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MUTUAL FUNDS

SUBMITTED BY : SONICA GUPTA B.COM (Hons)

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Amutual fundis a type of professionally managedcollective investment vehiclethat pools money from many investors to purchasesecurities.While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies." A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term moneymarket instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investors proportionate ownership of the funds holdings and the income those holdings generate.

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Mutual funds have advantages compared to direct investing in individual securities.These include: Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison Mutual funds have disadvantages as well, which include: Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize

CHARACTERISTICS OF FUNDS 3/13/13 Some of the traditional, distinguishing characteristics of mutual funds include the following: Investors purchase mutual fund shares from the fund itself (or
through a broker for the fund) instead of from other investors on a secondary market,such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the funds per share net asset value (NAV) plus any shareholder fees that the fund impose sat the time of purchase (such as sales loads). Mutual fund shares are redeemable, meaning investors can sell their shares back to the fund (or to a broker acting for the fund). Mutual funds generally create and sell new shares to

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ADVANTAGES AND DISADVANTAGES

Every investment has advantages and disadvantages. But its important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances.

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ADVANTAGES
Professional ManagementProfessional money managers research, select, and monitor the performance of the securities the fund purchases. DiversificationDiversification is an investing strategy that can be neatly summed up as Dont put all your eggs in one basket. Spreading your investments across a wide range of companies and industry sectors can help lower your risk if company or sector fails. Some investors find it easier to achieve diversification through

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DISADVANTAGES
Costs Despite Negative ReturnsInvestors must pay sales charges, annual fees,and other expenses (which we discuss in detail on page 13) regardless of how the fund performs. And, depending on the timing of Their investment, investors may also have to pay taxes on any capital gains distribution they receiveeven if the fund went on to perform poorly after they bought shares. Lack of ControlInvestors typically cannot ascertain the exact make-up Of a funds port folio at any given time ,nor can

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HOW FUNDS CAN EARN MONEY FOR YOU You can earn money from your investment in three ways: 1. Dividend PaymentsA fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.

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TYPES OF INVESTMENT
BY STRUCTURE
OPEN ENDED These are schemes that do not have a fixed maturity. The mutual fund ensures liquidity by announcing sale and repurchase price for the unit of an open-ended fund. CLOSE ENDED These are schemes that have a fixed maturity. The money of the investor is locked in for the period. Occasionally, closed-end schemes provide a re-purchase option to the investors, either for a

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BY INVESTMENT OBJECTIVE
EQUITY DEBT

SCHEMES MARKET SCHEMES SCHEMES

OR INCOME SCHEMES

MONEY HYBRID

3/13/13 Equity schemes primarily invest in shares. Based on the objective investments could be in growth stocks where earnings growth is expected to be high or value stocks where the view of the fund manager is that current valuations in the markets do not reflect the intrinsic value. Various kinds of equity schemes are: Equity Diversified: All non-theme and non-sector funds can be classified as equity diversified funds. Mid Cap: These funds invest in companies from different sectors. However they put a

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DEBT OR INCOME SCHEMES Such a fund invests in interest bearing securities mainly government securities and corporate bonds. This fund earns returns for its investors from interest income on its investments and profits on trading securities. In terms of risk, this type of fund is the least risky.

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HYBRID SCHEMES Balanced Schemes: Balanced schemes invest in a mix of equity and debt. The debt investments ensure a basic interest income, which the fund manager hopes to top with a capital gain from the investment in equities.

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