" y gains, equity funds allow you to earn ex empted ceturn «2tg00 in a financial year as tong as yoy Stay invested aig 100. or more art from this, there are ELSS (Cquity Linked 5; ow you to vest uP to RS 1,50,000 in a f rom your taxable income. investment Flexibility ‘one of the Key features of mutual funds can either invest a large lump sum amount invest small amounts (a5 low as Rs 500 pe (systematic Investment Plan). ‘avings Scheme) funds, mich year and deduce the same S the flexibility they offer voy tin the beginning oF regularly * month) in the form of 4 SIP 6. Low Cost Mutual funds charge a small amount known as investors. The expense ratlo Is charged to cover as management, administration, etc, 7. Properly Regulated The Securities and Exchange Board of India (SEBI) regu’ iguiates the mutual fund market. Mutual funds have to strictly. comply with SEBI (Mutual Funds) Regulations, 1996, to ensure transparency and protection of investors wealth. §. Ease of Purchasing While you can invest easily through offline modes, online buying and selling of mutual funds has made the lives of investors much easier. You dont need to visit @ mutual fund house's office. Just visit the official website of the asset management company. Compare various mutual fund products offered by the fund house and invest online. The entire process is easy, convenient, and fast. : Operating expenses such » and other charges. gjectives of Mutual Funds The objectives of mutual funds vary based on their type. Different funds have Brent objectives. Here, we will look at some of the common kinds of mutual funds # their objectives. © Growth Funds As the term suggests, growth funds aim to achieve growth. All growth funds have the same primary objective, which is to achieve capital appreciation between the medium and long term. The corpus of these funds is usually invested in small to large-cap stacks. * Income Funds Income funds aim at generating income at regular intervals of time. They do not seek capital appreciation in the long run, and are ideal for those who seek regular cash flow to meet their financial requirements, The corpus of these funds is invested mainly in income instruments Such as bonds, fixed interest debentures, dividend paying stocks, Preference stocks, etc.CEL | | © Value Funds The main objective of value funds 1s to make investments in undervatued stocks and achieve profits when the inefficiencies are corrected Benefits of Mutual Funds | Mutual funds are managed by professionals organised firm called AMC (Asset | Management Company) through professional fund managers who actively manage investment portfolio of vartous mutual fund schemes which deliver fallowing benefits | to investors. Mere are the benefits of investing in mutual funds: 1, Liquidity: Open-ended mutual funds are highly liquid. Units in these funds are easy to purchase and it is equally “easy to exit from the scheme However, most funds charge an exit load at the time you sell the wnts of your scheme. Just look out for the same to ensure that you will not be paying too much when exiting from the mutual fund scheme. 2. Managed by experts: One of the main reasons why mutual funds have become the preferred Investment choice among a large number of snvestors in India is the fact that they are managed by experts, Investors requare minimal knowledge about mutual funds to invest in them. Professional func managers do all the work on behalf of Tnvestors, and make decissons regarding the kind of funds to invest in, how flong to hold them, etc 3. Diversification: Market movements determine the performance of mutuai funds and the risks associated with them. Therefore, investments are almost usually made in multiple asset classes such as equities, money market securities, debt instruments, etc. so that the risk is spread out Doing this ensures that when one of the asset classes performs poor returns can be generated from the other classes. and compensate for the losses. eee rr 4. Meeting your financial targets: Investors have access to a wide vanety of mutual funds and can therefore, find schemes that are ideal to meet their financial targets, be it in the long run or in the short term. Regardless of how much income you earn, or how low your finances are, you can find funds to invest in on a monthly basis through SIPs and therefore raise funds for future use. 5. Low cost for bulk purchases: When you purchase a 1-litre Bislen water bottle, you pay %20. If you purchase 2 2-litre Bisleri water bottle, you pay 130. However, a 20-litre can of Bisleri water costs 780. Similarly, the higher the number of mutual fund units purchased, the lower the cost as there will be lower commission charges and processing fees. 6. Systematic Investment Plans: The average transactional costs that you incur are lower if you choose the SIP route to make investments in rmutual funds. SIPs are also a great option because most people may not have a lump sum amount to invest in mutual funds. However, if you earn a monthly salary, you can set aside a certain amount each month and tne same will be invested in mutual funds, thereby giving you exposure tothe whole stock. SIPs can also help you benefit from market highs and tows. . Investment process: Investment in mutual funds is a very easy : proce ‘All you have to do is identify your financial goals and decide how much money you want to invest in order to achieve them and the fund manager will take care of the rest. 8. Tax-efficiency: Investment in tax-saving mutual funds such as Equity- Unked Savings Scheme can help you avail tax benefits to the extent of 1.5 lakh. Although you will have to pay tax on Long Term Capital Gains if the investment is held for more than a year, you can still save a lot of money on tax under Section 80C of the Income Tax Act. 9. Safety: One of the most common things you hear about mutual funds is that they are unsafe in comparison with bank products. However, if you assess the fund house from which you purchase units of mutual funds in addition to an assessment of the fund manager, your capital will be safe. 10, Automated payments: Sometimes, you may forget to pay your SIP amount ‘on time, and this would mean that you will have to pay two instalments in the following month. However, fund housés encourage automated payments and you can have the SIP amount paid directly on a certain date each month, thereby avoiding the failure to make timely payments. History of Mutual Funds in India ‘A strong financial market with broad participation is essential for a developed economy. With this broad abjective India’s first mutual fund was establishment in 1963, namely, Unit Trust of India (UTI), at the initiative of the Government of India and Reserve Bank of India ‘with @ view to encouraging saving and investment and Participation in the income, profits and gains accruing to the Corporation from the acquisition, holding, management and disposal of securities’. In the last few years the MF Industry has grown significantly. The history of Mutual Funds in India can be broadly divided into five distinct phases as follows: ’ First Phase - 1964-1987 The Mutual Fund industry in India started in 1963 with formation of UTI in 1963 by an Act of Parliament and functioned under the Regulatory and administrative control of the Reserve Bank of India (RBI). In 1978, UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative contro! in place of RBI. Unit Scheme 1964 (US '64) was the first scheme launched by UTI. At the end of 1988, UTI had 6,700 crores of Assets Under Management (AUM). Second Phase - 1987-1993 - Entry of Public Sector Mutual Funds The year 1987 marked the entry of public sector mutual funds set up by Public Sector banks and Life Insurance Corporation of India (LIC) and General Insurance ) SBI Mutual Fund was the first ‘non-UTI’ mutual fund 1987, followed by Canbank Mutual Fund (Dec. 1987), Punjab - 1989' Indian Bank Mutual Fund (Nov 1989), Bank [ E Fy i 3arte eiculan + apdia (un 1990), Bank of Baroda Muu und (Oct. 1992). LIC estab orn June 1989, while GIC hed sel op its mutual fund in December tage! iy of 1993, the MF Industry had assets under management of 47092". 1004 cro Third Phase - 1993-2003 - Entry of Private Sector Mutual The Indian securities market gained greater importance with the est ies of SEBI In April 1992, to protect the ‘interests of the investors tn securgies Sad to promote the development ‘of, and to regulate, the securties market” ir cne year 1993, the frst set of SEBI Mutual Fund Regulations came in for all. mutual funds, ‘except UTI. The erstwhil@ Kothari Pioneer inow mer _— Franklin Templeton MF) was the first private sector MF registered in July io the entry of private sector funds in 1993, a new era began In the Indian MF industen giving the Indian investors 2 wider choice of MF products. The initial SEBI ME Regaine were revised and replaced in 1996 with & comprehensive set of regulations, viz re (Mutual Fund) Regulations, 1996 which is currently applicable, SEBL ‘the number of MFs increased over the years, with many foreign sponses sat up mutual funds in India. Also the MF industry witnessed several mergers ma the end of January 2003, there were 33 Mfs acquisitions during this phase. AS at wan barat KUM Of 121,008 crore’ ut af which UTI aloe had AUM of 44,541 crores, Fourth Phase - since February 2003 ~ April 2014 the Unit Trust of India Act 1963, UTI In February 2003, following the repeal of the Specified Undertaking of the Unt was bifurcated into two separate entities, vitv Trost of India (SUUTI) and UTI Mutual Fund which functions under the SEBI MF Regulations. With the bifurcation of the erstwhile UTI and several mergers (aking place among different private sector funds, the MF industry entered its fourth phase of consolidation. Following the global melt-down in the year 2009, securities markets all over the world had tanked and so was the case in India. Most investors who had entered the capital market during the peak, had lost money and their faith in MF products Wiss shaken greatly. The abolition of Entry Load by SEBI, coupled with the after effects of the global financial crisis, deepened the adverse impact on the Indian MF Industry, which struggled to recover ‘and remodel itself for over two years, in an attempt to maintain its economic viability which is evident from the sluggish growth in MF Industry AUM between 2010 to 2013. Fifth (Current) Phase - since May 2014 Taking coanisance of the lack of penetration ol At the res fF MFs, especially in tier II and t of various stakeholders, tier 111 cities, and the need for greater alignment of the interes , SEBI introduced severai progressive measures in September 2012 to “re-energize the Indian Mutual Fund industry and increase MFs' penetration. rive trend that din reversing the negat In due course, the measures did succee: tly after the new had set in after the global melt-down and improved significan Government was formed at the Center. , Since May 2014, the Industry has witnessed steady inflows and increase | the AUM as well as the number of investor folios (accounts). | oo |years the AUM size hag increas trillion (20 Lakh Crore) 1 lor time crossed 30 trillion (30 Lakh Crore) tor the ie ‘ue * The overall size of the Indian Me Industry Sees as on 30th September 2012 to 38.42 trillion ag aie 20 trittion more than 5 fold increase in a SPAN Of 10 yeary, tY SeBtember 2022, * The MF Industry's AUM has grown tr 20.40 30, 2017 to 38.42 trillion as On September 30, 2022 = ve September ‘7 a span of 5 years, * fold increase * The no. of investor folios has gone up 6.20 Sep-2017 to 13.81 crore as On 30-Sep-2029, Stars on 30- in 2 span of 5 years, sh increase * On an average 12.67 takh new folios are added S years Since ‘September 2017, cpio means ta AY Na ese a sures ‘taken by SEBI in Fe-energisi eee fare S¥ErY Month in the tast . 5 accounts has crossed 1 ‘nl #5 on RN September 2022 the tent gyCOLE ay SBI M of India (sui) a ea was established on 29 June 1987 as 9 Trust wih State Game as the Trustee. tt Sponsor and SBI Mutual Fund Trustee Company Private Umaes an agreement rida rated with SEG! on 2) December 1993 On 13 Apré 2018 ‘ned Detween SBI and AMUNDI A mating the fund house a joint aa Sset_ Management, m9 Oday, the fund house offers a wide range of mutual fund schemes across exuty. GedL. hybrid, and other categori Fund has € 6,4) o ; egonies. SBI Mutual Fund has ¢ 6,47,602 core assets unde (AUM) as of 31 May 2022. It holds 16.82% of the industry ALi SBI has a 63% stake in SBI Funds Management Pvt Lid (SBIFHPL) The remaining 37% is held by AMUNDI Asset Management through Amundi fecie Holding, a wholly-owned subsidiary SBI Mutual Fund offers 142 primary schemes. Out of these, the AMC offers 36 equity funds, af debt schemes, 14 hybrid schemes, and 11 others, including Exchange Traded-Funds (ETFs), mdex funds, and gold funds. 2. SBI Equity Mutual Funds The SBI Equity Mutual fund has various schemes in terms of equity, debt, sad short-term mutual funds. The names of best performing schemes are: * SBI Small Cap Fund * SBI Contra Fund ' * SBI Technology Opportunities Fund © SBI Magnum Midcap Fund © SBI Consumption Opportunities Fund © SBI Large & Midcap Fund © SBI Infrastructure Fund * SBI Magnum COMMA Fund * SBI Healthcare Opportunities Fund © SBI Long Term Equity Fund * SBI Focused Equity Fund € SBI Magnum Global Fund © SBI Bluechip Fund «SBI Flexicap Fund «SBI Magnum Equity ESG Fund ICICI Prudential Mutual Fund House in India «This mutual fund was founded in 1993 and has its headquarters in Mumbex. © ICICI Prudential Asset Management Company Limited is the 2nd largest AMCs in the country. They worked an instrumental part in introducing Indian investors wah mutual funds in the last 25 years. © Many investors have chosen their products to be safe and advanced. aGREE yaa te Unc tie e cud cue eae * There is a slew of products that cater to investors from different socioeconomic settings. For example, one can begin Investing with a SIP (Systematic Investment Plan) amount as small as % 100 with no upper limit. © Likewise, one can choose an investment horizon rising from 1 day, The great quality of mutual funds provides people with a fortune to create investment portfolios that satisfy them the best. The ICICI Prudential Mutual fund has various schemes in terms of equity, debt, and short-term mutual funds. Thé names of 10 best performing schemes are: ICICI Prudential Mutual Fund’Schemes + ICICI Prudential Midcap Fund * ICICI Prudential Dividend Yield Equity Fund ° * ICICI Prudential Banking and Financial Services Fund * ICICI Prudential Multi-Asset Fund . ICICI Prudential Balanced Advantage Fund * ICICI Prudential FMCG Fund — - © ICICI Prudential Savings Plan * ICICI Prudential Bluechip Equity Fund * ICICI Prudential Large & Mid Cap Fund * ICICI Prudential Equity Savings Fund 4 HDFC Mutual Fund One of India’s largest mutual fund houses, HDFC Mutual Fund, has Rs 4,23,716 crore assets under management. The company was started in 1999 as a joint venture between HOFC Limited and Investment Management Limited and became a publicly listed entity in August 2018. The fund house has a strong position in equity investments and holds 11% of the industry AUM. It has a retail and institutional customer base of 9.9 million live accounts as of 31st March 2022. . HDFC Mutual fund has various schemes in terms of equity, debt, and short- term mutual funds. + HDFC Small Cap Fund + HDFC Retirement Savings Fund - Equity Plan * HDFC Mid-Cap Opportunities Fund . HDFC Focused 30 Fund * HDF Flexi Cap Fund . HDFC Large and Mid Cap Fund + HOFC Taxsaver Fund Sipneempeesiiiii es 8 io lsrch 5. v debt, ae Reliance Mutual utual has been set up on June-30 1995, ‘Reliance Sm ‘The Reliance Prudential Mutual fun: ‘and short-term mutual funds. The names of 10 best performing schemes are: Rr cae TE y DFC Capital Builder value Fund HDFC p BSE Sensex Fund HDFC HDFC HOFC HOFC HOFC HDFC Index S& Top 100 Fund Index Fund Nifty 50 Plan Infrastructure Fund NIFTY 100 Equal Weight Index Fund Nifty 100 Index Fund ulti Cap Fund Fund The reliance Mi It gives a big 1033 funds. Reliance Mutual Fund as an AMC has a aint of popularity in India. They are one of India's leading mutual with Average Assets Under Management (AAUM) of Rs 2,33,628.56 ons ‘all Cap Fund started In 2010 has returned a very high g the beginning. . ince Being a small-cap fund, it is considered as a high-risk fund, ‘Additional notice worthy funds by this AMC are Reliance Index Fund - 1 Plan, Reliance Regular Savings Fund ; Balanced and many more, ity RMF gives investors a well-rounded portfolio of products to satisy dieing investor wants. It has a presence in 300 cities over the scauntry. innovative products and customer service RMF continually aims to begin leads to build value to investors. d has various schemes in terms of equity, Reliance Banking Fund Reliance Classic Bond Fund Reliance Large Cap Fund Reliance Multi-Cap Fund Reliance Floating Rate Fund Reliance Growth Fund Reliance Vision Reliance Pharma Fund Reliance Balanced Advantage Fund Reliance Power & Infra FundTempleton Mutual Fund Houses j, iN Indi, — Templeton is really an American financiah — , Fam unded in 1947 Ces company thay oe office was established in 1996 s [ of company has been a general in the mutual fund dom; A us rate 1s viewed a5 VEY GOO as this tung 4 5 = ain ever since e-c . aaed verv remarkable fund with others js Franklin india aD fund + Mapanies. Fund High Growth cap fund begun in 2007 has ° multi-caP aS returned a ' wos) the market crash of 2008 Tate notwithstanding cr n Templeton Mutual Fund has various schem ili = nd short-term mutual funds. The name es in ne me terms of equity, para 0 Of 10 best Performing sh ae Gaaxtin Templeton Mutual Fund —Frankin India Feeder - Franklin US. Opportuntes Fora FT india Feeder - Franklin European Growth Fund FT India Feeder - Franklin European Growth Fund Franklin India Taxshield Franklin India Banking & PSU Debt Fund + Franklin India Feeder - Franklin U.S. Opportunities Fund Franklin India Corporate Debt Fund + Franklin India Dynamic “Accrual Fund + Franklin India Debt Hybrid Fund I Birla Sun Life Mutual Fund * This AMC is a joint venture among Birla Group of India and Sun Life Financial Inc. of Canadan * Birla Sun Life Mutual Fund was begun in 1994. * Bila Sun Life Frontline Equity Fund has returned a striking since in 2002 ‘This rate of performance is really great for a large-cap mutual fund ‘Added very useful fund by this AMC is Birla Sun Life Tax Relief 96. ‘This fund is an ELSS (Equity Linked Savings Schemes) fund and assists People to save tax under Section 80C. Tre Birla Sun Life Mutual Fund has various schemes in terms of equity, debt, “*@) and short-term mutual funds. The name of 10 best performing schemes are: 3ia'Sun Lite Mutual Fun Aditya Birla Sun Life Equity Fund Aditya Birla Sun Life Frontline Equity Fund Aditya Birla Sun Life Corporate Bond Fund |CL aue award - Aditya Birla Sun Life Balanced 95 Fund - Aditya Birla Sun Life Credit Risk Fund + Aditya Birla Sun Life Balanced Advantage Fund * Aditya Birla Sun Life Low Duration ‘ + Aditya Birla Sun Life Medium Term Plan + Aditya Birla Sun Life Arbitrage Fund + Aditya Birla Sun Life Manufacturing Equity Fund 8. UTI Mutual Fund + UTI Mutual Fund was created out of the former Unit Trust of India as a SEBI listed mutual fund from 1 February 2003. +The comes in at 6th position as mutual fund houses in India with an AU- = UTI was established in 1963 and was India’s 1st asset management company. This AMC offers a very great 1399 mutual funds to pick from. +” As an AMC, UTI Mutual Fund has retumed a price great over 15% over the 3 decades it has been in continuation. * It is very good for a large-cap fund. The UTI Mutual Fund has various schemes in term: and short-term mutual funds. The name of 10, best performing sche s of equity, debt, large-cap mes are: + “UTI Mastershare Unit Scheme + UTI Banking & Financial Services Fund oes _ + UTI Hybrid Equity Fund : : + UTI Bond Fund + UTI Credit Risk Fund + UTI Dynamic Bond Fund + UTI Dividend Yield Fund + UTE Equity Fund 9. Kotak Mahindra Mutual Fund Kotak Mutual Fund is a wholly owned subsidiary of Kotak Mahindra Bank Limited. It was registered with SEBI in June 1998. The fund house has a large Investor base of over 8.1 million. Based on its quarterly AUM as of Mar 2022, the fund house ranked the Sth largest amongst all fund houses. Kotak Mutual Fund has over 101 mutual fund schemes for investors to choose from. © Out of these, 26 are equity schemes, 63 are debt schemes, and S are hybrid schemes. The others, induding commodity schemes, account for the remaining 7.* Kotak Mutual Fund holds 7.33% of the industry AUM, © Some of the schemes with the highest AUM from Kotak Mutual Fund are Kotak Liquid fund, Kotak Flexicap fund and Kotak Equity Arbitrage fund as of June 2022. Kotak Mahindra Mutual Fund has various schemes in terms of equity, debt, large- cp and short-term mutual funds. The names of best performing schemes are: Equity Funds invest your money in Equity and Equity related instruments. * Kotak Small Cap Fund * Kotak Emerging Equity Fund * Kotak Infrastructure and Economic Reform Fund * Kotak Tax Saver Fund * Kotak Equity Opportunities Fund * Kotak India EQ Contra Fund * Kotak Bluechip Fund * Kotak Flexicap Fund * Kotak Focused Equity Fund * Kotak Business Cyde Fund * Kotak Manufacture in India Fund * Kotak Multicap Fund * Kotak Nifty 50 Index Fund Kotak Nifty Next SO Index Fund SE _ Different Types of- Mutual Fund Schemes : The different types of Mutual Fund Schemes are studied as follows: Mutual funds come in many varieties, designed to meet different investor goals. Mutual funds can be broadly classified based on: Organisation Structure - Open ended, Close ended, Interval Management of Portfolio - Actively or Passively Investment Objective - Growth, Income, Liquidity Underlying Portfolio - Equity, Debt, Hybrid, Money market instruments, Multi Asset ‘Thematic / solution oriented - Tax saving, Retirement benefit, Child welfare, Arbitrage 6. Exchange Traded Funds 7. Overseas funds 8. Fund of funds 1. Scheme Classification by Organization Structure © Open-ended schemes are perpetual, and open for subscription and —— ‘on @ continuous basis on all business days at the current Pree -————__—_ Tessie 2. Oe ucie ie) Close-ended schemes have a fixed maturity date. Th ciosre time of the initial offer and redeemed only on nt Gnits of close-ended schemes are mandatorily aan foute before maturity and can be sold/traded on the stecsP8 ey Interval schemes allow purchase and’ rédemption oe exchanges transaction periods (intervals). The transaction period rng spel a minimum of 2 days and there should be at least 3S 0 be ty + between two transaction periods. The units of neha 15-day also mandatorily listed on the stock exchanges. Schemes arg ssification by Portfolio Management mat Scheme Cla Active Funds In an Active Fund, the Fund Manager is ‘Active’ in leci to Buy, Hold, or Sell. the underlying securities and in stock pat ria funds adopt different strategies and styles to create and aa portfolio. “* The investment strategy and style are described uptront in the Sch Information document (offer document) o~ @ Active funds expect to generate better returns (alpha) than th | r retur e benchmark index. The risk and return in the fund will depend upon the strategy adopted. Active funds implement strategies to ‘select’ the stocks for the portfolio. Passive Funds Passive Funds hold a portfolio that replicates a stated Index or Benchmark eg. - «Index Funds e Exchange Traded Funds (ETFs) . the fund manager has a passive role, as the stock decision is driven by the Benchmark Index and rely needs to replicate the same with minimal In a Passive Fund, selection / Buy, Hold, Sell the fund manager / dealer mer tracking error. Active v/s Passive Funds - Active Fund — Rely on professional fund managers who manage investments. © Aim to outperform Benchmark Index tage of fund managers’ Suited for investors who wish to take advant alpha generation potential. Passive Funds ~ Investment holdings mirror and closely track 2 benchmark index, 65% Index Funds or Exchange Traded Funds (ETFs) i er market inde © Suited for investors who want to allocate exactly as P © Lower Expense ratio hence lower costs to investors and better taut eel- sincation by Investment Objectives RE yat funds offer products that cater t nue of the investors such as ‘te Oterene ies capital Appreciation (Growth) Capital Preservation peguiar 4. uquidity Tar Saving e 5 also offer investment plans, sucty a» Grovan ae 5 investment to the investors’ reeds 076 Oniiderd option, «ul Growth funds + Growth Funds are schemes that are desianed to prenge , appreciation onal Income + Primarily Invest in growth oriented assets, such a5 : «Investment in growth-oriented funds requires 9 medium to ~ investment horizon, long-te * Historically, Equity as an asset class has outperformed Most other Wn of investments held over the long term. However, retuene trom erin, funds tend to be volatile over the short-term since the prices of the underlying equity shares may change, * Hence investors Thust be able to take volatility in the returns in the short-term. Income funds * The objective of Income Funds is to provide regular and steady mcome tp investors, * Income funds invest in fixed income securities such as Corporate Bonds, Debentures and Government securities, The fund’s return is from the Interest income eamed on these Investments 25 well as capital gains from any change in the value of the securities. The fund will distribute the income provided the portfolio generates the required returns. There is no guarantee of income. The returns will depend upon the tenor and credit quality of the Securities held, Uguid / Overnight /Money Market Mutual Funds * Uaquid Schemes, Overnight Funds and Money market mutual fund are investment options for investors seeking liquidity and principal protection, with commensurate returns. ~The funds invest in money market instruments* with matunties not exceeding 91 days. The return from the funds will depend upon the short-term interest rate prevalent in the market.OEE 4 5. LCL ey * These are Weal { for short periods. ~ Investors who use these funds for ton ger holding periods may te Sacrificing better returns possible from Products suitab\ longer holding pertod. : _. * Money Market Instruments includes commer: Papers, Commercas bills, treasury bills, Government securities “peng #1 unenpires maturity up to one year, call or notice money, certificate of epone, Usance bills, and any other fike instruments as specified by the Reserve Bank of India from time to time, lor investors who wish to park thelr apts hoes Classification by Investment Portfolio: * Mutual fund products can be ct Portfolio composition ~The first level of categorization will be on the basis of the ase class the fund invests in, such as equity / debt / money market instruments or gold. lassiied based on their undertyeng The second level of categorization is on the basis of stratepes and styles used to crpate the portfallo, such as, Income fund, Dynamic Bond Fund, Infrastructure fund, Large-cap/Mid-cap/Smam. cap Equity fund, Value fund, etc. ~ The portfolio composition flows ‘out of the investment objectwes, of the scheme. Solution Oriented Mutual Funds Solution Oriented Fund is a recently introduced category of mutual funds by SEBI. It has created an easy path for the finaricial planning of comples ong term objectives which may or may not need alteration’ in the strategy with respect to time. The schemes under this category have been operatiag 'ong before the formation of the category. These funds were previcusty categorised under equity or balanced schemes. However, the separate category allows fund managers to follow unique strategies and deliver eccentric outputs. The fund manager of a solution-oriented fund is free to furbish the portfolio with equity or debt tools and can also change the strategy for investors of different age groups. Some of the solution oriented mutual funds also provide tax deductions. Majority of the schemes under this category have lock-in period as the investment objective Is of long term, Types of Solution Oriented Funds Based on the investment objective, SEBI has divided solution oriented funds into two sub-categories: Tax Saving Mutual Funds Tax saving mutual funds ts just like any other mutual funds with an added tax-saving benefit. The spedal feature of this type of mutual fund is that the Investments made in the tax-saving mutual funds are eligible for tax 173781 Education and In benefits under section G0C of the Indian Income Tax Act. Most of the tax saving mutual funds are ELSS schemes and make investments in the growth-oriented equity ‘arket. The investments made in these types of funds are elidible for tax benefits of up to 1.5 lakh, Retirement Funds Financial independence ir the post-retirement era is one of the most looked Out objectives for millions of investors. To cater the retirement planning Goals, various AMCs in India have mechanised plans for this specific Purpose in 2 convenient, reliabl2 and innovative manner. Every retirement fund follows a different strategy to enhance the financial strength of retirees Retirement mutual funds aim to provide financial assistance to the retirees by gathering the capital during the earning age of the investor. These funds follow an aggressive style of investment by selecting high-risk stocks s. the portfolio when the investor is in the young and earning stage. As retirement is mostly more than 15 years away from such investors, high- risk stocks add significant value to the investment allowing more capital to be built for retirement planning. Children’s Funds The children’s fund aims for the financial assistandé of the young -ones. until ‘their education is completed. Education in India is getting expensive day by day and for a common man, it can be a tough task to Pay gigantic fees for the education of children. This can embark sudden financial imbalances on parents while some children with Potential to learn are barred from ‘Studying further and achieving their dreams due to the financial situation. Proper planning and necessary steps taken at the Tight time can help in avoiding these kind of inconveniences. Arbitrage Funds ] Arbitrage funds are hybrid mutual fund schemes which aim to generate arbitrage profits by exploiting price differences of the same undertying assets in different capital market segments. These funds can also invest in debt and money market instruments. As per SEBI’s directive, arbitrage funds must invest at least 65% of their assets in equity and equity related Securities (e.g. stock futures, index futures etc). These mutual fund schemes have a low risk profile. Since 65% of the assets of these funds are invested in equity and equity related securities, they enjoy equity taxation. Arbitrage is simultaneous buying and selling the same underlying security in different market segments to make risk free Profits. If the price of a security is different in different markets, you can make risk free Profits by buying the Security in the market where price is lower and simultaneouslyaed Excl vaded Fund (ETF) An exchange-traded fund (ETF) is a type of Pooled invest operates much like a mutual fund. Typically, ETFs will laxdpern’ sector, commodity, or other assets, but unlike mutual funds, ETre ct purchased or sold on a stock exchange the same way that ot” be. can. An ETF can be structured to track anything from the slat Sock individual commodity to a large and diverse collection of secures. a2 can even be structured to track specific investment. strategies — * An exchange-traded fund (ETF) 4s a basket of securi ties th: on an exchange just like a stock does. _ * ETF share prices Muctuate all day as the ETF is bought and sold; the is different from mutual funds, which agly trade once a 4 “ market closes.1 _ + ETFs can contain all types of investments, including stocks, commodities or bonds; some offer U.S.-only holdings, while others are internationsy ETFs offer low expense ratios and fewer broker commissions than buying-the- stocks individually. Overseas or Foreign Fund A foreign fund refers to a fund that invests in businesses outside the country of origin of the investor. They cdn be exchange-traded funds, closed- end funds, or mutual funds. They are sometimes referred to as international funds. Foreign funds provide private investors with access to overseas markets, Foreign investment introduces risks, but it may also help investors to diversify their investment portfolios. Foreign funds are higher-risk investments, which are typically used as a substitute for~central investments of long- term portfolios. Hence, foreign fund refers to a fund that invests in businesses outside the native country of the lender. Foreign funds help investors diversify their investment horizons, resulting in a higher return potential. Emerging markets provide investors substantial benefits with higher risks as the markets and infrastructure of these countries are rising but uncertain. Fund Of Funds (FOF) A ‘Fund Of Funds’ (FOF) is an investment strategy of holding a portfolio of other investment funds rather than Investing directly in stocks, bonds or other securities. An FOF Scheme of a primarily invests in the units of another Mutual Fund scheme. This type of investing Is often referred to as multi-manager investment These schemes offer the investor an opportunity to diversify risk by spreading investments across multiple funds. The underlying Investments for a FoF are the units of other mutual fund schemes gither from the same mutual fund or other mutual fund houses. Experts belleve fund of funds are generally better sulted for smaller Investors thal want to gain access to a range of different accat riaccaror for those whose advisers do n ‘pertise manager recommendations. [Se — Under current Income Tax regime in India, a FOF 1s treated as @ non Equit fund and consequently taxed accordingly. in other words, even th ve FOF may be investing in equity oriented funds, the FOr weed en as an equity oriented fund, and consequently, the tax benefits erie available to an equity fund are Not available to an FOF. Consequently, ” case of FOFs investing in equity securities of domestic companies via €0Fs, there is dual levy of Dividend Distribution Tax (DOT), viz., when the domestic companies distribute dividends to their shareholders and aga, when the FOF distributes the dividends to its umit-holders. : TYPES OF MUTUAL FUND PLANS ‘Mutual funds are gaining popularity among Indian investors. The reason is that these investment avenues provide a range of benefits to investors. Such benefits include a diversified portfolid) expert portfolio management, flexibility in investments through SIPs, and lump sum among others. The mutual fund industry in India is regulated by the Securities and Exchange Board of India (SEBI). Although SEBI has categorized mutual funds based on where they invest, there are other ways mutual funds can be classified. The different types of mutual funds in India are: 1: 2. 3, 4, Types of mutual funds based on their Structure Types of mutual funds based on Asset Classes Type of Mutual Fund based on Investment Objectives Type of Mutual Fund based on Portfolio Management 1. Types of Mutual Funds based on their Structure ‘A routual fund scheme can be classified. as an open-ended, dose-ended, or interval scheme depending on its maturity period. Let's understand: - Open-ended mutual funds: In open-ended mutual fund schemes, you can invest and redeem your investments whenever you want. There is no maturity tenure or a specific time for investment into the scheme. Open-ended mutual funds are, therefore, liquid in nature. Most types of mutual fund. schemes are open-ended in nature, However, ELSS schemes and sometimes solution-oriented schemes are exceptions with lock-in. Redemption is not allowed while solution- oriented funds can have lock-in periods of up to S years. Close-ended mutual funds: Close-ended mutual fund schemes have a stipulated investment period and a specified maturity period. These schemes are offered for investment when they are launched. New Fund Offer (NFO) wherein the mutual fund house launches these close-ended schemes. Investment in such schemes can only be done during the NFO period. Moreover, there is also a fixed maturity date before which you cannot redeem the schemes, Some dose-ended schemes are listed on the stock exchange after the NFO. Investors can sell or buy such funds on the stock exchange where they are listed. InLEA) Rome clase-ended schemes, investors are given the option to call acy their units to the mutual fund house periodically when the cmstust ‘oa company repurchases the units through periodic repurchaving. As cer ses! guidelines, mutual fund companies have to provide ther imedors mem either exit route, +e, either by selling the funds at the stock exchange Or by selling it back to the mutual fund company © Interval Mutual Funds: As the name suggests, interval Mutue! Funds allow you to mvest or redeen from them at intervals. These are essentially close-ended funds with some windows in-between where you caf enter or emit the fund 2. Types of Mutual Funds based on Asset Classes Depending on the investment objective of the fund, mutual fund schemes can be of the following types - = © Equity Mutual Funds: Equity mutual funds are those that invest at least 65% of their porttom in equity stocks or equity-related securities. These funds have high marker risks as well as the potential to generate nigh returns. Equity mutual funas are further sub-divided into different categories which are as follows. Type of Equity Meaning mutual fund t These are open-ended equity mutual funds that imvest a least 80% of their portfolio in equity and equity-onentec: instruments of large-cap companies. large-cap comparses are those that rank between the 1 st and 100 th Company in the list of stocks prepared by AMFI depending on marter Capitalization ~~ : . ° Mid Cap Funds These are open-ended equity mutual funds that invest at least 65% of their portfolio in equity and equity-onereec instruments of mid-cap companies. mid-cap companies are those that rank between the 101st and 250th company in the list of stocks prepared by AMFI depending on marxet capitalization Small Cap Funds These are open-ended equity mutual funds that invest at least 65% of ‘their portfolio in equity and equity-onentes instruments of small-cap companies. Small cap comparues | are those that are ranked 251 and above in the list of stocks prepared by AMFI deperding on market capitalization Multi Cap Funds Multi-cap funds invest in large-cap, mid-cap and small-cap stocks and have a completely diversified portfolio. As per the latest guidelines issued by SEBI, multi-cap funds shows invest a minimum of 25% of their portfolio large-cap, md cap and small cap stocks each. The remaining 25% of T+ Portfolio can be invested as per the fund manager’s discretic Large Cap FundsFlexi Cap Funds Flexi cap mutual funds are those mutual fund schemes that can invest in stocks of any companies across all market capitalization, namely large-cap, mid-cap as well as small cap stocks. There is no limit defined at the market capitalization level. The fund manager can have any mix of sectors and company sizes in the portfolio Large & mid-cap Funds|These funds are open-ended mutual fund schemes that invest at least 35% of their portfolio in equity and equity- related instruments of large-cap companies and mid-cap companies each . Dividend yield Funds | These are open-ended equity mutual funds that invest at | Jleast 65% of their portfolio in dividend-yielding stocks. * Equity Fund Taxation . Equity/Hybrid Mutual Funds with a minimum of 65% exposure in any of the equity instruments at all points of time qualify for equity taxation. Long Term Capital Gains for Equity Mutual Funds are tax-free up to INR 1 lakh of capital gains in one financial year, after which it is taxed at 10%. Capital Gains taxed at 15% + 4%Icess Capital Gains Tax at 10% + 4% cess if the gains exceed INR 1 lakh in one financial year With a Holding Period of less than 12 months With a Holding Period of 12 months or more Short Term Capital Gains Taxation Long Term Capital Gains Taxation © = Debt Mutual Fund: Debt mutual funds are those that invest their portfolio primarily in fixed income instruments, i.e, avenues which offer a fixed rate of interest. Debt funds, therefore, are immune to stock market risks and offer relatively stable retums when compared to equity funds. The different types of debt mutual funds that are available in the market include the following: Overnight funds are open-ended mutual funds that invest in securities that have a maturity period of, 1 day. These funds are, therefore, suitable for very shoft term investment needs Liquid funds Liquid funds are open-ended mutual funds that invest in debt and money market securities that have 2 maturity period of up to 91 days.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 Mifn TELA) These funds are open-ended ma in such debt and money mare U% thy = Macaulay duration* of the Portion 3 ty months and 6 months MS betes” Low duration funds are open-end, Invest in such debt and money mea ott tw the Macaulay duration* of the Portfotig mt 6 months ana 12 months Neo beta Money market funds ae open-endeg invest in money market securities that man tt Ow period of up to a year ¢ 2 mare, These funds are open-ended mutuat funds in ‘such debt and ‘meney market. securties Macaulay duraton* of the portfolio les betes, and 3 years tw These funds are open-ended mutual fur 7 nds in such debt and money market secuntes tar at Macaulay duration* of the portfolio lies between » years and 4 years These funds are open-ended mutual funds that meg in such debt and money market secunties that me Macaulay duration* of the portfolio lies between ¢ yen, and 7 years Long duration funds are open-ended mutual funds that invest in such debt and money market securities tha the Macaulay. duration* of the portfolio is more than 7 years : Dynamic bond funds are open-ended mutual fund schemes that invest in debt and money martet instruments across durations Corporate bonds are debt instruments that are issued by companies to raise funds for their finanoal needs. Corporate bond funds are open-ended debt funds that invest at least 80% of their portfolio in high-rated (AA+ and above rated) corporate bonds. The rating of the bonds denotes the financial standing of the issung company and the higher the rating the more financially sound the issuing company is. Corporate bond funds, therefore, invest in the highest-rated corporate bonds These funds are open-ended debt funds that invest & least 65% of their portfolio in corporate bonds that He below the highest-rated (AA and below rated) bonds. These funds, therefore, carry a slightly high credt st since the bonds are not the highest-rated bondsGren ee cee cee These funds are open-ended debt funds that invest at least 80% of the portfolio in debt instruments offered by banks, public finandal institutions, and public sector undertakings. Debt instruments offered by banks and PSUs include bonds, debentures, certificates of deposits, etc. Gilt funds are upen-ended debt funds that invest at Neast 80% of their portfolio in Government securities across maturity period. These funds are open-ended debt fundg that invest at least 80% in such Government securities that the Macaulay duration* of the portfolio is 10 years. These funds are open-ended debt funds that invest at least 65% of their portfollo in floating rate instruments. Floating rate instruments include bonds that have @ floating interest rate, i.e. the interest rate on such bonds change with the change In interest rates in the economy. g and PSU funds gankit iit funds git with 10 year constant duration Floater funds “Macaulay duration measures the time taken by a debt instrument to repay itself through ws. So, If you buy a bond worth 1100, the Macaulay duration of the bond would bond to repay back %100 to you through! periodic interest and bt mutual fund, the Macaulay duration of the fund Is the weighted f each debt security held by the funds. asrfio be the time taken by the principal repayments. In a det averege Macaulay duration of Debt mutual funds taxation: Debt/hybrid mutual funds with less than 65% of equity exposure at any point in time qualify for debt taxation. Debt Mutual Funds with 2 holding period of minimum 36 months qualify for indexation benefit. Tax rate* Holdirig Period Nature of taxation Capital Gains taxed as per the individual's tax slab. Capital Gains taxed at 20% after Indexation benefit. Fen ECE Ce | With a Holding Period of | Short Term Capital Gains less than 36 months. Taxation. With a Holding Period Long Term Capital Gains of 36 months or more. | Taxation. . Hybrid mutual funds: Hybrid mutual funds are those that invest their portfolio in a mix of different asset classes like equity, debt, etc. Hybrid funds, therefore, give you diversified exposure to different classes of assets. Hybrid mutual funds are further sub-divided into different types which are mentioned below: The different types of debt mutual funds that are available in the market include the followingBRT aauLae Balanced Hybrid funds or aggressive hybrid funds Dynamic asset allocation funds or batanced advantage funds Multi asset allocation funds Arbitrage funds Equity savings Conservative hybrid funds are open-ended tbnid Tongs oe invest primarily in debt. At least 75% to 90% of the porties Is invested in debt instruments and 10% to 25% of we portfolio is invested in equity and equity oriented instrumeree Balanced hybrid funds are open-ended funds that invest a least 40% to 60% of their portfolio in equity and equey. oriented instruments, 40% to 60% of the portfolio is, then, invested in debt securities. Balanced hybrid funds do net invest in arbitrage opportunities. Aggressive hybrid funds are open-ended funds that invest 65% to 80% of their portfoko in equity and equity-oriented instruments. 20% to 35% of the portfolio is invested in debt instruments. Mutual fund houses can offer either of the two funds, i.e., either balanced hybrad funds or aggressive hybrid funds. These funds are open-ended hybrid funds that invest in equity as well as debt instruments. The allocation to equity and debt is dynamic and keeps changing according to market movements. The funds aim to provide maximum returns with minimum risks by constantly changing the allocation to equity and debt with changing market dynamics. * These funds are open-ended hybrid funds that invest ther portfolio in at least three different asset classes. The allocation to each asset class is a minimum of 10%. The asset classes that the fund can ‘invest in indude equity, debt, gold, real estate, etc. Arbitrage funds are open-ended funds that invest at teast 65% of their portfolio in equity arbitrage opportunities. These funds generate returns utilizing mispricing of equity in the spot and futures market. Fund managers buy equity in cash markets and sell them in the derivatives market at higher prices to generate returns. These funds are open-ended hybrio funds that invest in equity, debt, and arbitrage opportunities. At least 65% of the portfolio is invested in equity and equity-oriented instruments and at least 10% is invested in debt securities, Hybrid fund taxation: The taxation of hybrid mutual funds depends on the asset allocation of the fund. If the fund has at least 65% equity exposure, it would be taxed as equity mutual funds. If equity exposure S not a minimum of 65%, the fund would be taxed as debt mutual funds.|: | ene csr ec I Retirement funds | Retirement funds are open-ended mutual fund schemes that have Solution-oriented Mutual Fund Scheme: Solution-oriented mutual fund schemes are those that invest fo create funds for 8 specific financial need Fike planning for 4 clvid’s education or retirement There are two types of solution-oriented mutual fund schemes tat are described below: : ‘a lock-in period. The lock in oeriod is 5 years or till the investor reaches the retirement age, whichever is earlier. * Children’s funds | Children’s funds are open-ended mutual fund schemes that have 2 lock-in period. The lock-in“ period is 5 years or till the time the child attains majority, whichever is earlier. Solutions-oriented mutual fund taxation: Taxation of solutions-oriented mutual funds depends on the asset allocation of the fund. If the fund has at least ead equity exposure, it would be.taxed as equity mutual funds. If equity exposure is not a minimum of 65%, the fund would be taxed as debt mutual funds. Other funds: {-artical-inner-sub-title} Besides the above-mentioned types of mutual fund schemes, the following schemes are also offered by mutual fund companies: ¢ of Mutual Fund “Fund of Funds (FoFs) FoFs are mutual fund schemes that invest in another fund. These are open-ended funds that invest at least 95% of their portfolio in the chosen underlying fund. FoFs can invest in domestic funds or international funds. 3. Type of Mutual Fund based on Investment Objectives There are two options of mutual funds which you can choose, namely the Growth and Dividend option. Under the growth option, the return earned is reinvested in the portfolio to attract more returns while under the dividend option the returns earned are paid in the form of dividends. Growth Option: If you choose the Growth Option of any mutual fund scheme, the profits made by the scheme would be invested back into the scheme for which the NAV (net asset value) or the price of each mutual fund unit goes up. Similarly, If there is a loss, the NAV goes down. Thus, In order to get any profit from the growth option of any mutual fund scheme, you would need to redeem the units. Dividend Option: If you choose the Dividend Option of any mutual fund scheme, the profits made by the scheme would be distributed to thePeed ace aurea PPP uc : Oma ~ investors at regular intervals (monthly, quarterly, ' orn, is deducted from the NAV (nel asset value), trom the price it, fund unit "en Type of Mutual Fund based on Portfolio Management Mutual Funds can be categorized based on how the Portola is mana two types are active and passive mutual fund schemes. Me Active Mutual Funds or actively managed mutual funds are those the fund manager continuously keeps looking for ways to Generate bene returns, The fund manager sells and buys stocks wheneve, he sees opportunity. : * ° Passive Mutual Funds or passively managed funds are those wherein the fund manager does not actively manage the portfolio. The POrtIOliC refer, a specific index, i.e, the money is allocated in the exact same way it is done in the underlying ‘index. Any change in the Portfolio is. done only if there is a change in the index composition. 4 Value.’ NAV represents the price at which a mutuy fund may be bought by an investor or sold back to a fund house. A mutual fune’s NAV is an indicator of its market value. Therefore; NAV can be viewed to assess the current performance of @ mutual fund. By determining the percentage increase cr accounting firm hired by the mutual fund or the mutual fund house itself, tt is mandatory, as per SEBI guidelines, that all mutual funds publicly cisplay their Nav by updating it on the AMC & AMFI website on- every business day. Calculation of NAV Typically, @ mutual fund asset falls into one of two categories. It is either 2 scheme with underlying securities or liquid funds (cash). Securities are Inclusive of both stocks and bonds. To calculate NAV, the overall expense ratio is subtracted from The total asset value is different from the net asset value of a mutual fund. Total asset value includes its Cash, stocks, and bonds, all of which are taken at market value, or the closing price of the mutual fund. All of the interest accrued from the fund, its, liquid assets, and dividends are also included In total asset value. Finally, expenditures like any expenses, outstanding debt to creditors, and other liabilities are also part of the total asset value. There are a host of expenses Involved in a mutual fund. The expense ratio, which Is subtracted from the total asset value to calculate NAV, Is the summation of all yearly expenses made by the mutual fund scheme. The expense ratio indudes eeta ‘ent charges, operating costs, transfer csi 5 ee distribution and marketing expenses -_—_—_—— <= : qne formula used to calculate a mutual fund's NAV is: Net Asset Value = [Total Asset Value— Expense Ratio] / Number of Outstanding units ~ where “Total Asset Value’ is the market value of the investments of the mutual (atest dosing price on the relevant stock exchange) in addition to any accrued wcome and receivables less accrued expenses, outstanding debt to creditors and other % a gpuntees. ‘4 mutual fund's NAV cannot be calculated during stock market hours as the uncertying security's price changes constantly. Once ‘closing bell resounds and the ‘aacg day iS over, then NAV can be calculated. It ts calculated using the closing Sioces of the fund's securities for that day. A higher NAV indicates you can buy fewer units for the same price than you can duy from a scheme with a lower NAV. As an illustrative example, let's assume Sn investor chooses to invest 1,00,000 in two separate schemes A and B. Scheme A has 2 net asset value of 10, while scheme B has a NAV of 50, and both schemes ston 10% per month. Though Scheme A appears cheaper as 10,000 units can be squired while only 2000 of scheme B's units can be acquired for the same price but t's not the case. Let's see how. Every month, due to the 10% retum, the NAV increases. Next month, a's NAV ig 11 and B's is 5S. In both cases, the value of your 1,00,000 investment has grown 1,10,000 in one month. Hence, high or low NAV is not reiated to the returns you tn generate from a mutual fund scheme. As long as the schemes deliver the same ons the difference in their NAV is. not significant. The difference between schemes and B is that the investor gets more units in the first case than in the latter case Criteria for Selection of Mutual Funds (Factors for Selecting a Mutual Fund Category) Mutual funds are a preferred choice among investors today owing to their attractive returns and diversified portfolio. However, as an investor one must remember that no single scheme or set of schemes is suitable for everyone. A suitable mutual fund scheme for an investor is the one which suits his/her investment objective and risk appetite among other factors. Selecting a mutual fund is a 2-step process: Selection of the mutual fund category and selection of a scheme in that category. ‘The following are the factors which an investor should consider while selecting a mutual fund scheme: 1) Investment Objective: Investment objective refers to an investor's financial goal which he/she aims to accomplish with the mutual fund investment: The investment objective can be any short-term or long-term financial aspiration of the investor ~ buying a house/car, financing children's higher education, going on a vacation, retirement, etc. 2) Time Horizon: Time horizon refers to the time period for which an investor wishes to keep his/her money invested in a mutual fund scheme. It canPTT tr aac ean = be either as short as 1 day of as long as more fond categories work best for different time nara, Tine a Owterne funds invest in shorter dated debt and others invest in age ae ae Equity funds should Ideally be chosen if the investment hort m than 5 years. c= The market can be highly volatile in the short term but tends to prow: higher earnings growth over time The below is ar es categories for different time horizons: = ‘oner of Sand Time Horizon day - 3 months months - 1 year year - 3 years years - 5 years More than S years Liquid Funds Ultra Short-duration Funds Short-duration funds Hybrid/Balanced Funds Equity Fund weur Risk tolerance: Risk tolerance refers to the amount of risk an inves is willing to take with his/her invested money. SEBI in 2015 made & mandatory for all mutual fund-houses to display a riskometer which commsts Of S levels of risk assodated with the invested principal a aes isk levels are - low, moderately low, moderate, moderately high, and magn. The table below gives you the fund categories that are most suitable to different risk levels and time horizons. 3) Short Duration Liquid Funds, (up to 3 years) ultra Short-duration | Funds _ Funds Balanced Advantage Funds} Funds Short-duration Funds Medium Duration (3 years - 5 years) Lang Duration (S years and above) Mid Cap Funds, ‘Small Cap Funds Large Cap Funds | Multicap Funds Important Factors for Choosing Best Mutual Fund Scheme After selecting the mutual fund category on the babis of investment objective, time horizon and risk tolerance, choose a mutual fund scheme within that categery on the basis of the following factors: 1) Performance against Benchmark A benchmark index of a mutual fund scheme is a standard against wach its performance and stock allocation are compared. The benchmark atex guides the investment philosophy of the scheme. Thus, the asset allocaten of a benchmark index should match the investment objective of the scheme. For instance, the benchmark index of a large cap mutual fund should be3) 4) 5) neeeaeas ark of a mutual fund focussed an index of large cap stocks and the benchmi index. ‘on banking stocks should be a banking SEBI has also mandated that mutual funds use the Total Returns Index benchmarks. TRIs are built on the assump! i indices as their Sariomacres, ‘are reinvested in mutual funds as and when ey He dedared, In other words, the account for the fact that company je ‘ and pay out dividends. This makes them better benchmarks than ordinary Price Indices (PI). Performance against Category ‘Another factor which is equally important to assess while selecting a mutual fund scheme is its performance in comparison to its active peer group. This helps in getting a holistic understanding of the fund's performance. This comparison should only be among the same type of mutual fund schemes: For instance, a large cap equity mutual fund can only be compared with other large cap mutual funds and not against mid cap funds or debt funds. Consistency of Performance A good mutual fund is one which Is able to generate good retucns for ts Investors consistently over a period of time and not just whirlwind retums. The fund should be capable of providing consistent returns In both bullish and bearish periods of the stock market. Fund Manager's Experience Another Important factor to be considered while selecting a mutual fund is the. performance of Rs fund manager and how tong he/she has been at its helm. For this, an investor should look at the fund manager's experience with the fund in question and with other funds currently managed or mi in the past by him/her. AMC Track Redord ‘An Asset Management Company (AMC), also known as fund house, is the ‘company which manages a mutual fund scheme. For example, HDFC Mutual is the name of the AMC which manages schemes like HDFC Equity, Top 100 or HDFC Small Cap Fund. Many decisions are made at AMC by the Chief Investment Officer (CIO) of the AMC. A poorly selected is often present In several schemes owned by an AMC, because the selection has been made at AMC level. Thus, it is important to check the track record of an AMC while selecting a mutual fund scheme. ie Mutual Fund Performance Measures There are four main investment risk indicators for analyzing portfolios of mutual funds. These are alpha, beta, standard deviation, and a a 7 the ratio of Sharpe. These statistical measurements are historical predictors of risk/volatility for investment. Ail oe ‘isk measurements are designed to help im reward parameters. The following are the short description of each of these common Indicators. vestors determine their investment’s