AMITY GLOBAL BUSINESS SCHOOL

PROJECT REPORT ON

A Study on Mutual Fund as an Investment tool

SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF

DEGREE OF

MASTERS OF FINANCE MANAGEMENT (MFM)

SUBMITTED BY

Sandeep Mishra

Roll No - 12

MFM

2018-20

UNDER THE GUIDENCE OF

Prof. Megha Hemdev

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 CERTIFICATE

This is to certify that Mr. Sandeep Mishra student of Amity University has successfully completed the

project work titled “Study on Mutual Fund as an Investment Tool” in partial fulfillment of the

requirement of degree of Masters in Finance Management [MFM] from the Amity University for the

academic year 2018-2020.

Mr. Sandeep Mishra

(Name of the Student and Signature)

Prof. Megha Hemdev Mr. Pankaj Shukla

(Project Guide) (Director)

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 DECLARATION

I hereby declare that the project entitle “A Study on Mutual Fund as an Investment tool” is submitted in

partial fulfilment of the requirement of degree of Masters in Finance Management [MFM] from the Amity

University in the academic year 2018-20 was carried with sincere intension.

To the best of my knowledge it is an original work done by me, under the guidance of Prof. Megha

Hemdev. The report submitted is a bona-fide work of my efforts and has not been submitted to any

institute/university/conference or published at anywhere before.

(Sandeep Mishra)
MFM 2018-20
Roll no: 12

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 ACKNOWLEDGEMENT

I extend my sincere gratitude to Director Pankaj Shukla and my Faculty Guide Prof. Megha Hemdev for
continuous support for pursuing my project.

I render my whole hearted thanks to all the other respected faculties, library staff and office staff of the
Amity Global Business School, for their assistance and co-operation given to me in regard to this work.

Finally, yet importantly, I would like to express my heart full thanks to my beloved parents for their
blessings, my friends and classmates for their help and cooperation extended in this endeavor of mine and
wish me for the successful completion of this project.

(Sandeep Mishra)
MFM 2018-20
Roll no: 12

EXECUTIVE SUMMARY

Mutual Funds have gained a lot of popularity as an investment vehicle over the past two years. Though
technically, Mutual Funds must have been in India since 1964 through Unit Trust of India, the industry has
gained importance only recently after new private sector funds and funds are backed up by global
investment houses set up shop in India.

Mutual Funds have been often associated with equity markets. While that is industry, the debtor fixed
income side has also gained prominence in the recent past. In fact, now mutual funds offer instruments
schemes for various types of investors from the risk averse to high risk takers.

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The project lays a high stress on investor education. The primary objective is to explain in simple and clear
language, the benefits and pitfalls of investing in mutual funds. There is a very big gap in the market about
quality information on Mutual Funds. Most of the information is either biased or inadequate towards a
particular scheme/fund or a particular category. This project attempts to look at the subject from the point
of view of an ordinary investor who has very short time or inclination to get into the technical details of
Mutual Funds.

This Project gave me my greatest learning experience and at the same time it gave me enough scope to
implement my analytical ability. The advice and analysis presented in this Project Report is based on
market research on the saving and investment practices of the investors and preferences of the investors for
investment in Mutual Funds. This Report will surely help to know about the investors‟ Preferences in
Mutual Fund means Are they prefer any particular Asset Management Company (AMC), Which type of
Product they prefer, Which Option(Growth or Dividend) they prefer or Which Investment Strategy they are
likely to follow (Systematic Investment Plan or One time Plan).

This Project as a whole can be divided into 2 parts. The first part of the project explains the basics of the
Mutual Fund including the history and evolution of the history. Then it highlights the types of Mutual
Funds in the market and the recent trends in the industry. The second portion deals with questions and
doubts that arise in investors' mind about Mutual Funds. The data collected that has been well organized
and presented. Hope the research finding sand conclusions will be helpful in understanding the perception
and attitude of Indian Investors towards Mutual Fund which may reveal some interesting insights and
directions for future research.

INDEX
SR NO CONTENT PAGE NO
1 Introduction 7
2 Concept of Mutual Fund 8
3 History of Mutual Fund 9
4 Origination of Mutual Fund 10
5 Objectives of Mutual Fund 11
6 Review of Literature 12
7 Types of mutual fund- Classification of Mutual Fund 13 – 14
8 Types of Risk Associated with Mutual Fund 15 – 16
9 Process of Mutual Funds 17

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10 Steps in Investing Mutual Fund 18 – 19
11 Why should you invest in Mutual Fund 20 – 21
12 Advantages of Mutual Fund 22 – 25
13 Disadvantages of Mutual Fund 26 – 27
14 Comparison of Mutual Funds with other Investment Products 28
15 Sponsor of Association of Mutual Fund in India 29
16 List of Mutual Fund companies in India 30
17 Example – HDFC Mutual Fund 31
18 Types of Mutual Fund offered by HDFC Asset Management Company 32 – 33
19 SEBI Guidelines for investing in Mutual Fund 34 -36
20 Restriction on Investment in Mutual Fund 37
21 Rights of a Mutual Fund Unit Holder 38
22 Eligibility for investing in Mutual Fund 39
23 Conclusion 40
24 Recommendation and Suggestion 41
25 Bibliography 42

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 INTRODUCTION

Investment is a commitment of funds in financial assets or real assets. There are various avenues of
investment in accordance with individual preferences. Investments are made in different asset classes
depending on individual’s risk and return characteristics. Investment choices are physical assets and
financial assets. Gold, Commodities and Real estate are examples of physical assets, which have a physical
form. Financial assets are those securities, which are certificates embodying a financial contract between
parties. Equity shares, Bonds, Deposits and Insurance policies are some of the examples of financial assets.

Wise investment of personal saving necessitates a clear understanding of objectives of saving. Every
investment channel can be viewed as a package offering a unique combination, which fulfils the objectives
of : (i) principal value, (ii) expected income, (iii) ease of converting principal into cash, and (iv) tax
consequences. Each outlet has a greater or lesser degree of uncertainty associated with each factors.

Investment is the process of putting money to work to earn income. Investing even a small amount can
produce considerable growth over long period. Investors continuously plan for their investments to fulfill
major needs like financial protection, career building, asset purchase, marriage, children’s’ education,
retirement funding etc. For this investors need to take decision regarding how much to invest? And where to
invest? To choose wisely, investors need to know investment options thoroughly. It is financial services
institutions and intermediaries which help the investors for transforming saving into investment, production
and growth. It is a mechanism or arrangement for the mobilization of funds, their transfer and allocation. A
financial services intermediary and has enormous value in the financial market. A mutual Fund is recognized
as a medium as well as long term investment option.

CONCEPT OF MUTUAL FUND

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A mutual fund is a professionally-managed trust that pools the savings of many investors and invests them
in securities like stocks, bonds, short-term money market instruments and commodities such as precious
metals. Investors in a mutual fund have a common financial goal and their money is invested in various asset
classes in accordance with the fund’s investment objective. Investments in mutual funds entail
comparatively small amounts, giving retail investors the advantage of having finance professionals control
their money even if it is a few hundred rupees.

Mutual funds are pooled investment vehicles actively managed either by professional fund managers or
passively tracked by an industry or index. The funds are generally very well diversified to offset potential
losses. They offer a very attractive way for savings to be managed in a passive manner without paying high
fees or requiring constant attention from individual investors. Mutual funds present an option for investors
who lack the knowledge or time to make traditional and complex investment decisions. By putting your
money in a mutual fund, you permit the portfolio manager to make those essential decisions for you.

A mutual fund is set up in the form of a trust that has a Trustees, Sponsor, Asset Management Company
(AMC). The trust is established by a sponsor(s) who is more like a promoter of a company and the said
Trust is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of
the mutual funds hold their property for the benefit of unit holders. An Asset Management Company (AMC)
that is approved by SEBI manages the fund by making investments in various types of securities.

The trustees are vested with the power of direction and superintendence over the AMC. They monitor the
compliance and performance of SEBI regulations by the mutual fund. The trustees are vested with the
general power of direction and superintendence over AMC. They manage the compliance and performance
of SEBI Regulations by the mutual fund.

A mutual fund company collects money from several investors, and invests it in various options like bonds,
stocks, 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 money they
have invested. The Asset Management Company is mainly responsible for managing the investments for the
various schemes operated by the mutual fund. It also undertakes activities such like financial consulting,
advisory services, and customer services, accounting, marketing and sales functions for the schemes of the
mutual fund.

HISTORY OF MUTUAL FUND

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The history of mutual funds dates support to the 19 th century when it was introduced in Europe, in particular,
Great Britain. Robert Fleming set up in the year 1868 the first investment trust called Foreign and colonial
investment trust which promised to manage the finances of the moneyed classes of Scotland by scattering
the investment over a number of various different stocks. This investment trust and other investment trusts
which were afterward set up in Britain and the U.S., resembled today’s close – ended mutual funds. The first
mutual fund in the United States, Massachusetts investor’s trust, was set up in March 1924. This was the
open – ended mutual fund.

The stock market crash in the year 1929, the Great Depression, and the outbreak of the Second World War
slackened the pace of growth of the mutual fund industry. Innovations in services and products increased the
popularity of mutual funds in the 1950s and 1960s. The first international stock mutual fund was introduced
in the United States in 1940. In 1976, the first tax exempt municipal bond funds emerged and in the year
1979, the first money market mutual funds were created. The latest additions are the international bond fund
in the year 1986 arm funds in 1990. This industry witnessed substantial growth in the 80’s and 90’s when
there was a significant increase in the number of schemes, assets, mutual funds, and shareholders. In the
United States the mutual fund industry registered s ten - fold growth the eighties. Since 1996, mutual fund
assets have already exceeded bank deposits. The mutual fund industry and the banking industry virtually
rival with each other in size.

ORIGINATION OF MUTUAL FUND

First Phase: 1964 – 87

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

Second Phase: 1987-1993 (Entry of Public Sector Funds)

The Year 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and
LIC and GIC. SBI Mutual Fund was the first non- UTI Mutual Fund established in the year June 1987
Followed by Can bank Mutual Fund (December 87), Punjab National Bank Mutual Fund (August 89), Bank
of India (June 90), Bank of Baroda Mutual Fund (October 92) and Indian Bank Mutual Fund (November
89). Life Insurance Corporation of India established its mutual fund in June 1989 while GIC had set up its
mutual fund in December 1990. At the end of the year 1993, the mutual fund industry had assets under
management of Rs.47,004 crores

Third Phase: 1993-2003 (Entry of Private Sector Funds)

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

Fourth Phase: Since February 2003

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

OBJECTIVIES OF THE STUDY

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 1. To understand various types of Mutual Fund Schemes.

2. To know about the extent of awareness about mutual funds with reference to education, age and

income

3. To know the purpose of investment in the mutual fund and other investment options.

4. To know the preferences for investment in the mutual funds and other investment avenues.

5. To identify the most popular Mutual Fund schemes among the ones that are investing.

6. To evaluate the financial performance of selected major schemes of various mutual funds in the

public and private sectors.

7. To analyze the trends in returns of selected mutual funds.

8. To understand the functions of an Asset management company.

9. To understand the performance of various schemes using various tools to measure the performance.

10. To measure and compare the performance of selected mutual fund schemes of different mutual fund

companies and other Asset Management Companies.

REVIEW OF LITERATURE

The published work relating to the topic is reviewed. The relevant literature is reviewed on the basis of
Books, Periodicals, News Papers and Websites. The detailed review is given below:

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Dr. Shantanu Mehta in his research paper “Preference of Investors for Indian Mutual Funds and its
Performance Evaluation”, published in Pacific Business Review International Vol. 5 concluded that,
Mutual funds have opened new vistas to many millions of small investors by virtually taking investment to
their doorstep. In India, as mall investor generally goes for such kind of information, which do not provide
hedge against inflation and often have negative real returns. However Mutual funds have come, as a much
needed help to these many investors.

Dr. Ravi Vyas in his article “Mutual Fund Investor’s Behaviour and Perception”, published
in International Refereed Research Journal Vol. – III concluded that, Mutual fund companies should
come forward with full support for the investors in terms of ensure full disclosure of related information to
investor, advisory services, proper consultancy should be given by mutual fund companies to the investors
in understanding erms mutual fund information should be published in investor friendly language and
style, proper system to educate investors should be developed by the mutual fund companies to analyze risk
in investments made by them, etc.

Dr. Binod Kumar Singh  in his article “Investors attitude towards Mutual Funds”, published in the International
Journal of Research in Management pointed out that, most of the investors are having lack of knowledge about
the various function of mutual funds. Moreover, as far as the demographic factors are concerned, income,
gender, and level of education have significantly influence the investors‟ attitude towards mutual funds. On
the other hand the other two demographic factors like occupation and age have not been found influencing
the attitude of investors‟ towards mutual funds.

Mr. Sarish in his research paper “A Study of Opportunities and Challenges for Mutual Fund in India: Vision
2020”, published in VSRD International Journal of Business & Management Research Vol. 2draw a
conclusion that, Mutual funds are among the most preferred investment instruments. For middle income
individuals, investing in mutual funds yields much higher interest and comes with good principal amount at
the end of the maturity period of the mutual fund investment. Another important fact which he concluded is
that mutual funds are safe, with close to no risk, offering an optimized return on earnings and protecting the
interest of investors.

Mr. B. K. Singh and Mr. A. K. Jha (2009) in his study, “An Empirical study on Awareness & acceptability of
Mutual Fund”, published in Regional Student’s Conference, ICWAI pointed out that investors basically prefer
mutual fund due to return potential, safety and liquidity and they were not totally aware about the systematic
investment plan. The invertors‟ will also consider various factors before investing in mutual fund.

Ramamurthy and Reddy (2005) conducted a study, Recent Trends in Mutual Fund Industry published in SCMS
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Journal of Indian Management to analyze recent trends in the mutual fund industry and draw a result that
the main benefits for small investors due to efficient management, diversification of investment, easy
administration, nice return potential, liquidity, transparency, flexibility, affordability, wide range of choices
and a proper regulation governed by SEBI. The study also analyzed about recent trends in mutual fund
industry like various entry and exit policies of mutual fund companies, various schemes related to real
estate, commodity, bullion and precious metals, entering of banking sector in mutual fund, selling and
buying of mutual funds through online.

TYPES OF MUTUAL FUNDS – CLASSIFICATION OF MUTUAL FUNDS

Types of mutual funds by structure:

Mutual funds can be classified into closed ended, open ended, and interval schemes based on how they
accept subscriptions from investors.

Open ended mutual funds: These are the most common funds available.  Fund houses sell and buy
units of mutual funds directly from investors at prevailing Net Asset Value (NAV). These funds
provide exit options for investors at NAV, which is actual worth unit of the mutual funds.  Fund
houses publish NAV daily.

Close ended Mutual Funds: After closing of New Fund Offer (NFO), investors cannot buy or sell
their units directly with fund house. Units of close ended mutual funds are listed and then being traded
in stock exchanges like normal shares.  They are not liquid as trading volumes are very less and most
of the times, the traded price is less than fair price of the unit.

Interval Funds:  Interval funds are funds with features of both close ended funds and

open ended funds.  They are close funds with an additional option to transact with funds

directly for certain pre mentioned periods.  When they are open for subscription /

redemption during certain intervals, they have open ended fund nature and rest of the

time close ended fund nature.

Types of Mutual Fund by investment objective

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 Growth Schemes:  Growth schemes have an investment objective to generate wealth in long term for
investors.  These schemes are most suitable for investors who are looking for accumulation of wealth
for longer period of time. Usually these are suitable for investors who are looking for goal based
investment like own house, child education and so on.

Income Schemes:  Income schemes are for those people who are looking for regular income from
their accumulated wealth. These are suitable for people who are looking for regular income for their
regular needs.  For example, for retired people who wish to invest a certain amount and have a regular
income from them. Usually, incomes are paid by the way of dividends and pay out of dividends are
not guaranteed as required by SEBI.

Balanced Fund Schemes:  As the name indicates these funds try to balance the components of safety
of capital and incomes, capital appreciation.  To achieve this balance, these funds are invested in a
variety of assets to achieve the balance.

Money Market Schemes: Money market schemes are very highly liquid funds for investments as
low as a day.  These are used by organizations and companies as a tool of treasury management to
manage their liquid funds and earn income on them.

Other Types of Mutual Funds

Tax Savings Schemes: Tax Savings schemes are greatly known as Equity Linked Savings
Schemes (ELSS). They are closed mutual funds which invest primarily in equity related
instruments to benefit from available tax concession under Section 80C of income tax act.  All
ELSS investments with a 3 year lock in period are eligible for tax exemption up to 1, 00,000 rupees
per year.

Index Schemes: As the name suggests, these funds invest in index funds by following passive
management. Advantages of index schemes are much lesser fund management fees. They typically
provide the returns that of index they are bench marked.  Usually returns are little less than index
returns (Known as Tracking Error) due to necessity to keep liquid cash which is not invested,
fund fees etc.

Sector Schemes: Sector Schemes invest in a particular group of sector. Little variation of sector
funds are theme funds which invest in a related theme rather than in a single sector. These are very

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high risk funds as every sector has its life cycle with ups and downs. An example will be of
infrastructure funds which did not perform since 2008 market collapse.

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 TYPES OF RISK ASSOCIATED WITH MUTUAL FUNDS

Market Risk

We all would have must see that one-liner in all advertisements that Mutual Funds are subject to
Market Risk.

Market risk is basically a risk which may result in huge losses for any investor due to a poor performance of
the market. There are a many number of factors which affect the market. A few examples are a inflation,
natural disaster, recession, political unrest, fluctuation of interest rates. Market risk is also known as
systematic risk. Diversifying a person’s portfolio won’t help in these scenarios. The only thing which the
investor can do is to wait for the storm to calm.

Concentration Risk

Concentration generally means focusing on one thing. Concentrating a very huge amount of a person’s
investment in one particular scheme is not a good option. Profits will be very huge if lucky, but losses will
be more. Best way is to minimize this risk is by diversifying your portfolio. Investing and Concentrating
heavily in one sector is also very risky. The more diverse the portfolio is, the lesser the risk is.

Interest Rate Risk

Interest rate changes depends mostly upon the credit available with lenders and the demand from borrowers.
They are inversely related to each other. Increase in the interest rates during the investment period may
surely will result in a reduction of the price of securities

For example, an individual decides to invest Rs 200 with a rate of 5% for a period of x years. If the interest
rate changes due to changes in the economy and it become 6%, the individual will no longer be able to get
back the Rs 200 he invested owing the fact that the rate is fixed. The only option left here is reducing the
market value of the bond. If the interest rate reduces to 4% on the other hand, the investor will be able to sell
it at a price above the invested amount.

Liquidity Risk

Liquidity risk as the name suggests refers to the difficulty to redeem an investment without incurring a loss
in the value of the instrument. It can also occur when a seller is unable to find a buyer for the security.

In mutual funds, like ELSS, the lock-in period may surely result in liquidity risk. Nothing can be done
during the lock-in period. In yet one of another case, Exchange traded funds (ETFs) might suffer from
liquidity risk. As you may know, ETFs can be sold and bought on the stock exchange like shares.

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Sometimes due to lack of the buyers in the market, you might be unable to redeem your investments when
you need them the most.  The best way to avoid all of this is to have a very diverse portfolio and making
fund selection diligently.

Credit Risk

Credit risk basically means that the issuer of the scheme is unable to pay or can’t pay what was promised as
interest. Usually, agencies which handle investments are being rated by rating agencies on this criteria. So, a
person will always see to that, that a firm with a high rating will pay less and vice-versa.

Mutual Funds, particularly debt funds, also suffer from the credit risk. In debt funds, the fund manager have
to incorporate only investment-grade securities. But sometimes it might also happen that to earn higher
returns, the fund manager may include lower credit-rated securities.

This would surely increase the credit risk of the portfolio. Before investing in a debt fund, one should have a
look at the credit ratings of the portfolio composition.

So, right now you are aware of the risks that are linked with the mutual funds. Head to  the ClearTax
Invest where you can invest in mutual funds. You can either grow your money or save taxes with us.

PROCESSS OF MUTUAL FUND

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 STEPS IN INVESTING MUTUAL FUND

Step 1: Decide whether you want to go passive or active

The biggest decision you'll need to make as a mutual fund investor is whether you think active management
is worth the extra penny you'll pay. Unfortunately, a very large majority of actively managed mutual funds
end up underperforming the major stock market benchmarks, making it counterproductive to spend more
money to invest in them. However, a handful of fund managers have been able to demonstrate sustained
outperformance over the long run. If you're confident that those track records are legitimate -- and that
they'll continue -- then it can make sense to invest at least some of your money actively in order to try to
capture the prowess of superior fund managers.

Step 2: Minimize fees

Regardless of which type of mutual fund you end up choosing, it always pays to economize on the costs.
First and foremost, make sure that you don't pay an up-front sales load on a mutual fund purchase, as doing
so simply diverts a percentage of your initial investment into your broker's wallet. Equally important but
often overlooked it is the impact of high annual expenses. Paying more than 1% for an active fund makes it
very difficult for a fund even to match the performance of its benchmark, let alone surpass it on a consistent
basis. With index funds offering expense ratios of less than 0.1%, you don't have to pay a lot for mutual
funds.

Step 3: Pick a diversified portfolio of funds

In buying of the mutual funds, it's important to look beyond the mere number of funds you own and make
sure that those funds actually own different investments. If you have five mutual funds but they're all index-
tracking funds that follow the S&P 500, then you actually have no more diversification than you'd have
owning a single fund. Instead, look to buy the mutual funds with different investments, such as stocks,
bonds, real estate investments, and other alternatives. Within categories, look for other various ways to
diversify, such as with a foreign stock fund to go with a U.S. stock fund. That way, you'll have a balanced
portfolio that can also thrive under a wider range of market conditions.

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Step 4: Find a family

With mutual funds, the cheapest way to set up the accounts is directly with the fund company that offers
shares. Therefore, if you can find a company that offers a family of funds that you like, then it makes things
much lot easier, because you can make a single deposit that will get divided into different funds on a regular
basis. That's not to say that you have to stick with only one family, and many investors feel more
comfortable diversifying by fund provider. However, those who do find certain fund families that give them
the exposure they want to also find that their tracking is easier than it is with multiple fund families to deal
with over time.

Step 5: Don't stop watching

Finally, even once you've selected and invested in a mutual fund, your job is not over. You also need to
monitor your mutual funds to make sure that everything continues to run smoothly. If there's a change in
investment management, you'll also want to watch closely to see if the new manager continues to do things
as well as the old manager did, especially for actively managed funds. With index funds, a change to a new
benchmark index could signal a shift in the performance of the fund, and you'll have to decide that whether
it is consistent with your investment strategy going forward. Most importantly, a rise in the fees can signal a
change in fund philosophy that you won't like.

Mutual funds are the best way to invest without a huge amount of effort. By following these steps with your
mutual fund investments, you can also make sure that you'll get the most out of your funds as you can.

Step 6: The Final Step

All you need to do now is to Click here for online application forms of the various mutual fund schemes and
start investing. You may reap the rewards in the years to come. Mutual Funds are suitable for every kind of
investor – whether starting a career or retiring, conservative or risk taking, income seeking or growth
oriented.

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 WHY SHOULD YOU INVEST IN MUTUAL FUNDS?

As stated, mutual funds are professionally managed investment vehicles that will compound your money
over a long term. Mutual funds may invest in a variety of instruments like debt, equity, money market, etc.,
and fetch favourable returns on your investment. There are way too many reasons why you should invest in
mutual funds:

1. Professional management
Mutual funds are managed by professional fund managers who research and keep a track of the markets,
identify the rights stocks, and sell and buy them at an appropriate time so as to generate most favourable
returns on your investment. Fund managers also analyse the performance of the firms before they decide
to invest in their stocks. Also, when you buy units of a mutual fund scheme, the scheme information
document (SID) will have the professional summary of the manager of the fund which includes the
number of years of work experience, the kind of funds that are managed, and the performance of the funds
managed by him/her. So, you can be rest assured that your money is in the right hands.

2. Higher returns
Compared to term deposits such as Fixed Deposits (FDs), Recurring Deposits (RDs), etc., mutual funds
offer better returns on your investments by investing in a variety of instruments. Equity mutual funds
present a very excellent opportunity to investors to enjoy higher returns but at the same time are
accompanied with high risks and hence, are ideal for investors with a high risk appetite. Debt funds, on
the other hand, offer much lower risk and fetch better returns than term deposits.

3. Diversification
Perhaps one of greatest benefits that mutual funds offer is diversification. By investing in a wide range of
asset classes and stocks, mutual funds will reduce the risk by diversifying the portfolio. Therefore, even if
one asset/stock is not performing well, the performance of other assets will balance it out and you can still
enjoy favourable returns on your investment. To reduce the risk further, you can also diversify your
portfolio by investing in different kinds of mutual funds. Seek the help of a financial advisor if you are not
very sure about which funds to invest in and how to diversify or balance your portfolio.

4. Convenience

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 Investing in mutual funds has been made very quick, hassle-free, and simple by many fund houses who
offer the online facility of investing. Just by clicking a few number of buttons, you can start investing in a
mutual fund scheme of your choice. Even the KYC process can now be done online and investors can
invest up to Rs.50,000 using the e-KYC facility. However, for investments above Rs.50000, investors are
then required to complete the physical KYC process.

5. Low cost
You can start investing in the mutual fund for as low as Rs.5,000 (lump sum) and Rs.500 for a monthly
SIP (Systematic Investment Plan). Therefore, you do not always have to wait to accumulate a large sum in
order to start investing. Also, if you invest in a Direct Plan of a mutual fund scheme, you do not have to
pay any sort of additional commission to distributors or agents.

6. Disciplined investing
To cultivate a habit of regular investing, mutual funds also offer a facility known as a Systematic
Investment Plan (SIP). An SIP allows investors to invest small-small amounts regularly, the frequency of
which can be weekly, monthly, or quarterly. An auto-debit facility can be set up for your SIP where a
fixed sum will automatically be debited from your bank account every month. An SIP offers a very
excellent way to invest regularly and without having to manually invest each time.

ADVANTAGES OF MUTUAL FUND

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1. Diversification

To diversify is to reduce risk. For example, let’s just say you buy milk from one milkman. If someday he
falls ill, you won’t be having any milk to drink! On the other hand, if you buy milk from two milkmen, if
even one falls ill, you’ll still have supply from the other.

The chance of both the milkmen falling ill at the same day is very low. This is why diversification is very
important in investing as well.

The advantage of mutual funds is that the diversification is automatically done. Instead of buying the
shares, bonds, and other investments on your own, you outsource the task to an expert.

2. Professional Management

Investing is obviously not an easy task. Investing, be it in shares, real estate, gold, bonds, and so on
depends on a multitude of factors that constantly need to be studied and understood.

Many people think often that they can understand the market. A great percentage of these people then end
up incurring a loss.

The benefit of mutual funds is that they are managed by professional experts. Thus, to make sure your
money is invested in the right place, you have to choose the right mutual fund.

Once invested in a mutual fund, you can relax with the knowledge that an expert will make necessary
changes to the portfolio whenever it is required.

This isn’t to say that you shouldn’t review the investments you made in mutual funds.  If you’ve chosen
your mutual fund carefully, reviewing it once in a year is usually enough.

3. Simplicity
While investing, the availability of data and information is particularly time-consuming. If all the
information would be easily available, investing would be a lot simpler.

In mutual funds, the data collection and research is done by the funds themselves. All you have to do is
analyse the performance.

Mutual fund dealers allow you to compare the funds based on different metrics, such as level of risk, price,
and return. And because the information is very easily accessible, the investor will be able to make wise
decisions.

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4. Liquidity
One major advantage of mutual funds that is often overlooked is liquidity.  In financial jargon, liquidity
basically refers to the ability to convert the assets to cash with relative ease.

For example: If you want to sell your car, how long would it take for you to sell it and get the cash in hand?
It would take you anywhere from a few days, to a few weeks.

Mutual funds are considered liquid assets because there is very high demand for many of the funds. You
can, therefore, get money from a mutual fund very quickly.

5. Costs

Mutual funds are surely one of the best investment options considering the costs involved. If you hire a
portfolio management service, you’ll typically be charged 3% to 4% of the total investment per year. They
will also be deducting a share from your profit.

Mutual funds are relatively very cheaper and deduct only 1% to 2% of the expense ratio. Debt mutual funds
usually deduct even lesser.

6. Tax Efficiency

Mutual funds are relatively much more tax-efficient than other types of investments. Long-term capital gain
tax on equity mutual fund is zero, which means, if you sell your investment just after one year of purchase,
you don’t have to pay tax.

For debt funds, long-term capital gains applies when you hold them for 3 years. To understand tax on mutual
funds:

Apart from this, there are certain classes of funds, called ELSS funds, which are exempt under section 80 C
up to a limit of Rs 1.5 lakhs. Some important features of tax-saving funds are:
I. It is a surrogate route to the direct stock market
II. The minimum investment is Rs 500 per month
III. It has a lock-in-period of only 3-years
IV. The returns are tax-free as well

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7. How to Select Mutual Funds

Mutual Funds are of various types – this allows investors to invest in particular types of funds, depending on
their goals. Here are some examples

 +To park money for an extremely short term, you can invest in liquid funds like Kotak Floater Short
Term

 +To invest money for a short-term duration like 1 to 3 years, you can invest in Ultra Short Term
Funds or Short Term Funds +For Long-term investing, you can invest in equity funds. In equity funds,
one can easily choose from high-risk funds like mid cap and small cap funds to relatively less risky
funds, like large-cap and diversified funds

 +Investors who want to adopt a middle approach may choose balanced funds. Example – HDFC
Balanced Fund.

8. You Can Start with a Small Amount

Unlike some other investments like real estate or stocks, mutual funds allow you to start as small as Rs 500.
One can also start with mutual funds with as low as Rs 500 or Rs 1000. Some funds, like the Reliance Small
Cap Fund allow you to start with just Rs 100.

You can refer to the attached links for further reference:

-Mutual funds to start with Rs 500

-Mutual funds to start with Rs 1000

9. Automated Investment

Mutual funds are very largely beneficial because one can invest with less money. The Systematic Investment
Plan or SIP is an excellent example wherein the money gets automatically debited from your account. You
can easily choose a fund that suits your investing goal.

10. Safe and transparent

Investments in mutual funds are very transparent. All mutual fund companies that come under the purview
of SEBI and they need to make necessary disclosures.

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Value of the stocks, historical performance of the fund, fund manager’s qualification and the track records
are known. The Net Asset Value of the fund is updated every day.

11. Option to Choose SIP or Lumpsum

Mutual funds also give you the flexibility to invest through SIP (systematic investment plan) or lump sum.

12. Match Your Style

If you have more knowledge about certain sectors or industries, but don’t have enough expertise to know
which company to invest in, you can make use of sector mutual funds. By doing so, you are ensuring your
money gets invested in a particular industry without having to research which company to invest in.

Sector mutual funds always stick to investing primarily in a certain sector only. Some common types of
sector mutual funds are energy funds, mining funds, automobile funds, etc.

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 DISADVANTAGES OF MUTUAL FUND

1. Costs
Surprised to see “Costs” in both disadvantages and advantages of mutual funds?

Some mutual funds have a very high cost associated with them. Mutual funds also charge for managing the
funds, fund managers salary, distribution costs etc. Depending on the funds, these charges may be
significant.

When you exit from your mutual fund, you might be charged an extra cost as exit load. Do make sure to
check out exit loads before investing in a fund. Typically, exit loads are only applicable if you sell your
investments within a specified duration.

Investors should also note that different funds have different expense ratios. Passively managed funds like
index funds or Exchange Traded Funds have lower expense ratios than actively managed funds.

This is because passively managed funds track the underlying index and do not require any fund manager to
take active investment calls. Lower costs then reflect the operational efficiency of a mutual fund house.

2. Dilution

This is the most prominent of all disadvantages. Diversification has an averaging effect on your investments.
While diversification saves you from suffering any huge losses, it also prevents you from making any huge
gains! Thus, major gains get diluted.

This is exactly why it is recommended that you do not invest in way too many mutual funds. Mutual funds
are themselves diversifying investments. Therefore, buying many the mutual funds in the name of
diversifying dilutes your gains.

3. Fluctuating returns:

Mutual funds do not offer fixed guaranteed returns in that you should always be prepared for any eventuality
including depreciation in the value of your mutual fund. In other words, the mutual funds entail a wide range
of price fluctuations. Professional management of a fund by a team of experts does not insulate you from
bad performance of your fund.

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4. No Control: 

All types of the mutual funds are managed by fund managers. In many cases, the fund manager may be
supported by a team of analysts. Consequently, as an investor, you do not have any control over your
investment. All major decisions concerning your fund are taken by your fund manager. However, you can
examine some high important parameters such as disclosure norms, corpus and overall investment strategy
followed by an Asset Management Company (AMC).

5. Diversification: 

Diversification is often cited as one of the main advantages of a mutual fund. However, there is always the
risk of over diversification, which may increase the operating cost of a fund, demands greater due diligence
and dilutes the relative advantages of diversification.

6. Fund Evaluation: 

Many investors may find it difficult to extensively research and evaluate the value of different funds. A
mutual fund's net asset value (NAV) provides investors the value of a fund's portfolio. However, investors
have to study various parameters such as sharpe ratio and standard deviation among others to ascertain how
one fund has fared compared to another which can be complicated to some extent.

7. Past performance: 

Ratings and advertisements issued by companies are only an indicator of the past performance of a fund. It
is important to note that robust past performance of a fund is not a guarantee of a similar performance in the
future. As an investor, you should analyse the investment philosophy, transparency, ethics, compliance and
overall performance of a fund house across different phases in the market over a period of time. Ratings can
be taken as a reference point.

8. Costs: 

The value of a mutual fund may change depending on the changing market conditions. Furthermore, there
are fees and expenses involved towards professional management of the mutual fund which is not the case
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for securities or buying stocks directly in the market. There is an entry load which has to be borne by an
investor always when buying a mutual fund. Furthermore, some companies charge an exit cost sometimes as
well when an investor chooses to exit from a mutual fund.

9. CAGR: 

The performance of a mutual fund vis-a-vis the compounded annualised growth rate (CAGR) neither
provides investors adequate information about the amount of risk facing a mutual fund nor the process of
investment involved. It is therefore, only one of the indicators to gauge the performance of a fund but is far
from being comprehensive.

10. Fund managers: 

According to experts, as an investor, you would do well not to be carried away by the so-called ‘star fund
managers’. Even a highly skilled manager can make a positive difference in the short-term but cannot
dramatically change the performance of a fund in the long-term. Also, there is always the likelihood of a star
fund manager joining another company. It is, therefore, more prudent to examine the processes which are
followed by a fund house rather than the star appeal of just one individual.

COMPARISON OF MUTUAL FUNDS WITH OTHER INVESTMENT PRODUCTS

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As inflation decreases the value of money over time, it becomes very important to invest in a correct
channel. An unused amount, if not invested well, will lose its purchasing power.

Equities are the highest in the return and risk matrix while savings postal services are on the lower side of
risk and return matrix. You must invest accordingly to the amount of risk that you are willing to take.
The other various option is time horizon: short term, medium term or long term.

Here are comparisons between some common forms of mutual funds and investment:

Mutual Fund Vs Public Provident Fund (PPF)

PPF is till date one of the most popular options. However, over time, the reduced returns on Public
Provident Fund have made, PPFs are less attractive.

Also, the low returns come at the expense of growth and liquidity. PPF has a lock-in period of 15 years.

Mutual Fund Vs Bank Deposits

The returns on bank deposits become negligible after your account for inflation and pay tax. As compared to
a mutual fund in which the returns/ dividend received is completely tax exempt (on equity mutual funds,
after one year) and the liquidity provided is higher than that of bank deposits.

Mutual Funds Vs Institutional or Corporate Bonds

Although financial institution bonds have very high compound returns, they are more unsecured and more
prone to interest rate risks as compared to mutual funds. Mutual funds are much more diversified as they
invest in a variety of instruments like money market and debt.

Also, investors need to be extremely very careful about such investments and must ascertain that the issuing
company is credit rated. Corporate bonds also have less liquidity as compared to the mutual funds.

Direct Stocks vs Buying Mutual Funds

Critics of the mutual fund industry argue that fund expenses are way too high. They argue that the most
effective and efficient way for investors to raise returns they earn from mutual funds is to invest in funds
with lower expense ratios. Or invest directly into equities.

Fund managers counter that the fee is determined by the highly competitive market and therefore, reflect the
value that investors attribute to the service provided. They also note that if the fees is clearly disclosed.
Also investing in direct equity involves trading costs.

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 SPONSOR OF ASSOCIATION OF MUTUAL FUNDS IN INDIA

Bank sponsored

 SBI Fund Management Ltd

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 BOB Asset Management Co. Ltd
 Canbank Investment Management Services Ltd
 UTI Asset Management Company Pvt Ltd.

Institutions

 GIC Asset Management Co Ltd

 Jeevan Bima Sahayog Asset Management Co. Ltd

Private Sector

Indian:

 Benchmark Asset Management Co. Pvt Ltd

 Cholamandalam Asset Management Co. Ltd
 Credit Capital Asset Management Co. Ltd
 Escort Asset Management Ltd
 JM Financial Mutual Fund
 Kotak Mahindra Asset Management Co. Ltd
 Reliance Capital Asset Management Ltd
 Sahara Asset Management Co Pvt Ltd
 Sundaram Asset Management Company Ltd
 Tata Asset Management Private Ltd

Predominantly India Joint Venture:

 Birla Sun Life Asset Management Co. Ltd

 DSP Merrill Lynch Fund Managers Limited
 HDFC Asset Management Company

Predominantly Foreign Joint Venture:

 ABN AMRO Asset Management (I) Ltd

 Alliance Capital Asset Management (India) Pvt Ltd
 Deutsche Asset Management (India) Pvt Ltd

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 Fidelity Fund Management Private Limited
 Franklin Templeton Asset Management (India) Pvt Ltd
 HSBC Asset Management (India) Pvt Ltd
 ING Investment Management (India) Pvt Ltd
 Morgan Stanley Investment Management (India) Pvt Ltd
 Principal Asset Management Co. Pvt Ltd

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 LIST OF MUTUAL FUND COMPANIES IN INDIA

 Axis Asset Management Company Ltd.

 Baroda Pioneer Asset Management Company Ltd
 Birla Sun Life Asset Management Company Ltd
 BNP Paribas Asset Management India Pvt Ltd
 BOI AXA Investment Managers Pvt Ltd
 Canara Robeco Asset Management Company Ltd
 Daiwa Asset Management (India) Pvt Ltd
 Deutsche Asset Management (India) Pvt. Ltd.
 DSP BlackRock Investment Managers Pvt. Ltd.
 Edelweiss Asset Management Ltd
 Escorts Asset Management Ltd
 FIL Fund Management Private Ltd
 Franklin Templeton Asset Management (India) Pvt Ltd.
 Goldman Sachs Asset Management (India) Pvt Ltd.
 HDFC Asset Management Company Ltd
 HSBC Asset Management (India) Pvt. Ltd.
 ICICI Prudential Asset Management Company Ltd
 IDBI Asset Management Ltd.
 IDFC Asset Management Company Ltd
 India Infoline Asset Management Co. Ltd.
 Indiabulls Asset Management Company Ltd.
 ING Investment Management (India) Pvt. Ltd.
 JM Financial Asset Management Pvt Limited
 JPMorgan Asset Management India Pvt. Ltd.
 Kotak Mahindra Asset Management Company Ltd.
 L&T Investment Management Ltd.
 LIC NOMURA Mutual Fund Asset Management Company Ltd.
 Mirae Asset Global Investments (India) Pvt. Ltd.
 Morgan Stanley Investment Management Pvt. Ltd.

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 Motilal Oswal Asset Management Company Ltd.
 Peerless Funds Management Co. Ltd.
 Pine Bridge Investments Asset Management Company (India) Pvt. Ltd.
 Pramerica Asset Managers Private Ltd
 Principal PNB Asset Management Co. Pvt. Ltd.
 Quantum Asset Management Company Private Ltd.
 Reliance Capital Asset Management Ltd.
 Religare Asset Management Company Private Ltd.
 Sahara Asset Management Company Private Ltd
 SBI Funds Management Private Ltd.
 Sundaram Asset Management Company Ltd
 Tata Asset Management Ltd
 Taurus Asset Management Company Ltd
 Union KBC Asset Management Company Pvt Ltd
 UTI Asset Management Company Ltd

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 EXAMPLE - HDFC MUTUAL FUND

Incorporated on the 10th of December, 1999, HDFC Asset Management Company Ltd. is among one of the
most popular fund houses in India. The company offers an extensive and exclusive range of mutual
funds and is home to some of the most trustworthy fund managers who ensure that your hard-earned money
is invested in the right schemes. Whether you seek income funds, growth funds, or even retirement funds,
HDFC AMC Ltd. has it all. HDFC Mutual Fund launched its first ever scheme in the month of July 2000
and ever since it has been ambitious about offering a stable performance of funds across all the variants of
schemes offered by it. The main vision of the HDFC Mutual Fund is to be a dominance player in mutual
funds market of India. It offers high levels of professional and ethical conduct. It is committed towards
enhancement of the investors’ interests.

The HDFC Mutual Fund is managed by HDFC Asset Management Company Limited. HDFC Trustee
Company Limited is the trustee to the mutual fund. The HDFC Mutual Fund is sponsored by the Housing
Development Finance Corporation Limited (HDFC Ltd.) and the Standard Life Investments Limited.

HDFC Mutual Fund Key Features and Advantages

The HDFC Mutual Fund is driven by their personal investment philosophy. Based on their investment
philosophy, the primary features of the HDFC Mutual Fund can be listed as follows:

1. Profitable Investment: This is the most important factor that drives the HDFC Mutual Fund. It
believes that the best way to invest profitably is to provide the investors with the chance to invest in the
financial market profitably and reduce the tensions pertaining to the swings in the market.
2. Risk Control: HDFC Mutual Fund provides emphasis on the management and control of portfolio
risks. This helps them to avoid chasing the trends that are latest and “fads”.
3. Detailed Analysis and Research: HDFC Mutual Fund believes that analysis and research are the keys
to success in the financial market. Thus, it has set up a well-built infrastructure that helps them to conduct
the fundamental research. The researches are backed up by effective analysis.

HDFC Mutual Fund Account Statement:

The following steps are required to be followed in order to check the status of the account statement under
the HDFC Mutual Fund online:

1. You need to visit the official website of the HDFC Mutual Fund at www.hdfcfund.com.
2. At the bottom of the home page, the website has 4 columns with a number of options.

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3. Click on the ‘Account Statement’ option which is the last option of the third column.
4. On clicking the ‘Account Statement’ option, a new page will pop up. On this pop-up page, a list of
nine languages is provided. The languages provided are- English, Hindi, Bengali, Marathi, Malayalam,
Kannada, Gujarati, Telugu, and Tamil. Select the check-box next to the language of your choice.
5. Once the language is selected, click on ‘I AGREE’ at the bottom of the page.
6. After this, you will be redirected to a new webpage under the heading- “Introduction to HDFC MF
Multilingual Statement of Account”. Click on the ‘Next’ at the bottom of the page.
7. You will be redirected to a new webpage where you have to provide your Folio information.
8. On the ‘Folio Information’ page, you will be required to provide your ‘Folio Number’ followed by
your Permanent Account Number (PAN) or your Bank Account Number.
9. Type in the Captcha code provided in the box and click on ‘SUBMIT’.
10. After the submission of the details mentioned above, the user will be redirected to a new page. On
this page, you will be required to provide the date range for which you want the account statement.
11. Once it is submitted successfully, you will receive an email containing your account statement on the
email ID that you have registered with the HDFC Mutual Fund.

Types of Mutual Fund offered by HDFC Asset Management Company

Equity or growth Fund:

The growth fund by HDFC Mutual Funds are intended to make investments primarily in equity based
market. Managing such funds could be passive or active. Different fund selections offered in the scheme are
intended to suit short term or long term investment requirement of the consumers.

Example – HDFC Equity Fund

Debt or Income Fund

HDFC debt fund or income fund is an innovative scheme that aims at investing in instruments like long term
or short term bonds, debts, money market etc. The intent of such investments is to create an income for the
one who is investing his money and this is exactly what almost all the plans provided by HDFC Mutual
Funds do.

Example – HDFC Corporate Bond

Liquid Fund

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Liquid Funds make investments in securities. These investments come with a maturity period of 91 days.
And this makes them a brilliant investment option with lowest possible risk for the investors. They even
have a propensity to be better choice for liquidity. Liquid funds offered by HDFC MF come without exit
loads making it a brilliant choice, even for the first – time investors.

Example – HDFC Money Market Fund

Children’s Gift Fund

HDFC MF’s Children’s Gift Fund is another brilliant scheme, which has been carefully designed and
thoughtfully conceptualized to grow their capital in fairly longer period of time. This means that investment
made in HDFC Children’s Gift Funds can further be put to use to for the requirement and needs of children
as they grow older.

Example – HDFC Children’s Gift Fund

Exchange Traded Funds

The Exchange Traded Funds, abbreviated as EFTs by HDFC Mutual Funds is the kind of scheme where
funds are traded in the stock markets. They provide an option with higher liquidity and are pocket – friendly
with lesser fees as against mutual fund products. These funds are invested in the form of gold, which can be
highly risky.

Example – HDFC Gold Exchange Traded Fund

Rajiv Gandhi Equity Saving Scheme

The Rajiv Gandhi Equity Saving Scheme by HDFC MF is one of the most innovative products offered by
HDFC MF. This is an equity investment scheme that provides tax benefits to the investors. It intends to
persuade small investors to invest their money in the relatively lucrative capital markets.

Example – HDFC Focused Equity Fund

Fixed Maturity Plan

HDFC MF’s Fixed Maturity Plan are mutual funds where an investment is made in debt markets and
government securities. These mutual funds involve low risk for the investors and could be close-ended
schemes.

Example – HDFC FMP 97D May 2018

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Annual Interval Fund – Series 1

These Mutual Funds invest in government securities and money markets. They also come up with
predefined intervals for redeeming or selling and are investments with low risk.

Example – HDFC Annual Interval Fund – Series 1 – Plan A and B

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 SEBI GUIDELINES FOR INVESTING IN MUTUAL FUNDS

1. More about SEBI

The Securities and Exchange Board is the designated regulatory body for finance and markets in India. The
primary function of the board is to protect the interests of the investors in securities and promote and
regulate the securities market. SEBI has laid the ground rules for investors to become very much aware of
the functioning of the mutual funds by providing necessary information. They serve to simplify the broad
spectrum of mutual fund schemes that may often seem very confusing to the investors. The guidelines on the
consolidation and merger of mutual fund schemes issued by SEBI are aimed at simplifying the process of
comparing various mutual fund schemes that are on offer by fund houses.

2. The structure of the mutual funds as per SEBI guidelines

The SEBI guidelines define the Guarantor as one who, in his capacity as an individual or in partnership with
a different entities or entity, launches a mutual fund. The role of the guarantor is to make revenue by putting
together a mutual fund and handing it to the fund manager.

A sponsor sets up the mutual funds as per the guidelines given by the Indian Trust Act, 1882, for Public
Trust. They are solely responsible for listing with the SEBI, having provisions for resource management and
ensuring the functioning of the fund takes place as per the SEBI guidelines.

The Trustee or Trust is established through a trust deed that is implemented by the sponsors of the funds and
is accountable to all the investors of the mutual fund. The trustee company is regulated by the Indian
Companies Act 1956, while the firm and the board members are overseen by the Indian Trust Act, 1882.
The Investment management of the trust is done through an Asset Management Company which is to be
listed as per the regulations of Companies Act of 1956.

3. Role of SEBI in Mutual Fund Regulations

As far as Mutual funds are concerned, SEBI makes the policies for the mutual funds and also regulates the
industry. It lays guidelines for mutual funds to safeguard the investors’ interest.

Mutual funds are very distinct in terms of their asset allocation and investment strategy activities. This
requires bringing about uniformity in the functioning of the mutual funds that may be similar in schemes.
This will assist the investors in taking investment decisions more clearly.

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To facilitate this standardization and bringing about uniformity in the similar schemes, the mutual funds
have been categorized accordingly as follows.

a. Equity Schemes

b. Debt Schemes

c. Hybrid Schemes

d. Solution Oriented Schemes

e. Other Schemes

The categorization and rationalization of mutual funds into these five broad categories ensures that the
mutual fund houses are only able to have one scheme in each sub-category, with some exceptions. The
categorization helps in simplifying the selection of funds and works in the best interest of the investors by
allowing them to evaluate their risk options prior to making informed decisions about investing in the right
scheme. Following this consolidation of schemes, the investors can surely take a more informed decision
without much hassle or confusion. In order to fulfil this purpose, SEBI has come up with some guidelines to
help the retail investors in their mutual funds’ investment decisions.

4. Key Highlights of SEBI guidelines for the Mutual Funds

a. Categorization of schemes into 5 groups – Equity, Debt, Hybrid, Solution Oriented, Others

b. To ensure uniformity, small large and mid-cap has been defined clearly

c. There is a lock-in period specified for solution-oriented schemes

d. Permission of only one scheme in each category, except for Index Funds/ Exchange Traded Funds (ETF),
Sectoral/Thematic Funds and Funds of Funds.

5. SEBI Guidelines to invest in Mutual Funds

SEBI keeps in place the regulatory guidelines and framework that govern and regulate the financial markets
in the country. The guidelines for investors are listed below.

a) Assessment your personal financial situation

Mutual funds present the most diversified form of investment options present and therefore may carry a
certain amount of risk factor with it. Investors must be very much clear in their assessment of their financial
Page 42 of 50
position and the risk-bearing capacity in the event of poor performance of such schemes. Investors therefore,
must consider their risk appetite in accordance with the investment schemes.

b) Obtain researched information on mutual funds’ investment schemes

Before venturing into the mutual fund investment, it is imperative for you as an investor to obtain detailed
information about the mutual fund scheme option. Having the right information when required to make the
necessary decision is the key to making good investments. This may help in choosing the right schemes,
knowing the guidelines that are to be followed and also be informed of the investors’ rights.

c) Diversify your portfolios

Diversification of portfolios allows the investors to spread out their investments over various schemes
thereby increasing chances of maximizing profits or mitigating risk of potentially huge losses.
Diversification is very crucial to gaining long-term and sustainable financial advantage.

d) Avoid the clutter of portfolios

Choosing the right portfolio of funds requires monitoring and managing these schemes individually with
care. The investor must not clutter the portfolio and decide on the right number of schemes to hold so as to
avoid overlap and be able to manage each one of them equally well.

e) Assign a time dimension to investment schemes

It is advisable for the investors to assign a time frame to each of the schemes to encourage the financial
growth of the plan. It may help in containing the volatility and fluctuations in the market if the plans are
maintained stably over a period of time.

6. How will the new categorization will Impact me as an investor

This scheme is fashioned to help the investors in the following ways:

a. This may reduce the number of schemes on offer, thereby, making it comparatively easier to choose

b. It may have some schemes get merged with the others

c. It may cause your expense ratio to fall due to the higher AUM per scheme

RESTRICTION ON INVESTMENT IN MUTUAL FUND

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Minimum number of investors per scheme: SEBI requires each scheme to have a minimum number of
investors because funds works on the principle of pooling the resources and spreading or sharing risks over a
large number of investors. The minimum number ensures that the fund works as a collective investment
vehicle rather than an individually tailored asset. 

The regulator requires that each scheme and individual plans under a scheme have a minimum of 20
investors and no single investor should account for more than 25% of the corpus of such a scheme. 

Minimum portfolio diversification rules: A mutual fund scheme must diversify across securities and
assets in the same asset class. This is essential to reduce the unsystematic or internal risks associated with
investments. 

Diversification norms for equity funds: As per SEBI, the investment in equity-related securities or equity
shares of a single company must not exceed 10% of the net assets of the scheme. In case of the unlisted
securities, the restriction is more stringent. For open-ended funds, investment in the unlisted securities
should not exceed 5% of the net assets. 

Diversification norms for debt funds: SEBI restricts the investment in rated investment grade debt
instruments issued by a single issuer to 15% of the net assets of that scheme. The limit can be extended to
20% with the prior approval of trustees and board of AMCs. In the case of the unrated debt instruments, the
schemes are permitted to invest up to 10% of their net assets in schemes of a single issuer. 

Other restrictions: To ensure that fund sponsors do not acquire control of any the company, SEBI has
directed that a mutual fund, under all its schemes taken together, should not own more than 10% of any
company’s paid-up capital that is carrying voting rights. Besides, the funds must sell or buy securities only
for delivery. Short-selling (selling without owning the shares) and carrying forward transactions are not
permitted. 

Mutual funds are also not allowed to advance any loans, but can lend securities in accordance with SEBI’s
stock lending scheme. Funds can hold cash only in the scheduled banks, not in any other bank. 

A mutual fund is prohibited from investing in any unlisted security or a security issued through private
placement by a group or an associate company of the sponsor. Moreover, investments are restricted up to
25% of the net assets in the case of the listed securities of group companies of the sponsor. This is to ensure
that sponsors do not use the investor’s funds to strengthen their other group companies. 
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Page 45 of 50
 RIGHTS OF A MUTUAL FUND UNIT HOLDER

As a unit holder in the mutual fund scheme, you are entitled to the following:

1. Receive unit certificates or statements of accounts;

2. Receive information about the investment objectives, investment policies, financial position and
general affairs of the scheme;
3. Inspect the documents of the mutual fund or pension fund specified in the scheme’s offering
document;
4. Vote in accordance with the regulations to:
i. Either approve or disapprove any change in the fundamental investment policies of the
scheme which are likely to modify the scheme or affect your interest in the mutual fund (you
have full right to redeem your investment as a dissenting unit holder);
ii. Change the asset management company; or
iii. Wind up the scheme;

In addition to your rights, you can always expect the following from the mutual fund scheme:

1. To publish their Net Asset Value in accordance with the Regulations;

2. To disclose your mutual fund scheme’s portfolio holdings, expenses, policy on asset allocation, the
report of the trustee on the operation of your scheme and the future outlook through periodic fund
manager reports, half-yearly & annual accounts; and
3. To adhere to a Code of Ethics which require that investment decisions be made in the best interests
of the unit holders.

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 ELIGIBILTY FOR INVESTING IN MUTUAL FUND

Mutual Funds are emerging as big financial intermediary in India. In a very vast country like India it is a
challenge to market these funds. Fund distributors are a very important link between the fund management
industries and the investors. However, it is equally essential to know who can invest in mutual fund in India
are open to investment for.

A. Resident Including:

1. Resident Indian Individual

2. Indian Companies
3. Indian Trust / Charitable Institution
4. Banks
5. Non-Banking Finance Companies
6. Insurance Companies
7. Provident Fund

B. Non-Resident Including:

1. Other Corporate Bodies (OCBs)

C. Foreign Entities

1. Foreign Institutional Investor (FIIs) registered with SEBI

2. Foreign citizen and other foreign entities are not allowed to invest in Mutual Funds India

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 CONCLUSION

Even though the first mutual fund was introduced in year 1963, the awareness about mutual fund is
comparatively low among the Indian investors. Most of the Indians are very much unaware of a financial
option called mutual funds. Till now, the major part of saving goes into postal deposits, bank deposits, and
insurance. In the competitive business environment good performance of scheme of a particular mutual fund
company plays a vital role in the minds of the existing investors will deciding to invest than the brand name
of the AMC.

Further this study shows that most of respondents are still confused about the mutual funds and have not
formed any attitude towards the mutual fund for investment purpose. It has been observed that most of the
respondents were having lack of awareness about the various function of mutual funds. Moreover, as far as
the demographic factors are concerned, gender, income and level of education have significantly influence
the investor’s ‟attitude towards mutual funds. As far as the benefits provided by mutual funds are concerned,
return potential and liquidity have been perceived to be most attractive by the investors followed by
flexibility transparency and affordability. Apart from the above, in India there is a lot of scope for the
growth of mutual fund.

It can be concluded from the study that the mutual fund industry has showed significant growth in all areas
during the last decade. Yet the mutual fund penetration is very low and skewed towards institutional
investors. In spite of India offering an exciting retail environment, with abundant growth opportunities,
participation from the segment of individual investors continues to remain at low levels. When the first
mutual fund, Unit Trust of India was set up, the primary objective at that time was to prod the small investor
to saver the benefits of stock market investing in an affordable manner and inculcate a habit of financial
saving as opposed to the physical saving.

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 RECOMMENDATION AND SUGGESTIONS

Financial goals may vary, based on Investors age, lifestyle, financial independence, family commitment and
level of Income and expenses among many other factors. Therefore, it is necessary for Mutual Funds
Companies to assess the consumer’s need. They should begin by defining their investment objectives and
needs which could be regular income, buying a home or finance a wedding or education of children or a
combination of all these needs, the quantum of risk, they are willing to take and their cash flow
requirements.

Mutual Investors should always choose the right Mutual Fund Scheme which suits their requirements. The
offer document of the Mutual Fund Scheme should be thoroughly read and scrutinized. Some factors to
evaluate before choosing a particular Mutual Fund are track record of the performance of the fund over the
last few months in relation to the appropriate yard stick and similar funds in the similar category. Other
factors could be the dividend yield portfolio allocation and the degree of transparency as reflected in the
frequency and quality of their communications.

Investing in one of the Mutual Fund scheme may not meet all the investment needs of an investor. They
should consider investing in a combination of schemes to achieve their specific goals.

It is suggested that the investors should not consider only one or two factors for investing in the mutual fund
but they should consider other factors such as higher return, degree of efficient service, transparency, fund
management and Reputation of mutual fund in selection of mutual funds.

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 BIBLIOGRAPHY

The data regarding the mutual fund as an investment tool have been collected by given
sources.

Websites

 www.mutualfundindia.com
 www.principalindia.com
 www.bankbazaar.com
 www.cleartax.in
 www.investopedia.com
 www.telguinvestor.com
 www.janampunji.pk
 www.economictimes.indiatimes.com

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