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What are Mutual Funds?
 A mutual fund is a collection of assets held by
multiple investors for the purpose of investing.
 The fund most often consists of a mixture of stocks, bonds, cash,
and other securities, and is managed by a professional.
 Buying into a mutual fund is a simple
way for people interested in investing
to develop a diverse portfolio that is
carefully watched over and tended to
by a fund manager.
Stocks Bonds
Cash
Other
Securities
 Having a professional handle the investments offers a level of
security to the average investor, which is one reason that
mutual funds are so popular.
 Between making purchases and
trading decisions and keeping a
diversified and well-balanced
portfolio, getting involved in the
stock market can be difficult for small
time investors.
 Because mutual funds receive contributions from multiple
people, the fund allows investors to own more of the market
with a smaller amount of money than they could on their
own.
Where do Mutual Funds Invest?
Stocks
Bonds
• Stocks represent
ownership or
equity in a
company,
popularly
known as shares
• These represent
debt from
companies,
financial
institutions or
government
agencies.
Money market
instruments
• These include
short-term debt
instruments
such as treasury
bills, certificate
of deposits and
inter-bank call
money
Who can invest in a mutual fund?
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Resident Indians
Non-resident Indians (NRI)
Persons of Indian Origin (POI)
Indian Public Sector Undertakings
Indian Private Sector Undertakings
Parents/Guardians on behalf of minors
Hindu Undivided Family
Sole Proprietorship Firms
Partnership Firms
Cooperative Societies
Charitable or Religious Trusts
Trustee, AMC or Sponsor of their associates
Endowment or Registered Societies
Army/Air Force/Navy/Para-Military funds and other eligible institutions
Scientific and/or industrial research organizations
And other associations, institutions, bodies, etc., authorized to invest in
mutual funds
Types of Schemes
Income Category
This category of schemes invests only into debt instruments issued by government, public
or private companies.
Liquid Funds
• These schemes invest in
short term income
instruments such as
certificate of deposits,
treasury bills and shortterm bonds
• The objective of these
schemes is to provide
current income with
high liquidity. The ideal
investment horizon is 1
day to 1 month
Short-Term Income
Funds
• These schemes invest in
short-term money
market instruments and
corporate bonds
• The objective of these
schemes is to provide a
higher current income
than liquid funds but
without compromising
the liquidity. The ideal
investment horizon is 1
month to 3 months
Medium-Term Income
Funds
• These schemes invest in
medium-term treasury
bills and corporate
bonds.
• The objective of these
schemes is to provide a
higher current income
than short-term income
funds with reasonable
liquidity. The ideal
investment horizon is 3
months to 6 months
Long-Term Income
Funds
Floating Rate Funds
GILT Funds
• These schemes invest in
medium to long term
treasury bills, dated
government securities
and corporate bonds
• These schemes invest in
short-term to long-term
instruments comprising
of government securities
and corporate bonds
• These schemes invest in
securities issued by the
government that are
assigned the highest
credit rating
• The objective of these
schemes is to provide
consistent returns higher
than medium term
income funds with
reasonable liquidity. The
ideal investment horizon
is more than 6 months to
2 years
• The objectives of these
schemes to provide
consistent returns by
investing in floating rate
instruments, which are
indexed to interest rate
or consumer price
indexes. These schemes
also provide reasonable
liquidity to the investors
• They carry interest rate
risk due to fluctuations
of their trading prices
based on current interest
rate environment in the
economy and a plethora
of fundamental
economic conditions,
Usually, an investment
horizon of more than 1
year is recommended.
Bond Funds
• These schemes invest in securities issued
by central government, state
government, public sector companies
and private sector companies
• The objective of these schemes is to
provide a consistent high return from a
portfolio of bonds comprised of the
securities described above. The ideal
investment horizon is about 1 year to 2
years.
Fixed Maturity Plans
• These schemes have a fixed maturity date
wherein the scheme gets matured.
• These schemes are closed ended in nature. They
are open for a fixed duration, at first, during
which investors can subscribe for units of the
scheme. After the fixed duration gets over, the
schemes close for further subscriptions. Units
are allotted only to the persons who have
invested during the initial opening period.
• The plans have fixed maturities like 3 months, 6
months, 1 year, etc. After such a fixed period or
on maturity date, units of the investors are
bought back by the mutual fund at the NAV
applicable on that day.
• The objective of these schemes is to provide a
fixed income for a fixed period to the unit
holders from a portfolio of various types of debt
instruments.
Equity Category
This scheme invests only into shares of a company
Diversified Equity
Funds
Sector Equity
Funds
These schemes invest in
equity shares of public and
private companies across
different sectors.
These schemes invest in
shares of public and private
companies of a particular
sector of the economy only.
The objective of the scheme is
to provide long term capital
appreciation while reducing
risk by diversifying
investments into various
sectors of the economy.
The objective of these funds is
to focus on a particular sector,
which presents opportunities
for high capital appreciation
in the medium to long-term
time horizon.
Index Funds
These schemes are a replicate
or try to replicate a popular
index of a stock exchange.
The objective of the fund is to
allow investors to invest in
stocks, which represent the
popular index and in the same
proportions in which the
stocks are in that popular
index.
Hybrid Funds
These funds invest in a mix of equity and debt securities
Balanced
Funds
Monthly
Income Funds
These funds invest in a
mix of equity and debt in
the proportions of 50:50
or 60:50 or other
proportions of similar
kind
These funds invest in a
mix of equity and debt in
the proportions of 20:80
or 30:70 or other
proportions of similar
kind
The objective of these
funds is to provide a
reasonable and
consistent return from
the mix of both the asset
classes.
The objective of these
funds is to provide
enhanced regular returns
to risk-averse investors
by taking small positions
in equity assets.
Benefits of investing in a mutual
fund
Professional
Management
Diversification
More Choices
Affordability
Tax Benefits
Liquidity
Procedure to invest in mutual funds
 Prospective investors who wish to invest
in mutual funds have to contact a
distributor/agent of mutual funds.
 The normal procedure is to fill-up the required application form
and submit it along with a cheque for the amount of investment.
 Cheques and Demand Drafts are accepted. Payment by cash is
not allowed.
 The agent/distributor would submit the application form with
the cheque to the mutual fund company. The mutual fund
company would issue you an Account Statement with 4 working
days from the date of investment.
Expenses Involved in a mutual fund
 A mutual fund is managed by an investment management company
(popularly called an Asset Management Company).
 The investment management company charges fee for managing the
assets
 The fee is charged as a percentage on the total assets managed by the
company. This fee is adjusted to the NAV (Net Asset Value) declared on
every trading day.
 Apart from the asset management fee, there are other charges like
custodian charges, printing and stationary charges, brokerage charges
and others. These charges are also adjusted to the daily NAV.
Usually; the total charges are about 2.5% of the assets
managed.
Mantras for Investing in
Mutual Funds
 Invest based on your risk appetite
If you are a high risk investor, invest in large cap and mid-cap funds. If you are
moderate to low risk taker, invest in large cap funds and balanced funds. If you
are a low risk taker, just invest in debt mutual funds.
 Invest in top performing mutual funds
Analyze various mutual funds based on your risk appetite. Check what mutual
fund experts say about those funds. Don’t get dragged by brokers who want to
sell funds to get higher commissions. Do your homework, if satisfied, start
investing in mutual funds. Don’t care even if it takes a couple of months to
analyze.
• Invest through SIP
Mutual funds provide good returns if you invest through
Systematic Investment Plan (SIP). A small investment of
Rs 500 per month through SIP for 20 years can turn to
Rs 5Lakh assuming a 12% annualized return.
Similarly, if you can invest Rs 5,000 per month through
SIP for 20 years, you can get Rs 50 Lakh. These small investments can make you
rich in the long run.
• Invest in diversified portfolio
If stock markets are in a bull - run, mid-cap/small cap funds perform
extremely well, even though large cap funds provide good returns. However,
during the stock market crash, large cap funds provide some support. Mid-cap
or small cap stocks tumble quickly in bad time. Hence, you should diversify
your portfolio across large cap, mid-cap, small cap and balanced funds.
 Invest for long term
Mutual funds tend to perform better in the long run of over 10 years. If you
have any plans to take out your money before that you should re-think about
your decision of investing in mutual funds. Invest your money in mutual funds
which you don’t need for the next 8-10 years. E.g. Banking funds have given 15%
annualized returns for over 10 years, however, they gave just 5% annualized
returns in last 5 years.
Latest News
Mutual fund retail folios surge by 54.52 lakh to
4.54 crore in FY16
 Showing a growing traction for mutual funds among investors, the number of
retail folios grew by 54.52 lakh in the last fiscal to 4.54 crore amid volatile
equity markets.
 Besides, folios held by high net worth individuals (HNIs), or those investing
Rs 5 lakh or more crossed the 18 lakh mark. This category added 3.74 lakh
folios in 2015-16, according to a report by Crisil Research.
 Folios are numbers designated for individual investor accounts though one
investor can have multiple accounts.
 Despite the recent volatility in the equity market, retail investors continued to
pour money in equity-oriented funds.
Gilt Funds Outperform In March
Quarter
 Gilt mutual funds, which invest in government bonds, languished for the most part of
fiscal year 2016. But they shot into the spotlight in the final quarter of the year by posting
strong returns.
 The Crisil-AMFI Gilt Fund index, which tracks the performance of gilt funds, gave a
return of 2.85 per cent during the January-March quarter, which was the highest in the
debt fund category during the period.
 For the year as a whole, gilt funds, as tracked by the index, generated a muted return of
5.82 per cent. The index representing, income funds (which invest in both corporate debt
and government securities) was up 5.52 per cent for the year. While the ultra-short-term
debt funds, which invest in debt papers of maturity up to one year was the top
performing category as the index for the category was up 8.40 per cent.
 Rate cut expectations from the Reserve Bank helped to bring down yields and this
bolstered long-term debt funds, financial research company Crisil said.
 Yield of a bond is the ratio of its interest rate and market price. Bond prices are related to
interest rate which means when interest rates fall, their prices go up.
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http://economictimes.indiatimes.com/articleshow/5199713
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http://profit.ndtv.com/news/mutual-funds/article-giltfunds-outperform-in-march-quarter-should-you-investnow-1400552