“PERSPECTIVE OF INDIAN INVESTORS IN MUTUAL FUNDS”

Name – NIDHI RAJESH SHAH

Sap ID – 77221243789

Program – MBA (Banking and Finance)

Semester – IV

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ACKNOWLEDGEMENTS: -
I would like to express my gratitude to Narsee Monjee Institute of Management Studies for
giving me an opportunity to study and work on this project in this semester.

I would also like to thank my professors and the entire staff of the institution who have
guided me throughout the course and have shared their pearls of wisdom with me which in
turn has helped me enhance my career.

I am also grateful to my colleagues and other fellow other students who are with me on this
journey and have always supported me through the research.

Lastly, I would like show my appreciation to my family and friends especially my parents
who have showed me guidance in my career and are always with me in whatever I pursue.
Their love and support have helped me follow my dreams and aspirations.

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TABLE OF CONTENTS

TOPIC PAGE NUMBER

1. Objectives 4
2. Scope 5
3. Executive Summary 6
4. Research Methodology 9
5. Literature Review 10
6. Data Collection and Analysis
i. What Mutual Funds are? 13
ii. History of Mutual Funds and the UTI 14
iii. AMC and AMFI 17
iv. Types of Mutual Funds 23
v. Steps involved in Mutual Funds and Cost of investing 30
vi. Net Asset Value (NAV) 33
vii. Lumpsum Investments 34
viii. Systematic Investment Plans (SIPs) 35
ix. Systematic Withdrawal Plans (SWPs) 38
x. Systematic Transfer Plans (STPs) 39
xi. Importance of Investing Early 41
xii. Advantages and Disadvantages of Mutual Funds 44
xiii. Opportunities and Challenges of Mutual Funds 47
xiv. Mutual Fund Performance and Benchmarks 50
xv. Risks-Return Profile 53
xvi. Mutual Fund Ratios 55
xvii. How Mutual Funds differ around the world? 57
xviii. Factors considered before investing in Mutual Funds 59
xix. Impact of Covid-19 on Mutual Funds in India 61
xx. Future of Mutual Funds in India 62
7. Findings 65
8. Suggestions/Conclusion/Recommendation 68
9. Bibliography 69
10. Annexure 70

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OBJECTIVES
This project is undertaken by me to understand the following aspects: -

i. To widen my knowledge and understand what mutual funds are?

ii. To understand the history of mutual funds and the UTI.
iii. To determine the working of AMC in India and the role of AMFI in the Indian mutual
fund industry.
iv. To establish about the various types of Mutual Funds in India and how they are
categorized based on various factors.
v. To know about various steps on how to invest in mutual funds and costs of investing
in Mutual Funds.
vi. To calculate the Net Asset Value in mutual funds along with studying what
lumpsums, SIPs, SWPs, and STPs are and how they benefit the Indian investors.
vii. Importance of investing early in Mutual Funds.
viii. To compare the various advantages and disadvantages of Mutual Funds.
ix. To describe the opportunities and challenges in the mutual fund industry and how do
investors overcome them.
x. To learn about the mutual fund performance, what are the different benchmarks set
for the mutual funds and have a look at the risk-return profile of mutual funds along
with the mutual fund scheme ratios.
xi. To establish how the mutual funds work in other countries and how they are different
from global and international funds.
xii. To determine the factors that the investors consider before investing in mutual funds.
xiii. To establish how COVID-19 influenced the mutual fund industry.
xiv. To study what will be the future of the mutual funds in India and how will it impact
the economy.

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SCOPE
The main aim of this project is to understand how the Indian people plan their investments.
Most of the investors even today invest their money in equity market, debt market and other
securities but are still skeptical about investing in mutual funds. They find that it is extremely
risky and fear that the market fluctuations will lead to losses. This project will give us all the
details relating to mutual funds and an in-depth knowledge about its working. It will be an
overview on the different types of the mutual funds and how the companies deal with them.
One will be able to know why they should invest in mutual funds and even how they can do
so. This project will also talk about the changing investment needs of the current investors
and how are they different from the past. There will also be information about AMFI.
Additionally, there will be an inclusion of the Covid-19 impact on the mutual fund industry
and how it has affected it. Furthermore, it will include information and suggestion from a
bank associate on how they view and deal with mutual funds and its investors. It also
includes a questionnaire where respondents have answered various questions related to
mutual funds. There will also be charts and figures where comparative analysis will be made
to refer from in this project. Lastly, it will include my personal feedback and suggestions
relating to the mutual fund industry in India.

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Executive Summary
Savings and Investment are an important part of every individual. But people do not
understand the difference between the two. Investments are actions taken with the intention
of growing your money over a certain period. While saving is the practice of gradually setting
money away, particularly into a bank account, with the intention of maintaining financial
security in times of need. Individuals want to save for their future and take advantage of the
surplus money that they possess. They are willing to make different types of short-term and
long-term investments based on their goals and to secure the future of themselves and their
loved ones. People invest in stock market, debt funds, government securities and mutual
funds. Mutual Funds are investment schemes that pool money from various investors and
further invest that money into different securities such as stocks, bonds, and other debt
instruments.

In India, people are aware about the stock market but do not have much knowledge relating
to mutual funds. A mutual fund is a kind of financial vehicle in which capital from several
participants is pooled and invested in a variety of assets, including stocks, bonds, and money
market instruments. They are unaware about the benefits that these funds carry and how it
can benefit them. The mutual funds were introduced in India in 1963 through the
establishment of the Unit Trust of India and are divided into five phases. In India only 2.5%
of the entire population invests in mutual funds as they lack the knowledge and strength to do
so. The AMC is the company who manages the mutual fund investments and is registered
with the SEBI. The mutual funds have a tree-tier structure which includes a fund sponsor,
trustees, and an Asset Management Company. The first mutual fund company was the Unit
Trust of India established in 1964 by the Indian government. The AMFI was incorporated as
a nonprofit organization on August 22, 1995. The AMFI, which now counts 43 AMCs as
members and all of which are registered with SEBI, is dedicated to the development of the
Indian mutual fund business along lines of professionalism, ethics, and morality.

There are various types of mutual funds that exist in India. The mutual funds are classifies
based on organizational structure, asset class, investment goals, risk appetite, portfolio
management, and specialized mutual funds. Major types of mutual funds include open-ended,
close-ended, equity, debt, hybrid, growth, tax saving, active, and passive funds. Before
investing in mutual funds, one needs to follow a KYC procedure and submit the necessary
documents. One can invest trough banks, online, mobile apps, through demat account or even
directly through AMCs. There are various charges that one must deal with while investing in
mutual funds. There are transaction charges as well as an annual maintenance charge that an
investor needs to pay to the AMC for managing his operations. The market value of mutual
funds is calculated through Net Asset Value. NAV is calculated by dividing the market value
of all the stocks and bonds owned by a certain scheme by the total number of units.

There are several methods for investing in mutual funds. It may be done via SIPs or a flat
sum investment. There are online calculators that can help you figure out what your returns
will be after a certain amount of time and at a certain rate of interest if you invest in lump
sums, as well as how much you must invest each month or quarter to achieve a certain goal

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and at a certain rate of interest if you choose to invest in systematic investment plans (SIPs).
There are also Systematic Transfer Plans or STPs where investors may easily and rapidly
convert their financial resources from one scheme to another. Except for the investment
plans, there are also withdrawal plans where the investors will get their money back on
maturity or through Systematic Withdrawal Plans (SWPs).

The fact that mutual funds are expertly managed by AMCs is only one of their many benefits.
It is a fantastic way to spread out your risk and have plenty of liquidity. Mutual fund
management fees are also quite cheap, and there are programs where investors may
contribute money to get tax advantages. The development of this sector has made mutual
funds safer and more transparent. By investing in mutual funds, an investor will be able to
take advantage of all the benefits, but they will stand to gain even more if they do so early on.
Early investment may result in the accumulation of a sizable corpus, improve spending
habits, allow for more risk, and most crucially, provide the advantage of compounding. There
are also disadvantages of mutual funds such as fluctuating returns, costs, poor performance of
the AMC, lack of knowledge of the fund manager, and high lock-in periods.

There are various new opportunities for mutual fund industry in India. The growth of this
sector and the changes in rules and regulations have led to the development of this sector.
Yet, there are many areas which are required to be explored. In order to have more
penetration in the economy, the industry needs more customer awareness, more distributors,
new NFOs, and of course advancement in technology. There are benchmarks against which
the mutual funds can be compared and will help to know which mutual fund scheme is better
and will match your goals. These benchmarks are for all types of mutual funds and hence one
can detect risks associated with each mutual fund scheme. Assessing the risk-return profile of
a mutual fund is very important and the AMC provides color codes to determine the level of
risk.

The mutual fund sector in India is highly distinctive from that in other nations. Every nation
has its own set of rules, laws, and operating directives. In the United States, the United
Kingdom, Europe, Canada, and Hong Kong, mutual funds function in distinct ways. Each
nation must abide by its own laws and register with the appropriate agency, such as the SEBI
in India where the AMC must do so. The investors in each country invest in mutual funds
based on their investment goals, their time horizon, the risk appetite, the uniformity and
liquidity of funds, and the expected returns. However, after the advent of Covid-19, there
were many changes in the industry. The pandemic led to reduction in the investments and the
AUM decreased. A lot of NFOs were forced to close and various schemes were cancelled.
There was also fall in the SIP accounts and led to huge losses to the Indian economy.

After the pandemic, the mutual fund industry again saw a rise in the investments and an
increase in SIP accounts. The women of this country became more aware of their expenses
and were motivated to invest in mutual funds for financial security. However, there is still a
lot that the mutual fund industry must conquer for its growth and development. The industry
is still a work-in-progress and must overcome its limitations to increase its market share.
There is requirement of more schemes which offer higher returns with low risk and more

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distributors so that more people can take advantage of this sector. One of the major changes
that is required is awareness among the Indian public. The Indian population is still
uneducated about the advantages the mutual fund industry has to offer and the future of the
mutual fund industry is very promising. There are various efforts made by the government,
SEBI and AMFI for development of the mutual fund industry in India.

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RESEARCH METHODOLOGY
I chose this subject because of an experience I just had. I had gone to a business exhibition at
BKC hosted by the Real Estate Agents Regulatory Authority (RERA) with my real estate
agent father. The business expo included a presentation where a speaker discussed a range of
topics pertaining to investment alternatives and common concerns. The event had about 400-
500 people and they were asked various questions. The speaker asked them about where did
they invest their money in, and majority of the audience raised their hands when he
mentioned stocks, gold, and fixed deposits. There were hardly any people, almost 5%-7% of
the crowd who raised their hands when asked about mutual funds. This made me think the
reason behind this. Further, I asked my friends, relatives, neighbours, colleagues about their
investments and even there, they did not know about mutual funds.

This made me realize that the mutual fund industry in India is far behind and the main reason
is that people are not educated about this industry. I thought that it is my duty to make people
realize as to why they should invest in mutual funds and how they can be benefitted from it.
This is a major problem as the Indian investors are unaware about this industry and should be
able to take advantage of it. This research will help people know about the various types of
mutual funds and how can they invest in them so that they can secure their financial future.

In this project, I have collected primary data as well as secondary data for the research. The
primary data is in the form of an electronic and online questionnaire where questions related
to mutual funds were asked and it consisted of both, open-ended as well as close-ended
questions. Online questionnaires have a great advantage as it helped me get a deeper
knowledge about the peoples understanding of mutual funds through internet and was less
time consuming and convenient. The questionnaire consisted of 23 questions that the
respondents had to answer. Questionnaire has various benefits. Some of the major advantages
include scalability, flexibility, saves cost and reaches people quickly. The respondents have
the option to fill the form at their own convenience and there is anonymity of respondents.

Apart from the questionnaire, another source of data collected was from 2 interviews. This is
also a primary data collection method which helped me understand the bank’s perspective
about mutual funds. I got in touch with Yes Bank mutual fund executive Mr Nimesh. Apart
from Yes Bank, I was also able to interview Ms Maitri who is working at Kotak Mahindra
Bank since last 1 year. She also undertakes mutual fund activities at Kotak Mahindra Bank
and educated me about various Mutual Fund schemes and NFOs promoted by that bank. The
Yes Bank executive also answered various questions pertaining mutual funds and about
various schemes offered by Yes Bank. It was a telephone interview with the Yes Bank
executive and I was able to get my answers in a quick and efficient manner. On the other
hand, I personally met Ms. Maitri and interviewed her. Interviews also have its own benefits.
The interviewer in this case, me was able to reach them in a relatively short period of time
and was able to know the interviewee.

I have employed both secondary data and original data in my study. I have consulted the
internet, blogs, business, and governmental websites, published publications, and research

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papers for assistance. The information gathered from my sources is reliable and pertinent. For
this project, the statistics are thoroughly checked and the data collected is updated. The used
data is accurate, relevant, and properly used. Thus, we can conclude that this project has used
both primary as well as secondary data for research method.

Additionally, all the graphs and charts attached in the annexure are prepared by me in Excel
with the help of secondary data. The data is collected from various sources and then compiled
into charts and graphs.

LITERATURE REVIEW
A careful selection and reading of books, scholarly and professional articles, studies, research
papers, publications, unpublished manuscripts, and other materials is necessary to produce a
high-quality literature review. The best sources of knowledge are often academic books and
journals. The fact that they can provide you precise, up-to-date information on markets,
industries, or firms, however, makes other sources like professional journals, reports, and
even newspapers essential as well. As a result, you will often need to access a variety of
information sources. The nature and goals of your research endeavour will determine the
exact mix of resources.

Books, reports, newspapers, and the internet were consulted for this evaluation of the
literature. I was able to uncover pertinent material with the use of search engines like Google
Scholar and IEEE. Data and statistics are found in papers from many institutions. I was able
to gather information with the aid of newspapers like The Economic Times and Times of
India.

1. Elmiger and Kim (2003)- Risk is defined by Elmiger and Kim (2003) as the trade-off
that every investor must make between the potential higher rewards of the opportunity
and the higher risk that must be accepted as a result of the risk.

2. Dr. Sandip Bansal, Deepak Garg and Sanjeev K. Saini (2012)- They looked at the
effect of the Treynor's and Sharpe ratios on a few different mutual fund schemes. This
study looks at the performance of a few different mutual fund schemes in order to
demonstrate how a simple market index, which provides comparative monthly
liquidity, returns, systematic & unsystematic risk, and comprehensive fund analysis
by using the unique reference of Sharpe ratio and Treynor's ratio, can accurately
compare the risk profile of the overall mutual fund universe.

3. Dr. Binod Kumar Singh (March 2012)- A study on investors' opinions on mutual
funds as a form of investment. The structure of mutual funds, their operations, a
comparison of investing in mutual funds against banks, and the computation of NAV,
among other topics, have all been taken into consideration in this article. This essay
examines the effects of several demographic characteristics on investors' perceptions
of mutual funds. for measuring a variety of events and effectively and rapidly
evaluating the data gathered to make accurate judgments.

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4. Dr. Nishi Sharma (August 2012)- Dr. Nishi Sharma performed research on Indian
investors' perceptions of mutual funds in August 2012. The goal of this article is to
examine the reasons why mutual funds are not as popular as other investing options. It
examines how investors see different benefits provided by mutual fund companies to
persuade them to invest in certain funds or schemes. A technique for reducing factors
was utilised in the study: principal component analysis. With six, four, and four
factors each, the research examined three possible inducements for investors:
monetary rewards, fund/scheme-related characteristics, and sponsor-related
characteristics. It is hoped that the results would provide mutual fund managers
important information for tailoring their offerings to the needs and expectations of
Indian investors.

5. Muralidhar Dunna (October 2012)- This study incorporates the growth of mutual
funds in India along with the history and includes the four phases which are also
mentioned in our research. Further, it also asses the AUM along with the future of the
mutual fund industry in India. The study also talks about the opportunities and
challenges faced by the mutual fund industry.

6. Ms. Shalini Goyal and Ms. Dauly Bansal (2013)- A study on mutual funds in India
has been conducted. This essay examines the development of India's mutual fund
business from beginning to end. Its beginning, its ups and downs throughout the
years, and sought to foretell what the long term would bring for investors in mutual
funds. This research compared and analysed the performance of several mutual fund
types in India and concluded that equities funds performed better than income funds.

7. Sowmiya G. (2014 January)- It was investigated India's Performance Evaluation of

Mutual Funds. The purpose of this is to familiarise you with the fundamental ideas
and jargon surrounding mutual funds offered by both public and private limited
businesses. to evaluate the development and performance of certain mutual fund
schemes in relation to their NAV and returns. determining the return variance and
making recommendations considering the analysis

8. Alamelu et al (2017)- The experts vehemently argued that Systematic Investment

Plans (SIP) are a cutting-edge and unequalled route for ordinary investors. The article
advised risk-takers to choose a small- and mid-cap value fund. Value mutual fund
plans are also suitable for those investors who can only contribute a little amount.
When compared to small and mid-cap, tax-saving fund plans, it has been shown that
large cap value development funds provide lower long-term returns. The funds return
to being low due to lower risk. Value plans supplied by ICICI, Reliance, and UTI are
discovered throughout their analysis to provide superior returns over other funds.

9. Banerjee et al (2017)- The many factors impacting people's investing decisions are
considered in this research. It has been determined that investors in the present

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 investment roadways have a solid educational and professional background. Only
10% to 25% of total investment money are placed in mutual funds, and they also
expect a 15% to 20% return on their investment. People in their 30s to 50s are
interested in specialist investment design. Young investors are adventurous. Plans
with open finishes are preferred over those with tight finishes. Along with the fund,
organisation reputation and the track record of the fund manager also play a key role
in determining investment decisions. Market-based investments with regular income
can influence investments.

10. Varun Sagar Singal and Dr. Rishi Manrai (2018 Symbiosis Centre for
Management Studies, Noida)- The study incorporates concepts from the variables
influencing mutual fund investment into a perceptive investment model that can be
used. The findings show that fundamental factors and investor perception are crucial
in the process of making investment decisions.

11. Govindappa Mani and Dr. Gajraj Singh Ahirwar (April 2021)- This paper
reviewed the mutual funds in India. It was taken by Sri Satya Sai University of
Technology and Medical Sciences at Sehore in Bhopal, Madhya Pradesh in India. It
talks about the investments in mutual funds and concludes on the Indian mutual fund
industry.

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DATA COLLECTION AND ANALYSIS
i) What mutual funds are?

In India most of the people prefer to invest in real estate, gold, fixed deposits, government
securities because of less risk and guaranteed returns. This is one of the major reasons as to
why the growth of capital market in India is stagnant. People are required to be encouraged to
invest in capital market which will happen only if they are able invest in safe instruments.
They also need to be assured that their money is in safe hands i.e., it is professionally
managed. Let us take a simple example. A boy named Jake has ₹10 and goes to a shopkeeper
to buy a box of marbles. The shopkeeper tells him that this amount of money is not enough as
the box costs ₹60. Jake then gets an idea and asks his friend Tom for money so that they both
can combine their money together and buy that box of marbles. However, Tom only has ₹20
which will not be sufficient even after they pool their money together. Jake and Tom after
some thought they decided to ask one more friend for her help, Amy. Amy has ₹30 and she
decides to help them as she also likes to play with marbles. Finally, all three of them pool
their money together and go to buy that box of marbles. The shopkeeper advises them to
share the marbles proportionately. Since Amy has given the highest amount of money she
gets 3 marbles, followed by Tom who contributed ₹20 and thus he gets 2 marbles. Jake gave
the least amount of money and hence he only gets one marble. A mutual fund is very similar
to this example.

Mutual Fund is a financial instrument wherein money is pooled from various investors and
then invested in different securities such as equity, bonds, and money market instruments. All
these instruments have different maturities and give different returns to the investors. The
returns or profit as well as losses are then divided proportionately among the investors. The
company that manages all the mutual fund investments is called the Asset Management
Company (AMC). The AMC is registered with the SEBI who looks after its operations.

There are a variety of investors in our country. Everyone has their own set of skills that they
use to invest in different instruments. However, there are many who lack the skills and
knowledge to do so but want to take advantage of the different returns from the market.
Mutual funds are the best option for such people. These give them an opportunity to invest in
the market and get good returns without having doing any market research. This is because
mutual funds are managed by professional individuals who use their expertise and market
research and invest your money based on your capacity to survive risk. The person who
manages your mutual fund is called as the Fund Manager.

A mutual fund can be defined from two perspectives. One of which is a scheme where
general public can use their own knowledge and invest their money into different mutual fund
schemes. They can invest as per their goals and risk capacities. Another one is a mutual fund
trust. Here the money is professionally managed and invested into stocks, bonds, gilt
securities, commodities, money market, precious stones. Here the trust acts as an
intermediary between the investors and the mutual fund market.

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There are various mutual fund schemes that exist in India. Consider an example of a train. A
train that travels across India taking passengers along with it from one place to another. The
train will have lots of passengers all with different boarding stations and different
destinations and the engine driver that enables the passengers to their destination. Each
passenger will get in the train at its boarding station and get off at his/her destination. If we
consider this in a mutual fund example, the engine driver is the fund manager, the train is a
mutual fund scheme, the travel route is the objective of the fund and the passengers would be
the money of the investors. The train will travel a long distance and there might be problems
in its journey. There could be problem with the engine, signals, and accidents ahead but
despite all this it will reach its destination sooner or later. Similarly, in the mutual fund
industry there will be ups and downs but it will eventually reach its goal. As there will be
many trains travelling across our country, similarly there are many mutual fund schemes with
different journeys and destinations. This gives the investors the chance to diversify their risk
and earn benefits from different schemes.

Mutual fund allows investing small amount of money which is managed by professional fund
managers and thus one does not require in-depth knowledge of the market. Before investing,
one should know the objective and the purpose of a particular mutual fund scheme. This is
mentioned in the Red Herring Prospectus which contains all the information related to a
mutual fund scheme such as the name of the fund manager, the expenses, the maturity date,
and the related policies. When one invests in stock market, they buy a share of a particular
listed company. Similarly, one buys units in mutual fund. The smallest element is called a
unit. These units are bought at the Net Asset Value which is calculated on weekly or daily
basis.

Each mutual fund is registered with the SEBI and has to compulsory follow a three-tier
structure that consists of – Fund sponsor, Trustees and Asset Management Company. A fund
sponsor is someone who launches the mutual fund by himself or along with some other
individual or a company. It is his responsibility to register the fund with the SEBI and also set
up the asset management company and appoint the trustees. The asset management company
is set up under the Companies Act, 1956 whereas the trustees are appointed with the approval
from the SEBI. The trustees are responsible for managing the trust along with its funds and
assets. They look after the operations and daily management of the mutual funds. The asset
management company is the investment manager of the mutual funds. It charges fees from
the investors on whose behalf it manages the money which is invested in various securities.

The investors of Mutual Funds in India are distributed all over the country. The western
region has a greater number of investors as compared to the eastern region. Also, the
metropolitan cities in India have many investors and contribute a high percentage as
compared to the rest of India. Refer Graph 1 and 3 for statistical view.

ii) History of the Mutual Funds and the UTI.

It is said that the first ever mutual fund in the world was introduces in Dutch Republic by a
businessman around 1773. He started the mutual funds with an aim to provide investing
opportunity to small investors. Since then mutual funds industry started to spread across
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various countries. In India, mutual funds were introduced in the year 1963. This mutual fund
was started by the government of India along with the RBI under the name Unit Trust of
India (UTI). UTI was the first asset management company to deal with mutual funds in India.
The objective of the UTI was to provide small investors a chance to invest in equity and
money markets and earn returns. The Indian mutual fund history is divided into five different
phases.

FIRST PHASE– 1963-1987: This was the first phase of mutual fund in India as the UTI was
set up in 1963. The UTI launched its first scheme in 1964 called as the Unit Scheme. Initially,
it was controlled by the Reserve Bank of India which was later delinked in 1978. UTI was
under the operations and control of the RBI for almost fifteen years and had the monopoly in
this industry. The main aim of the UTI was to provide the investors an adequate return on
their investments whenever they require. UTI used various communication channels to make
people aware about the scheme and used newspapers to let the people know about the
purchase and sale price of the mutual fund units. In 1978, after delinking from the RBI, the
UTI was then under the regulatory authority of the Industrial Development Bank of India
(IDBI) and were managing ₹6700 crores worth of assets under them.

SECOND PHASE – 1987-1993: Many companies and banks saw the success of mutual
funds in India and hence this phase witnessed the entry of public sector mutual funds in India.
The UTI’s monopoly was ended with the entry of SBI’s Mutual Fund that was introduced in
1987. It is called as the first non-UTI fund to be launched in India Later in 1987, Canara
Bank’s Mutual Fund i.e., the CanBank Mutual Fund was started. Other than the banks,
mutual funds were also started by the Life Corporation of India (LIC) in 1989 and the
General Corporation of India (GIC) in 1990. During this phase only, the UTI launched its
second mutual fund scheme which was in 1988.

As there was entry of many players in the market, the RBI felt the need for rules and
regulations and hence in 1989, RBI issued guidelines for the mutual funds for the first time.
After the RBI, the government of India also issued rules and regulations for the mutual fund
industry in 1990. Other banks that started to deal with mutual funds during this era were the
Punjab National Bank, Bank of India, Bank of Baroda, and Indian Bank. Just in few years the
value of assets under management increased to ₹47007 crores. This phase led to a lot of
development in this industry. People became educated and were willing to invest in different
market and thus the mutual fund industry boomed during this phase.

PHASE THREE – 1993-2003: The economic crises of 1991, led to the adoption of New
Economic Policy. The government of India introduced the Liberalization, Privatization and
Globalization (LPG) policy in 1991 which led to a lot of changes in the financial market in
India. The Indian economy was going through a lot of changes and development during this

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era. In the mutual fund industry, the LPG policy allowed the entry of private players in the
industry. In the private sector, Kothari Pioneer was the first private sector mutual fund in
India. A lot of private banks such as HDFC, ICICI, Kotak Mahindra Bank launched their
mutual funds. The total assets under management further increased to ₹121805 crores.

Increasing developments in the financial markets and in order to protect the interest of the
investors, Securities and Exchange Board of India (SEBI) was set up in 1992. The entry of
private sector along with the existing public sector compelled the SEBI to issue regulation for
the mutual fund sector. Except for UTI, all public and private mutual funds were brought
under the control of SEBI. These regulations were further revised in 1996 known as the SEBI
(Mutual Fund) Regulations. Even foreign investors were allowed to invest as well as set up
mutual funds in India. By the end of this stage there were 33 mutual funds in India with UTI
having the highest AUM under its control.

PHASE FOUR – 2003-2014: After almost 40 years, the UTI Act of 1963 was abolished and
two new organizations were formed. The two entities that were formed were the Specified
Undertaking of the Unit Trust of India (SUUTI) and UTI Mutual Funds. The SUUTI works
under the administration and the rules and regulations set up by the government of India. On
the other hand, the UTI Mutual Funds works under the administration and rules and
regulations set up by the SEBI under the SEBI Mutual Funds Act of 2003. Since 2003, there
were many investors, Indian as well as international who invested in mutual funds. Overall,
the progress of the mutual funds all over the world till late 2008 was very progressing.

However, the global economic crises of 2009 shook up the world’s economy. All the markets
faced problems and were at an all-time low. This also included the mutual funds industry in
India. People who had invested lost a lot of their money and had huge losses. The belief of
people in mutual funds was reduced and they were skeptical to invest in that industry. All
financial markets in the country were shaken and it took a long time for them to recover.
Additionally, the SEBI ended the Entry Load which made the situation even worse. Towards
the start of 2014, after almost 5 years the mutual fund industry saw inflows and increase in
investments.

PHASE FIVE – 2014-CURRENT: After the great recession it took India more than two
years to get over the crises. The people were still not ready to invest in mutual funds and
preferred other options to invest their money. Seeing this, the SEBI came up with several
measures by late of 2012 so as to motivate people to invest again in mutual funds. SEBI made
the transactions more secure and more transparent in nature. The main motive of the SEBI
was to ‘re-energize’ the industry. These measures proved to be successful and India saw an
increase in the investments in the mutual fund industry sector.

Talking about the assets under management, it was around ₹10 lakh crores by 2014, which
was double i.e., ₹20 lakh crores by 2017 and was increased to ₹30 lakh crores by 2020.

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Additionally, there was also a tremendous increase in the number of people investing in
mutual funds with almost over 14 crore investors investing by the year 2022. This all was
possible due to the SEBI and the people who worked for educating people about the mutual
funds in India. People from rural India were also made aware and were given help all times
whenever they required it.

THE UNIT TRUST OF INDIA (UTI):

The Unit Trust of India was set up in February 1964 under the Unit Trust of India Act, 1963.
This was India’s attempt and entry in the mutual fund industry. It began its operations with a
capital of just ₹5 crores. This capital was sourced from RBI, SBI, and LIC. It was set up by
the government of India and the central bank of India, RBI. Its main objective was to
motivate investors and especially small-time investors and give them an opportunity for
savings. The UTI was set up to provide guaranteed returns and minimize the risk of investing
in the market. It induces the habit of savings and plan goals and plans. It uses newspaper to
quote and make people aware about the purchase price and sale price of the units. There are
regular changes in these prices and the investor is free to purchase the units whenever he feels
like. The investor can invest small or a large amount of money based on his risk ability and
his goals. The UTI has trustees who overlook its management and consists of one chairman
and four nominees each one appointed by the LIC, RBI and two from the constituent
institutions. Since its inception, the UTI has launched various schemes such as The Children
Gift Growth Fund Unit Scheme in 1986, Raj Lakshmi Unit Scheme in 1992, Master Equity
Plan in 1995 and many more.

iii) Asset Management Company (AMC)

An AMC is an important part of the tree-tier structure of the mutual funds. As we know that
these companies manage the funds of the investors by investing in high-risk and low-risk
securities, they charge a nominal administration fee for the same. These companies have the
financial knowledge and skills that help them understand the market and various risks
associated with it. Before investing their customers’ money, they take into consideration all
the factors such as interest risk, market risk, political risk, and maturity factor. Money is
invested into equity market if one requires more returns and is willing to take a high risk.
Where for people willing to take low risk, money is invested into debt market and
government securities where the return is also relatively low.

The asset management company follows a process before investing and aligns the financial
plan with the investors’ goal. The process starts with market research and analysis. In-order
to find a scheme matching the investors need and requirement, the AMC needs to do through
research and analysis keeping in mind the various micro and macro factors. It is a very
important step and this leads to finding securities that will be perfect for each of the investor
where they get their appropriate returns.

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Once the research is done, the AMC then allocates the funds collected to different securities
and assets. This allocation of funds is all done on the basis of risk-taking capacity of the
investor. Some people prefer returns over risk whereas some prefer safety of their money
over returns. Risk is directly proportional to returns. Higher the risk, higher the returns and
vice-versa. The equity market is the high risk, high return market, whereas debt market is low
risk, low return market.

The third step in this process is creating a portfolio for the investors. This is where the actual
buying and selling of securities take place. All the research that was previously done by the
previously done by the professionals is used here and a separate portfolio for each investor is
developed based on the availability of funds is made. This step leads to the allocation of
assets of the investors and day-to-day watch is kept on the investments made.

Now as the money is invested, the performance of the mutual fund is monitored on the
regular basis to see whether the actual performance is meeting the expectations. Based on the
daily performance the portfolio manager is liable to answer to the investor and the trustee
about every buy, sell or holding the securities. This helps to understand the investors what is
affecting their portfolios and make changes accordingly. The AMC should always be in a
position to answer all the questions that the investor and the trustees have related to the funds
and the position of the portfolios. These are the four steps that the AMC follows always for
the investment in mutual funds.

There are many AMCs in India for people to select from. Some of the major AMCs in India
are SBI Mutual Fund, ICICI Mutual Fund, HDFC Mutual Fund, Axis Mutual Fund, UTI
Mutual Fund, Tata Mutual Fund, and many others. The problem here that arises is to which
AMC one should choose from so many options. While selecting an AMC, investors
may decide amongst the following factors:

Reputation of the AMC- The history, performance of the AMCs over the year. The annual
reports of the AMC should be seen and should be compared to another AMCs to understand
which one is better according to your needs. Other factors such as frequent management
changes, spotless rack record also contribute significantly to the organization’s image. The
investors should stay on top of any pertinent AMC- related information. The investors can
find all the company related information on their official website.

Fund manager- The person in charge of investing on behalf of the investors is called as fund
manager. The possess capital market knowledge and are experienced professionals. There are
AMCs out there that would never trust their financial selections to a less qualified expert. As
a result, it is essential to keep a careful eye on the qualifications and professional background
of the fund management.

Reviews of other investors- There are many other investors whose opinion and experience
with a particular AMC can be considered before choosing an AMC. One can ask about
whether they faced problems in the past with that AMC and if yes, was it resolved
satisfactorily. It is easy for people to trust their family and friends who invest in mutual fund
and choose the same AMC as them.

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Fees and Commission- Each AMC is providing a service to the investors. In exchange for
that they charge fees or commission from the investors. The fees charged by the AMC is
fixed whereas the commission is based on the returns that are earned by the investors. So, the
investors need to decide what they are willing to pay and choose an AMC based on that.

What are the requirements that an AMC needs to follow as per SEBI?

As we are aware with the fact that all the schemes launched by the AMCs are required to be
registered with the SEBI, but before that approval the AMC needs to submit a draft offer to
the SEBI. The approval of the SEBI means that the scheme is appropriate and can be issued
to the public. The SEBI has formulated certain guidelines to ensure ethical operation of the
AMC. This protects the AMC as well the investors’ interest. The following are the guideline
provided by the SEBI:

 The interest of investors should be protected at all costs and necessary actions
should be taken to do so.
 It is very important that the AMC follows all the rules and regulations of the SEBI
and are updated with the guidelines from time-to-time.
 All the information related to the mutual funds should be always given to the
investors. They should be informed about the offerings by the AMC based on their
portfolio, risk appetite, goals, and requirements.
 All client details should be kept safe and secured. The information should not get
leaked and always kept confidential.
 The investors have the right to know about the risks that a scheme might have in
the future. This information should be disclosed to the investors.
 The AMC should provide good quality service to the investors. The investors trust
the AMC with their money and hence they should not be disappointed. There
should be quality infrastructure for carrying out smooth operations.

There are also various requirements under the SEBI (Mutual Funds) Regulation, 1996
that the AMC needs to follow to get registered. It needs to be registered under section 7 of
the SEBI MF ACT 1996. The following requirements must be satisfied by the applicant
for a certificate of registration to be granted: -

a. In all his business dealings, the sponsor should have a solid track record
and a reputation for fairness and honesty. A solid track record means that
the fund sponsor should be operating a financial service firm for at least 5
years, he/she should be fit, healthy, and respectable individual, all the
previous five years net worth had been positive, his capital investment in
the asset management firm should be more than the net worth in the year
before.
b. If an existing mutual fund is structured as a trust and the trust deed has
been authorised by the board.
c. The sponsor or any of its directors or the principle officer to be employed
by the mutual fund should not have been convicted or fraud of an

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 offensive involving moral turpitude or has not contributed to or contributes
at least 40% of the net worth of the AMC.
d. The nomination of trustees to serve as the mutual fund’s trustees in line
with the rules.
e. The selection of an asset management firm to oversee the mutual fund and
run the plan of such funds in accordance with the guidelines set out in
these rules.
f. The selection of a custodian to maintain custody of the securities and
perform any custodian tasks that the trustees may have authorised.

The SEBI after processing the documents given by the AMC may conduct an on-site visit to
check the infrastructure of the company. One can choose an AMC which is near to their
residence and matches all their requirements and needs.

THE ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

The AMFI was established on 22 August 1995 as a non-profit organization. The AMFI is
committed to the growth of the Indian Mutual Fund industry along professional, ethical and
moral lines. It also works to raise and maintain standards in all areas with the goal of
safeguarding and advancing interests of mutual funds and the people who own their units.
Currently, it has 43 Asset Management Companies as its members who are registered with
the SEBI. The AMFI is the primary regulator who works for the development of the mutual
fund industry in India.

The main objective of the AMFI is to protect the interests of the Indian investors and the
asset management companies. The AMFI works towards building confidence in the minds of
the investors towards mutual funds and making the investments more transparent and
manageable. The AMFI has numerous goals in mind. Here are a few of them.

 To establish and maintain high moral and professional standards across the board for
the mutual fund sector.
 To make sure that the all the registered companies conduct business by following the
rules and regulations but more importantly in an ethical way and so do the investors,
agents, distributors, and other related individuals.
 To urge and encourage members and other participants in mutual fund and asset
management operations, including organisations linked to or active in the area of
capital markets and financial services, to adhere to best business standards and a code
of conduct.
 To provide information about the investments and hold a variety of seminars
regarding different funds.
 To communicate with and represent the mutual fund industry before the Securities
and Exchange Board of India (SEBI).
 Represent the Mutual Fund Industry to the Government, Reserve Bank of India, and
other entities.

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  The AMFI has also developed a mechanism via which people may express concerns
or lodge grievances against the fund management or any AMC in order to protect the
interest of the investors.
 To launch a national investor awareness campaign to encourage a thorough grasp of
the idea and operation of mutual funds
 To spread knowledge about the mutual fund industry and to carry out investigations
and research on their own or in collaboration with other organisations
 To control distributor behaviour, especially through enforcing disciplinary measures
(such as cancelling ARNs) for breaches of the Code of Conduct.
 To safeguard unit holders' and investors' interests.

Since its inception, the AMFI has worked and framed numerous programmes to meet its
objective. There are various committees in the AMFI that look after all the operations and
maintain smooth working of the AMFI. The committees such as operations and compliance,
Equity CIO, ETF committee, valuations, financial literacy, and committee on registration of
certified distributors. The AMFI allots a unique number known as the ARN number to all the
agents, distributors and brokers and is important to know when one wants to invest in mutual
funds. This ARN number is given to those who clear the National Institute of Securities
Market certification. The ARN certified companies are informed about all the information
related to mutual funds along with the current market trends. The ARN serves as a gauge of
the AMCs credibility, thus it is crucial to examine it.

AMFI CODE OF ETHICS.

Promoting the interests of investors by establishing and maintaining high ethical and
professional standards in the mutual fund sector is one of the goals of the Association of
Mutual Funds in India (AMFI). In order to accomplish this goal, AMFI has established a
committee with S. V. Joshi, C. G. Parekh, and M. Laxman Kumar as members, chaired by
Shri A. P. Pradhan. The Code was developed by this Committee under the FIRE Project of
USAID in close collaboration with Price Waterhouse-LLP, and it has been approved and
encouraged by the Board of AMFI for adoption by its members. 

The Asset Management Companies must adhere to certain norms of ethical behaviour in their
operations and in their interactions with clients, intermediaries, and the general public, which
are outlined in the AMFI Code of Ethics, or "The ACE" for short. All Asset Management
Companies and Trustees must adhere to the Code of Conduct as outlined in the Fifth
Schedule to the SEBI (Mutual Funds) Regulation 1996. The AMFI Code was created as an
addition to that schedule in order to promote greater standards than those outlined in the
Regulations for the mutual fund industry's benefit. The AMFI members will put the code into
practise and make sure their staff is fully aware of the Code.

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The AMFI works on the following principles which are outlined in “THE ACE.”

 Integrity- High standards of honesty and fairness must be maintained by members and
their key employees in all business contacts with investors, issuers, market
intermediaries, other members, regulatory agencies, and other government agencies.
Mutual Fund Schemes must be set up, run, managed, and have their security
portfolios chosen in the best interests of all classes of unit holders, not those of the
following: sponsors; directors of Members; members of the Board of Trustees; or
directors of the Trustee company; brokers and other market intermediaries; associates
of Members; or a special class chosen from among unitholders.

 Due Diligence- Members must always follow certain rules while doing their asset
management company to provide excellent service, apply due diligence, use your
expert judgement on your own. Members must have and use processes and resources
that are effective, required to carry out Asset Management operations.

 Disclosures- Members must annually report to unitholders the investment strategy,

portfolio information, expense to net asset and total income ratios, and portfolio
turnover, where appropriate, for schemes.

 Professional Selling Practices- Members must not unethically pitch, sell, or encourage
investors to invest in their products or ideas. Members cannot exaggerate product or
programme efficacy. Members should work to guarantee the investors about the risk
associated with any schemes before making any investment decision. Investors may
seek prospectuses, memoranda, and other documentation about members' schemes
before investing. and members must not present a mutual fund scheme to investors
and selling agents as a new share offering. Finally, one should not mislead investors
by withholding important information or conveying it in a manner that misleads.

 Investment Practices- Members are responsible for overseeing all schemes in

accordance with the basic investment goals and guidelines outlined in the offer
papers, and they are only permitted to make investment choices that are in the best
interests of unitholders. Members are prohibited from knowingly purchasing or
disposing of securities for any of their schemes from or to any trustee, director,
officer, or employee of the trustee company.

 Reporting Practices- Members must adhere to similar and consistent valuation

practises in line with SEBI Mutual Fund Regulations. Members must use consistent
performance reporting based on total return. Members are responsible for separating
cash and securities accounts according to a plan.

 Unfair Competition- When competing for investible funds, members must not say or
participate in anything that is likely to be detrimental to the interests of other members

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 or to put other members at a disadvantage in comparison to a market participant or
investors.

 Observance of Rules, Regulation, and the Guidelines- Members are required to follow
all laws, rules, and regulations that may be relevant to the activities they engage in,
both in form and in spirit.

iv. TYPES OF MUTUAL FUNDS

Let us assume that you as well as your neighbour both decide to buy a television on the
occasion of Diwali. You both decide to visit various electronic shops near you and get
information about the different models of televisions. You both enquire about the price,
features, warranty, size, companies, colour, and many other features. After a lot of
comparisons and based on your budgets and the space available at your homes you and your
neighbour decide to buy a 32 inch and 42-inch TV respectively. Similarly in mutual funds,
the investors risk capacity, amount available for investing, time period for which the amount
needs to be invested, the investors goals and plans are all taken into consideration before
buying mutual funds. There are many different types of Mutual Funds available that are
designed to fit various investor objectives. The following factors may be used to categorise
mutual funds: -

a) Organisation Structure- Based on the organizational structure the mutual funds are
further classified into-

i. Open-Ended Funds- These funds are the best option for a person who wants
liquidity throughout the year. In this type of mutual fund, when and how
many units are acquired and not constrained and the investors have an option
to enter or depart at any time of the year at the current Net Asset Value. There
is no fixed maturity date of the fund. These are the funds that exist the most in
the market and are most popular among the individuals. About 59% of the
mutual funds are open-ended.

ii. Close-Ended Funds- These funds cannot be bought or sold at any time but
rather have a fixed maturity period. Also, the investors can buy these funds
only at a particular time which is during its initial launch period known as the
New Fund Offer (NFO). These funds have a predetermined unit capital
amount. The funds must be traded on the stock market in order to provide an
exit strategy prior to maturity and allow for sales and trading. There are
additional possibilities where the units may be repurchased at NAV-related
prices after being sold directly to the mutual funds. The investor can choose
any option they might find it profitable to them.

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 iii. Interval Funds- This includes the features of open-ended as well as close-
ended funds. It is a hybrid fund and allows trades at predetermined intervals.
There is a trading window that opens during a particular time period and the
investors have an option to buy or sell their units. The transaction time must
last at least two days and there must be at least a 15-day interval between the
transactions. The trading window opens at predetermined intervals and the
investors have the option to either trade on stock exchanges or sell or redeem
at NAV-related prices.

b) Mutual Fund Asset Class- Another type of mutual funds is based on the principal
investments they invest in. This is further categorized into: -

i. Equity Fund- Equity funds make investments in corporate stock, and the
performance of the stock market affects how much money they make. These
investments are regarded as dangerous even if they might provide big profits.
They may be divided into further categories depending on their
characteristics, such as ELSS, Focused Funds, Large-Cap Funds, Mid-Cap
Funds, and Small-Cap Funds, among others. If the investor has a lengthy time
horizon and a high-risk tolerance, invest in equities funds. The cap funds are
defined by SEBI as
Large Cap- Top 100 companies in terms of market capitalization.
Mid Cap- Companies who rank from 101-250 in terms of market
capitalization.
Small Cap- Companies who rank above 250 in terms of market capitalization.

Multi Cap Fund (Diversified Equity At least 65% of investments are made
Funds) in equity and equity related products.
Large Cap Fund At least 80% of total assets invested
in large cap fund
Large and Mid-Cap Fund Investment in large-cap and mid-cap
stocks of at least 35% each.
Mid-Cap Fund At least 65% is invested in mid-cap
fund
Small Cap Fund Investment in small cap stocks of at
least 65%

Dividend Yield Fund Schemes principally invest in

dividend yielding stocks with a
minimum investment of 65% of the
total assets.
Value Fund In value fund, the minimum
investment in equity and equity
related instruments is 65% of the total
assets
Contra Funds The MF scheme follows a contrarian
investment strategy. The minimum

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 investment here is also 65% of total
assets
Focused Fund The scheme invests in maximum 30
stocks with an investment of at least
65% in total assets.
Sectoral or Thematic Fund Here, there is investment in a
particular theme or a with 80%
investments in stocks.
ELSS Under the Equity Linked Saving
Scheme 2005, the minimum
investment is 80% of total assets in
equity and equity related instruments.

ii. Debt Funds- These invest in debt instruments which have lower risk as
compared to that of equity. The securities include both long-term and short-
term such as corporate bonds, government securities, treasury bills,
debentures, commercial papers, and certificate of deposits. As they are low
risk, the returns from investing in these funds is also less as compared to
equity. There are 16 categories of the debt funds which include Overnight
funds, Liquid Funds, Ultra Short Duration Funds, Low Duration Funds,
Money Market Funds, Short Duration Funds, Medium Duration Funds,
Medium to Long Duration Funds, Long Duration Funds, Dynamic Bond
Funds, Corporate Bond Funds, Credit Risk Funds, Banking and PSU Funds,
Gilt Funds, Gilt Fund with 10-year constant duration, and Floater Funds.
Each of these have different investment needs and different maturity periods.

iii. Hybrid Funds- In order to balance out debt and equity, hybrid funds invest in
both debt and equity securities. Depending on the fund company, the
investment ratio may be fixed or variable. Balanced or aggressive funds are
the two main categories of hybrid funds. Multi asset allocation funds are ones
that make investments across at least three asset classes. The SEBI has made
7 categories under hybrid fund which include Conservative Hybrid Fund,
Balanced Hybrid Fund, Aggressive Hybrid Fund, Dynamic Asset Allocation
Funds, Multi Asset Allocation Fund, Arbitrage Funds, and Equity Savings.

iv. Solution Oriented Schemes- These mutual fund plans are for particular
objectives like saving money for your own retirement or for your children's
college or wedding. They have a minimum five-year lock-in duration. The
minimum lock-in time for the retirement fund is either five years or the
retirement age, whichever comes first. When it comes to Children’s Fund the
lock-in period remains the same which is 5 years but in case of a child it is till
the time he/she attains the age of majority whichever is earlier.
c) Based on Investment Goals- Every investor has some specific goals and aims in mind
that they want to accomplish in a particular time. The following are the funds that
one can choose to invest in based on the financial objective: -

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i. Growth Funds- Growth funds are those that invest largely in high-performing
companies with the intention of capital growth. Investors looking for large
returns over a lengthy period of time may find these products to be an
appealing alternative.

ii. Tax-Saving Funds- The above mentioned ELSS are tax-saving funds and they
primarily invest in corporate securities. The Income Tax Act’s Section 80C,
however, allows them to claim tax deductions. Their investing horizon is at
least 3 years.

iii. Liquidity-Based Funds- On the basis of how liquid the investments are,
certain funds may be grouped. While plans like retirement funds have longer
lock-in periods, ultra-short-term and liquid funds are best for short-term aims
and investors who want liquidity and principal protection opt for this type of
fund. The AMCs invest the funds in money market for maximum of 91 days.
This type of funds is suitable for those who have surplus money and want to
invest for a short period of time. Investors who retain their money in these
items for extended periods of time may forgo the potential for higher profits
from such goods.

iv. Capital Protection Funds- These funds split their investments between equity
such as stocks and fixed income investments such as certificate of deposits
and bonds. This might provide capital protection, or at least minimum loss.
Returns, however, are taxed. These funds are a good option if preserving
principle is a top goal, even if they provide modest returns. Although the
likelihood of suffering a loss is relatively low, it is advisable to keep your
money invested for at least three years (closed-ended) to protect it.

v. Fixed Maturity Funds- These funds invest capital in debt market securities
that mature at the same time as the fund itself or at a time that is reasonably
close to it. A four-year FMF, for example, will invest in assets having a four-
year maturity or less. - Because FMPs are closed-end schemes, they must be
listed; following the NFO, investors may only purchase or sell FMP units on
the stock market. Only units kept in a dematerialized state may be exchanged,
hence anybody looking to invest in a scheme with liquidity must have a
demat account.

vi. Pension Funds- Pension funds make investments with the intention of
generating consistent returns over a long period of time. They are often
hybrid funds that provide modest returns now but may do so in the future.
Most unforeseen events (such a medical emergency or children's wedding)
may be taken care of by setting aside a percentage of your salary in a pension
fund of your choice to accumulate over a lengthy period of time to insure you

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 and your family's financial security after retiring from regular job. It is not
advised to rely only on funds to get you through your golden years since all
resources, whatever of size, eventually run out. EPF is one example, but
banks, insurance companies, etc. also offer many more attractive
programmes.

d) Based On Risk- Risk is an important factor for any individual. Many investors are
willing to take higher risk due to returns they get whereas some people prefer to keep
their money safe even though they get lesser returns. Based on risk, the mutual funds
can be classified into: -

i. Very Low Risk Funds- Because of their minimal risk, liquid funds, and ultra-
short-term funds (one month to one year) are known to have poor returns (6%
at most). Investors choose this to achieve their near-term financial objectives
and to safeguard their capital via these products.

ii. Low Risk Funds- Investors are hesitant to put money into riskier assets in the
case of rupee devaluation or an unanticipated national emergency. Fund
managers advise investing in one or more liquid, ultra-short-term, or arbitrage
funds under these circumstances. Returns might range from 6 to 8%, although
investors are free to change when values stabilise.

iii. Medium Risk Funds- The risk component in this situation is medium since
the fund manager splits his investments between stock and debt. The typical
returns may range from 9 to 12%, and the NAV is not very volatile.

iv. High Risk Funds- High-risk mutual funds need active fund management since
they are ideal for investors who have no risk aversion and who want to earn
large returns in the form of interest and dividends. Since performance
evaluations are subject to market volatility, they must be conducted on a
regular basis. Although most high-risk funds often provide up to 20% returns,
you may anticipate 15% returns.

e) Based on the management of the portfolio- There are two types of funds that are
categorized based on how the portfolio is managed. The two funds are: -

i. Active Funds- Actively managed funds are those in which the fund manager
has the freedom to select the investment portfolio while staying within the
general bounds of the scheme's investment objective. The costs associated
with maintaining the fund increase as a result of the fund manager's expanded
role. Investors anticipate that actively managed funds will outperform the
market.

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 ii. Passive Funds- Investments made by passive funds are based on a certain
index, whose performance is sought after. As a result, a passive fund that
tracks the S&P BSE Sensex would only invest in the shares that make up the
index. The weight allocated to each share in the S&P BSE Sensex would also
represent the percentage of each share in the portfolio of the plan. As a result,
the performance of these products often reflects that of the relevant index.
They are not intended to outperform the competition. These plans are often
known as index plans. The fund manager has little influence on investment
choices since the portfolio is selected by the index itself. As a result, these
programmes have modest operating expenses.

f) Specialized Mutual Funds- Except from the above-mentioned mutual funds the
following are the specialized mutual funds that exist in the Indian Market.

i. Sector Funds- Sector funds are theme-based mutual funds that invest only in
one particular sector. The risk factor is greater for these funds since they
exclusively invest in certain industries with a small number of companies.
Investors are encouraged to follow the numerous sector-specific trends.
Sector funds provide excellent returns as well. Some industries, like banking,
IT, and pharma, have had rapid and steady growth in recent years and are
expected to continue to show promise in the years ahead.

ii. Index Funds- Index funds invest money in an index and are best suited for
passive investors. It is not managed by a fund manager. An index fund finds
companies and their related market index ratios, then invests money in
equities with comparable market ratios. They keep it safe by imitating the
index performance even if they are unable to outperform the market (this is
why they are unpopular in India).

iii. Funds of Funds- A diversified mutual fund investment portfolio provides a

wide range of advantages, and "Funds of Funds," sometimes referred to as
multi-manager mutual funds, are designed to fully take advantage of this by
investing in a variety of fund categories. In other words, purchasing one fund
that invests in a variety of funds rather than several funds allows for both
cost-effective diversification and diversity.

iv. International (Foreign) Funds- Foreign mutual funds are used by investors
who want to diversify their portfolio beyond international borders since they
may provide profitable returns even when the Indian Stock Markets are doing
well. An investor may use a feeder strategy (getting local funds to invest in
international companies), a hybrid strategy (investing, for example, 60% in
domestic equities and the remaining 40% in foreign funds), or a theme-based
allocation (e.g., gold mining).

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v. Global Funds- Global funds and international funds are quite distinct,
although sharing the same linguistic sense. A global fund contains
investments in your local nation even if it primarily invests in global markets.
The International Funds are primarily focused on international markets.
Global funds are diverse and universal in approach, but due to differing
regulations, market, and currency fluctuations, they may be highly hazardous.
Nevertheless, they can act as a hedge against inflation, and long-term returns
have traditionally been strong.

vi. Real Estate Funds- Due of the many dangers associated with real estate
projects, many investors are still unwilling to participate in them despite the
real estate boom in India. Real estate funds may be a great substitute since
they allow investors to participate indirectly by investing in established real
estate firms or trusts rather than individual real estate projects. When buying a
home, a long-term investment eliminates dangers and administrative
difficulties and, to some degree, provides liquidity.

vii. Market Neutral Funds- Market-neutral funds serve the purpose of protecting
investors from unfavourable market trends while maintaining good returns.
These funds offer high returns with better risk-adaptability, allowing even
small investors to outperform the market without exceeding the portfolio's
limits.

viii. Gift Funds- These are the funds and SIPs that one can gift to their loved ones
to secure their financial future.

ix. Exchange Traded Funds- It is purchased and sold on exchanges and is a

member of the index fund family. Exchange-traded Funds have opened a
whole new universe of investing opportunities, giving investors significant
exposure to domestic and international stock markets as well as specialised
industries. Similar to a mutual fund, an ETF may be exchanged in real-time at
a price that changes often during the day.

x. Commodity focused Stock Funds- These funds are perfect for individuals
wishing to diversify their portfolios and have a healthy appetite for risk. Stock
funds with a concentration on commodities provide the opportunity to engage
in a variety of different transactions. Returns, however, are either dependent
on the performance of the stock firm or the commodity itself and may not be
periodic. The only commodity in which mutual funds may make direct
investments in India is gold. The remainder buy shares or fund units from
companies that deal in commodities.

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v. WHAT ARE THE STPES INVOLVED IN MUTUAL FUNDS?

Mr Joey want to buy a new mobile phone for himself. He asks his family and friends about
what are the options that he could choose from based on his budget and the brands he like. He
gets various options and finally decides to buy a certain model. But another dilemma that he
has is whether to buy that mobile phone from. Whether from an authorized dealer in a store
near him or online from Amazon or Flipkart. He is not sure which would be the best option
from his and would be able to fulfil his needs such as faster delivery, better price, warranty
and guarantee, accessories of the phone and most importantly good customer service.
Similarly in mutual funds the investor has two options- to buy the mutual funds offline or to
buy them online. There are some basic requirements that one needs to fulfil before they can
invest in mutual funds.

Mutual fund investment is now so basic and straightforward that one may consider investing
in a wide variety of funds without requiring a lot of extra paperwork. Investors in Mutual
Funds for the first time must complete the one-time KYC procedure. An investor has two
options for getting assistance with the KYC verification: he may either go to a distributor or
investment adviser, or he can perform e-KYC online. A crucial to the world of mutual funds
is KYC. After completing your KYC, he is free to participate in any fund without undergoing
further verification for each transaction. Once his KYC has been verified and he is ready to
invest, he may choose to do so with the assistance of a bank, registered investment adviser,
stock market broker, mutual fund distributor, or other financial intermediary. However, if he
wants to make an investment on his own, he may either go to the fund house's nearby office,
their website, or any online platform. It is up to each investor to decide whether to invest
directly or via a distributor. If one chooses to handle their own investment management, they
may invest online using the fund's website or any other online platform. However, if they
would want or need assistance with investing, they may do it via a middleman, such as a
distributor, investment adviser, bank, etc.

The KYC process is a few days process and one need to be regularly updated with their KYC
status and can check it online at the Central Depository Service Limited or even with a
mutual fund agent or an AMC. An investor can invest in mutual funds through the following
ways: -

a) Investing through a mutual fund distributor- AMFI registered mutual fund distributors
assist investors with mutual fund transactions and provide financial advice.
Distributors do not charge investors any fees since they are compensated with
commissions by the fund firm. Mutual fund units acquired via these distributors
(ordinary plans) are more expensive than those bought directly from AMCs. It will be
sage to invest via a mutual fund distributor for beginners. An investor should be
aware that market risks might affect mutual funds. Risk and return characteristics vary
across various mutual fund products. One may get assistance choosing the best mutual
fund product for their risk tolerance and investing requirements from a distributor of

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 mutual funds or a financial adviser. A financial adviser may also assist them if they
need assistance in determining their level of risk tolerance.

b) Investing through an AMC- By going to the AMC's office or via their web portal, you
may make direct investments with them. If you are a new investor, you must submit
your KYC paperwork online or in the AMC office. You may purchase direct plans
from the AMC, which have a lower expenditure ratio than standard plans. You may
invest in direct plans if you have invested before and are aware of your risk tolerance,
and are knowledgeable about mutual fund products and the financial markets. Direct
plans provide larger returns than conventional plans do.

c) Investing through Registered Investment Advisors (RIA)- Through SEBI Registered

Investment Advisors, you may invest (RIA). Asset Management Companies do not
pay RIAs commissions. Direct plans may be invested in via an RIA, who may also
charge a fee for their services. As the RIA does not get fees from the AMC, there is
supposedly no conflict of interest when investing via an RIA. It must be emphasised,
nonetheless, that according to the AMFI's Code of Conduct for Mutual Fund
Distributors, mutual distributors are also expected to provide you with fair advice and
prioritise your interests above their own. Before choosing to invest via a mutual fund
distributor or Registered Investment Advisor, you should do your own due research.

d) Investing Online in different ways- One needs to get their KYC registered and can be
invested in the following ways:
 Through AMC portals- Every mutual fund company offers online investing
through internet banking for payments (investments). You should carefully
verify whether you are investing in regular or direct plans when making online
investments.

 Through RTA portals- Additionally, all RTAs provide an online investing

option through online banking for payments (investments). When investing
online, confirm if you are using regular or direct plans. You may access your
portfolio of mutual fund schemes from AMCs served by the RTA in one
location, which is one benefit of investing online via RTA websites. The RTA
websites also allow you to examine your capital gains statement.

 Through Mutual Fund Distributors Websites- Through their own websites,

several mutual fund distributors also provide online investment services. You
can view your entire portfolio of mutual fund schemes in one location when
you invest online through your distributor or financial advisor, which is one
benefit.

e) Investing through an investors bank- Most banks provide wealth management services
that allow for mutual fund investments. You will invest in standard programmes since

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 banks distribute mutual funds as well. Some banks may give facilities for online
mutual fund investments as well as wealth managers at their bank branches to provide
services linked to mutual funds.

f) Investing through mobile apps- All RTAs and many AMCs provide the ability to
transact in mutual funds through their mobile applications. Through these mobile
applications, you may do any form of mutual fund transaction, including one-time
investments, extra purchases, SIPs, STPs, SWPs, switches, redemptions, etc. For
Android phones, these applications are available for download from the Google Play
Store. Some distributors of mutual funds now provide mobile applications for
purchasing mutual funds.

g) Investing through Demat Account- Just like investing in stocks requires a demat
account, similarly through a demat account you can invest in mutual funds also. By
opening a demat account with a broker or with any depository, investment can be
made. The units similarly as share will be held in dematerialised form and buying and
selling of various schemes can be completed.

COSTS OF INVESTING IN MUTUAL FUNDS

A mutual fund has expenses, just like any other firm. Costs may be associated with some
investor transactions, such as investor purchases, exchanges, and redemptions, for instance.
Regular fund operation costs include things like investment advice fees, marketing and
distribution charges, brokerage fees, custodial, transfer agency, legal, and accountant fees, all
of which are not necessarily connected to any specific investor transaction. The following are
the costs involved: -

i. Expense Ratio- This is the cost that the AMCs charge as an annual maintenance
charge to finance its operations. This ratio is the percentage of average assets under
management and include expenses like fund management, distribution,
administration, advertising costs etc. The value depends on the size of the mutual
fund.
Total Expense Ratio =
Total expense incurred in an accounting period ×

ii. One-Time Charge- This is the transaction charge that the investors must pay. This
charge occurs only once during an investment. According to rules no charge is applied
for transactions below ₹10000 and for transactions above that a fee of ₹150 is levied
for new imposters and ₹100 for existing investors. A transaction fee of ₹100 will be
applied on SIP investments. Only if the SIP commitment is above ₹10,000 or more
will this cost be applied. The distributors or middlemen who sell the fund are
compensated with transaction fees.

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 iii. Exit Load- An exit load must be paid when an investor leaves a mutual fund scheme
quickly after purchasing it. This charge is assessed to deter investors from
withdrawing from the programme and to limit the number of withdrawals. Depending
on the holding duration, various fund companies impose a variety of entrance load
fees.

iv. STT- These are the charges levied when an investor sells a mutual fund scheme. It is
called as a Securities Transaction Tax. The percentage of STT is different for open
ended schemes which is 0.25% of the traded value and is 0.001% of the traded value
for close ended schemes.

v. Stamp Duty- This is a charge imposed by the government and hence it must be paid
regardless of whether the units are held in Demat or physical form. It is a charge
levied on the issuance and transfer of the mutual funds.

vi. WHAT IS NET ASSET VALUE (NAV) IN MUTUAL FUNDS?

Let us understand this with a food example. A cheese masala dosa is made up of dosa batter,
potato filling and of course cheese. The total cost of the dosa will be the sum of its
ingredients. Let us assume that the dosa batter costs ₹30, the potato filling also costs ₹30 and
the cheese costs ₹40. So, the value of dosa will be ₹100. Now if we divide the dosa into 4
equal units, the price of each unit will be total price of the dosa divided by number of units
i.e., ₹25. Comparing this to mutual funds, the potatoes filling and the cheese are the stocks
and bonds which have a market price just as our ingredients. When a mutual fund is broken
into units the price of each of its unit is the NAV. In conclusion, NAV is the market price of
all the stocks and bonds held in a particular scheme divided by the total number of units.

The market value per share of a mutual fund is represented by its net asset value (NAV). It is
the price at which investors purchase fund shares from a fund company (bid price) and sell
them to a fund company (redemption price). You can get the NAV of a mutual fund by
deducting the liabilities from the total asset value and then dividing that by total number of
shares. To calculate the price of each unit, one can divide the market value of a portfolio by
the total current fund unit number. Mutual Funds make investments in the stock market using
the money they receive from investors. Because the market value of securities fluctuates
every day, a scheme's NAV likewise changes daily. The market value of the securities in a
scheme divided by the total number of units in the scheme on any given day is the NAV per
unit.

NAV = where,

Assets – Liabilities = Total Fund Value

For example, let us assume that a mutual fund has ₹55 million invested in securities and ₹5
million in cash. Hence the total assets will be ₹60 million. The fund has liabilities of ₹10
million. Calculating the total fund value, which is assets minus liabilities the fund has a total
value of ₹50 million. Now, if the fund has 5 million shares outstanding, the price per share
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value would be ₹50 million divided by 5 million which will be NAV of ₹10 per share. We
can also calculate the price per unit of a fund using the total fund value. This can be done by
dividing the total value of a fund by the number of outstanding units. Mostly, the unit cost of
the mutual funds begins at ₹10 and this price increases as the assets under management
increase. Thus, we can say that more popular the fund is, higher will be its NAV. By offering
a reference value, NAV aids in deciding which investment one could decide to remove from
or maintain in their investment portfolio.

Because NFOs are issued at a NAV of Rs. 10, some investors believe that they are
inexpensive. The value of the underlying securities and the total profits made from the start of
the scheme are used to calculate the NAV of a mutual fund unit. Even though two different
mutual fund schemes may have the exact same portfolio of securities and one may be offered
at par value (NAV of Rs. 10) while the NAV of the other scheme may be more than Rs. 100,
the intrinsic value of both schemes will be the same regardless of the difference in NAV.
Therefore, the NAV of a mutual fund scheme is a poor measure of that scheme's
performance. Before making an investment selection, an investor should constantly consider
the scheme's past performance and overall cost ratio, among other factors. You can get NAV
of any mutual fund from their official website or from the AMFI website.

The NAV is calculated in two ways. One is by calculating the daily net valuation of the
assets. In this format, after the stock market closes at 3:30 pm, all mutual fund investing
organisations assess the entire value of their portfolio. The next day, the market reopens with
the day's closing prices. The fund companies employ the method to calculate the net worth of
the assets for the day after deducting all costs. The second method is the general calculation
of the net value of the assets. In this method, the cumulative cost of individual shares
determines the overall net worth of assets, which is the price of each equity share. This
computation provides the asset's market value and is liable to fluctuate depending on market
conditions.

LUMPSUM INVESTMENT

One can invest in mutual funds in a lumpsum amount. When you make a one-time, lump-sum
investment in a mutual fund, you are locking in a single, large quantity of money. This
contrasts with dispersing it over time, as in SIP (Systematic Investment Plans). Prominent
players and investors, especially those who rely on the growth of a company's shares to
generate cash, often prefer making lump-sum investments in mutual funds. A lump sum
mutual fund investment might be an excellent chance for an individual with a large
investment amount and a high-risk tolerance.

For instance, one year you get a sizable bonus that was not planned. You have ₹90000 left
over after putting aside funds for all your previously anticipated responsibilities and
investments. Because this sum is excessive and you have no clear intentions for it, you decide
to take a chance with it. The full sum might be put into a single mutual fund plan of your
choosing. This may not be the same as making monthly investments of ₹7500 for a year.

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By investing a lump sum in a fund of your choosing for the given investment term, you can
use the mutual fund lumpsum calculator to estimate the amount of wealth you will create.
The maturity amount for a particular present value lump sum investment is provided by a
mutual fund one-time investment or lumpsum calculator. It gives the value of the wealth
accumulated over the course of the investment term in relation to the initial investment.

The most popular approach for calculating MF returns is the compound annual growth rate
(CAGR). The compound annual growth rate is mentioned. To lessen the short-term changes
and volatility of the NAV, this approach is used to determine the return of mutual funds with
a holding duration of more than a year. The expected return on investment is calculated using
the compounding of return approach by the lumpsum MF calculator. It is a measurement of
the compounding-affected yearly growth rate of an MF over time.

CAGR = 1/t
–1

SYSTEMATIC INVESTMENT PLANS (SIPs)

Just like one invests in Recurring Deposits, in mutual funds there are SIPs. The Systematic
Investment Plan, or SIP as it is more frequently known, is an investment plan (methodology)
provided by Mutual Funds that enables investors to invest a specified amount in a mutual
fund scheme on a regular basis, such as once per month, as opposed to all at once. The
monthly SIP payment might be as little as ₹500. SIP enables you to gradually, monthly, or
quarterly invest a predetermined amount in mutual funds, averaging your costs of investing
and maximising the power of compounding. The power of compounding is most effective
when you continue to invest and help your money grow over time. SIP investments may be
begun whenever the investor desires, with the knowledge that there is little risk involved. It is
crucial for the investor to choose a plan that is in line with his long-term objectives. There is
no ideal window of time for investors to begin SIP investing plans; the earlier they do so, the
better.

How does it work?

The payment is automatically deducted from your bank account and invested in the mutual
funds you have bought at the pre-set time interval once you apply for one or more SIP plans.
The units of mutual funds will ultimately be distributed to you based on the NAV of the
mutual fund. According to the market rate, more units are added to your account with each
investment in an Indian SIP plan. The amount reinvested and the return on those investments
increase with each investment. Receiving the returns at the conclusion of the SIP's duration or
on a regular basis is entirely up to the investor. Let us understand the working with an
example. Suppose Mr. Leonard want to invest in a mutual fund scheme and wants to invest
₹2 Lakhs in the same. Now in SIP he can start with a minimum amount of ₹500 or more let’s
say he decides ₹1000 on a monthly basis. Then every month ₹1000 will de debited from his
account and credited to his mutual fund account automatically. This process will continue till

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a time period and Mr. Leonard does not need any reminder as standing instructions are given
by him to his bank.

Just like mutual funds have many types, similarly SIPs also have various types and one can
choose whichever suits them best according to their goals. The following are the different
types of SIPs: -

i. Top-up SIP- This SIP gives you the freedom to invest more when you have a greater
income or more money available to invest by allowing you to gradually raise your
investment amount. By consistently investing in the finest and highest performing
funds, this also aids in maximising the returns on investments. This top-up to your SIP
enables you to properly prepare for your financial objectives by allowing your
investments to keep pace with inflation or the rise in living expenses. Additionally, it
may enable you to achieve your financial objectives sooner or with a greater corpus.

ii. Flexible SIP- This SIP plan allows you to invest whatever amount you wish, as the
name implies. According to his personal requirements or preferences for cash flow, an
investor may choose to raise or reduce the amount to be invested.

iii. Perpetual SIP- You can continue investing under this SIP plan without the mandate
date expiring. An SIP often has an expiration date after one year, three years, or five
years of investment. Thus, the investor may withdraw the money at any time or in
accordance with his financial objectives.

There are many benefits of investing in a SIP which includes: -

 Makes you a disciplined investor- If you lack superior financial understanding of how
the market operates, SIP may be your best investing choice. You are not required to
use your time to research market trends or the best times to make investments. With
SIP, you can unwind since the funds are automatically taken from your account and
invested in mutual funds. Additionally, due of the regularity, it assures that you are
constantly striving to increase your money, unlike lump sum deposits.

 The rupee cost averaging factor- The benefit of rupee cost averaging comes with SIP.
Rupee cost averaging allows you to benefit from market volatility with SIP since your
investment amount is consistent over a longer period. The value of each unit is
averaged out by the set amount you contribute through SIP. In order to minimise your
average cost per unit, you may purchase more units when the market is weak and
fewer units when it is strong.

 Power of Compounding- The advantages of frequent SIP investing and long-term

investing are boosted by the compounding effect. The compounding effect makes sure
that you get returns on both your principle (the amount you invested) and the gains on
your primary, so that your money increases over time as your investments generate
returns. Also, the returns generate more returns. For the long-term development of

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 wealth, this is quite advantageous. Let's look at the anticipated returns to see how
much your money would grow if you contribute ₹1000. each month over the course
of 20 years, assuming an average return of 10%. Due to the compounding impact, the
total amount increases to ₹7,18,259 in total with just an investment of ₹2,40,000.

 Ease of Use- As was previously said, a SIP allows you to feel at ease with your
money. You may start the SIP by only completing an application form, at which point
you can also start an auto debit or send post-dated checks.

SIP CALCULATOR

Many banks such as Axis, HDFC, ICICI, BOI, IDBI, SBI provide SIP calculators online for
people to use. These calculators for mutual fund investing are designed to provide
prospective investors with an estimate of their mutual fund investments. The actual returns
provided by a mutual fund plan, however, vary based on several variables. The exit load and
expenditure ratio are not explained by the SIP calculator (if any). The wealth increase and
anticipated returns for your monthly SIP investment are calculated using this calculator. In
fact, based on a predicted yearly return rate, you get a preliminary estimate of the maturity
amount for each of your monthly SIPs. Online SIP calculators are useful tools that provide
estimates of your future returns on investment. A few advantages of SIP calculators are as
follows:

 It helps you to decide how much you wish to spend.

 It gives you information about your overall investment.
 It provides an expected return value.

SIP calculators work on the following formula: -

M = P × ({[1 + i] n – 1}/ i) × (1 + i) where,

M = amount one receives on maturity

P = amount one invests at regular intervals

n = number of payments an investor makes

i = Periodic rate of interest.

Investors may routinely invest in Indian Mutual Fund schemes using the 5.93 crore (59.3
million) SIP accounts that Indian Mutual Funds presently offer. An investor must start a new
SIP, fill out a new form, and choose the appropriate length in order to renew the SIP. While
skipping one SIP instalment has no penalty, skipping three in a row result in the SIP's
cancellation. By completing a new SIP registration form, starting a new SIP online, or using
banks mobile applications an investor may start a new SIP and choose the appropriate length.

SYSTEMATIC WITHDRAWAL PLAN (SWP)

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Bank fixed deposits or postal deposits are often the default option for investors who desire a
consistent cash flow from their assets. Investors are now concerned about their future
demands for income because to the falling interest rates on these programmes. SWP, a mutual
fund product, provides a remedy for this. SWP, or systematic withdrawal plan, is a mutual
fund investing strategy that enables investors to take fixed distributions from their mutual
fund investments at predetermined intervals, such as monthly, quarterly, or annually. The
AMC will credit the amount of the withdrawal to the investors' bank accounts on the day of
the month, quarter, or year they specify. The SWP Plan redeems mutual fund scheme units at
the specified frequency to provide this cash flow. If there are still available units in the plan,
investors may continue with SWP.

For example, if you invest in ICICI Mutual Fund an amount of ₹2 Lakh for a year. Let us
assume that you decided to withdraw an amount of ₹15000 per month. So, every month, your
investment will reduce by ₹15000. The amount left every month after withdrawal will
continue to remain invested. The Systematic Withdrawal Plan calculator makes it simple to
calculate your matured amount based on your specific monthly withdrawals. Calculators are
making mutual fund investing simpler for consumers. SWP has many benefits such as: -

i. Flexibility- A SWP plan gives the investor the freedom to choose the amount,
frequency, and date in accordance with his or her requirements. The investor may also
suspend the SWP at any moment, make additional investments, or take money in
excess of the predetermined SWP withdrawals.

ii. Regular Income- SWP in mutual funds makes investing easier for individuals by
generating a consistent income from their holdings. For people who want consistent
cash flow to cover ongoing costs, this becomes quite beneficial and handy.

iii. Ideal in a Bull Run- Even while most investments provide excellent returns during
bull markets, if you choose an SWP and your yearly withdrawal amount is smaller
than the profits produced by the plan, your investment will last you far longer than it
would during a down market. Additionally, you may keep the profits provided during
the bullish phase by withdrawing them.

iv. Tax Benefits- If you want to receive regular income from your assets as an investor,
you may choose between an SWP or the scheme's dividend option. The fund house
withholds a Dividend Distribution Tax (DDT) at the source when it pays dividends.
DDT is present at a 10% rate. You are not required to pay tax on the dividend until
you get it. On the other hand, there is no tax withheld at source if you choose an SWP.
However, depending on the form of the plan and the amount of withdrawal, capital
gains tax may be required.

Investing in mutual funds and making withdrawals via an SWP are excellent ways to
establish a consistent secondary source of income. As you can see, having a Systematic
Withdrawal Plan in your toolkit is an excellent idea. An SWP may help you reach your

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financial objectives whether you are a skilled investor or a novice. When making your
financial strategy, keep this tool in mind.

SYSTEMATIC TRANSFER PLAN (STP)

Investors may instantly and hassle-free switch their financial resources from one scheme to
the other with the use of a systematic transfer plan. This periodic transfer gives investors the
opportunity to take advantage of the market by switching to assets when they have better
return potential. In order to reduce losses sustained during market swings, it protects an
investor's interests. As there is transfer of funds from one to another, it reduces the risk
especially is a volatile market. The former fund in which the funds are originally invested is
called as source scheme or transferor scheme and the fund in which the funds are transferred
are called as target scheme or destination scheme.

There are presently many different STP kinds available, and an investor may choose the best
one for their needs while also taking their investment amount into account: -

 Fixed STP- When using a set systematic transfer plan, the investor determines the
total amount that will be moved from one mutual fund to another. It entails making a
choice to transfer a defined amount of money between mutual funds, with the investor
being unable to reverse the decision for a certain amount of time in accordance with
the module's specifications, rules, and restrictions.

 Flexible STP- This strategy gives the investor the opportunity to invest whatever
amount he wants, switching between different resources at his discretion. It is a plan
for selective investment transfer. An investor may desire to transfer a substantially
bigger percentage of his or her current fund, or vice versa, depending on market
volatility and calculated forecasts about the success of a plan.

 Capital based STP- The term itself implies that STP may be used to apply capital
gains from investments. This transfer may be accomplished by moving capital funds
from one mutual fund to another in order to invest in mutual funds that are rapidly
expanding and increase returns on capital.
Plans for capital systematic transfer the whole benefit from a fund's market
appreciation to another possible scheme with a strong growth potential.
There is no minimum investment requirement set by SEBI for mutual funds with
systematic transfer plans. To be eligible for this plan, however, most asset
management businesses need a minimum investment of Rs. 12,000. Investors must
make a minimum of six transfers of monies before applying for an investment under
this plan. Mutual Funds do not have entry loads, but exit loads are applied to each
transfer. When redeeming or transferring monies, exit costs are limited to 2%.
However, there are no exit load fees applied when moving assets from a liquid fund to

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an equity fund. A systematic transfer plan mutual fund has a number of qualities that
make it a desirable alternative for investors with different levels of risk appetite: -

i. Higher Returns- With STPs, you may take advantage of market fluctuations to
switch to a more lucrative enterprise and increase the return on your capital.
Having a competitive edge in the market enhances earnings from assets
purchased and sold in the capital market. The market investment is subject to
market turbulence and variable percentage gains. By shifting the money at the
time of significant market swings, the STP enhances the gain ratio overall by
permitting the transfer of the investment to better and faster-growing
prospective firms rather of merely letting the investment fall into losses.

ii. Stability- Investors may shift their money via a STP into comparatively safer
investment plans like debt funds and money market instruments during periods
of extreme stock market volatility. By doing this, an investor may guarantee
the security of his or her financial assets while also generating steady profits.
The returns remain constant because until the whole amount was transferred,
the amount in the debt fund produced interest.

iii. Rupee Cost Averaging- Investors may reduce their average investment
expenses by using this strategy while investing in mutual funds via STP.
When using rupee cost averaging, funds are purchased at low average prices
and sold at higher market values, allowing investors to realise capital gains on
each individual security. When it is in the investor's best interest, this module
starts the buying and selling of mutual funds. The fund manager makes the
purchases by careful and persistent monitoring, research into mutual funds,
and purchasing the asset at a discount. Additionally, when the selling price is
greater than the purchase price, the fund manager sells it, averaging the rupee
cost and delivering the predicted results from the STP strategy.

iv. Taxability- If capital gains are realised, each transfer made under the
systematic transfer plan is eligible to tax deductions. Gains from such Mutual
Fund investments that are redeemed before three years are 15% tax deductible
as short-term gains. Tax deductions for long-term capital gains are available,
although they are based on the investor's yearly income.

v. Optimal Balance- Top systematic transfer strategies seek to build a portfolio

of both equity and debt instruments to provide the best possible balance of risk
and return. Equity instruments are intended for investors with a propensity for
risk, whilst risk-averse investors often shift their money to debt securities.

Because the systematic transfer plan investment strategy is designed for a long-term
regime, huge profits cannot be seen right away. Before evaluating this policy,

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 investors should be ready for it. If systematic transfer plans are adopted, an investor
should also have extensive understanding of market trends and patterns. Investors
might get the most return from their allocated money if they understood how the
market value of assets performed and how its volatility mechanisms worked. When
evaluating predicted returns from systematic transfer plans, exit load and tax
deductions should be taken into consideration. The performance of the corresponding
mutual funds themselves determines the security of the main amount and the value of
returns. Although exposure to market risks is reduced when investments are made via
systematic transfer arrangements, they cannot be completely removed.

According to the Securities Exchange Board of India, there must be six transfers
among various investment schemes in order to qualify for systematic transfer plan
mutual fund investments (SEBI). Investments in a strategy for systematic transfer. For
those with little means who wish to participate in the stock market and earn large
returns, mutual funds are the best option. It is also appropriate for investors who wish
to reinvest their funds amid unstable and unfavourable market conditions in
comparatively safer products like debt instruments.

vii. IMPORTANCE OF INVESTING EARLY IN MUTUAL FUNDS.

It is said that ‘The Early Bird Gets the Worm.’ The notion of saves, investments, and returns
is first understood in one's twenties. It is the moment when you have funds on hand that you
may invest in addition to having a fundamental grasp of financial planning. For those who
want to invest early, mutual funds are among the greatest investing possibilities. By making
early investments in mutual funds, you may reduce costs, reduce taxes, and increase wealth.
It is when you start earning and parents’ advice you to save and invest. Although the term
"investment" may first seem intimidating, talking to a financial counsellor and understanding
about mutual funds may help you take your first steps in the direction of investing and
eventually lay a solid financial foundation.

Even the great Warren Buffet once stated that “I started investing at the age of 11 but regrets
getting late.” From his statement we can understand how important it is to start early
investing. The people in India are not aware about the benefits of investing early and hence
miss out a lot of opportunities and regret that later. The following are the benefits of investing
early in mutual funds” –

i. Power of Compounding- If you give it enough time, money will increase. Earning
returns from previous returns is called compounding. Compounding causes your
assets to increase more quickly over time than they would if you invested them
earlier. Therefore, the earlier you begin investing, the greater mutual fund returns
you will get when you need the money to achieve your objective. Mutual funds are a
simple investing option as well. In your twenties and thirties, you will not need
money for complicated things. Mutual funds are a great option for young investors
to invest in since they are simple to purchase, and they will profit from the power of
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 compounding in twenty-thirty years. You may choose from Equity, Debt, Hybrid
Funds, and FOF mutual funds and start investing based on your objective and time
horizon.
Let us understand this with an example- To build a ₹5 crore retirement corpus by
the age of 60.

Starting Age Money Expected Rate Monthly Total amount

(in Years) invested for of Return Investment invested
(in Years) required (in ₹)
(in ₹)
30 30 12% 14306 51.5 Lakh
40 20 12% 50543 1.21 Crore

Mr Shah had started investment at the age of 30, whereas Mr Mehta started at the
age of 40. Both had the same goal, but in order to achieve that goal, Mr Shah made a
total investment of ₹51.5 lakhs only but Mr Mehta had to spend ₹1.21 Crores which
is more than twice. This is the benefit of compounding that one needs to understand.

ii. Investment amount can be small- Everyone has different dreams and goals that they
want to fulfil and achieve at different periods. For example, Rohit is 30 years old
and wishes to go on a world tour by the age of 40. He decides to invest in mutual
funds that will provide him a return of 12% annually and he needs ₹30 Lakh in 10
years. So, for that he needs to invest approximately ₹13000 every month and his
total investment would be ₹15.7 Lakhs. But if he starts investing at the age of 33
i.e., 3 years later than he would have to invest approximately ₹23000 per month and
his total investments would rise to ₹19.3 Lakhs. Similar to this, if you start early on
any goal—be it saving for a down payment on a home, a wedding, or retirement—
your monthly investments and overall investment sum will be significantly lower
than if you wait.

Time (in years) Monthly Investments (in Total Investments

₹) (in ₹)
10 13000 15.7 Lakhs
7 23000 19.3 Lakhs

iii. Starting investment early improves your spending habit- Early savings and
investment habits will immediately enhance your spending habits. We will describe
how. You must set spending limits by making a monthly budget for yourself if you
wish to save a certain amount from your fixed pay-check. And creating a budget is
the ideal approach to change your spending patterns since it allows you to keep track
of how much money you spend each month on things like food, utilities, rent, fun
activities, etc. And after years of repetition, this easy job becomes second nature.
Now, to develop the habit of saving, start by setting aside the amount you wish to

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 save each month. With the money you have left over, make a monthly budget. For
instance, let us say you wish to save 7,000 of your monthly salary of Rs 40,000.
Then, as soon as you are paid, save the first Rs 7,000 and use the remaining money
to keep up with your expenses.

iv. The corpus collected can be a larger amount- The corpus collected over the years
will also be significantly bigger since remaining invested for a longer period allows
you to benefit from compounding longer. When discussing the advantages of
compounding, we pointed you that by beginning early, at age 30, and continuing to
invest for as long as 30, you may build a corpus of ₹5 crore merely by investing just
Rs 14306 every month. However, if you opt to start saving ten years later and elect
to stick with a ₹14306 investment level, you would be able to save ₹1.42 crores in
20 years. (In both situations, you may invest up to age 60.) And you would need to
continue investing ₹50543 till the end of the term if you want to build a corpus of
₹5 crore in these 20 years. Therefore, it is always advantageous to start investing
early and continue investing for a longer period to amass a sizable corpus without
feeling the strain in your wallet or lowering your quality of living.

v. Tour risk taking ability increases- You have the opportunity to take more chances
while you are young than when you are older. You do not have to consider riskier
investments as much at this age since you have fewer financial commitments. And
even if anything went wrong with your investments, you would still have plenty of
time to fix it and go on. For instance, the golden rule for equities investment is 100 −
your age. In other words, if you are 35, you may invest 65% of your money in stocks
and the remaining 35% in fixed-income securities. As a general guideline, if you are
25 years old, you may invest up to 75% of your money in stocks. However, if you
begin investing at age 45, you may not want to take on as much risk and, in
accordance with the general rule, invest just 55% of your money in stocks. Equities
also have the potential to provide you better returns over the long term than fixed
income products, which might help you build a bigger corpus with a lower initial
investment.

It is advisable to start investing sooner rather than later. Therefore, if you have money
saved up and are seeking for the optimum moment to invest in the finest kinds of mutual
funds, understand that investing over time is always preferable than timing the market.
Start making modest regular contributions right now. Start your investing procedure
right now if you have not already. Start off small, keep it simple, and keep learning as
you go. There is no quick cut to wealth generation; it is a long-term process. The
greatest benefit you have as a young earner is time!

viii. ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS.

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Every coin has two sides. We now know what are the different types of mutual funds that are
available in the market and why it is important to invest early in mutual funds. India is a
developing country and there are many people who think that investing in mutual funds is
very risky and generally opt to invest in stock market. An investor should know about the
various advantages of mutual funds in India.

ADVANTAGES OF MUTUAL FUNDS

 Professional Management- Mutual funds are the best option for those who lack the
time and knowledge to do research and asset allocation. To oversee the mutual funds
in India, the fund house selects asset managers, also referred to as fund managers.
These managers are adept at locating the finest stocks that will provide the most
returns. The fund manager does market research and invests in equity, debt or both the
markets based on the goals of the investor. Before investing the fund manager’s
reputation and past performance should be thoroughly studied.

 Reduces Risk- It is very dangerous to invest in individual stock shares. By investing

in several industrial sectors, diversification enhances the main benefits of using
mutual funds. As several industries are unlikely to perform badly at once, it
essentially lowers the chance of losing your whole investment. As a result, the profit
generated in one industry or asset class offsets the loss experienced in another.

 Liquidity of money- Liquidity is a benefit of mutual funds that is often disregarded.

Mutual funds are regarded as being extremely liquid since they are simple to buy and
sell in the short-term during market hours. Mutual Funds, unlike Fixed Deposits,
allow for flexible withdrawal, but it's important to consider things like the exit load
and pre-exit penalty. A few funds, such as ELSS, are an exception since they have a
set lock-in period and are difficult to sell.

 Mutual Funds are Low Cost- In India, mutual funds are also inexpensive. Mutual
funds charge 1%–2.50% in fund management fees. Despite being inexpensive, mutual
funds provide you better returns. Returns are computed depending on the amount that
was grown throughout the specified period of time.

 Tax Benefits- Tax advantages may be available if you invest in mutual funds via the
Indian stock market. Under Section 80C of the Income Tax Act, investments made in
ELSS are free up to Rs. 1.5 lakhs. According to the kind of investment and the length
of the investment, all other mutual funds in India are taxed. Comparing ELSS Tax
Saving Mutual Funds to other tax-saving options like PPF, NPS, and Tax Saving FDs,
better returns are possible.

 Automated Payments- Investors often forget to pay the SIP investments or there might
be reason that an investor might postpone it. In mutual funds, you can give standing
instructions and opt for paperless automation. This will allow your banks to debit the

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 amount from your bank account every month and credit it in your mutual fund
account. The bank also sends timely notifications and emails through which one can
track their payments and investments.

 Safe and Transparent- Mutual fund investments are transparent. All mutual fund firms
are governed by SEBI and are required to provide the required disclosures. Stock
values, the fund's past performance, the fund manager's credentials, and track records
are all well-known. Every day, the fund's NAV (net asset value) is updated. All
products of a Mutual Fund have labels now that SEBI norms have been implemented.
This implies that there will be colour labelling for all Mutual Fund plans. This makes
the whole investing process clear and safe by assisting the investor in determining the
amount of risk associated with his investment. Three colours are used in this color-
coding to represent three categories of risk:
a. Blue denotes little danger.
b. Brown denotes a high danger.
c. Yellow denotes a medium risk.

Additionally, investors can check the credentials of the fund manager, including his
education, years of experience, AUM, and information on the fund house's stability.

DISADVANTAGES OF MUTUAL FUNDS

 Fluctuating Returns- Since mutual funds don't promise constant returns, you should
always be ready for anything, even a decline in the value of your mutual fund. In
other words, there are a variety of price variations associated with mutual funds.
Having your money professionally managed by a group of financial specialists does
not protect you against poor performance.

 Diversification- Although diversifying your investments helps you avoid losses; it

may also work against you by preventing you from making big returns. Some
industries provide enormous profits; therefore, you may lose a lot of money if you
don't invest substantially in them. One of the key benefits of a mutual fund that is
often mentioned is diversification. However, there is always a chance of excessive
diversification, which might raise a fund's operational costs, need more research, and
erode the relative benefits of diversity.

 Past Performance- A fund's past performance may only be inferred from ratings and
ads made by businesses. It's crucial to remember that a fund's strong previous
performance does not ensure that it will perform similarly in the future. As an
investor, you should evaluate a fund house's investing philosophies, transparency,
ethics, compliance, and overall performance throughout various market stages.
Ratings are a good starting point.

 Costs- Although fees were a benefit in the previous section, they are also a drawback
for mutual funds. There are certain mutual funds in India that come at a significant

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 cost. You will be charged exit fees if you leave before the designated hour. You are
not permitted to withdraw the money before the allotted time. A mutual fund's value
may change in response to shifting market circumstances. In addition, a mutual fund
has fees and costs associated with professional management, which is not the case
when purchasing stocks or assets directly from the market. When purchasing a mutual
fund, the investor is required to pay an entrance load.

 CAGR- The performance of a mutual fund in comparison to the compounded

annualised growth rate (CAGR) does not adequately tell investors about the level of
risk that a mutual fund faces or the steps required in the investing process. As a result,
it is far from a complete indicator and is just one of several available to evaluate a
fund's performance.

 Fund Managers- Investors would do well, say experts, to avoid getting carried away
by so-called "star fund managers." Even a highly talented manager cannot
significantly alter a fund's performance over the long run, but they may make a
difference in the near term. Additionally, there is always a chance that a top fund
manager would go to another organisation. Therefore, it is wiser to look at the
procedures that a fund company uses rather than the star power of a single person.

 Lock-in Period- Because you cannot withdraw your money before the designated
time, the lock-in period might sometimes prove to be a serious drawback. As a result,
you cannot withdraw your investment in times of need. A longer lock-in period of
three years is available with equity-linked savings plans (ELSS). The investment
cannot be withdrawn prior to the lock-in period ending because of this. However,
there may be severe fines if these money are withdrawn before the lock-in term. To
protect the interests of investors, a part of the fund is retained in cash. If the investor
decides to withdraw the money before the fund matures, this is done as compensation.
There is no interest earned on this portion of the cash fund.

Despite the various disadvantages, the advantages have supremacy over the disadvantages. It
is a win-win scenario for everyone when investing in a mutual fund because of the
advantages and long-term benefits one receives. Even a newbie investor who has no prior
experience might find investing simpler thanks to professional competence. There are many
companies who will assist you to plan your mutual funds’ investments and help you out to
plan your goals.

ix. OPPORTUNITIES AND CHALLENGES OF MUTUAL FUNDS

In the mutual fund sector, there are now more than 3.5 trillion rupees in assets under
administration. Yet many contend that things are just getting started. This panache is what is
luring more and more international finance companies to India. Experts contend that unless
the market's general size increases, the Indian mutual fund industry might degenerate into a

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sea of brutal rivalry as more and more fund firms compete for the same urban investor pie
and want larger shares of the same wallet. In order to guarantee that the entire market size
rises, fund companies are also starting to realise this and are changing the regulations. The
advent of systematic investing plans with monthly instalments as little as ₹500 is a typical
example. Despite worries about increasing prices and an anticipated slowdown in economic
development, the current macroeconomic situation offers a special set of prospects for
fostering the mutual fund industry's expansion.

The following are the opportunities in the mutual fund industry in India: -

 Higher Income from Tier-I cities- In Tier I cities, business costs are quite high.
Corporate firms, particularly multinationals who have moved their back-office
activities to India owing to the high cost of doing business in Tier I metropolises, are
now obliged to consider the economically more feasible Tier II cities. The income
impact would ultimately be created in these cities and villages because of this. Higher
income often translates into greater capacity for saving, which might subsequently be
invested in mutual funds. Even if the mutual fund sector has grown by more than
20%, there are still just 2 crore investors. The statistics show the enormous potential
that lies ahead. Industry executives should concentrate on the B30 category cities
(Tier 2 and 3), which are home to roughly 90% of India's people and make up about
16% of the country. It's time for the industry to take smaller cities under its wing.

 Indian interest rate situation- Retail investors have often seen mutual funds as a
substitute for direct stock investment. However, fixed maturity plans provided by
mutual funds, which are like fixed deposits and have captured the attention of
ordinary investors in the aftermath of a stock market correction and the northbound
increase in interest rates, have become popular.

 Development of commodity exchanges- The National Commodity and Derivatives

Exchange Limited and the Multi Commodity Exchange of India Limited, two
commodity exchanges that have grown quite quickly in India, might be advantageous
for the mutual fund sector. The two exchanges provide a cutting-edge commodity
trading platform for institutions and investors and are registering record rotations in
commodities like gold and silver. The Forward Markets Commission, a watchful
regulator, maintains a tight eye on the commodities market, fostering investor trust. It
could just be possible for commodity funds, which are extremely popular in
developed nations, to debut in India. The readiness of the sector and the regulator to
launch commodities funds in India is examined at the Summit.

 Boom in Real Estate Sector- The Reserve Bank of India's relaxation of the restrictions
on foreign direct investment in real estate has resulted in an infusion of foreign capital
into the industry and skyrocketing real estate prices. The hitherto secretive building
industry is now exposed, which will increase the real estate market's transparency.
One of the Indian investor's main investment options has always been real estate. A

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 real estate mutual fund is the ideal option for smaller investors to benefit from this
boom. A real estate mutual fund, however, would have its own set of difficulties. As
this is a sensitive sector, SEBI would want to make sure that all relevant rules are in
place before real estate mutual funds launch as any unfavourable occurrence might
have a significant effect on investor trust. The summit will provide light on important
topics such valuation, declaring net asset value, and accounting, on which the working
group on real estate mutual funds has started talks.

 Chance of entering International Market- Indians have garnered worldwide attention

via high-profile overseas acquisitions and winning accolades for the most reliable
fund performance. Everyone was familiar with the India growth tale, but now it's time
to create room for the global Indian. The necessary ingredients have also been added
by the Reserve Bank of India to further specify the mutual fund business. Indian
investors are now permitted to make foreign investments of up to $100,000. Time to
go international! But chances are often accompanied with difficulties. The first steps
have been taken, but there is still plenty to do.

 Rising income of middle-class households- India's middle-class population has grown

significantly. In 2005, one in 15 homes were classified as upper middle class; by
2018, that number had increased to one in five. There are 6.1 crore upper middle-class
homes in India now. Only two out of the core choose to invest in mutual funds,
nevertheless. How can the remaining four crore be tapped into? Most likely, a novel
marketing approach can provide the solution.

 Increasing population of millennials and retirees- An estimated third of us are

millennials. They make up 46% of the workforce and produce 70% of all family
income, according to a Deloitte analysis. There is no question that this market
category offers a huge growth potential. But as the percentage of older folks rises,
India will have 3.5 crore of them by 2030. Seniors require solutions that not only fight
inflation but also sustain them throughout their golden years due to factors such as
growing medical costs, a lack of social security, and increased life expectancy. The
potential resides in providing elderly and millennials with decumulation and
accumulation options, respectively, which mutual funds are perfectly prepared to
achieve.

Along with the opportunities, the mutual fund industry is also facing challenges in India.
Although the Indian mutual fund business has had tremendous growth in recent years, recent
events brought on by the global financial crisis have negatively damaged the industry's
fortunes, causing AUM to decrease, and negatively impacting revenue and profitability. I
have recognised and emphasised some of the major problems and difficulties that the
industry's players are now experiencing, which are hindering the sector from realising its full
development potential. The following are the challenges of Mutual Funds in India: -

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 Low Levels of Customer Awareness- The largest obstacle to directing family
resources into mutual funds is low consumer awareness and financial literacy. Poor
mutual fund offtake in the retail market is directly related to low investor awareness
levels. Indian investors generally have minimal knowledge of mutual fund products,
and the bulk of them do not distinguish much between investing in mutual funds and
making direct stock market purchases. Most retail investors do not comprehend the
principles of risk-return, asset allocation, and portfolio diversification. In India, a lack
of knowledge about SIPs has led to many investors making lump sum investments.

 Limited Retail Penetration- The Indian mutual fund sector has just lately begun to
make attempts to increase branch presence in towns after placing little emphasis on
increasing retail AUM. The institutional sector is one that mutual fund firms are
focused on because of its large ticket size, tax arbitrage accessible to corporates on
investing in money market mutual funds, and easy accessibility to institutional clients
concentrated in Tier 1 cities. To access Tier 2 and Tier 3 towns, which AMCs have
just begun focused on, building retail AUM needs a strong distribution capacity and a
broad footprint. However, institutional AUM leaves the sector open to the prospect of
unforeseen redemption pressures that have an influence on the performance of the
funds.

 Need for more distributors- To spread the word about investing in mutual funds
widely, there is a great demand for a great deal more distributors and advisers. Indians
often avoid taking risks and have poor financial literacy, which prevents them from
investing in market-related items since they don't comprehend them. We want a vast
number of experienced financial advisers who can assist in educating clients about
cutting-edge investment instruments like mutual funds in order to handle this.

 Limited Innovation in Product Offering- The mutual fund business in India has
always prioritised products above customers. The popularity of New Fund Offers
(NFOs) led to the emergence of several schemes that included a variety of non-
differentiated goods. The industry has placed a little amount of emphasis on new
product development and innovation, therefore meeting the modest demands of the
consumer. In India, there are currently no products that particularly address client life
stage demands including housing, marriage, and education. Furthermore, due to the
current taxation system, relatively new product categories, such as multi-manager
funds, which are among the most well-liked hybrid funds internationally, have not
developed in India. The Indian mutual fund market only provides a small number of
risk-averse customers with restricted investing alternatives, namely capital guarantee
products.

 The Technological Backbone- Interesting technical advancements have been made by

fund companies, including online transactions, mobile phone updates of net asset
values, SMS notifications for unit balances, and usage of ATM cards for transactions.
These technologies, however, presently serve an already spoiled metropolitan elite of

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 investors. In our nation, the grassroots have not yet benefited from the digital
revolution. Our nation continues to have relatively low internet use rates per capita
when compared not just to industrialised nations but also to our developing
counterparts. Comparatively, the use of mobile phones has increased dramatically.
Herein lies a further significant obstacle for the sector. If you decide to invest in
technology developments, it is crucial to find the correct balance. A select few fund
firms with large funds could be able to invest in the essential technologies. But
working together with other economic sectors like banking and telecommunications is
vital for the long-term success of all participants in the business.

 Limited Customer Engagement- Distributors of mutual funds have come under

scrutiny for their expertise, level of consumer interaction, and the value they provide.
Since commissions and incentives were typically paid as upfront fees from product
sales in the absence of a framework to regulate distributors, neither distributors nor
mutual fund houses have shown much interest in maintaining contact with clients
after the sale has been closed (although trail commissions have occasionally been paid
regardless of the quality of the service provided). Due to the low level of
participation, there have been more and more instances of clients being mis-sold to.

 Limited Focus beyond Top 20 cities- The mutual fund business has continued to have
just a small footprint outside of the top 20 cities. According to industry professionals,
just 10% of the sector's AUM comes from cities outside the top 20. Even if they are
knowledgeable and interested, the retail population in Tier 2 and Tier 3 towns lacks
access to adequate distribution channels and investor service, which prevents them
from investing in mutual funds. Given the significant expense involved with further
penetration into Tier 2 and Tier 3 towns, the distribution networks of many mutual
fund firms are primarily concentrated on the Top 20 cities. However, several mutual
fund companies have started paying more attention to cities outside the Top 20 by
expanding their branch presence and extending their reach via non-branch channels.

x. MUTUAL FUND SCHEME PERFORMANCE

Mutual fund programmes make market investments on behalf of unit holders. How well
did a plan work? Pre-establishing a comparable—a benchmark—against which the
system may be measured is one method of evaluating the performance. A credible
benchmark should meet the following requirements: -

 It should be in line with (a) the scheme's investment goal, meaning that the
securities or other factors used to calculate the benchmark should be typical of the
kind of portfolio.  (b) the asset allocation structure; and (c) the scheme's
investment strategy.
 The standard should be determined by an impartial organisation in a transparent
manner and routinely released in a timely way. Most benchmarks are created

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 using stock prices, financial periodicals, exchanges, credit rating organisations,
securities research firms, etc.

An index fund's choice of benchmark is the easiest. The investing goal is evident on the
index that the tracking system would use. The scheme's benchmark would then be that
index. The choice of benchmark is arbitrary for other methods. A scheme's benchmark is
chosen by the AMC with the trustees' approval. According to the Scheme Information
Document, talk about the benchmark. Additionally, in addition to the scheme's historical
performance, it is necessary to state the benchmark's performance throughout the same
time period.

The fund may decide to alter the benchmark later. There may be many causes for this. For
instance, the scheme's investment goal could change, the index's composition might alter,
or a better index might become available on the market. AMCs are permitted to modify
the benchmark after consulting the trustees. The update must also be supported by
documentation. The names of the benchmark indexes used to measure the performance of
mutual fund schemes must be disclosed.

Price Return Index- Prior to this, the mutual fund schemes were benchmarked to an
index's Price Return version (PRI). Only the index components' capital gains are included
in PRI. The mutual fund schemes are benchmarked to the Total Return version of an
Index as of February 1, 2018. (TRI). In addition to capital gains, the Total Return version
of an index accounts for all dividends and interest payments made by the index's
components. Change was needed to provide fair performance comparison. After
incorporating dividends from investments, scheme performance is computed. Even with
dividends, plan performance is measured using dividend reinvestment. Compared to PRI,
the scheme's performance is somewhat better. TRI has increased mutual fund
transparency. This means fewer plans can outperform their benchmark indexes. Reality
has not changed, but its presentation has. Dividends separate PRI and TRI returns.
Historically, Indian index dividend rates have varied from 1.5% to 2.5%.

How to choose an appropriate benchmark?

The following points should be kept in mind while selecting a benchmark for different
mutual fund schemes. To help investors compare a company's success, SEBI has ordered:

 A mutual fund's benchmark must fit with its investment goal, asset allocation
pattern, and investment approach.
 Mutual fund schemes' performance compared to the Total Return variation of a
benchmark index.
 Mutual funds should utilise a composite CAGR of the PRI benchmark (until the
date TRI is available) and the TRI (subsequently) to compare their scheme's
performance.

i. Benchmark for Equity Schemes- While some equity funds that invest in various
industries invest in major corporations, others concentrate on mid-cap or small-

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 cap equities. The S&P BSE Sensex and Nifty 50 indexes are determined using 30
(for the Sensex) or 50 (for the Nifty) major firms, respectively. As a result, these
indexes serve as suitable benchmarks for equity funds that invest in big
businesses. Mid cap indexes like the Nifty Midcap 50 or S&P BSE Midcap are
regarded as superior benchmarks for mid cap funds. Some equity funds that make
investments across many industries prefer to have fewer equities in their holdings.
Nifty 50 and S&P BSE Sensex, which comprise fewer stocks, are suitable
benchmarks for these schemes since they are both narrow indexes. Broader
indexes like S&P BSE 100/Nifty 100 (based on 100 firms), S&P BSE 200/Nifty
200 (based on 200 stocks), and S&P BSE 500/Nifty 500 are preferred by schemes
that offer investing in a greater number of businesses (based on 500 stocks).

ii. Benchmark for Debt Schemes- According to SEBI recommendations, rating

agencies suggested by AMFI should create the benchmark for debt (and balanced
plans). A number of these indexes have been produced by CRISIL, ICICI
Securities, and NSE. The Mumbai Inter-Bank Offered Rate (MIBOR) offered by
NSE is based on the short-term money market. NSE also provides indexes for the
market for government securities. These are offered in a variety of forms,
including Nifty Composite G-sec Index, Nifty 4-8 Year G-sec Index, Nifty 10
Year Benchmark G-sec Index, and others. The S&P BSE India Sovereign Bond
Index, S&P BSE India Government Bill Index, and other indexes for government
assets are available on the BSE. Liquid schemes invest in securities with
maturities of up to 91 days. As a result, a benchmark for short-term money
markets, such as NSE's MIBOR or CRISIL Liquid Fund Index, is appropriate. Gilt
funds exclusively invest in government bonds. Indicators based on government
securities are thus acceptable. Debt funds must use benchmarks that are
determined using a diversified mix of debt securities since they invest in a variety
of government and non-government assets.

iii. Hybrid Schemes- Hybrid funds make a combination of debt and equity
investments. Therefore, a combination of an equity and debt index serves as the
benchmark for a hybrid fund. A synthetic index that is computed as 65 percent of
the S&P BSE Sensex and 35 percent of the I-Bex, for example, may be used with
a hybrid scheme with an asset allocation of around 65 percent in equity and the
remaining 35 percent in debt. For hybrid funds, CRISIL has also developed a few
blended indexes.

STANDARD BENCHMARKS- In order to maintain consistency, schemes must provide

return in INR and CAGR for the following benchmarks in addition to the scheme
benchmarks. This was suggested in order to standardise benchmarking and compare the
performance of the scheme with readily available indices.

SCHEME TYPE BENCHMARK

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 Equity Scheme Sensex or Nifty
Long-term Debt Scheme 10 year dated Gol security
Short-term Debt Scheme 1 year Treasury Bill

RISK LEVEL IN MUTUAL FUNDS.

It is crucial to look at the risk-return profiles of the main plan categories in order to assess
and choose various mutual fund schemes. We have already discussed the different types of
mutual funds schemes previously. This section covers the risk-return characteristics of
different mutual fund schemes.

Liquid Funds Debt Funds Hybrid Funds Equity Funds

In the above figure as we move from liquid funds to debt funds to hybrid funds and finally
towards equity funds, the risk level increases. But as we know that risk is always
accompanied with returns. So as the risk increases the returns also increase. Thus, we can
conclude that as we move from left to right the risk and returns increase.

i. Risk-Return Hierarchy of Debt Funds- Two distinct risks—credit risk and interest
rate risk—can be taken into consideration when analysing the risk-return profile of
debt funds. When evaluating the credit risk of the various schemes, it is reasonable to
assume that the interest rate risk taken by each is comparable. Similarly, it would be
wise to assume that credit risk is equivalent when comparing the schemes for interest
rate risk. The graphic below demonstrates how the potential rewards and interest rate
risk both rise as we travel from left to right. The credit risk is assumed to be broadly
comparable across all the categories.

Overnight funds- Liquid Funds- Ultra short duration funds- Low duration
funds-short duration funds- medium duration funds- long duration funds.

Like the previous image, the one below demonstrates how both potential profits and
credit rate risk increase as we travel from left to right. Here, it is assumed that the
interest rate risk is comparable across all the categories.

Gilt Fund- Banking and PSU Fund- Corporate Bond Fund- Credit Risk Fund

ii. Risk-Return Hierarchy of Equity Funds- The potential profits as well as the
investment risks increase with the market capitalization of equities mutual fund
schemes. Due to the increased risk associated with smaller firms than their bigger
counterparts, small cap funds are riskier than mid-size funds, which in turn are riskier
than large scale funds. The following graph demonstrates how risk goes down and
possible returns go up as we travel from left to right.

Small Cap Funds- Mid-Cap Funds- Large and mid-cap funds- Large Cap 53
Funds
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iii. Risk-Return Hierarchy of Diversified to Concentrated Funds- A portfolio that is less
diversified and more concentrated is riskier. Thus, compared to diversified funds, a
sector fund or a theme fund would be riskier. Having said that, as both are subject to
quite different risks, it is impossible to compare the risks of concentration in a sector
fund that solely invests in big size firms within the sector with those in a diversified
small cap fund. The risk of concentration is assumed by the former, whilst the risk
associated with the size of the firms the plan has invested in is faced by the latter.
Riskier than a diversified fund is a targeted fund. Again, one must carefully consider
the additional dangers the plan would face. In general, it may be said that the risk
increases when one switches from diversified funds to concentrated funds, theme
funds, and sector funds. The graph below demonstrates how moving from left to right
increases both risk and possible reward. It should be remembered, nevertheless, that
various sector funds may have various risk profiles.

Diversified Funds- Focused Funds- Thematic Funds-Sector Funds

iv. Risk-Return Hierarchy of Hybrid Funds- Different categories of hybrid funds are
listed in the SEBI circular on the categorization of mutual fund schemes, including
conservative hybrid funds, balanced hybrid funds, or aggressive hybrid funds,
dynamic asset allocation funds (also known as balanced advantage funds), multi asset
allocation funds, arbitrage funds, and equity savings funds. The information below
demonstrates that as one proceeds from left to right, risk, and possible return
increase.

Arbitrage Fund- Equity Savings Fund- Conservative Hybrid Fund- Dynamic

Asset Allocation Fund- Multi Asset Allocation Fund- Balanced Hybrid Fund-
Aggressive Hybrid Fund

The product labelling of mutual funds may be used to understand the risk levels in the various
categories of mutual fund schemes. To combat the problem of mis-selling and provide
investors a simple grasp of the kind of product/scheme they are investing in and its
appropriateness for them, SEBI adopted product labelling of mutual funds in 2013. All
mutual funds were obliged to "Label" their programmes according to criteria like:

 Nature of the Scheme i.e., to produce wealth or offer a consistent source of revenue
over a certain time frame (short-medium-long term)
 A one-line summary of the investment goal is followed by the kind of asset the
investor is investing in (equity or debt).
 Level of Risk, which should be depicted by colour code boxes-

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 Blue- Low Risk
Yellow- Medium Risk
Brown- High Risk
  A warning that investors should speak with their financial advisors if they have any
questions regarding the product's appropriateness.

Later in April 2015, SEBI evaluated the mutual fund industry's mechanism for product
labelling. It was announced that the mutual fund schemes' risk level will grow from three to
five in the following ways.

LEVEL OF RISK DEFINITION EXAMPLE OF MUTUAL

FUND
Low Principle at low risk Liquid fund, Overnight
Fund
Moderately Low Principle at moderately Fixed Maturity Plans and
low risk Capital Protection
Oriented Scheme
Moderate Principle of moderate risk Conservative Hybrid
Schemes
Moderately High Principle at moderately Index Fund, Equity
high risk Dividend Fund
High Principle of high risk Thematic and Sector
Funds

While the riskometer is an effort to simplify the display of risk levels, it should not be the
sole consideration when making an investment choice. Instead, it may be seen as the first step
in the study of scheme categories. The debate of risk profiles for different systems that came
before the discussion of the riskometer may be considered similar. Various schemes may
assume different risks, even within the same category, and each category will have certain
inherent hazards. An investor would be urged to do thorough independent investigation. If
one is unable to do so, one should think about seeking assistance from a qualified investment
advisor or a distributor of mutual funds.

WAYS TO MEASURE MUTUAL FUND PERFORMANCE.

It might be challenging to choose the ideal strategy with so many different mutual funds
available. Risk may come from many different places. This may occur due to a variety of
internal and external variables, including changes in the economy, industry, political climate,
currency, interest rates, inflation, management, fraud, and the price of raw commodities. It's
excellent news that risk can be quantified. Additionally, it would be beneficial for you if you
used risk statistics to evaluate and choose Mutual Funds. There are several measures that may
be used to evaluate mutual funds. Over the long and short terms, several funds and fund
managers produce notable returns. But the secret is choosing the correct investment for your
objective. As a result, it is crucial to evaluate the mutual fund's performance. Some of the
most popular mutual fund performance ratios are the ones listed below:

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i. Alpha- A risk-adjusted return measure is alpha. It is a metric that assesses how
well a fund performed in relation to its benchmark. A fund with alpha zero has
produced returns that are identical to the benchmark. If the fund's alpha is
negative, it has underperformed its benchmark. Alpha higher than one, on the
other hand, denoted the fund's superior performance. The alpha factor influences
the rate of return on your mutual fund investment. You may make an educated
guess about how much return a mutual fund could provide by looking at its Alpha
value. Even while a higher Alpha value might indicate greater returns, it shouldn't
be the sole metric used to assess a fund's performance.
Alpha= (Mutual Fund Return – Risk Free Return) – [(Benchmark Return – Risk
Free Return) × Beta]

ii. Beta- The relative volatility of a stock's or mutual fund's returns compared to its
benchmark is calculated using beta, a frequently used risk metric. Therefore, beta
does not reveal the intrinsic risk of an asset; it just indicates its relative riskiness.
A standard is used to measure beta. In other words, the benchmark or stock
market's default beta will always be the number 1. The beta number might be
anything since mutual fund results are assessed against the benchmark. For
instance, if a mutual fund scheme's beta value is 1, it signifies that the fund moves
in step with the benchmark. Therefore, the fund is expected to increase by 1% if
the NIFTY 50 increases by 1%. In other words, Index Funds have a beta of 1.
Beta is a relative measurement and does not reflect an asset's underlying risk. So,
if you are that cautious investor and you categorise an investment only based on
the Beta, you might be in for a nasty surprise. Therefore, choosing a mutual fund
requires more than just looking at beta in a vacuum.

iii. Sharpe Ratio- A widely popular way to quantify risk-adjusted returns is the
Sharpe ratio. An investor may put money into the government and get a return that
is risk-free (RF). This risk-free return is well-measured by the T-Bill index. A risk
is assumed by investing in a plan, and a return is obtained (R S). The term "risk
premium" refers to the difference between the two returns, or R S-RF. In
comparison to the government's risk-free return, it is like a premium that the
investor has gained for the risk incurred. The risk incurred must be weighed
against this risk premium. Standard Deviation is used by the Sharpe Ratio as a risk
indicator. It is determined by:

Sharpe Ratio =

iv. Treynor Ratio- Treynor Ratio is a risk premium per unit of risk, like Sharpe Ratio.
The same formula was used to calculate the Sharpe Ratio as well as the risk
premium. Treynor Ratio, however, makes use of beta for risk. Thus, the Treynor
Ratio is determined as:
Treynor Ratio =

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It is not advisable to review your investment every day or each time the market plunges.
Markets are by nature cyclical. You can only get large profits if you invest for a long time. As
a result, you should evaluate and assess the performance of your mutual funds every six to
twelve months. You can better evaluate the success of the fund with the aid of an annual
review. Short-term evaluations may not provide reliable information. Additionally, funds that
perform well now may not always provide substantial returns in the future. As a result, you
should periodically review your portfolio.

xi. HOW MUTUAL FUNDS DIFFER AROUND THE WORLD?

The equivalent of a frozen supper in terms of investments is a mutual fund. An easier option
is to purchase a frozen supper, which includes all the components you need in one handy box,
rather than having to go through the trouble of browsing grocery aisles, selecting individual
items, hauling them all home, and then preparing a meal. But we can't expect overseas mutual
funds to resemble ones located in India, just as we wouldn't expect a frozen supper from
Hong Kong or Belgium to be the same as one from the neighbourhood store.

Each country has its own rules and regulations regarding mutual funds. A mutual fund in
USA is different from that in India which is different from that in UK and Europe. It's crucial
to comprehend how these restrictions affect the funds from each country since every nation
has its own "tastes" and guidelines for how mutual funds should be put together. Returning to
our frozen dinner example, buying all the components individually to make a whole meal is
costly and difficult; convenience and cost savings are the reasons why both mutual funds and
frozen meals exist. Investors just choose the portfolio that best meets their needs; they are not
required to choose which specific stock to purchase.

A global fund or an international fund is not the same as a mutual fund from another nation.
A global fund makes investments in assets from several nations, including the investor's own.
The globe is included in an international fund, but not the investor's country of residence.
Although the mutual fund sector is heavily regulated, the restrictions vary by nation or area.
Consumer protection regulations are in place to assist guarantee that asset managers put the
interests of investors above their own and that investors are not taken advantage of. For an
investor to trust their investments in a mutual fund, they must have faith that the appropriate
authorities are keeping an eye on the sector as a whole. The industry would probably collapse
if investors lost faith in it.

I. The U.S. Market- The Investment Company Act of 1940, sometimes known as the
"40s Act," establishes regulations that must be followed by any mutual funds that are
promoted to American retail investors. These regulations must be filed with the
Securities and Exchange Commission i.e., the SEC. The 1940s Act has certain
regulations that address diversification-related concerns. The quantity of fund assets
that may be invested in other investment businesses is specifically restricted under
Section 12. The regulation forbids a mutual fund from investing a disproportionate
amount of its assets in the shares of an investment business. Another guideline, 35d-1,
sometimes known as the "name test," ensures that the majority (80%) of the mutual
fund holdings are consistent with the name and prospectus of the fund. Therefore, if a
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 fund labels itself a "Foreign Equity Fund," then at least 80% of its assets must be
international stocks.

II. The European Market- Regulations from the UCITS, or Undertakings for Collective
Investment in Transferable Securities, are applicable to mutual funds that are
permitted for sale in Europe. The most current version of the regulations, known as
UCITS III, are different from the earlier regulations in that they place a greater
emphasis on the risk monitoring of derivative holdings. The regulations cover a wide
range of topics, but like the 1940s Act, some of them focus on preventing the fund
from consolidating its assets in order to maintain diversity. You just need to register
your fund in one EU nation under the supervision of that nation's financial regulator
in order to advertise it in all the EU's member states. It is the Irish Financial Services
Regulatory Authority, for instance, in Ireland. The Committee of European Securities
Regulators, which is in responsibility of coordinating the securities regulators of all
EU member states, includes the IFSRA as one of its members.

III. The Hong Kong Market- The strictest regulations are those in Hong Kong. The
Securities and Futures Commission (SFC) and the MPFSA are the two regulatory
authorities that oversee funds in the Hong Kong market. Compared to the MPFSA's
guidelines, those of the SFC are less precise and rigid. No matter what category of
mutual fund they fall under, they all apply to funds that are advertised in Hong Kong.
In contrast, MPFSA exclusively regulates investments that are promoted for use in
citizens' retirement accounts. As a result, funds appropriate for investment in
retirement accounts are subject to the regulations of both the SFC and the MPFSA.
Fund managers may focus on the MPFSA requirements, understanding that
compliance with these rules will often assure compliance with the larger standards as
well, since they are more stringent than SFC rules.

IV. The Canadian Market- Mutual funds are governed by both national regulations known
as NI 81-102 and provincial securities legislation in Canada. "National Instrument" is
what the NI stands for. For instance, mutual fund asset managers must guarantee that
the funds they administer comply with NI 81-102 regulations, while dealers who offer
mutual funds must be registered with their province's securities commission.

V. The UK Market- The Financial Services and Markets Act of 2000 (FSMA), several
statutory instruments issued under the FSMA, and the regulations of the Financial
Conduct Authority (FCA) govern fund management in the UK. Directives from the
European Union (EU) are normally implemented in the UK via statutory instruments
created under the FSMA and modifications to FCA regulations. Regulations from the
EU take effect immediately in the UK without any further implementation. But they
are replicated in the FCA regulations when it matters. In the UK, the FCA is the
organisation in charge of overseeing funds, fund managers, and the businesses that
market funds.

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For a mutual fund manager, knowing how different financial authorities operate is crucial. A
management may have several funds registered in these various regulatory settings; therefore,
they must be aware of their rights and obligations in each of the nations. A fund and its
management run the risk of receiving a negative reputation, a fine, or both if they break a
regulation, particularly a significant one.

xii. FACTORS CONSIDERED BEFORE INVESTING INTO MUTUAL

FUNDS.

Investment has always been a very interesting topic. It gives investors the ability to increase
their financial potential and generate money. Without a question, we have all been enthralled
by the allure of investment from the beginning. Making an investment selection also
necessitates considering several significant elements, such as your own financial goals, risk
tolerance, and budgeting skills. Making the proper decisions now is crucial because they
might have a significant influence on your financial future. Remember your identity and the
main drivers behind your investing decisions. The choices and judgments made by investors
in the area of mutual funds are influenced by different elements.

i. Consider your Investment Goals- The financial objectives of an investor are those that
he or she hopes to achieve within a certain time frame. Depending on what a person
wants to achieve in life, the investing target may be short-term or long-term. These
objectives may include purchasing a home, a vehicle, paying for the education of
children, going on vacation, retiring, etc. Know your investing objectives, that is,
decide if you are looking for growth or value. If you want strong returns, you should
invest in equity funds or aggressive hybrid funds. Bond funds are a good option if you
want to deposit your money someplace that is not readily impacted by market
volatility, but these products also carry substantial risks. Plan out your goals, such as
if you want to save for retirement, pay for your children's school or wedding, create
an emergency fund for unexpected costs like urgent needs, medical bills, or other
mishaps, etc.

ii. Time Horizon- Time horizons and investment objectives go hand in hand. You may
really establish your goals according to how long you want to keep your investment.
Long-term objectives provide you the opportunity to concentrate on growth-oriented
equity funds since you will have plenty of time to ride through market fluctuations,
for example with retirement savings. A balanced portfolio of growth and value funds
that provide strong returns and stability against market volatility should be used for
mid-term aims. Bond funds should make up roughly 30% of an investor's portfolio for
those with short-term aims so that market fluctuations won't have a detrimental effect
in the near future. If you wanted to set up a short-term fund for college fees, for
instance. You should invest in funds that are simple to redeem since you should be
able to access your money anytime you desire. To obtain a consistent income, you
may also invest in income funds.

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iii. Risk Factor- There is always risk involved with investments. For instance, although
mutual funds provide investors advantages like value for money and diversity, they
also come with certain dangers. The greatest thing an investor can do to lower Mutual
Fund risks is to educate themselves on them and put risk-mitigation techniques into
practise. The following are some investment-related risk variables that might
influence a person's choice to invest or could help to influence a decision to invest:
Market Risk which includes interest risk, inflation risk, currency risk, volatility risk,
Liquidity Risk, and Credit Risk.

iv. Liquidity Factor- This is one of the most significant elements affecting investing
choices. Liquidity is the simplicity with which an asset (such as equity shares,
debentures, etc.) may be traded for cash on the stock market. Since the successful
conversion of stock into money relies on a variety of variables, such as a company's
book value, the bid-ask spreads for its shares on the market, etc., liquidity risk serves
as a proxy for the risks associated with such deals. A security with a high liquidity
risk is often difficult to purchase or sell on the stock market. This is because it's
possible that decreasing cash flow may make it more difficult for an issuing
corporation to pay its present creditors.

v. Uniformity Factor- Every investor is aware that a successful mutual fund is one that
regularly beats its benchmark over the long run. When the excess return surpasses the
benchmark, it is referred to as the fund's "alpha." Most importantly, you are investing
with money that you have worked hard to earn in a mutual fund. You should expect
the fund to outperform its benchmark and have a larger alpha. You could use it as the
first argument. The performance of a fund is also significant. It should be considered
for a sufficient period. To ensure that the investments have gone through numerous
market cycles, this is done. This would provide for a long-term return that is
consistent. Any investor who is considering making an investment choice should
consider this as one of the most crucial elements.

vi. Quality of Returns- One of the first things a retail investor looks for in a high-return
mutual fund is that the return should be both high and consistent. Since the quality
and consistency of a fund's returns are some of the elements influencing investing
choices, you should steer clear of mutual funds that have lately delivered extremely
high returns but have otherwise not produced exceptional returns.

vii. Research Factor- Although it may seem obvious, you'd be astonished at how many
investors choose the incorrect fund just to find out later that it doesn't suit their
requirements. So please don't do this mistake. Research is always given top attention
by a wise investor. Before you begin, be sure the mutual fund is the one you want to
invest in. They are a great alternative for most individuals, but don't be caught in
because you heard your pals raving about them. It's conceivable that you have
requirements and expectations that are different from theirs. Investing in funds that do
not provide you with security doesn't provide much advantage.

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 xiii. HOW COVID-19 IMPACTED THE MUTUAL FUND INDUSTRY?

Mutual funds have long been a popular choice among Indian investors as an investing
strategy. Indian investors are becoming more aware of the importance of mutual fund
investments in achieving their financial objectives. But there have been some changes in
investor behaviour since the COVID-19 outbreak emerged. Everyone in 2020 had a roller-
coaster year, including the mutual fund sector. The industry experienced several
modifications for a variety of reasons. To make mutual funds more transparent and investor-
friendly, the market watchdog Securities and Exchange Board of India introduced a host of
new rules and regulations.

When a new fund is introduced, the firm offers its initial subscription under the name New
Fund Offer (NFO). Imagine obtaining the tickets to a new movie's premiere. Everyone is
keeping an eye out for the red carpet, including media outlets, filmmakers, and movie fans.
There were seven NFOs in the beginning of 2020 in January and eleven in February. This
number decreased to four in March after the pandemic's start and to none in April. In direct
reaction to COVID-19, fund firms drastically reduced their desire to register funds with
SEBI. However, the markets always recover. Three NFOs were released in May 2020, and
since then, mutual funds have been on the rise. There were around 16 NFOs in 2021.

Talking about the equity and debt sector comparative to 2019, the equity mutual fund sector's
composition has deteriorated. Equity-oriented funds were 42.30% in December 2019 and
38.80% in April 2020, respectively. Given the current state of the globe, many investors are
gravitating toward assets with a reduced risk profile. For the first time ever in March, the
AUM for the equities sector, which was Rs. 13.6 lakh crores, exceeded that of the debt
segment, which was Rs. 12.9 lakh crores. Comparatively, the equity AUM was just Rs. 7 lakh
crores in March 2020, while the debt AUM was Rs. 10.3 lakh crore. Since that time, AUM
has consistently increased month after month. The allocation for equities is substantially
larger, even when hybrid or multi-asset schemes are considered.

There are several options available to you when it comes to investing. There are several
options for milk, cream, syrups, toppings, and espresso shots, much like when you go into a
coffee shop. There are certain traditional asset types in the world of investment, including
gold, stocks, and real estate. Only recently have mutual funds become more popular.
However, as a result of COVID-19, the SIP receipts for the Indian mutual fund sector fell by
4% in the fiscal year 2020–2021, totalling over 96,000 crores. This negative trend has mostly
been brought on by the pandemic's impact on income uncertainty. By 2025, around 15% of
currently operating mutual funds are anticipated to be closed. It is anticipated that new
products, including ETFs, would somewhat make up for this. While the US may be the target
of this forecast, the Indian economy may see similar changes in this decade.

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The Women Sector- The women sector in India is breaking various stereotypes and coming
forward in all sectors. However, Indian working women fall short of their male counterparts
when it comes to saving, investing, and making financial decisions. According to LXME, a
financial platform for women, just 7% of women in India invest freely via self-learning,
according to the Women & Money Power 2022 report. However, after the Covid-19
outbreak, there has been a rise in the number of female investors in mutual funds and
equities. Many millennial women made stock and equity investments after the lockdown to
help their husbands through hard times financially. Additionally, the increasing accessibility
of financial applications and other technological tools aided women in their study and
selection of appropriate mutual funds and equities.

xiv. FUTURE OF THE INDIAN MUTUAL FUND INDUSTRY.

Over the last several years, the mutual fund business in India has seen certain difficulties.
Demonetization in 2016 and the subsequent economic recession had a negative impact on the
industry, which led to a sharp fall in investment inflows. However, recently things have
begun to improve for this sector. Investor confidence has increased as a result of the
government's efforts to enhance financial inclusion and decrease leakages. Additionally, fresh
efforts are often introduced to increase transparency and lower the expenses related to
investing via mutual funds. The mutual fund business has altered recently. Competition has
increased. The Indian mutual fund sector has evolved greatly. The government began a new
tax framework for mutual fund businesses in 2021. The new method improves openness,
transparency, and accountability by making it harder to mislead or falsify financial facts.
Technology is transforming fund management. In the past, Mutual Funds had human
managers who monitored portfolio performance and adjusted depending on market
conditions. Now they may use algorithms to monitor how much each member has invested in
various funds and make choices based on their predictions.

The Indian mutual fund sector is expected to double in size in the next 5 years. The reason
behind that are the various factors and how they would impact the industry in a positive
manner: -

i. Economic Growth- According to the research, the sector for mutual funds would
gain from the nominal GDP's anticipated 11% rise between FY 2021 and FY
2025. According to the statement, "mutual fund business in India is predicted to
develop as a result of economic expansion, rise in middle-class population, and
rise in financial savings."

ii. Financial Inclusion and Investor Education- According to the research, regulatory
and governmental activities targeted at increasing financial literacy among the
populace will result in greater mutual fund penetration. According to CRISIL
Research, increasing investor trust would result in more investments and industry

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 development. This will be fuelled by enhanced risk management and transparency
within the mutual fund sector.

iii. Retirement planning and Tax Benefits- According to the study, retirement
planning is an unexplored market in India that, if channelled via mutual funds, has
the potential to greatly boost household penetration. A sizable section of the
youthful population also has enormous potential for mutual funds in retirement
planning. Similar to how the tax advantages of ELSS are projected to spur mutual
fund development as more individuals enter the formal economy.

iv. Consistency and Steady Growth- With an annual growth rate of approximately
40%, the sector has seen significant expansion in recent years. This rate is
anticipated to stay around 30% in the next years. The rise in investor demand for
financial goods is the primary driver of this expansion. Due to this, more
individuals are putting their money into mutual funds, which are better suited to
satisfy demand. Additionally, as more individuals grow interested in investing
money in the stock market, there is a rising demand for equity-oriented mutual
funds. No substantial changes are anticipated in the investment alternatives
offered on exchanges or other channels via which investors may put their money
into equities, therefore this trend is anticipated to continue over the next ten years
as well.

Systematic Investment Plans (SIPs) will propel India's mutual fund sector, which has the
potential to have total assets under management (AUM) of 90 trillion by the end of this
decade, up from 38 trillion at the moment. According to some, the fact that mutual fund
AUM represents just 16% of India's GDP, which is much less than most other nations,
shows the possibility for development. Mutual funds are available on many different
digital platforms. It's interesting that they appeal to both Generation Z and Millennials.
Additionally, the epidemic has increased people's internet literacy. This will undoubtedly
have an impact on the rise of digital transactions. Compared to millennials and
generations before them, Gen Z is in a better position. This, however, goes beyond the
notion of being cutting-edge technologically. Gen Z is clearly in the lead there. It also
involves implementing new procedures, however. Compared to educating the younger
generation how to use technology, it is far more difficult to assist older generations in
embracing it. The digital transaction is expected to become the norm as a bigger
proportion of the client population ages.

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FINDINGS
The conclusions drawn from the gathered primary and secondary data are listed below.
Regarding the primary data, there were two interviews and one questionnaire. The results
from the primary data are as follows.

First interview with Kotak Mahindra Bank's Ms. Maitri: I questioned Ms. Maitri many times
and learned that Kotak Mahindra Bank works with all varieties of mutual funds. Kotak's
clients are mostly SIP investors, and they include both male and female clients. I discovered
that many women who had mutual fund accounts only trade on their wives' behalf and that

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their husbands created the accounts on their behalf. She informed me that clients who visit
the bank in search of mutual fund investments are unaware of the schemes and are quite
apprehensive to participate in them. The bulk of the individuals Kotak Mahindra works with
invest because of the better returns. Additionally, Kotak Mahindra Bank urges its clients to
invest in mutual funds for a minimum of ten years. Customers' biggest worry is that they
should get their principal back along with audible returns. In addition to promoting NFOs,
Kotak Mahindra Bank also works with HDFC Life and Mirae Asset.

The second interview was with Mr. Nimesh, who has been employed with Yes Bank for the
last seven years. HDFC Life, SBI Bank, Reliance, and Max Life are partners of Yes Bank.
Depending on the demands of the consumers, they provide a variety of programmes.
Schemes offered by Yes Bank have an average return of 8% to 9%. For excellent profits, they
advise their clients to invest for at least 5 years. According to him, the majority of individuals
participate in SIPs, and the investors are mostly men. Customers' primary worry is high risk,
and they choose to invest in debt or balanced funds. Customers invest in mutual funds while
being uninformed of their risk-return connection to increase returns and secure their financial
future.

The most recent primary data was gathered by questionnaire. The responders provided
answers to questions about mutual funds via a google form. There were 35 male answers and
35 female responses totalling 70 responses. Most of the people have invested in SIPs. The
respondents believe that there is less returns and high risk in mutual funds and, they believe
that there are less options and schemes to invest in. Most of the respondents believed that the
main reason that the Indian Mutual Fund industry is lagging is because of less awareness
about mutual funds in India. They believe that there should be more advertisements and
banks should take more effort in educating people about mutual funds. Another concern for
people was that there are not enough mutual fund distributors. Some respondents also wanted
much more transparency and an easy way to select one mutual fund house amongst this
many. There were also suggestions regarding development in the information technology.
The online process of mutual fund investing sometimes gets tricky for the investors and they
do not know how to proceed with the e-KYC process.

My respondents included students, businessperson, professionals, employees, retired, and

housewives. All these people were divided based on different age groups ranging from 18
years and above 60. All of them had different saving based on their annual income and
accordingly invested in mutual funds. The people who did not invest in mutual funds,
invested majorly in stocks, savings account, fixed deposit, and a few in gold and real estate.
The reason behind not investing was mostly because of lack of knowledge and difficulty in
selection of schemes. They came to know about mutual funds through their financial advisors
or through friends. Majority of them have invested in open-ended schemes and were equity
based or growth funds. Their term of investment ranged from 1-3 years and up to 5 years.
Majority invested in schemes with balanced risk and because of high returns and safety.
Mostly preferred to invest online or through an agent. About 75% of the respondents would
recommend others to invest in mutual funds and expect returns around 8%-12%.

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I discovered that the mutual fund business in India is still in its infancy and requires
significant reforms after doing research on mutual funds and while compiling my primary
and secondary data. The seventh-highest investment after equities, fixed deposits, insurance,
savings accounts, cash, and provident funds is mutual fund investment, as seen in graph 3. In
contrast to states like Chhattisgarh, Jharkhand, Bihar, and Orissa, which have relatively few
investors, states like Maharashtra, Gujarat, Karnataka, and Delhi have the greatest mutual
fund investors as shown in graph 1. AUM has a greater proportion in Delhi, Goa,
Maharashtra, and Karnataka than in states like Uttar Pradesh, Uttarakhand, Chhattisgarh, and
Jharkhand, as seen in graph 2. The eastern part of India is quite low in both situations. When
it comes to the cities, i.e., graph 4 the major metropolitan ones in India, such Mumbai,
Bangalore, Kolkata, Pune, and Chennai, have more investors and account for over 70% of all
Mutual Fund investments made nationwide.

When discussing the proportion of equity, liquid, debt, and hybrid schemes that investors
have purchased between 2017 and 2020, In Graph 6, which represents the year when Covid
entered the nation, the share of equity schemes climbed through time until declining once
again in 2020, while that of loan schemes has only declined. While investments in liquid
schemes continue to fluctuate, those in hybrid schemes have stayed stable. The ratio of Indian
female investors in equities and debt instruments varies according to the age factor. Because
they are more ready to take risks, women under the age of 30 invest more in equities funds
and less in debt. The risk tolerance declines with age, which causes investments in debt to
rise and those in equities to fall as shown in graph 7. The millennial generation, which makes
up a large portion of the population in India, makes a significant contribution to the investing
industry. These folks are aware of the need of saving money and actively work to do so. In
addition to the traditional fixed deposits and savings accounts, they are open to new
possibilities. According to graph 8, almost 33% of them think that investing in mutual funds
would improve their lifestyle, and 21% think that it will provide them with more money.
They want to reach their financial objectives and secure their financial future. Only 4% of
millennials believe mutual funds are a bad choice and should be avoided.

When it comes to Covid-19, the Indian economy and investors suffered a tremendous loss.
During COVID, investments in the equity plan decreased from 8.4% to 5.8%, while those in
the debt scheme decreased from 11.6% to 10.3%. Additionally, the total AUM decreased
from 23.79 (trn) in March 2019 to 22.26 (trn) in March 2020. In graph 9, this depiction is
shown. The mutual fund industry grew throughout the post-Covid period. As seen in graph
10, there was a rise of more than 5 crores from May 2021 to April 2022. Additionally, the
SIP accounts saw a considerable growth, going from 3.8 crores to 5.3 crores in only one year
as seen in graph 11.

Finally, there are several businesses in India that deal with mutual funds. As we can see from
graph 5, SBI Mutual Fund, HDFC, ICICI Prudential, Birla Sunlife, and Nipon India are the
top participants in the Indian mutual fund market. In this industry, there are additional firms
dealing with mutual funds, such as UTI, Axis Bank, and Kotak Mahindra.

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SUGGESTIONS, CONCLUSION AND RECOMMENDATIONS.
I concluded that many invest in mutual funds simply because their relatives or friends have
advised them to do so based on my extensive investigation into the Indian mutual fund
business. They are unwilling to do any research or market analysis, as they would before
making stock market investments. Even those who invest in mutual funds rely on others to
make investments since they are unaware of the significance of the distinction between open-
ended and closed-ended schemes. Without realising that they have varied financial objectives
and risk tolerance, many invest in the same schemes as family members or friends. Because
of their negative experiences, many consumers do not choose to invest in the mutual fund

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sector. Even though they are aware that mutual funds would provide them with greater
returns, Indian investors still choose to invest in fixed deposits and savings accounts due to
their concern of market volatility and hazards. They are also not aware about the mutual fund
ratios and how to assess their mutual fund performances before investing it. Only some
people are aware about the colour codes that are given by the SEBI and do not pay attention
to these signals before investing in a particular fund. Less reward is preferred by the Indian
populace above some financial risk. People were greatly impacted by Covid and began to
consider their future and financial stability more. After the epidemic, more individuals
opened SIP accounts as a result of their need for personal financial stability.

Spreading awareness of the mutual fund business is a crucial step in ensuring the success of
the Indian mutual fund sector. The AMFI must encourage individuals to invest in this
industry by describing mutual funds in clear English. The next generation, known as Gen-Z,
must be made aware. Additionally, banks have to promote fresh NFOs and assist clients with
mutual fund investments. For online investors, the procedure should be simple and hassle-
free. Additionally, processing costs, which many believe to still be exorbitant, should be
decreased. More tax-saving mutual funds should be introduced, and mutual fund trading
should be executed efficiently to reduce mistakes and make trading simpler for the Indian
people. Since India's population is expanding every year, individuals are looking for
programmes with higher returns that will enable them to put money aside for their children's
education or future marriages. Increased transparency and customer service representatives
should be available to assist with online mutual fund registration and transactions.

BIBLIOGRAPHY
https://www.amfiindia.com/

https://www.mutualfundssahihai.com/hi

https://www.investopedia.com/

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https://groww.in/

https://economictimes.indiatimes.com/-

https://scripbox.com/mf/history-of-mutual-funds/

https://cleartax.in/s/asset-management-company-amc

https://groww.in/p/association-of-mutual-funds-india

https://www.franklintempletonindia.com/investor-education/new-to-mutual-funds/article/
beginners-guide-chapter10/types-of-mutual-fund-in-india

https://www.bankbazaar.com/mutual-fund/how-to-invest-in-mutual-funds.html

https://www.motilaloswal.com/blog-details/What-is-the-cost-of-investing-in-equity-mutual-funds/
1864

https://www.miraeassetmf.co.in/knowledge-center/what-is-nav-and-how-it-is-calculated

https://beta.sbimf.com/sip?
utm_source=NVDefaulttraffic3rdMar&utm_medium=NVDefaulttraffic3rdMar&_s_cid=5055&_s_vid=
6168

https://groww.in/calculators/swp-calculator

https://www.5paisa.com/stock-market-guide/mutual-funds/stp-in-mutual-funds

https://www.pgimindiamf.com/pgim-india-insights/5-reasons-why-you-should-invest-in-mutual-
funds-while-you-are-still-young

ANNEXURE
The primary data I gathered for the study and the replies to the Google Forms questionnaire
are shown in the charts below.

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SECONDARY DATA GRAPHS- I created the following 11 graphs using Microsoft Word
and information I found online. These graphics use secondary data, all of which is up-to-date
and confirmed.

GRAPH 1-

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 GEOGRAPHICAL SPREAD OF MUTUAL FUNDS
IN INDIA

MAHARASHTRA GUJRAT RAJASHTAN

MADHYA PRADESH KARNATAKA TELANGANA
ANDHRA PRADESH TAMIL NADU KERALA
PUNJAB J&K LADAKH
HIMACHAL PRADESH UTTRAKHAND DELHI
UTTAR PRADESH CHHATISHGARH BIHAR
JHARKHAND ODHISA WEST BENGAL
SIKKHIM ARUNACHAL PRADESH ASSAM
MEGHALAYA TRIPURA MIZORAM
MANIPUR NAGALAND GOA

Source- AMFI

GRAPH 2 –

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 STATE WISE DISTRIBUTION OF MUTUAL
FUNDS ACCORDING TO AUM

MAHARASHTRA GUJRAT RAJASHTAN

MADHYA PRADESH KARNATAKA TELANGANA
ANDHRA PRADESH TAMIL NADU KERALA
PUNJAB J&K LADAKH
HIMACHAL PRADESH UTTRAKHAND DELHI
UTTAR PRADESH CHHATISHGARH BIHAR
JHARKHAND ODHISA WEST BENGAL
SIKKHIM ARUNACHAL PRADESH ASSAM
MEGHALAYA TRIPURA MIZORAM
MANIPUR NAGALAND GOA

Source- BSE India

GRAPH 3 –

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 25 PERCENTAGE OF MUTUAL FUND INVESTORS AS
COMPARED TO OTHER SECURITIES.
20

15

10

0
Y DS CE T H DS DS Y IT S DS IT .. ...
IT N SI S IT OS NG OS S. ES
U N
RA
O CA N N U
VI
N A V
EQ B O
U DE
P FU LF
U EQ DEP A FU DE
P AL IN
T
CT & S
NG EN A
TE
D I LS ON T ON T E
RE FD IN
VI ID TU IS NR A L
NS
I EN TI A
DI V U
NL SM PE RR NA RN
SA O M U U R TE
PR C TE AL
IN

Source- Karvy Wealth Report 2019

GRAPH 4 –

CONTRIBUTION OF CITIES IN INDIA IN MUTUAL

FUNDS AUM

29.4

2.16

3.44

3.47

1 4.13

4.25

6.81

15.5

30.85

0 5 10 15 20 25 30 35

OTHERS HYDERABAD CHENNAI AHEMDABAD PUNE

KOLKATA BANGALORE NEW DELHI MUMBAI

Source- ET Money

GRAPH 5-

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 120

100
24
80
5.6
5.7
60 7
7.2
8.6
40
13

20 13.6

15.3
0
MUTUAL FUND COMPANIES IN TERM OF AUM

Source- Startup Talky

GRAPH 6-

DISTRIBUTION OF EQUITY, DEBT,

LIQUID AND HYBRID FUNDS IN INDIA
EQUITY LIQUID DEBT HYBRID
80 73
70 65
62
60 58

50
Percentage

40
30
21 19 20
20 14 16
12 13
10 7 6 6 6
2
0
2017 2018 2019 2020
Years

Source- ET Money

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GRAPH 7-

DISTRIBUTION OF FEMALE INVESTORS IN EQUITY

AND DEBT FUNDS
90
79
80 74
70
61
60
53
47
Percentage

50
39
40

30 26
21
20

10

0
< 30 years 30 - 40 Years 40 - 50 Years >50 Years
Age

Equity Debt

Source- Café Mutual

GRAPH 8-

WHAT DO MUTUAL FUNDS MEAN TO MILLENNIAL

INVESTORS?
2.5 1.1

17.1
32.9

25.4

20.9

Can help me enjoy a better lifestyle Can Supplement my income

Can help reach me my financial goals Only for future security
MFs are non-performers Too Complex - Best to stay away

Source- Café Mutual

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GRAPH 9-

AUM DURING COVID-19 PANDEMIC

2019 2020

HYBRID
CATEGORIES

DEBT

EQUITY

0 5 10 15 20 25
Rs in TRN

Source- Business Standard

GRAPH 10-

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 THE INVESTOR ASSETS HELD BY MUTUAL FUNDS
INDUSTRY GREW BY 19% IN FY 2021-2022
39
38
38 37.7 37.5 37.5
37.3 37.3
37 36.5 36.7
36 35.3
35
Rs in Crore

34 33.6
33
33 32.3
32
31
30
29
1-May-211-Jun-21 1-Jul-21 1-Aug-211-Sep-21 1-Oct-21 1-Nov-211-Dec-21 1-Jan-22 1-Feb-221-Mar-221-Apr-22
Months

Source- AMFI

GRAPH 11-

GROWTH OF SIPs AFTER COVID-19 PANDEMIC

5.2 5.3
4.9 5
4.8
4.5 4.6
Total Nos. SIP Account in Crore

4.2 4.3
3.9 4
3.8

-2
1 21 l- 2
1 21 21 -2
1 21 21 22 22 r-2
2
-2
2
ay n- Ju g- p- t v- c- n- b- pr
M J- u - Au S e Oc No De J- a F e M
a A
1- 1 1 1- 1- 1- 1- 1- 1 1- 1- 1-

Months

Source- AMFI

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