MUTUAL FUND

Submitted By:- Submitted to:-

Satya Kam Jawal

& Pragya Sharma sDr. Pushpa Negi,
BBA 5th Sem(Finance) Faculty( FINANCE),
PIMG(GWALIOR) PIMG(GWALIOR)
What we know now?
 The higher the risk, the higher the return the
investor should expect.
 There are many sources of risk.
 Portfolio diversification reduces risk but does

not eliminate it.

 Investing over long time periods reduces risk.
 We cannot out-perform the market on a risk-

adjusted basis because the market is

informationally efficient.
So What Do We Do?
 Determine risk
preference

 Decide on asset
allocation

 Create a portfolio

 Hold for the long term

Create portfolio through mutual funds

Pool money from investors with similar goals

Mutual Fund Operation
Flow Chart
Organisation of a Mutual Fund
Mutual Fund
 Hire a
management
company to run
the fund

 Invests in
numerous
securities

 Sends statements
What Really Happens
 We contact mutual
fund to invest

 We buy shares in
the fund:

$2,000/$100 = 20
shares
Ways of Making Money With Mutual Funds

 Shares increase in
value (appreciation)
as stocks/bonds in
mutual fund increase
in value

 Dividends or interest
are reinvested in
more shares
Why Invest in Mutual Funds?
 Instant diversification  Liquidity

 Level the playing field  Minimal transaction

between professional costs
and individual
investors  Convenience
 Share administrative
expenses
Disadvantages of Mutual Fund Investing

 Income is subject to market risk.

 Fees and commission.

 Management Risk
The Costs of Mutual Funds
 Load funds -- sales commissions charged to
the investor when purchasing fund shares

 Management fees and expenses -- fees

associated with the operation of the company

 12b-1 fees -- fees charged to cover the

fund’s cost of advertisement and marketing
Types of Funds
 Open-end

 Closed-end

 Income Oriented funds

 Growth Oriented fund

 Speacialised Fund or
Industry Fund
Objectives of Mutual Funds
 Money market mutual funds

 Stock mutual funds

 Bond funds

 Asset allocation funds

Services Offered by Mutual Funds
 Automatic investment and withdrawal
plans
 Automatic reinvestment of interest,

dividends, and capital gains

 Wiring and funds express options
 Phone/Internet switching
 Easy establishment of retirement plans

 Check writing

 Bookkeeping and help with taxes

 Buying a Mutual Fund
 Step 1: Determine your risk
preferences

 Step 2: Determine your asset

allocation

 Step 3: Identify family of funds

that meet your objectives

 Step 4: Evaluate the funds.

Steps 1 & 2: Determine Your Risk
Preferences and Asset Allocation
 Determine your time horizon and risk
tolerance

 Determine your asset allocation preferences

Step 3: Identify Funds That Meet Your
Objectives
 Look to third-party publications
◦ Go to Morningstar’s web site
◦ Use screening tool to find smaller number of funds
to study
◦ Look for no-load, open-end, low-fee funds
◦ Find a family of funds to manage your asset
allocation
Step 4: Evaluate the Fund
 Read the prospectus!!!

 Compare returns, risk, turnover, and costs

of funds with the same objective

 Evaluate the fund’s long-term performance

 Look at returns in both up and down

markets
 Making the Purchase
 Buying through a
broker

 Buying directly from

the mutual fund
company.
Questions?