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 shares, debentures and other securities. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart

TYPES OF MUTUAL FUND SCHEMES Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

History of the Indian Mutual Fund Industry The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank of India. The history of mutual funds in India can be broadly divided into four distinct phases First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores. Third Phase 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds. Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. The graph indicates the growth of assets over the years

A Brief Introduction on AMFI: With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. 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 holders. The objectives of Association of Mutual Funds in India

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry. AMFI undertakes all India awarness programme for investors inorder to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.

The sponsorers of Association of Mutual Funds in India

Bank Sponsored

SBI Fund Management Ltd. BOB Asset Management Co. Ltd. Canbank Investment Management Services Ltd. UTI Asset Management Company Pvt. Ltd.

Institutions Private Indian:

BenchMark Asset Management Co. Pvt. Ltd. Cholamandalam Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. Escorts Asset Management Ltd. JM Financial Mutual Fund Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. Sahara Asset Management Co. Pvt. Ltd Sundaram Asset Management Company Ltd. Tata Asset Management Private Ltd. GIC Asset Management Co. Ltd. Jeevan Bima Sahayog Asset Management Co. Ltd.

Sector

Predominantly India Joint Ventures:

Birla Sun Life Asset Management Co. Ltd. DSP Merrill Lynch Fund Managers Limited HDFC Asset Management Company Ltd.

Predominantly Foreign Joint Ventures:

ABN AMRO Asset Management (I) Ltd. Alliance Capital Asset Management (India) Pvt. Ltd. Deutsche Asset Management (India) Pvt. Ltd. Fidelity Fund Management Private Limited Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. HSBC Asset Management (India) Private Ltd. ING Investment Management (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt. Ltd. Principal Asset Management Co. Pvt. Ltd. Prudential ICICI Asset Management Co. Ltd. Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Association of Mutual Funds in India Publications AMFI publices mainly two types of bulletin. One is on the monthly basis and the other is quarterly. These publications are of great support for the investors to get intimation of the knowhow of their parked money.

The various fund houses managed by AMFI is mentioned below along with their latest AAUM statistics:

Average Assets under Management (AAUM) for the quarter of April - June 2011 (Rs in Lakhs) Average AUM Excluding Fund of Sr Funds - Domestic Mutual Fund Name Fund Of Funds No but Domestic including Fund of Funds - Overseas 1 AEGON Mutual Fund N/A N/A AIG Global Investment Group Mutual 2 71640.25 0 Fund 3 Axis Mutual Fund 745288.35 0 4 Baroda Pioneer Mutual Fund 442985.87 0 5 Benchmark Mutual Fund 411499.76 0 6 Bharti AXA Mutual Fund 21640.26 0 7 Birla Sun Life Mutual Fund 6747515.77 3441.54

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43

BNP Paribas Mutual Fund Canara Robeco Mutual Fund Daiwa Mutual Fund Deutsche Mutual Fund DSP BlackRock Mutual Fund Edelweiss Mutual Fund Escorts Mutual Fund Fidelity Mutual Fund Franklin Templeton Mutual Fund Goldman Sachs Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ICICI Prudential Mutual Fund IDBI Mutual Fund IDFC Mutual Fund IIFL Mutual Fund ING Mutual Fund JM Financial Mutual Fund JPMorgan Mutual Fund Kotak Mahindra Mutual Fund L&T Mutual Fund LIC NOMURA Mutual Fund Mirae Asset Mutual Fund Morgan Stanley Mutual Fund Motilal Oswal Mutual Fund Peerless Mutual Fund Pramerica Mutual Fund PRINCIPAL Mutual Fund Quantum Mutual Fund Reliance Mutual Fund Religare Mutual Fund Sahara Mutual Fund SBI Mutual Fund Sundaram Mutual Fund Tata Mutual Fund Taurus Mutual Fund

572334.27 862487.99 66457.44 1108353.71 3002193.16 25838.33 20941.87 934656.07 3472935.77 N/A 9203291.15 485535.82 7975871.50 512411.01 2784861.00 N/A 99322.89 584976.42 372412.52 3399354.13 521470.59 933839.87 42528.13 205254.82 34504.53 490793.71 168365.30 543350.35 13884.21 10125932.98 1134246.83 26537.35 4787445.88 1454110.82 2500617.07 502123.06

0 0 0 0 0 0 0 11567.71 181008.24 N/A 0 0 9810.01 0 73036.66 N/A 22218.42 0 0 17349.76 0 0 0 0 0 0 0 0 294.14 79010.38 0 0 0 0 0 0

44 Union KBC Mutual Fund 45 UTI Mutual Fund Grand Total

29849.90 6910509.45 74350170.16

0 0 397736.86

What is a Mutual Fund?

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

What is NAV?
What Does Net Asset Value - NAV Mean? A mutual fund's price per share or exchange-traded fund's (ETF) per-share value. In both cases, the per-share dollar amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. In the context of mutual funds, NAV per share is computed once a day based on the closing market prices of the securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. Mutual funds pay out virtually all of their income and capital gains. As a result, changes in NAV are not the best gauge of mutual fund performance, which is best measured by annual total return. Because ETFs and closed-end funds trade like stocks, their shares trade at market value, which can be a dollar value above (trading at a premium) or below (trading at a discount) NAV.

Diversification
Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks. Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a

predetermined category of investments (i.e. - growth companies, emerging or mid size companies, low-grade corporate bonds, etc)

Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

Overview of existing schemes existed in mutual fund category: BY STRUCTURE

1. Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity. 2. Close - Ended Schemes: These schemes have a pre-specified maturity period. One can invest directly in the scheme at the time of the initial issue. Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation, expectations of unitholder and other market factors. Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV; however one cannot buy units and can only sell units during the liquidity window. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. 3. Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and closeended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices.

The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile.

Overview of existing schemes existed in mutual fund category: BY NATURE

1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on

different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government. Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures. Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. 3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. By investment objective: Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These

schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. Income Schemes:Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Other schemes Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.

Types of returns There are three ways, where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.

 If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. Why mutual funds? Over the past few decades mutual funds has emerged as one of the best investment vehicle available to the investors the reasons being: Mutual funds follows the three tier structure wherein SEBI serves as the watch dog to protect the interests of the investers.SEBI formulates the policy and regulates the mutual funds of various Asset Management Company. Mutual funds have highly qualified professionally managed Portfolio Manager who invests the funds in stocks and bonds with the motive of receiving higher yields with minimum risks. It costs more if at all an investor wants to invest by himself in individual securities where as by selecting mutual funds as an option he can diversify his funds which is the most important criteria before investing anywhere according to the old adage Never Keep all your eggs in one basket. Mutual funds income are non taxable if they met certain criteria. Common man is unaware about the market risks associated with the stocks of different firms which has to be taken into consideration if one wants his capital to be appreciated over a period of time and secondly investors don have sufficient time to analyse the companies or conduct the market research on their own. If the Capital invested is huge market research becomes a compulsion.But if an investor approaches any AMC Portfolio Managers does the above mentioned task on behalf of them. If investors have a large portfolio, the amount of time you spend in research can be very time-consuming, but you know it's the only way you're going to achieve that financial security you're looking for.One of the easiest ways to diversify your portfolio and take the least amount of risk is by investing in mutual funds. By their very design they're made to mix a number of different types of securities

Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.

Advantages of Investing Mutual Funds:

1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because

they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks. 2. Costs The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon. 3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money. 4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Structure Of Mutual Funds:

The above diagram gives an idea on the structure of an Indian mutual fund. Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC) and Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund shareholders. The pooled money is invested in the securities. Sponsor appoints trustees. Trustees: Two third of the trustees are independent professionals who own the fund and supervises the activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI. AMC: Asset Management Company (AMC) is a set of financial professionals who manage the fund. It takes decisions on when and where to invest the money. It doesnt own the money. AMC is only a fee-for-service provider. The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud.

Custodian: A Custodian keeps safe custody of the investments (related documents of securities invested). A custodian should be a registered entity with SEBI. If the promoter holds 50% voting rights in the custodian company it cant be appointed as custodian for the fund. This is to avoid influence of the promoter on the custodian. It may also provide fund accounting services and transfer agent services. JP Morgan Chase is one of the leading custodians. Transfer Agents: Transfer Agent Company interfaces with the customers, issue a funds units, help investors while redeeming units. Provides balance statements and fund performance fact sheets to the investors. CAMS is a leading Transfer Agent in India.

Technically, mutual funds are open-end funds -- one of four basic types of an investment company. Closed-end funds, exchange-traded funds and unit investment trusts are the three other types. In order to understand the structure of mutual funds, it is helpful to compare them to other 40 Act Funds -- industry jargon for investment companies registered under the Investment Company Act of 1940. Open-End Funds and the Structure of Mutual Funds You can think of a mutual fund as having an open-end structure because the cash flow door -- both into and out of the fund -- is always open. In other words, the portfolio manager continues to invest new cash from investors, and the fund company continues to offer new shares of the fund to new investors. So, when you invest in a mutual fund, money is directed to the mutual fund, shares are created and issued to you (to be held in an account at a brokerage firm, bank or at the fund company). This process is different from investing in a stock. When you invest in a stock, you are buying or selling shares on an exchange or over-the-counter (unless it is an initial public offering or a secondary offering) new shares are not be created. Closed-End Funds and the Structure of Mutual Funds Closed-end funds are often confused with, and mistakenly called, mutual funds. They are similar to open-end funds in that their assets are invested in a wide range of securities. A major difference is that closed-end funds behave more like a stock -- the market value is driven by supply and demand for the shares. On the other hand, an open-end mutual fund continually issues new shares to investors and does not trade on an exchange. ETFs and the Structure of Mutual Funds

ETF is short for "Exchange-Traded Fund." An ETF holds a basket of securities and trades on a stock exchange. The market value of an ETF changes throughout the day based on the supply and demand for each individual ETF. The net asset value (value of the securities within the fund) of an ETF may differ from the market value (price that an investor purchases/sells the ETF) due to the supply and demand effect. UITs and the Structure of Mutual Funds UITs can be thought of as a hybrid investment; sharing some of the qualities of mutual funds and some of the qualities of closed-end funds. UITs are similar to mutual funds in that an investor can redeem shares (versus trading on a stock exchange) from the UIT sponsor. But unlike mutual funds, UIT sponsors might also maintain a secondary market in the UIT. In other words the UIT sponsor might facilitate buys and sells between investors in order to avoid depletion of the UITs assets. UITs, like closed-end funds, issue a set number of shares. These shares are called units. Unlike closed-end funds (and open-end funds), the securities within a UIT portfolio are not actively-traded. A UIT portfolio is established at the inception date and holds the original securities until termination of the UIT. At the termination date the UIT shareholders either receive the proceeds of their investment or they can reinvest in the next UIT series (if available). As a popular investment option, you have probably already heard plenty about mutual funds. Chances are you own mutual funds in your retirement plan or brokerage account. In fact, according to the Investment Company Institute, more than 92 million individuals in the U.S. (about 45% of U.S. households) owned mutual funds in 2008. But do you know what mutuals fund are and why so many people own them? Mutual funds are an investment that allows a group of investors to pool their money and hire a portfolio manager. The manager invests this money (the funds assets) in stocks, bonds or other investment securities (or a combination of stocks, bonds and securities). The fund manager then continues to buy and sell stocks and securities according to the style dictated by the funds prospectus.

Fees of Mutual Funds

All mutual funds charge fees to operate and manage the fund. Management fees pay the fund companies (or managers) to manage the funds. Some funds also charge investors an upfront sales charge/load when he/she first purchases shares in the fund, while other funds charge a back-end load (contingent deferred sales charge) upon sale of fund shares. There are also funds that have no sales charge and these are known as no-load funds. 12b-1 fees are imposed by some funds to cover marketing and distribution costs. There are also various share classes of funds that differ in fee structure according to class (Class A, Class B, Class C, etc.) Regulation of Mutual Funds Regulation of mutual funds, compared to other pooled investment options (think: hedge funds) is extensive. Mutual funds must comply with a strict set of rules that are monitored by the Securities and Exchange Commission. The SEC monitors the funds compliance with the Investment Company Act of 1940, as well as its adherence to other federal rules and regulations. Since their development, the regulation of mutual funds has provided investors with confidence in terms of the investment structure. Diversification of Mutual Funds The beauty of mutual funds is that you can invest a few thousand dollars in one fund and obtain instant access to a diversified portfolio. Otherwise, in order to diversify your portfolio, you might have to buy individual securities, which exposes you to more risk and difficulty. Another reason to invest in mutual funds is their adherence to a basic principal of investing: Dont put all your eggs in one basket. In other words, many different types of investments in one portfolio decrease your risk of loss from any one of those investments. For example, if you put all of your money into the stock of one company and that company files for bankruptcy, you lose all of your money. On the other hand, if you invest in a mutual fund that owns many different stocks, it is more likely that you will grow your money over time. At the very least, one companys bankruptcy will not mean that you lose your entire investment. Professional Money Management of Mutual Funds Many investors dont have the resources or the time to buy individual stocks. Investing in individual securities, such as stocks, not only takes resources, but a considerable amount of time. By contrast, managers and analysts of mutual funds wake up each morning dedicating their professional lives to researching and analyzing their holdings and potential holdings for their funds. Variety of Mutual Funds

There are many types and styles of mutual funds. There are stock funds, bond funds, sector funds, money market funds and balanced funds. Mutual funds allow you to invest in the market whether you believe in active portfolio management (actively managed funds) or you prefer to buy a segment of the market with no interference from a manager (passive funds and index funds). The availability of different types of funds allows you to build a diversified portfolio at low cost and without much difficulty. While you have a plethora of investment options (individual stocks, ETFs, and closedend funds, to name a few) mutual funds offer a simple, efficient way to invest for retirement, education or other financial goals.

5 Things to Know About Mutual Funds

The Key Things Every Investor Should Know About Mutual Funds

1. Mutual Funds Whether you are an experienced investor or a beginner, you are probably aware that there are thousands of mutual funds to choose from and dozens of details to know. However, there are five basic things that every investor should know to be successful with investing in mutual funds. 1. Getting Started: Investing With Mutual Funds

businesspictures Why use mutual funds in the first place? The short answer is to save money and to earn returns that are hopefully higher than those associated with guaranteed investments, such as Certificates of Deposit. Before investing with mutual funds, be sure to know your investment objective, which is the goal and time frame you have to invest. This will guide you in choosing the best funds for your purpose. In general, mutual funds are best used for time horizons of more than three years and preferably more than 10 years. 2. Know Thy Risk The reason why most mutual funds usually provide greater returns over time than guaranteed investments is because of the risk premium rewarded to investors. This premium comes in the form of higher returns associated with accepting market risk, which is the risk of losing some portion or the entire original amount invested. The greatest risk for you as an investor, however, is likely to be you. Be careful of "chasing performance," which is the human tendency to continuously seek and buy the highest performing funds while selling the under-performing ones. Remember that investing should not be thrilling, it should be boring. Slow and steady wins the race! 3. Buying Baskets: Diversify, Diversify, Diversify! Mutual funds are like baskets of investments because one single mutual fund can invest in dozens or hundreds of stocks and/or bonds, referred to as "holdings." There are many mutual funds that are diverse enough alone to invest a large portion of your hard-earned savings; however it is a good idea to spread your risk (diversify) across the different mutual fund types, such as stock funds, bond funds and money market funds. 4. Know Loads and Expenses

The costs associated with buying and selling mutual funds can be broken into four basic types: Front Load: These are charged up front (at the time of purchase) and can be up to 5% or more of the amount invested. For example, if you invest $1,000 with a 5% front load, the load amount will be $50.00 and therefore your initial investment will actually be $950. Back Load: These are charged only when you sell a fund. Also called deferred sales charges, back loads are usually in the 5% range and may decline or even be reduced to zero over time, usually after five or more years. No Load or Load Waived: As the name implies, this category of fund expense has no front load or back load. Expense Ratio: Not all funds charge loads; however there are underlying expenses in all mutual funds. Expense ratios average around 1.50% ($1.50 for every $100) for stock mutual funds and are for the ongoing management of the fund. Also, sometimes included in the expense ratio is an operational charge, called a 12b-1 fee. 5. Past Performance Is No Guarantee of Future Results (But Important to Know) We've all seen the disclaimers about past performance. However, a mutual fund investor will still consider past performance in their initial evaluation before buying. Review longer periods, such as 5 and 10 years, and compare the performance with that of other funds in the same category. It is also important to see how long the manager has been at the helm of the fund. If, for example, you find a mutual fund with an impressive five-year return but the manager's time at the fund, called "manager tenure," is only one year, this new manager can not be given credit for that 5-year performance. The only thing in the World that comes free and unwanted is Advice. You would have seen suggestions flying in from all corners with respect to Investing in Shares, Mutual Funds, Real Estate, Fixed Deposits etc. But one thing these suggestions miss out on is the manner in which the Form is to be filled so that it does not spoil your Investment benefits. In this article, we highlight some of the Key Points to be remembered while Investing in Mutual Funds. 1. Applying for Credit Facility Mutual Funds have now started offering Direct Credit Facility wherein the Funds are directly transferred to your Bank Account rather than first sending you the Cheque and then you depositing the same in your Bank Account. Majority of the investors have started exercising this option due to its convenience but one thing they miss out on is the Core Banking Account Number. If your Core Banking

Account Number is not mentioned or mentioned incorrectly it could create hiccups at the time of Redemption. So always cross check the Core Banking Account Number. 2. Are you Investing in more than 1 Fund of the same Fund House Some Fund houses have given exceptionally good returns over the past few years that Investors have started opting for multiple funds of the same Fund house. There is no harm in doing the same, and we would advise that in case you are opting for this, dont forget to list all your Investments under the same folio Number For this purpose, you merely need to key in the folio number of your Initial investment when you choose to put your money in another fund managed by the same fund. This would help you to easily manage and access all your investments with the same fund house.

Top 5 Investment Options for 2011

June 5, 2011

To be a successful money maker, Investing is as important as Saving. Saving and Investing should always go hand in hand as it is the combination of the two which will make you a millionaire in a few years. In order to help you make the right Investment, we highlight the Top 5 Investment options which you should be looking at while Investing your hard earned savings.

2. Invest in Deposits with Banks

Inflation seems to be a key issue which the whole world seems to be battling against. And this has led to good returns being offered on Deposits with Banks. Deposits with Banks are considered as one of the safest forms of investment as it is highly secure and the chances of a reduction in the value of your Investment are Nil. Investment Tip: Different Banks offer different returns. Always check the Interest Rates before Investing as there may be a better deal available in the Market. 3. Invest in Mutual Funds

Mutual Fund managers are highly qualified Professionals who ensure that your funds are invested at the right time in the right place. As a lay man, we may not

be aware of when to buy and when to sell and therefore it is advisable to opt for Mutual Funds who ensure that your funds are invested in the assets yielding the maximum returns. Investment Tip: While applying for Mutual Funds, Investors tend to ignore a couple of things which cause several hurdles at the time of redemption. 4. Invest in Precious Metals like Gold

In the past couple of years metals like Gold and Silver seem to have recovered their lost sheen. They have been giving a healthy return in the past couple of years and analysts expect that the prices of precious metals would continue their upward trend further. Investment Tip: A high variability has been seen in the prices of precious metals. The price volatility in Silver specifically has been very high, and therefore Retail Investors are advised not to invest heavily into Silver without a consultants advice. While Investing in Gold, it is also advisable to invest in E-Gold rather than Physical Gold as it is investing in E-Gold is hassle free. 5. Invest in Real Estate

Although Investment in Real Estate requires a huge corpus of funds to be invested, it is also considered a safe form of Investment as Real Estate is to some extent a necessity as compared to other forms of Investment. With US Housing data continuously improving the chances of a dip in the value of Real Estate are minimal. Investment Tip: Always ensure that all the Legal Documents are in place before Investing in Real Estate as the amount involved in any Real Estate Transaction is exorbitantly high.