full-time manager to make and monitor
investments.

 Diversification - By owning shares in a Mutual fund instead of owning


individual stocks or bonds, your risk is spread out. The idea behind
diversification is to invest in a large number of assets so that a loss in any
particular investment is minimized by gains in others. In other words, the
more stocks and bonds you own, the less any one of them can hurt you
(think about Enron). Large Mutual funds typically own hundreds of different
stocks in many different industries. It wouldn't be possible for an investor to
build this kind of a portfolio with a small amount of money.
Liquidity Just like an individual stock, a Mutual fund allows you to request that your shares
Be converted into cash at any time.

 Economies of Scale - Because a Mutual fund buys and sells large amounts of

 Simplicity – Buying a mutual fund is easy. Pretty well any bank has its own line of
Mutual funds, and the minimum investment is small. Most companies also have
automatic purchase plans whereby
as little as $100 can be invested on a monthly basis.

2. DISADVANTAGES OF MUTUAL FUND

Fluctuating returns - guaranteed return. There is always the possibility that the value of

your mutual fund will depreciate. Unlike fixed-income products, such as bonds and

Treasury bills, mutual funds experience price fluctuations along with the stocks that

make up the fund. When deciding on a particular fund to buy, you need to research the

risks involved - just because a professional manager is looking after the fund, that

doesn't mean the performance will be stellar.

Cost - Mutual funds provide investors with professional management; however, it comes
at a cost. Funds will typically have a range of different fees
that reduce the overall
payout. In mutual funds the fees are classified into two categories: shareholder fees and
annual fund-operating fees.

The shareholders fees, in the form of loads and redemption fees , are paid directly by
shareholders purchasing or selling the funds. The annual fund operating fees are

charged as an annual percentage usually ranging from 1-3%. These fees are assessed

to mutual fund investors regardless of the performance of the fund. As you can imagine

, in years when the fund doesn’t make money these fees only magnify losses.

 Misleading advertisement - The misleading advertisements of different funds can


guide investors down the wrong path. Some funds may be incorrectly labeled as

growth funds, while others are classified as small-cap or income. The SEC

requires funds to have at least 80% of assets in the particular type of investment

implied in their names. The remaining assets are under the discretion solely of

the fund manager.

Evaluating funds - Another disadvantage of mutual funds is the difficulty they pose

for investors interested in researching and evaluating the different funds. Unlike stocks,

mutual funds do not offer investors the opportunity to compare the P/E ratio, sales

growth, earnings per share, etc


TYPES OF MUTUAL FUND
There are three primary structures of mutual funds: open end funds close end funds and

unit investment trust.

Open-ended funds: under open-ended funds investors can buy the units

of fund at any time directly from the mutual fund and can sell to the funds.

This type of funds is called open-ended because the pools of fund is open for

additional sales and repurchase. Therefore the amount of fund and number

of unit vary everyday.

 close-ended funds: close-ended fund company has a fixed for a sale of

units to the investors for a specific period. After its initial offering the

further sale are closed and cannot sale anymore. Its growth in terms of

number of shares is limited. Any further transaction for buying and selling

can happens only through the secondary market.

Unit investment trust: Unit investment trusts (UITs) are issued to the
public only once, when they are created. UITs generally have a limited life span,

established at creation. Investors can redeem shares directly with the fund at any

termination. Less commonly, they can sell their shares in the open market.
CLASSIFICATION OF FUNDS BY TYPES OF
UNDERLYING ASEETS

1.Money market mutual fund: these funds are invested in short term assets

such as certificates of deposits, commercial paper, etc. units are issued at a

price equal to the assets value plus other charges and expenses. These funds

are also called liquid assets fund.

2. Balanced funds: Those mutual funds which invest both in equity and

Debts are called balanced fund. It aims at distributing regular income as well

as capital appreciation.

3.Equity funds: Equity funds are those funds which invest a large shares of

investment in equity related investments. These funds have freedom to

invest both in primary and secondary market for equity.

4.Load funds and non load funds: Investment management charge fee

from managing funds and impose certain expenses. These expenses are

called load. A loading fee is usually charge from the initial purpose. The fee

is added to the NAV of units. Such mutual funds are called load mutual

fund.
If no load fees is charged, it is called ‘non load mutual funds’. Non load

mutual funds will have higher management fee.

5.Real estate mutual fund: The REMF scheme is a mutual fund scheme

with a investment objectives of direct or indirect investment in real estate

property.
EVALUATING PORTFOLIO PERFORMANCE

It is important to evaluate the performance of the portfolio on an on-going basis.


The following factors are important in this process

Consider long-term track record rather than short-term performance. It is important


because long-term track record moderates the effects which unusually good or
bad short-term performance can have on a fund's track record. Besides, longer-
term track record compensates for the effects of a fund manager's particular
investment style.

Evaluate the track record against similar funds. Success in managing a small or in
a fund focusing on a particular segment of the market cannot be relied upon as an
evidence of anticipated performance in managing a large or a broad based fund.

Discipline in investment approach is an important factor as the pressure to perform


can make a fund manager susceptible to have an urge to change tracks in terms of
stock selection as well as investment strategy.

The objective should be to differentiate investment skill of the fund manager


from
luck and to identify those funds with the greatest potential of future success.

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