Professional Documents
Culture Documents
ROLL NO: 40
SUBJECT: FINANCIAL ACCOUNTS
MOBILE: 9769931491
TOPIC: MUTUAL FUNDS
{MUTUAL FUNDS. }
Introduction:-
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TYPES OF MUTUAL FUNDS:-
3. Equity Funds
Equity funds invest in stocks. Furthermore, there are different types of equity funds such
as funds that specialize in growth stocks, value stocks, large-cap stocks, mid-cap stocks,
small-cap stocks, or a combination of these stocks.
4. Balanced Funds
Balanced funds invest in a mix of equities and fixed-income securities – typically in a 40%
equity 60% fixed income ratio. The aim of these funds is to generate higher returns but also
mitigate risk through fixed-income securities.
5. Index Funds
Index funds aim to track the performance of a specific index. For example, the S&P, or
TSX. Index funds follow the index and go up when the index goes up and goes down when
the index goes down. Index funds are popular as they typically require a lower management
fee compared to other funds (due to the manager not needing to do as much research).
6. Specialty Funds
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Specialty funds focus on a very small part of a market such as energy, telecommunications,
healthcare, industrials, etc
I. Higher Returns: Mutual funds have a proven track record of generating superior returns
than other investment options.
II. Diversification: Diversification is the biggest advantage of mutual funds. When you
invest in mutual funds, your investment is divided and invested into various stocks. By
doing this, the overall risk of the fund reduces.
III. Diversification also increases your chances of earning higher returns as you get to
participate in the growth of all top stocks.
IV. High Liquidity: Liquidity is when you can easily convert an asset into cash. Open-ended
mutual funds are highly liquid. So, you can easily sell these funds in case of
emergencies. In case of equity funds, the redemption proceeds are available in T+2
days. So, if you redeem from ABC Equity Fund on 1st January, then the amount will be
credited to your account on 3rd January.
Debt funds and liquid funds have higher liquidity as the redemption proceeds are
available in T+1 days. For example: If you redeem on 1st January, the redemption will
be credited to your account on 2nd January itself.
1. High Cost: There are no free lunches in this world. Similarly, mutual funds also come
with costs in the form of expense ratios. Expense ratio covers fund management fees,
marketing and sales costs etc.
A high expense ratio directly affects your portfolio returns. Investors who prefer a lower
expense ratio can invest in ‘index funds’.
2. Misuse of Management Authority: Some fund managers may unnecessarily churn the
portfolio. Portfolio churning is constant buying and selling of stocks.
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High portfolio churning increases taxes and other costs. This reduces portfolio returns.
Constant churning can also result in your fund manager making poor investment
decisions which can lead to substantial losses.
3. comk-in Period: ELSS and FMPs come with fixed comk-in periods. They are highly
illiquid and cannot be used during emergencies. Ideally mutual fund beginners should
avoid FMPs.
ELSS funds are a great tax saving option. But only investors who can stay invested for
a minimum of 3 years should invest in ELSS funds.
4. Exit Load: Exit load is a penalty charged by the fund house on redemption before a
specific period.
Different types of funds carry different exit load periods:
o Liquid funds have an exit load period of 7 days.
o Debt funds have an exit load period of 30 days - 540 days (credit risk debt fund)
o Equity funds have an exit load period of 365 days.
Investors should match their financial goals with the fund's exit load period. For
example: If an investor wants to invest for 10 days, then he should invest in liquid funds
not debt funds.
COVID-19 and its economic and social disruptions have given new urgency to the challenges
facing mutual funds. Last year, in our publication Mutual fund outlook: the time to act is now,
we highlighted trends we expect to see from 2019 to 2025, such as slower growth and shrinking
fees. These trends have all accelerated, and mutual fund managers need to move even faster to
maintain and improve their positions.
With the pandemic in mind, you may now be rethinking your forecasts and expectations for
the near- and mid-term future. But this isn’t just about playing defence: There are steps you
can take now to help you prosper over the next five years. Organic growth in the US mutual
fund industry has continued to slow, despite upside surprises in the overall market. The long-
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term outlook is under stress, too, from downward pressure on fees, reduced profit margins and
changing investor preferences. Adding a pandemic to the list deepens the challenge for asset
managers trying to remain competitive
Bibliography :- http://moneycontrol.com
http://taxguru.comhttp://Google.com