INTERIM REPORT ON:

PORTFOLIO ANALYSIS AND UNDERSTANDING OF MUTUAL FUNDS

SUBMITTED BY:
SHRUTI MODANI
ENROLLMENT NO: 16BSP2427

NIRMAL BANG SECURITIES PRIVATE LIMITED

 SUMMER INTERNSHIP PROGRAM

INTERIM REPORT ON:

PORTFOLIO ANALYSIS AND UNDERSTANDING OF MUTUAL FUNDS

Submitted by:
Shruti Modani
16BSP2427
Nirmal Bang Securities Private Limited
A report submitted in partial fulfillment of the requirements of PGPM
Program of IBS Mumbai.

Mr. Yogesh Gupta Prof. Jagadish Padaki (Company

Guide) (Faculty Guide)
 TABLE OF CONTENTS
ABSTRACT
INTRODUCTION
Company Overview
Concept Of Mutual Funds
Legal Structure Of Mutual Funds
Types Of Mutual Fund Schemes
Different kind of risks associated with mutual funds
Frequently used terms in mutual funds
Benefits of mutual funds
MAIN TEXT
Funds on the basis of market capitalization
ABSTRACT :
Basic Understanding of mutual funds.
Practically learning the working of mutual funds.
Documentation of new investors
Creating account of new investors at Nirmal Bang.
Understanding different types of schemes, options and plans available in mutual funds
Understanding what type of mutual fund to recommend depending upon the investors
risk appetite.
Learning how to use the online platform of Nirmal Bang.
Obtaining the knowledge about taxation of mutual fund income.
Reviewing and analyzing clients portfolio.
Understanding how to use softwares such as Ace MF & Ace Equity
COMPANYS PROFILE
Founded in 1996 by Late Shri Nirmal Bang, the Nirmal Bang Group is recognized as one of the largest retail
broking houses in India, providing an array of financial products and services. Our retail and institutional clients
have access to products such as equities, derivatives, commodities, currency derivatives, mutual funds, IPOs,
insurance and depository services. The Group is headed by Mr. Dilip Bang and Mr. Kishore Bang who bring
forward industry expertise, insight and most importantly, create an environment of unmatched commitment to
clients. We are registered members of the Bombay Stock Exchange Limited (BSE), National Stock Exchange of
India Limited (NSE), MCX Stock Exchange Limited (MCX-SX), Multi Commodity Exchange of India Limited
(MCX), National Commodity & Derivatives Exchange Limited (NCDEX), National Multi Commodity
Exchange of India Limited (NMCE), National Spot Exchange Limited (NSEL), United Stock Exchange (USE),
Indian Commodity Exchange Limited (ICEX) and ACE Derivatives and Commodity Exchange. We are also
depository participants of NSDL and CDSL.

Mission

To work together with integrity and make our customers feel valued.

Vision

To create valuable relationships and provide the best financial services most professionally.

Core Value

Respect our colleagues and the business itself.

NIRMAL BANGS PRODUCT AND SERVICES:

EQUITY & DERIVATIVES:

Shares are the most Commonly known form of investment in the world .It gives you part of ownership or share
in Business .An equity investment generally refers to the buying and holding or trading of shares to gain income
from daily price movements, dividends and capital gains, as the value of the stock moves. Nirmal Bang
provides quality of services whose functions are beyond mere execution of Buying & Selling.
CURRENCY:

Trading in currency derivatives or Forex trade as it is better known as a very lucrative investment option in
India. Nirmal Bang provides services as the retail Forex brokers to clients on a personalized level. Our
extensive research based speculations help the clients to choose the right currency to trade with and help them
secure maximum benefit from the investment. Online brokerage services are committed to provide better and
faster execution of this difficult trade on behalf of the investors in the simplest manner.

COMMODITIES:

Offer clients commodity trading in the commodity markets involving Grains, metals, oil, crude, etc.
Personalized services in commodity trade and investment through competent and knowledgeable team of
professionals involve trading of commodity derivatives in terms of futures and options.

INSTITUITINAL BROKING:

The institutional broking at Nirmal Bang Broking offers corporate houses and institutions dealing capabilities
on India leading stock exchanges (NSE and BSE) in the cash and derivatives segments. This unit has devised a
process driven approach to address the needs of institutional Clients who have unique and specialized
investment needs

DEPOSITORY:

Nirmal Bang offers depository service which is registered as a depository participant with NSDL & CDSL.
Enjoy the dual benefits of trading and depository services under one roof and experience efficient, risk-free and
prompt depository service.

PMS:

"Nirmal Bang Securities Pvt Ltd is a SEBI licensed Portfolio Manager, who endeavors to provide Investment
solutions to HNIs clients through PMS Platform.

Portfolio Managers are equipped to create a basket of customized investment products across a wide spectrum
of traditional and Alternate Asset classes across various investment avenues like Equities, Fixed Deposits,
Mutual Funds, and Bonds etc. to meet unique needs that are best suited for the client in the current market
scenario."

MUTUAL FUNDS:
Nirmal Bang is the distributor of mutual funds. Also recommends the mutual funds.
MUTUAL FUND CONCEPT:-
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal.
The money thus collected is then invested in capital market instruments such as equities, debentures and other
securities. The income earned through these investments and the capital appreciation realized (after deducting
the expenses and profits of mutual fund managers) is shared by its unit holders in proportion to the number of
units owned by them. Thus a Mutual Fund strives to meet the investment needs of the common man by offering
him or her opportunity to invest in a diversified, professionally managed basket of securities at a relatively low
cost. The small savings of all the investors are put together to increase the buying power and hire a professional
manager to invest and monitor the money. Anybody with a surplus of as little as a few thousand rupees can
invest in Mutual Funds.
MUTUAL FUND OPERATION FLOW CHART:-

WORKING OF MUTUAL FUND:-

A Mutual Fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed
by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But
he can approach to such company and can invest into shares. Mutual funds have become very popular since
they make individual investors to invest in equity and debt securities easy. When investors invest a particular
amount in mutual funds, he becomes the unit holder of corresponding units. In turn, mutual funds invest unit
holders money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to
unit holders. If the fund gets money by selling some stocks at higher price the unit holders also are liable to get
capital gains
STRUCTURE OF MUTUAL FUNDS IN INDIA
The structure, which is required to be followed by mutual funds in India, lay down under SEBI (Mutual Fund)
Regulations, 1996.

The Fund Sponsor

Sponsor is defined under SEBI Regulations as any person who, acting alone or in combination with another
body corporate establishes a mutual fund. The sponsor of a fund is akin to the promoter of companies he gets
the fund registered with SEBI. The sponsor will form a Trust and appoint a Board of Trustees. All these
appointments are made in accordance with the SEBI Regulations. As per the existing SEBI Regulations, for a
person to qualify as a sponsor, must contribute at least 40% of the net worth of the AMC and issues a sound
financial track over five years prior to registration.

Mutual Funds as Trusts

Mutual Fund in India is constituted in the form of a Public Trust under the Indian Trust Act 1882. The fund
invites investors to contribute their money in the common pool by subscribing to units issued by various
schemes established by the Trust as evidence of their beneficial interest in the fund. The Trust or Fund has no
legal capacity itself rather it is the Trustee(s) who have legal capacity and therefore the trustees take all acts in
relation to the Trust itself.

Trustees
A Board of Trustees a body of individuals, or a trust company a corporate body, may manage the Trust.
Board of Trustees manages most of the funds in India. The Trust is created through a document called the Trust
Deed that is executed by the Fund Sponsor in favors of the trustees. They are the primary guardian of the unit
holders funds and assets. They ensure that AMCs operations are along professional lines

Asset Management Company

The role of an Asset Management Company (AMC) is to act as the investment manager of the trust under the
Board supervision.

Transfer Agents
Transfer Agents are responsible for issuing and redeeming units of the mutual fund and provide other related
services such as preparation of transfer documents updating investors records. A fund may choose to opt this
activity in-house or by an outside transfer agent.
Distributors
AMCs usually appoint distributors or brokers, who sell units on behalf of the fund. Some funds require that all
transactions to be routed through such brokers.

Bankers
A funds activities involved dealing with the money on a continuous basis primarily with respect to buying and
selling units, paying for investment made, receiving the proceeds from sale of investment and discharging its
obligations towards operative expenses. A funds banker therefore plays a crucial role with respect to its
financial dealings.

Custodian and Depository

The custodian is appointed by the Board of Trustees for safekeeping of securities in terms of physical delivery
and eventual safe keeping or participating in the clearing system through approved depository companies.
For Example:
Mutual Fund Trust SBI Mutual Fund
Sponsor State Bank of India
Trustee SBI Mutual Fund Trustee Company
Private Limited
AMC SBI Funds Management Private
Limited
Custodian HDFC Bank Limited
SBI-SG Global Securities Services
Private Limited
Bank of Nova Scotia (custodian for
Gold)

ASSOCIATION OF MUTUAL FUNDS IN INDIA

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to
function as a nonprofit organization. Association of Mutual Funds in India (AMFI) was incorporated on 22nd
August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till
date all the AMCs are that have launched mutual fund schemes are its members. It functions under the
supervision and guidelines of its Board of Directors.
Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and
healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both
protecting and promoting the interests of mutual funds as well as their unit holder
TYPES OF MUTUAL FUND SCHEMES:-

Schemes according to Maturity Period:

Open-ended Fund:
An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is
available for subscription throughout the year and investors can buy and sell units at NAV related prices. These
funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.

Close-ended Fund:
A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for
subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock
exchange.

Interval Funds:
Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock
exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.

Based on investment objectives:

Equity/Growth Funds
Equity/Growth funds invest a major part of its corpus in stocks and the investment objective of these funds is
long-term capital growth. When you buy shares of an equity mutual fund, you effectively become a part owner
of each of the securities in your funds portfolio. Equity funds invest minimum 65% of its corpus in equity and
equity related securities. These funds may invest in a wide range of industries or focus on one or more industry
sectors. These types of funds are suitable for investors with a long-term outlook and higher risk appetite.

Debt/Income Funds
Debt/ Income funds generally invest in securities such as bonds, corporate debentures, government securities
(gilts) and money market instruments. These funds invest minimum 65% of its corpus in fixed income
securities. By investing in debt instruments, these funds provide low risk and stable income to investors with
preservation of capital. These funds tend to be less volatile than equity funds and produce regular income. These
funds are suitable for investors whose main objective is safety of capital with moderate growth.

Balanced Funds
Balanced funds invest in both equities and fixed income instruments in line with the pre-determined investment
objective of the scheme. These funds provide both stability of returns and capital appreciation to investors.
These funds with equal allocation to equities and fixed income securities are ideal for investors looking for a
combination of income and moderate growth. They generally have an investment pattern of investing around
60% in Equity and 40% in Debt instruments.

Money Market/ Liquid Funds

Money market/ Liquid funds invest in safer short-term instruments such as Treasury Bills, Certificates of
Deposit and Commercial Paper for a period of less than 91 days. The aim of Money Market /Liquid Funds is to
provide easy liquidity, preservation of capital and moderate income. These funds are ideal for corporate and
individual investors looking for moderate returns on their surplus funds.

Gilt Funds
Gilt funds invest exclusively in government securities. Although these funds carry no credit risk, they are
associated with interest rate risk. These funds are safer as they invest in government securities.

Some of the common types of mutual funds and what they typically invest in:

Type of Fund Typical Investment

Equity or Growth Fund Equities like stocks

Fixed Income Fund Fixed income securities like government and corporate bonds

Money Market Fund Short-term fixed income securities like treasury bills

Balanced Fund A mix of equities and fixed income securities

Sector-specific Fund Sectors like IT, Pharma, Auto etc.

Index Fund Equities or Fixed income securities chosen to replicate a specific Index for example S&P
CNX Nifty

Fund of funds Other mutual funds

Other Schemes

Tax-Saving (Equity linked Savings Schemes) Funds

Tax-saving schemes offer tax rebates to investors under specific provisions of the Income Tax Act, 1961. These
are growth-oriented schemes and invest primarily in equities. Like an equity scheme, they largely suit investors
having a higher risk appetite and aim to generate capital appreciation over medium to long term.

Index Funds
Index schemes replicate the performance of a particular index such as the BSE Sensex or the S&P CNX Nifty.
The portfolio of these schemes consist of only those stocks that represent the index and the weightage assigned
to each stock is aligned to the stocks weightage in the index. Hence, the returns from these funds are more or
less similar to those generated by the Index.

Sector-specific Funds
Sector-specific funds invest in the securities of only those sectors or industries as specified in the Scheme
Information Document. The returns in these funds are dependent on the performance of the respective
sector/industries for example FMCG, Pharma, IT, etc. The funds enable investors to diversify holdings among
many companies within an industry. Sector funds are riskier as their performance is dependent on particular
sectors although this also results in higher returns generated by these funds.

HOW RISKY A MUTUAL FUND IS:-

Investors always judge a fund by the return it gives, never by the risk it took. In any historical analysis of a
mutual fund, the return is remembered but the risk is quickly forgotten. So a fund manager may have used very
high-risk strategies (that are bound to fail disastrously in the long run), hoping that his wins will be remembered
(as they often are), but the risk he took will soon be forgotten.

WHAT IS RISK?
Risk can be defined as the potential for harm. But when anyone analyzing mutual funds uses this term, what is
actually being talked about is volatility. Volatility is nothing but the fluctuation of the Net Asset Value (price of
a unit of a fund). The higher the volatility, greater the fluctuations of the NAV. Generally, past volatility is taken
as an indicator of future risk and for the task of evaluating mutual fund; this is an adequate (even if not ideal)
approximation.

Defining Mutual fund risk:

Mutual funds face risks based on the investments they hold. For example, a bond fund faces interest rate risk
and income risk. Bond values are inversely related to interest rates. If interest rates go up, bond values will go
down and vice versa. Bond income is also affected by the change in interest rates. Bond yields are directly
related to interest rates falling as interest rates fall and rising as interest rise. Income risk is greater for a short-
term bond fund than for a long term bond fund.

Following is a glossary of some risks to consider when investing in mutual funds:

COUNTRY RISK:-

The possibility that political events (a war, national elections), financial problems (rising inflation, government
default), or natural disasters (an earthquake, a poor harvest) will weaken a country's economy and cause
investments in that country to decline

CREDIT RISK:-

The possibility that a bond issuer will fail to repay interest and principal in a timely manner. Also called default
risk.

CURRENCY RISK:-

The possibility that returns could be reduced for Americans investing in foreign securities because of a rise in
the value of the U.S. dollar against foreign currencies. Also called exchange rate risk.

INCOME RISK:-

The possibility that a fixed-income fund's dividends will decline as a result of falling overall interest rates.

INDUSTRY RISK:-

The possibility that a group of stocks in a single industry will decline in price due to developments in that
industry.

INFLATION RISK:-
 The possibility that increases in the cost of living will reduce or eliminate a fund's real inflation adjusted
returns.

INTEREST RATE RISK:-

The possibility that a bond fund will decline in value because of an increase in interest rates.

MARKET RISK:-

The possibility that stock fund or bond fund prices overall will decline over short or even extended periods.
Stock and bond markets tend to move in cycles, with periods when prices rise and other periods when prices
fall.

PRINCIPAL RISK:-

The possibility that an investment will go down in value, or "lose money," from the original or invested amount.

THINGS TO BE SEEN WHILE INVESTING IN MUTUAL FUNDS:

Don't just look at the NAV, also look at the risk:

Alliance Buy India and Alliance Equity both have 3 stars. That does mean their NAV is identical. In fact, the
NAV of Alliance Equity is 91.66 while that of Buy India is 16.05. However, Alliance Buy India took an average
risk and delivered an average return, while Alliance Equity took an above average risk to get the above average
returns. Hence their stars are identical, despite one having a higher NAV.

Higher rating does not mean better returns:

A fund with more stars does not indicate a higher return when compared with the rest. All it means is that you
will get a good return without putting your money at too much risk. Birla Equity Plan has a 4-star rating while
Alliance Tax Relief '96 has a 2-star rating. However, the fund with the 2-star rating has a higher NAV (131.96)
than the one with the 4-star rating (39.37)

Higher rating does not mean more risk:

Birla Advantage has an NAV of 67.09 while Franklin India Prima has an NAV of 122.92. This does not
necessarily mean that Franklin India Prima is offering a higher risk since the return is higher. In fact, according
to our ratings, Franklin India Prima is a 5-star fund while (risk is below average) while Birla Advantage is a 2-
star fund (risk is above average).

On a final note:
While deciding to invest in a mutual fund, you must look at risk and return. Always ask yourself one question:
What are the chances of my losing money? Do not get misled by high returns. You could also end up losing a
substantial part of your savings

FREQUENTLY USED TERMS IN MUTUAL FUNDS:

NET ASSETS VALUE:
NAV) is the total asset value (net of expenses) per unit of the fund and is calculated by the AMC at the end of
every business day. In order to calculate the NAV of a mutual fund, you need to take the current market value of
the fund's assets minus the liabilities, if any and divide it by the number of shares outstanding. NAV is
calculated as follows:

For example, if the market value of securities of a Mutual Fund scheme is 500 lakh and the Mutual Fund has
issued 10 lakh units of 10 each to investors, then the NAV per unit of the fund is 50.

SALE PRICE:-
Is the price you pay when you invest in a scheme? Also called as Offer Price. It may include a sales load.
REPURCHASE PRICE:-
Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also
called bid Price.

REDEMPTION PRICE:-
Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on
maturity? Such prices are NAV related.

TURNOVER:-
Turnover is a measure of the fund's securities transactions, usually calculated over a year's time, and usually
expressed as a percentage of net asset value. This value is usually calculated as the value of all transactions
(buying, selling) divided by 2 divided by the fund's total holdings; Le. The fund counts one security sold and
another one bought as one "turnover". Thus turnover measures the replacement of holdings.

EXPENSES:-
Mutual funds bear expenses similar to other companies. The fee structure of a mutual fund can be divided into
two main components: management fee, non management expense. All expenses are expressed as a percentage
of the average daily net assets of the fund.

BROKERAGE/COMMISSIONS:
An additional expense which does not pass through the statement of operations and cannot be controlled by the
investor is brokerage commissions. Brokerage commissions are incorporated into the price of the fund and are
reported usually 3 months after the fund's annual report in the statement of additional information. Brokerage
commissions are directly related to portfolio turnover (portfolio turnover refers to the number of times the
fund's assets are bought and sold over the course of a year).

Usually, the higher the rate of the portfolio turnover, higher the brokerage commissions. The advisors of mutual
fund companies are required to achieve "best execution" through brokerage arrangements so that the
commissions charged to the fund will not be excessive. and buys back shares from investors wishing to leave
the fund.

EXCHANGE-TRADED FUNDS:-
A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an open-end investment
company. ETFs combine characteristics of both mutual funds and closed end funds. ETFs are traded throughout
the day on a stock exchange,
ADVANTAGES OF MUTUAL FUNDS
Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment
research team that analyses the performance and prospects of companies and selects suitable investments to
achieve the objectives of the scheme.
Diversification
Mutual Funds invest in a number of companies across a broad cross section of industries and sectors. This
diversification reduces the risk because seldom do all stocks decline at the same time and in the same
proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your
own.
Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares etc. depending upon the investment objective of
the scheme. An investor can buy into a portfolio of equities, which would otherwise be extremely expensive
Return Potential
Over a medium to long term, mutual funds have the potential to provide a higher return as they invest in a
diversified basket of selected securities.
Liquidity
In open ended schemes, the investor gets the money back promptly at MAV related prices from the mutual
fund. In closed ended schemes, the units can be sold on a stock exchange at the prevailing market price or the
investor can avail of the facility of direct repurchase at NAV related prices by the mutual fund.
Transparency
You get regular information on the value of your investment in addition to disclosure on the specific
investments made by your scheme, the proportion invested in each class of assets and the fund managers
investment strategy and outlook
Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans,
you can systematically invest or withdraw funds according to your needs and convenience.
Tax saver
Mutual funds offer significant tax advantages. Dividends distributed by them are tax-free in the hands of the
investor.

DISADVANTAGES OF MUTUAL FUNDS:

Dilution:

Although diversification reduces the amount of risk involved in investing in mutual funds, it can also be a
disadvantage due to dilution. For example, if a single security held by a mutual fund doubles in value, the
mutual fund itself would not double in value because that security is only one small part of the fund's holdings.
By holding a large number of different investments, mutual funds tend to do neither exceptionally well nor
exceptionally poorly.

Loss of Control:

The managers of mutual funds make all of the decisions about which securities to buy and sell and when to do
so. This can make it difficult for you when trying to manage your portfolio. For example, the tax consequences
of a decision by the manager to buy or sell an asset at a certain time might not be optimal for you. You should
also remember that you are trusting someone else with your money when you invest in a mutual fund

Too Many Choices:

The advantages and disadvantages listed above apply to mutual funds in general. However, there are over
10,000 mutual funds in operation, and these funds vary greatly according to investment objective, size, strategy,
and style. Mutual funds are available for virtually every investment strategy (e.g. value, growth), every sector
(e.g. biotech, internet), and every country or region of the world. So even the process of selecting a fund can be
tedious.

Trading Limitations:

Although mutual funds are highly liquid in general, most mutual funds (called open-ended funds) cannot be
bought or sold in the middle of the trading day.

Funds On The Basis Of Market Capitalization:

Companies are categorized as large cap, mid cap and small cap, based on their relative market capitalizations.
Market capitalization is simply the market value of the company, calculated by multiplying the share price of a
company with the companys total number of shares outstanding. Bombay Stock Exchange (BSE) categorizes
companies into market cap segments based on the 80 15 5 rule. In the 80 15 5 rule. If you think that, the
BSE market segment definition is too complicated for the average investor; you can simply follow the US market cap
limit definitions in dollar terms. Large cap funds are mutual fund schemes that invest mostly in large cap companies.
Midcap funds invest mostly in midcap companies, while small cap funds invest mostly in small cap companies. There are
no standardized definitions of large cap, midcap and small cap funds. Different research and rating agencies have their
own definition

Small-Cap Funds: A company with a market capitalization of between $300 million and $2 billion. Generally
speaking, smaller companies are those in the early stages of business. They are presumed to have significant
growth potential, but are not as financially strong or as established as larger companies. Because small-cap
funds invest in companies that are less stable than large-cap companies, the funds can be quite volatile. This has
its advantages and disadvantages. In times of market instability, small-cap funds can suffer greatly as less-
established companies go out of business. On the other hand, small-cap funds can also be great investments for
those who can tolerate more risk and are looking for more aggressive growth. Investors hoping for aggressive
returns will certainly want to park some money behind these funds. Finally, many mutual funds cannot
take substantial positions in small-cap stocks without filing with the Securities and Exchange Commission
(SEC), and this usually means greater transparency when it comes to the fund's holdings.

Mid-Cap Funds. A mid-cap company is a company with a market capitalization between $2 billion and $10
billion. Mid-cap companies share some of the growth characteristics of small-cap companies, but they entail
less risk (at least in theory) because they are slightly larger. You might say that mid-cap funds are to the mutual
fund market what mid-size cars are to the automobile market. The mid cap is a compact vehicle for the market,
falling somewhere between those sporty little small caps and the massive SUV type large caps. Mid-cap funds
don't always move with the broader market, and they are also usually not as prone to violent swings as small
caps. Mid-cap funds can be great investment vehicles for investors seeking a fund with great return possibilities
- without the risk of small caps - and index-related returns like those of large caps.

Large-Cap Funds: Large cap (sometimes "big cap") refers to a company with a market capitalization value of
more than $10 billion. However, because of their enormous size, large-cap funds are often forced to imitate a
larger index, such as the S&P 500. This is because mutual funds have restrictions on the level of ownership they
can have in any one company, which is generally no more than 10% of their outstanding shares. This results in
large-cap funds being forced to buy large companies - the same ones that make up the major market indexes.

Large-cap funds can be great for investors who have longer-term investment timelines and would like to "buy
and hold". There are many large-cap income funds that are great income vehicles for those who want to take on
less risk. But for those seeking greater diversification in smaller, more aggressive companies, large-cap
funds probably aren't the answer.

Why have small and mid caps been producing greater returns than large caps in recent years? Generally
speaking, small and mid-cap companies have the ability to produce greater returns through more agile and 72
dynamic businesses that tend to be more growth oriented than larger conglomerates. Simply put, companies
with a $1 billion market cap can much more easily double its entire market cap than a large conglomerate of
$50 billion. And because share price is an important factor in measuring market cap, a rapidly growing market
cap most often translates to the price of the stock climbing higher as well.
Of course, there will always be examples that buck the trend, but overall, the numbers show that small- and
mid-cap funds are goods bets for higher returns.

The Bottom Line

When you consider what type of mutual fund is right for your portfolio, it's crucial that you remember that there
are many other factors to consider, including whether the fund specializes in growth, value or another investing
style. What's more, you have to be able to distinguish between load and no-load funds, and determine whether
you prefer open or closed-end funds.