A Mini Project

on

A REPORT ON MUTUAL FUND

Submitted to

DR. A.P.J ABDUL KALAM TECHNICAL UNIVERSITY LUCKNOW

In partial fulfilment of the requirement for the award of degree of Master of

Business Administration (MBA)

Session (2023-24)

Subject Code:- KMBN252

Project Guide Submitted by

Mr.Aditya Swaroop Shukla Simran Rajak
Deputy HOD Roll No - 2303610700044
(Management Department)

DECLARATION
 This is to certify that the project work titled “A Report on Mutual Fund” is a
bonafide piece of work conducted under the supervision of Mr.Aditya Swaroop
Shukla, Deputy HOD, R.R.Institute of Modern Technology, Lucknow. No part
of this work has been submitted for any other degree of any university. The data
sources have been duly acknowledged.

Date: Student’s Signature

2
 ACKNOWLEDGEMENT

I feel immense pleasure to give the credit of my project work not only to one
individual as this work is integrated effort of all those who concerned with it. I
want to owe my thanks to all those individuals who guided me to move on the
track.

I am highly indebted to my esteemed learned teacher, project guide and Deputy

HOD Mr.Aditya Swaroop Shukla, R.R.Institute of modern Technology,
Lucknow for his rich knowledge and experience, invaluable guidance, constant
supervision and constructive suggestions which he had been patiently imparting
to me and without whose help the completion of the present work would not
have been possible.

Last but not least, I would thank all my friends, faculty members and all
respondents who rendered their precious time for contributing their skills and to
fill the e-questionnaire, which made my project more appealing and attractive.

3
 R.R.INSTITUTE OF MODERN TECHNOLOGY
(Approved by AICTE, New Delhi & Affiliated to AKTU,Lucknow)
Nh-24, BakshiKaTalab, Sitapur Road, Lucknow-227202.
Ph:9161888853, 9756008853, Website: www.rrimt.ac.in

Date:

CERTIFICATE

This is to certify that Ms Simran Rajak Student of MBA Second Semester

(Session 2023-2024) has successfully completed her Mini Project – 2
(KMBN252) titled “A Report On Mutual Fund ”. The work is original and
carried out under the guidance & Supervision. We wish her all the success and
good luck for bright future.

HOD, MBA Project Guide

RRIMT

4
 INDEX

SR.NO PARTICULARS PAGE NO

1. Introduction 6

2. Literature Review 8

3. Objectives 10

4. Research Methodology 11

5. Analysis 12

6. Limitations 38

7. Conclusion 35

8. Bibliography 36

5
 Mutual Fund

Introduction

WHAT ARE MUTUAL FUNDS?

A mutual fund is a collective investment vehicle that collects & pools money
from a number of investors and invests the same in equities, bonds, government
securities, money market instruments.

The money collected in mutual fund scheme is invested by professional fund

managers in stocks and bonds etc. in line with a scheme’s investment objective.
The income / gains generated from this collective investment scheme are
distributed proportionately amongst the investors, after deducting applicable
expenses and levies, by calculating a scheme’s “Net Asset Value” or NAV. In
return, mutual fund charges a small fee.

In short, mutual fund is a collective pool of money contributed by several

investors and managed by a professional Fund Manager.

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Mutual Funds in India are established in the form of a Trust under Indian Trust
Act, 1882, in accordance with SEBI (Mutual Funds) Regulations, 1996.

The fees and expenses charged by the mutual funds to manage a scheme are
regulated and are subject to the limits specified by SEBI.

HISTORY OF COMPUTER AND INVESTING

As the amount of information and news affecting the Investment world has
grown, so has the need for sophisticated electronics tools to keep track of it all.
Since the dawn of investing, sophisticated market participants have used
computing tools to gain an advantage over the competition. Today’s worldwide
financial system would be helpless without electronic assistance. So how did
this relationship develop over the last 20 years? The large Investment banks and
trading houses such as Goldman Sachs, Salomon Brothers, and Merrill Lynch,
have had mainframe computers and State-of-the-art equipment tracking the
markets for them for decades. The nature of finance where split of seconds and
accurate data can mean millions –kept it on the cutting edge of technology. But
only since the dawn of the personal computer in the mid-1980’s have the tools
needed for extensive technical and fundamental research been available to
smaller investors.

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 LITERATURE REVIEW

Agarwal, R K. et al. (2010)

has reviewed since long the performance of mutual funds has been receiving a
great deal of attention from both practitioners and academics. With an aggregate
investment of trillion dollars in India, the investing public’s interest
in identifying successful fund managers is understandable. From an academic
perspective, the goal of identifying superior fund managers is interesting as it
encourages development and application of new models and theories. The idea
behind performance evaluation is to find the returns provided by the individual
schemes especially growth funds and the risk levels at which they are delivered
in comparison with the market and the risk free rates. It is also our aim to
identify the out-performers for healthy investments. We have also ranked
the investment opportunities for better evaluation of these funds based on
various adjusted ratios like Sharpe ratio, Jensen Measure, Fama ratio, Sortino
ratio, Treynor’s ratio and few others.

Agarwal, R K. and Mukhtar, W. (2010)

conducted a study; today mutual funds represent

themost appropriate opportunity for most small investors. As financial markets
become moresophisticated and complex, investors need a financial intermediary

8
who provides the required knowledge and professional expertise on successful
investing. It is no wonder then that in the birth place of mutual funds- the USA
- the fund industry has already overtaken the banking industry, with more
money under mutual fund management than deposited with banks.
This project covers a broad range of equity growth funds. The objectives of the
paper are as (a)Twenty four Equity growth funds have been studied for
the application of composite portfolio performance measures like Treynor ratio,
Sharpe ratio, Jenson ratio, Information ratio, Specific ratio etc, and (b) Evaluate
the asset allocation policy for Kotak 30 Growth Mutual fund using Sharpe
optimisation technique.

Agrawal, D and Patidar, D (2009)

has conducted study on Mutual funds are key contributors to the globalization
of financial markets and one of the main sources of capital flows to emerging
economies. Despite their importance in emerging markets, little is known about
their investment allocation and strategies. This article provides an overview of
mutual fund activity in emerging markets. It describes about their size and their
asset allocation. All fund managers are not successful in the formation of the
portfolio and so the study also focuses on the empirically testing on the basis of
fund manager performance and analyzing data at the fund-manager and fund-
investor levels. The study reveled that the performance is affected by the saving
and investment habits of the people and at the second side the confidence and
loyalty of the fund Manager and rewards- affects the performance of the MF
industry in India.

Kamiyama, T. (2007)

has conducted a research on the assets managed by India's mutual funds have
shown impressive growth, and had totaled 3.3 trillion rupees (Rs 3.3 trillion) as
of the end of March 2007. India's middle class, who are prospective investors in
mutual funds, has been growing, and we expect to see further growth in the
mutual fund market moving forward. In this paper, we first provide an overview
of the assets managed within India's mutual fund market, both now and in the
past, and of the legal framework for mutual funds, and then discuss
thecurrent situation and recent trends in financial products, distribution channels
and assetmanagement companies.

Agrawal, D. (2007)

9
has conducted a research, Since the development of the Indian capital Market
and deregulations of the economy in 1992 it has came a long way with lots of
ups and downs. There have been structural changes in both primary and
secondary markets since 1992scandal where the no seduce to the bottom and
was bravely survived in ICU. Mutual funds are key contributors to the
globalization of financial markets and one of the main sources of capital flows
to emerging economies. Despite their importance in emerging markets, little is
known about their investment allocation and strategies. This article provides an
overview of mutual fund activity in emerging markets. It describes their size,
asset allocation.

Deb, Soumya G., Banerjee, A. & Chakrabarti, B. B. (2007)

in this paper author’s conducted a study on return based style analysis of equity
mutual funds in India using quadratic optimization of an asset class factor
model proposed by William Sharpe. We found the 'style benchmarks' of each of
our sample of equity funds as optimum exposure to eleven passive asset class
indexes.

OBJECTIVES
● Diversification: It is usually advised not to put all your eggs in one
basket. Doing so can disproportionately increase your risk. Mutual funds
are inherently diversified. They diversify across securities, assets, and
even geographies. Hence, they help lower the risk.

● Capital protection: Some mutual funds, such as money-market funds

and liquid funds, aim to protect your capital. However, while they are
relatively safer, they also have lower returns.

● Capital growth: Certain mutual funds, such as equity funds, focus on

growth to protect your investment against inflation. These funds invest in
stocks and have higher returns but also come with higher risks.

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 ● Saving tax: A certain class of mutual funds, called equity-linked savings
schemes (ELSS) or tax-saving funds, also provide income-tax deductions
up to Rs 1.5 lakh in a financial year in the old income-tax regime.

● To highlight the role of computer technology in the growth and

performance of mutual funds.

● To suggest some inputs necessary for designing an online trading website

in India.

● To give suggestions for further incorporation of technology into mutual

fund complexes in order to improve their performance.

RESEARCH METHODOLOGY
When a data is collected from beginning to end for the first time by an
institution or researcher, such data is called primary data, it is the original data,
i.e. the data which is first It is completely renewed, it is called primary data. It is
collected from scratch a lot of money is spent on collecting primary data. At the
same time, man power is also required, that is, people are also needed.

Secondary data is a second-hand data that is already collected and recorded by

some researchers for their purpose, and not for the current research problem. It
is accessible in the form of data collected from different sources such as
government publications, censuses, internal records of the organisation, books,
journal articles, websites and reports, etc.
I have used secondary data for my project. I had collected data from different
websites.

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 ANALYSIS

Emerging Technologies in Mutual Fund

One doesn’t have to go to the bank anymore for routine transactions like
with drawing or depositing money—so why should you have to go to a

12
 mutual fund (MF) invest or service center to buy or sell unit so scheme? That
is the driving idea behind remote servicing being ushered in by mutual funds
and their registrar & transfer (R & T) agents. From toll free phone lines
where customers can call to inquire about the status of the account, check the
latest NAV and even place some non-financial requests, to transaction
enabled sites where you can buy and sell your units with the touch of a
button, mutual funds are rolling out their virtual red carpet for you in the
Cyber space. Technology has been one of the key drivers behind the growth
of mutual fund industry. Technology has enabled the industry to improve the
quality of customer service, enhance information flow to portfolio managers,
cope with exploding volumes of transactions, and introduce a broad array of
new products. Moreover, technology has allowed the mutual fund industry to
do all these things at a reasonable cost-after making substantial capital
expenditures for the technology. This is largely because expensive labour
intensive functions have been replaced by automated systems that rely on
ever-cheaper hardware and communication channels. The World Wide Web
(WWW) presents an opportunity for new businesses and a challenge to the
dominant players of the securities industry. The battalions of customer
representatives and the huge investment in capital equipment that now
support large financial players present significant barriers to entry for
newcomers. By contrast, a smaller fund sponsor can easily establish
investment than was previously possible. The new technology is also driving
down commissions and other fees, however the resulting lower margins may
favour large suppliers who can use their size to achieve economies of scale.
that information will be made available at the fingertips.
How is technology impacting the mutual fund industry?

Digital onboarding and transactions

Investors can now onboard onto mutual fund platforms easily, completing the
entire process digitally. Transactions, including buying and selling mutual fund
units, can be executed with a few clicks on mobile apps or websites.

Robo-advisors

The rise of robo-advisors has brought algorithm-driven financial advice to

investors. These digital platforms use algorithms to analyse investor profiles
and recommend a suitable portfolio, making investment decisions more
accessible and cost-effective.

Data analytics for personalisation

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Mutual fund companies reap the benefit of data analytics to understand investor
preferences and behaviour. Personalised recommendations based on individual
risk tolerance, financial goals, and investment history enhance the investor
experience.

Mobile apps for accessibility

Mobile apps have made mutual fund investments more accessible to a broader
audience. Investors can monitor their portfolios, receive real-time updates, and
execute transactions on the go.

Educating investors

Amidst technological growth, educating investors about these advancements is

crucial. Understanding how to make use of the digital space of mutual fund
investments empowers investors to make informed decisions. Financial literacy
initiatives and user-friendly educational resources can play a vital role in
bridging the knowledge gap and ensuring that investors reap the benefits of
technology.

FAQs:
What role do digital platforms play in mutual fund investments?
A. Investors enjoy smooth access to mutual fund investments through user-
friendly websites and mobile apps, minimising paperwork hassles. Digital
platforms provide real-time information for informed decision-making, while
robo-advisors offer cost-effective investment guidance. Transaction execution is
simplified with just a few clicks, enhancing flexibility. Digital platforms also
contribute to financial literacy through educational resources.

What is the impact of artificial intelligence on mutual fund management?

A. Artificial Intelligence (AI) is transforming mutual fund management by
analysing vast financial data for pattern recognition, aiding data-driven
decisions. AI algorithms enhance risk management by continuously monitoring
market conditions, and optimising investment portfolios for efficiency.
Automation in trading executes transactions at optimal times, reducing
emotional biases. AI-powered chatbots enhance customer service, providing
instant assistance 24/7 for an improved overall investor experience.

How is technology making the mutual fund industry more secure?

A. Blockchain ensures transaction transparency, reducing fraud risks and
fostering industry trust. Mobile apps make mutual fund investments widely
accessible, enabling real-time portfolio monitoring and transactions on the go.

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These technological advancements collectively redefine the landscape, making
mutual fund investments more user-friendly, secure, transparent, and inclusive.

HOW A MUTUAL FUND WORKS?

One should avoid the temptation to review the fund's performance each time the
market falls or jumps up significantly. For an actively-managed equity scheme,
one must have patience and allow reasonable time - between 18 and 24 months -
for the fund to generate returns in the portfolio.

When you invest in a mutual fund, you are pooling your money with many
other investors. Mutual fund issues “Units” against the amount invested at the
prevailing NAV. Returns from a mutual fund may include income distributions
to investors out of dividends, interest, capital gains or other income earned by
the mutual fund. You can also have capital gains (or losses) if you sell the
mutual fund units for more (or less) than the amount you invested.

Mutual funds are ideal for investors who –

● lack the knowledge or skill / experience of investing in stock markets

directly.
● want to grow their wealth, but do not have the inclination or time to
research the stock market.
● wish to invest only small amounts.

WHY INVEST IN MUTUAL FUNDS?

As investment goals vary from person to person – post-retirement expenses,

money for children’s education or marriage, house purchase, etc. – the
investment products required to achieve these goals too vary. Mutual funds
provide certain distinct advantages over investing in individual securities.
Mutual funds offer multiple choices for investment across equity shares,
corporate bonds, government securities, and money market instruments,
providing an excellent avenue for retail investors to participate and benefit from
the uptrends in capital markets. The main advantages are that you can invest in
a variety of securities for a relatively low cost and leave the investment
decisions to a professional manager.

TYPES OF MUTUAL FUND SCHEMES

Mutual funds come in many varieties, designed to meet different investor goals.
Mutual funds can be broadly classified based on –

1. Organisation Structure – Open ended, Close ended, Interval

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 2. Management of Portfolio – Actively or Passively
3. Investment Objective – Growth, Income, Liquidity
4. Underlying Portfolio – Equity, Debt, Hybrid, Money market instruments,
Multi Asset
5. Thematic / solution oriented – Tax saving, Retirement benefit, Child
welfare, Arbitrage
6. Exchange Traded Funds
7. Overseas funds
8. Fund of funds

SCHEME CLASSIFICATION BY ORGANIZATION STRUCTURE

• Open-ended schemes are perpetual, and open for subscription and repurchase
on a continuous basis on all business days at the current NAV.

• Close-ended schemes have a fixed maturity date. The units are issued at the
time of the initial offer and redeemed only on maturity. The units of close-ended
schemes are mandatorily listed to provide exit route before maturity and can be
sold/traded on the stock exchanges.

• Interval schemes allow purchase and redemption during specified transaction

periods (intervals). The transaction period has to be for a minimum of 2 days
and there should be at least a 15-day gap between two transaction periods. The
units of interval schemes are also mandatorily listed on the stock exchanges.

SCHEME CLASSIFICATION BY PORTFOLIO MANAGEMENT

Active Funds
In an Active Fund, the Fund Manager is ‘Active’ in deciding whether to Buy,
Hold, or Sell the underlying securities and in stock selection. Active funds adopt
different strategies and styles to create and manage the portfolio.
● The investment strategy and style are described upfront in the Scheme
Information document (offer document)
● Active funds expect to generate better returns (alpha) than the benchmark
index.
● The risk and return in the fund will depend upon the strategy adopted.
● Active funds implement strategies to ‘select’ the stocks for the portfolio.

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Passive Funds

Passive Funds hold a portfolio that replicates a stated Index or Benchmark e.g. –

● Index Funds
● Exchange Traded Funds (ETFs)
In a Passive Fund, the fund manager has a passive role, as the stock selection /
Buy, Hold, Sell decision is driven by the Benchmark Index and the fund
manager / dealer merely needs to replicate the same with minimal tracking
error.

ACTIVE V/S PASSIVE FUNDS

Active Fund –

● Rely on professional fund managers who manage investments.

● Aim to outperform Benchmark Index
● Suited for investors who wish to take advantage of fund managers' alpha
generation potential.
Passive Funds –

● Investment holdings mirror and closely track a benchmark index, e.g.,

Index Funds or Exchange Traded Funds (ETFs)
● Suited for investors who want to allocate exactly as per market index.
● Lower Expense ratio hence lower costs to investors and better liquidity
CLASSIFICATION BY INVESTMENT OBJECTIVES

Mutual funds offer products that cater to the different investment objectives of
the investors such as –

a. Capital Appreciation (Growth)

b. Capital Preservation
c. Regular Income
d. Liquidity
e. Tax-Saving
Mutual funds also offer investment plans, such as Growth and Dividend
options, to help tailor the investment to the investors’ needs.

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GROWTH FUNDS
● Growth Funds are schemes that are designed to provide capital
appreciation.
● Primarily invest in growth oriented assets, such as equity
● Investment in growth-oriented funds require a medium to long-term
investment horizon.
● Historically, Equity as an asset class has outperformed most other kind of
investments held over the long term. However, returns from Growth
funds tend to be volatile over the short-term since the prices of the
underlying equity shares may change.
● Hence investors must be able to take volatility in the returns in the short-
term.
INCOME FUNDS

● The objective of Income Funds is to provide regular and steady income to

investors.
● Income funds invest in fixed income securities such as Corporate Bonds,
Debentures and Government securities.
● The fund’s return is from the interest income earned on these investments
as well as capital gains from any change in the value of the securities.
● The fund will distribute the income provided the portfolio generates the
required returns. There is no guarantee of income.
● The returns will depend upon the tenor and credit quality of the securities
held.
LIQUID / OVERNIGHT /MONEY MARKET MUTUAL FUNDS

● Liquid Schemes, Overnight Funds and Money market mutual fund are
investment options for investors seeking liquidity and principal
protection, with commensurate returns.
– The funds invest in money market instruments* with maturities not
exceeding 91 days.
– The return from the funds will depend upon the short-term interest rate
prevalent in the market.
● These are ideal for investors who wish to park their surplus funds for
short periods.
– Investors who use these funds for longer holding periods may be
sacrificing better returns possible from products suitable for a longer
holding period.
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 * Money Market Instruments includes commercial papers, commercial
bills, treasury bills, Government securities having an unexpired maturity
up to one year, call or notice money, certificate of deposit, usance bills,
and any other like instruments as specified by the Reserve Bank of India
from time to time.

Advantages

1. Professional Management — Investors may not have the time or the

required knowledge and resources to conduct their research and purchase
individual stocks or bonds. A mutual fund is managed by full-time, professional
money managers who have the expertise, experience and resources to actively
buy, sell, and monitor investments. A fund manager continuously monitors
investments and rebalances the portfolio accordingly to meet the scheme’s
objectives. Portfolio management by professional fund managers is one of the
most important advantages of a mutual fund.

2. Risk Diversification — Buying shares in a mutual fund is an easy way to

diversify your investments across many securities and asset categories such as
equity, debt and gold, which helps in spreading the risk - so you won't have all
your eggs in one basket. This proves to be beneficial when an underlying
security of a given mutual fund scheme experiences market headwinds. With
diversification, the risk associated with one asset class is countered by the
others. Even if one investment in the portfolio decreases in value, other
investments may not be impacted and may even increase in value. In other
words, you don’t lose out on the entire value of your investment if a particular
component of your portfolio goes through a turbulent period. Thus, risk

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diversification is one of the most prominent advantages of investing in mutual
funds.

3. Affordability & Convenience (Invest Small Amounts) — For many

investors, it could be more costly to directly purchase all of the individual
securities held by a single mutual fund. By contrast, the minimum initial
investments for most mutual funds are more affordable.

4. Liquidity — You can easily redeem (liquidate) units of open ended mutual
fund schemes to meet your financial needs on any business day (when the stock
markets and/or banks are open), so you have easy access to your money. Upon
redemption, the redemption amount is credited in your bank account within one
day to 3-4 days, depending upon the type of scheme e.g., in respect of Liquid
Funds and Overnight Funds, the redemption amount is paid out the next
business day.
However, please note that units of close-ended mutual fund schemes can be
redeemed only on maturity. Likewise, units of ELSS have a 3-year lock-in
period and can be liquidated only thereafter.

5. Low Cost — An important advantage of mutual funds is their low cost. Due
to huge economies of scale, mutual funds schemes have a low expense ratio.
Expense ratio represents the annual fund operating expenses of a scheme,
expressed as a percentage of the fund’s daily net assets. Operating expenses of a
scheme are administration, management, advertising related expenses, etc. The
limits of expense ratio for various types of schemes has been specified under
Regulation 52 of SEBI Mutual Fund Regulations, 1996.

6. Well-Regulated — Mutual Funds are regulated by the capital markets

regulator, Securities and Exchange Board of India (SEBI) under SEBI (Mutual
Funds) Regulations, 1996. SEBI has laid down stringent rules and regulations
keeping investor protection, transparency with appropriate risk mitigation
framework and fair valuation principles.

7. Tax Benefits —Investment in ELSS upto ₹1,50,000 qualifies for tax benefit
under section 80C of the Income Tax Act, 1961. Mutual Fund investments when
held for a longer term are tax efficient.

SEBI CATEGORIZATION OF MUTUAL FUND SCHEMES

As per SEBI guidelines on Categorization and Rationalization of schemes
issued in October 2017, mutual fund schemes are classified as –

1. Equity Schemes
2. Debt Schemes
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 3. Hybrid Schemes
4. Solution Oriented Schemes – For Retirement and Children
5. Other Schemes – Index Funds & ETFs and Fund of Funds
– Under Equity category, Large, Mid and Small cap stocks have now been
defined.

– Naming convention of the schemes, especially debt schemes, as per the risk
level of underlying portfolio (e.g., the erstwhile ‘Credit Opportunity Fund’ is
now called “Credit Risk Fund”)

– Balanced / Hybrid funds are further categorised into conservative hybrid fund,
balanced hybrid fund and aggressive hybrid fund.

EQUITY SCHEMES
An equity Scheme is a fund that –

– Primarily invests in equities and equity related instruments.

– Seeks long term growth but could be volatile in the short term.

– Suitable for investors with higher risk appetite and longer investment horizon.

The objective of an equity fund is generally to seek long-term capital

appreciation. Equity funds may focus on certain sectors of the market or may
have a specific investment style, such as investing in value or growth stocks.

Equity Fund Categories as per SEBI guidelines on Categorization and

Rationalization of schemes

At least 75% investment in equity & equity related

Multi Cap Fund*
instruments

At least 65% investments in equity & equity related

Flexi Cap Fund
instruments

Large Cap Fund At least 80% investment in large cap stocks

Large & Mid Cap At least 35% investment in large cap stocks and 35% in
Fund mid cap stocks

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Mid Cap Fund At least 65% investment in mid cap stocks

Small cap Fund At least 65% investment in small cap stocks

Dividend Yield Predominantly invest in dividend yielding stocks, with at

Fund least 65% in stocks

Value Fund Value investment strategy, with at least 65% in stocks

Scheme follows contrarian investment strategy with at least

Contra Fund
65% in stocks

Focused on the number of stocks (maximum 30) with at

Focused Fund
least 65% in equity & equity related instruments

Sectoral/ At least 80% investment in stocks of a particular sector/

Thematic Fund theme

At least 80% in stocks in accordance with Equity Linked

ELSS
Saving Scheme, 2005, notified by Ministry of Finance

*Also referred to as Diversified Equity Funds – as they invest across stocks of

different sectors and segments of the market. Diversification minimizes the risk
of high exposure to a few stocks, sectors or segment.

SECTOR SPECIFIC FUNDS

Sectoral funds invest in a particular sector of the economy such as
infrastructure, banking, technology or pharmaceuticals etc.

– Since these funds focus on just one sector of the economy, they limit
diversification, and are thus riskier.

– Timing of investment into such funds are important, because the performance
of the sectors tend to be cyclical.

Examples of Sector Specific Funds - Equity Mutual Funds with an investment

objective to invest in

● Pharma & Healthcare Sector

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 ● Banking & Finance Sector:
● FMCG (fast moving consumer goods) and related sectors.
● Technology and related sectors
THEMATIC FUNDS
● Thematic funds select stocks of companies in industries that belong to a
particular theme - For example, Infrastructure, Service industries, PSUs
or MNCs.
● They are more diversified than Sectoral Funds and hence have lower risk
than Sectoral funds.
VALUE FUNDS (STRATEGY AND STYLE BASED FUNDS)
● Equity funds may be categorized based on the valuation parameters
adopted in stock selection, such as
– Growth funds identify momentum stocks that are expected to perform
better than the market

– Value funds identify stocks that are currently undervalued but are
expected to perform well over time as the value is unlocked

● Equity funds may hold a concentrated portfolio to benefit from stock

selection.
– These funds will have a higher risk since the effect of a wrong selection
can be substantial on the portfolio’s return

CONTRA FUNDS
● Contra funds are equity mutual funds that take a contrarian view on the
market.
● Underperforming stocks and sectors are picked at low price points with a
view that they will perform in the long run.
● The portfolios of contra funds have defensive and beaten down stocks
that have given negative returns during bear markets.
● These funds carry the risk of getting calls wrong as catching a trend
before the herd is not possible in every market cycle and these funds
typically underperform in a bull market.
● As per the SEBI guidelines on Scheme categorisation of mutual funds, a
fund house can either offer a Contra Fund or a Value Fund, not both.
EQUITY LINKED SAVINGS SCHEME (ELSS)

23
ELSS invests at least 80% in stocks in accordance with Equity Linked Saving
Scheme, 2005, notified by Ministry of Finance.

● Has lock-in period of 3 years (which is shortest amongst all other tax
saving options)
● Currently eligible for deduction under Sec 80C of the Income Tax Act
upto ₹1,50,000
DEBT SCHEMES
● A debt fund (also known as income fund) is a fund that invests primarily
in bonds or other debt securities.
● Debt funds invest in short and long-term securities issued by government,
public financial institutions, companies
– Treasury bills, Government Securities, Debentures, Commercial paper,
Certificates of Deposit and others

● Debt funds can be categorized based on the tenor of the securities held in
the portfolio and/or on the basis of the issuers of the securities or their
fund management strategies, such as
– Short-term funds, Medium-term funds, Long-term funds

– Gilt fund, Treasury fund, Corporate bond fund, Infrastructure debt fund

● Floating rate funds, Dynamic Bond funds, Fixed Maturity Plans

● Debt funds have potential for income generation and capital preservation.
Debt Fund Categories as per SEBI guidelines on Categorization and
Rationalization of schemes

Overnight Fund Overnight securities having maturity of 1 day

Debt and money market securities with maturity of upto

Liquid Fund
91 days only

Ultra Short Duration Debt & Money Market instruments with Macaulay
Fund duration of the portfolio between 3 months - 6 months

Low Duration Fund Investment in Debt & Money Market instruments with
Macaulay duration portfolio between 6 months- 12

24
 months

Investment in Money Market instruments having

Money Market Fund
maturity upto 1 Year

Investment in Debt & Money Market instruments with

Short Duration Fund Macaulay duration of the portfolio between 1 year - 3
years

Medium Duration Investment in Debt & Money Market instruments with

Fund Macaulay duration of portfolio between 3 years - 4 years

Medium to Long Investment in Debt & Money Market instruments with

Duration Fund Macaulay duration of the portfolio between 4 - 7 years

Investment in Debt & Money Market Instruments with

Long Duration Fund
Macaulay duration of the portfolio greater than 7 years

Dynamic Bond Investment across duration

Corporate Bond Minimum 80% investment in corporate bonds only in

Fund AA+ and above rated corporate bonds

Minimum 65% investment in corporate bonds, only in

Credit Risk Fund
AA and below rated corporate bonds

Minimum 80% in Debt instruments of banks, Public

Banking and PSU
Sector Undertakings, Public Financial Institutions and
Fund
Municipal Bonds

Gilt Fund Minimum 80% in G-secs, across maturity

Gilt Fund with 10

Minimum 80% in G-secs, such that the Macaulay
year constant
duration of the portfolio is equal to 10 years
Duration

Floater Fund Minimum 65% in floating rate instruments (including

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 fixed rate instruments converted to floating rate
exposures using swaps/ derivatives)

Dynamic Bond funds alter the tenor of the securities in the portfolio in line with
expectation on interest rates. The tenor is increased if interest rates are expected
to go down and vice versa

Floating rate funds invest in bonds whose interest are reset periodically so that
the fund earns coupon income that is in line with current rates in the market, and
eliminates interest rate risk to a large extent

Short-Term Debt Funds

The primary focus of short-term debt funds is coupon income. Short term debt
funds have to also be evaluated for the credit risk they may take to earn higher
coupon income. The tenor of the securities will define the return and risk of the
fund.

– Funds holding securities with lower tenors have lower risk and lower return.

● Liquid funds invest in securities with not more than 91 days to maturity.
● Ultra Short-Term Debt Funds hold a portfolio with a slightly higher tenor
to earn higher coupon income.
Short-Term Fund combine coupon income earned from a pre-dominantly short-
term debt portfolio with some exposure to longer term securities to benefit from
appreciation in price.

Fixed Maturity Plans (FMPs)

– FMPs are closed-ended funds which eliminate interest rate risk and lock-in a
yield by investing only in securities whose maturity matches the maturity of the
fund.

– FMPs create an investment portfolio whose maturity profile match that of the
FMP tenor.

– Potential to provide better returns than liquid funds and Ultra Short Term
Funds since investments are locked in

– Low mark to market risk as investments are liquidated at maturity.

– Investors commit money for a fixed period.

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– Investors cannot prematurely redeem the units from the fund

– FMPs, being closed-end schemes are mandatorily listed - investors can buy or
sell units of FMPs only on the stock exchange after the NFO.

– Only Units held in dematerialized mode can be traded; therefore investors

seeking liquidity in such schemes need to have a demat account.

Capital Protection Oriented Funds

Capital Protection Oriented Funds are close-ended hybrid funds that create a
portfolio of debt instruments and equity derivatives

– The portfolio is structured to provide capital protection and is rated by a credit

rating agency on its ability to do so. The rating is reviewed every quarter.

– The debt component of the portfolio has to be invested in instruments with the
highest investment grade rating.

– A portion of the amount brought in by the investors is invested in debt

instruments that is expected to mature to the par value of the capital invested by
investors into the fund. The capital is thus protected.

– The remaining portion of the funds is used to invest in equity derivatives to

generate higher returns

HYBRID FUNDS

Hybrid funds Invest in a mix of equities and debt securities.

Invest in a mix of equities and debt securities. They seek to find a ‘balance’
between growth and income by investing in both equity and debt.

– The regular income earned from the debt instruments provide greater stability
to the returns from such funds.

– The proportion of equity and debt that will be held in the portfolio is indicated
in the Scheme Information Document

– Equity oriented hybrid funds (Aggressive Hybrid Funds) are ideal for
investors looking for growth in their investment with some stability.

– Debt-oriented hybrid funds (Conservative Hybrid Fund) are suitable for

conservative investors looking for a boost in returns with a small exposure to
equity.

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– The risk and return of the fund will depend upon the equity exposure taken by
the portfolio - Higher the allocation to equity, greater is the risk

Multi Asset Funds

● A multi-asset fund offers exposure to a broad number of asset classes,

often offering a level of diversification typically associated with
institutional investing.
● Multi-asset funds may invest in a number of traditional equity and fixed
income strategies, index-tracking funds, financial derivatives as well as
commodity like gold.
● This diversity allows portfolio managers to potentially balance risk with
reward and deliver steady, long-term returns for investors, particularly in
volatile markets.
Arbitrage Funds

“Arbitrage” is the simultaneous purchase and sale of an asset to take advantage

of the price differential in the two markets and profit from price difference of
the asset on different markets or in different forms.

● – Arbitrage fund buys a stock in the cash market and simultaneously sells
it in the Futures market at a higher price to generate returns from the
difference in the price of the security in the two markets.
● – The fund takes equal but opposite positions in both the markets, thereby
locking in the difference.
● – The positions have to be held until expiry of the derivative cycle and
both positions need to be closed at the same price to realize the
difference.
● – The cash market price converges with the Futures market price at the
end of the contract period. Thus it delivers risk-free profit for the
investor/trader.
● – Price movements do not affect initial price differential because the
profit in one market is set-off by the loss in the other market.
● – Since mutual funds invest own funds, the difference is fully the return.
Hence, Arbitrage funds are considered to be a good choice for cautious
investors who want to benefit from a volatile market without taking on too
much risk.

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Index Funds
Index funds create a portfolio that mirrors a market index.

● – The securities included in the portfolio and their weights are the same
as that in the index
● – The fund manager does not rebalance the portfolio based on their view
of the market or sector
● – Index funds are passively managed, which means that the fund manager
makes only minor, periodic adjustments to keep the fund in line with its
index. Hence, Index fund offers the same return and risk represented by
the index it tracks.
● – The fees that an index fund can charge is capped at 1.5%
Investors have the comfort of knowing the stocks that will form part of the
portfolio, since the composition of the index is known.

Exchange Traded Funds (ETFs)

An ETF is a marketable security that tracks an index, a commodity, bonds, or a

basket of assets like an index fund.

● ETFs are listed on stock exchanges.

● Unlike regular mutual funds, an ETF trades like a common stock on a
stock exchange. The traded price of an ETF changes throughout the day
like any other stock, as it is bought and sold on the stock exchange.
● ETF Units are compulsorily held in Demat mode
● ETFs are passively managed, which means that the fund manager makes
only minor, periodic adjustments to keep the fund in line with its index
● Because an ETF tracks an index without trying to outperform it, it incurs
lower administrative costs than actively managed portfolios.
● Rather than investing in an ‘active’ fund managed by a fund manager,
when one buy units of an ETF one is harnessing the power of the market
itself.
● Suitable for investors seeking returns similar to index and liquidity
similar to stocks
Fund of Funds (FoF)

● Fund of funds are mutual fund schemes that invest in the units of other
schemes of the same mutual fund or other mutual funds.

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 ● The schemes selected for investment will be based on the investment
objective of the FoF
● The FoF have two levels of expenses: that of the scheme whose units the
FoF invests in and the expense of the FoF itself. Regulations limit the
total expenses that can be charged across both levels as follows:
– TER in respect of FoF investing liquid schemes, index funds & ETFs
has been capped @ 1%

– TER of FoF investing in equity-oriented schemes has been capped @

2.25%

– TER of FoF investing in other schemes than mentioned above has been
capped @2%.

Gold Exchange Traded Funds (FoF)

● Gold ETFs are ETFs with gold as the underlying asset

– The scheme will issue units against gold held. Each unit will represent a
defined weight in gold, typically one gram.

– The scheme will hold gold in form of physical gold or gold related
instruments approved by SEBI.

– Schemes can invest up to 20% of net assets in Gold Deposit Scheme of

banks

● The price of ETF units moves in line with the price of gold on metal
exchange.
● After the NFO, units are issued to intermediaries called authorized
participants against gold or funds submitted. They can also redeem the
units for the underlying gold
Benefits of Gold ETFs

● Convenience --> option of holding gold electronically instead of physical

gold.
– Safer option to hold gold since there are no risks of theft or purity.

– Provides easy liquidity and ease of transaction.

● Gold ETFs are treated as non-equity oriented mutual funds for the
purpose of taxation.

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 – Eligible for long-term capital gains benefits if held for three years.

– No wealth tax is applicable on Gold ETFs

International Funds

● International funds enable investments in markets outside India, by

holding in their portfolio one or more of the following:
● – Equity of companies listed abroad.
● – ADRs and GDRs of Indian companies.
● – Debt of companies listed abroad.
● – ETFs of other countries.
● – Units of passive index funds in other countries.
● – Units of actively managed mutual funds in other countries.
● International equity funds may also hold some of their portfolios in
Indian equity or debt.
● – They can hold some portion of the portfolio in money market
instruments to manage liquidity.
● International funds gives the investor additional benefits of
● – Diversification, since global markets may have a low correlation with
domestic markets.
● – Investment options that may not be available domestically.
● – Access to companies that are global leaders in their field.
● There are risks associated with investing in such funds, such as –
● – Political events and macro economic factors that are less familiar and
therefore difficult to interpret
● – Movements in foreign exchange rate may affect the return on
redemption
● – Countries may change their investment policy towards global investors.
● For the purpose of taxation, these funds are considered as non-equity
oriented mutual fund schemes.
NET ASSET VALUE (NAV)

NAV stands for Net Asset Value. The performance of a mutual fund scheme is
denoted by its NAV per unit.

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NAV per unit is the market value of securities of a scheme divided by the total
number of units of the scheme on a given date. For example, if the market value
of securities of a mutual fund scheme is ₹200 lakh and the mutual fund has
issued 10 lakh units of ₹ 10 each to the investors, then the NAV per unit of the
fund is ₹ 20 (i.e., ₹200 lakh/10 lakh).

Since market value of securities changes every day, NAV of a scheme also
varies on day-to-day basis.

NAVs of mutual fund schemes are published on respective mutual funds’

websites as well as AMFI’s website daily.

Unlike stocks, where the price is driven by the stock market and changes from
minute-to-minute, NAVs of mutual fund schemes are declared at the end of
each trading day after markets are closed, in accordance with SEBI Mutual
Fund Regulations. Further, Units of mutual fund schemes under all scheme
(except Liquid & Overnight funds) are allotted only at prospective NAV, i.e.,
the NAV that would be declared at the end of the day, based on the closing
market value of the securities held in the respective schemes.

A mutual fund may accept applications even after the cut-off time, but you will
get the NAV of the next business day. Further, the cut-off time rules apply for
redemptions too

LIMITATIONS

Lack of portfolio customization

Some brokerages like IIFL, Motilal Oswal, offer Portfolio Management
Schemes (PMS) to large investors. In a PMS, the investor has better control
over what securities are bought and sold on his behalf. The investor can get a
customized portfolio in case of PMS. On the other hand, a unit-holder in a
mutual fund is just one of several thousand investors in a scheme. Once a unit-
holder has bought into the scheme, investment management is left to the fund
manager (within the broad parameters of the investment objective). Thus, the
unit-holder cannot influence what securities or investments the scheme would
invest into.

Choice overload
Over 2000 mutual fund schemes offered by 47 mutual funds – along with
multiple options within them – makes it a difficult choice for investors. Greater
dissemination of scheme information through various media channels and
availability of professional advisors in the market helps investors to handle this
overload.

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No control over costs
All the investor's money is pooled together in a scheme. Costs incurred for
managing the scheme are shared by all the Unit-holders in proportion to their
holding of Units in the scheme. Therefore, an individual investor has no control
over the costs in a scheme. SEBI has, however, imposed certain limits on the
expenses that can be charged to any scheme. These limits, vary with the size of
assets and the nature of the scheme is published by the mutual fund company.

Size
Some mutual funds are too big to find enough good investments. This is
especially true of funds that focus on small companies, given that there are strict
rules about how much of a single company a fund may own. If a mutual fund
has Rs. 5000 crores to invest and is only able to invest an average of Rs.50
crores in each, then it needs to find at least 100 such companies to invest in; as a
result, the fund might be forced to lower its standards when selecting companies
to invest in.

Dilution
Dilution is the direct result of diversification. Since investors have their money
spread across different assets the high returns earned does not make much of a
difference. Thus, when we talk about diversification as one of the key benefits
of MF, over-diversification could be one of the major disadvantages/limitation
to investing in mutual funds.

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 CONCLUSION
● A mutual fund brings together a group of people and invests their money
in stocks, bonds, and other securities.
● The advantages of mutuals are professional management, diversification,
economies of scale, simplicity and liquidity.
● The disadvantages of mutuals are high costs, over-diversification,
possible tax consequences, and the inability of management to guarantee
a superior return.
● There are many, many types of mutual funds. You can classify funds
based on asset class, investing strategy, region, etc.
● Mutual funds have lots of costs.
● Costs can be broken down into ongoing fees (represented by the expense
ratio) and transaction fees (loads).
● The biggest problems with mutual funds are their costs and fees.
● Mutual funds are easy to buy and sell. You can either buy them directly
from the fund company or through a third party.
● Mutual fund ads can be very deceiving.

● As we ride the technological trend in mutual fund investments, the

industry undergoes a paradigm shift. Digital platforms bring convenience,
accessibility, and real-time information to investors. Robo-advisors
streamline investment guidance, while AI transforms fund management

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 with advanced data analysis and automation. However, amidst these
innovations, educating investors remains crucial for them to understand
the digital space effectively.

BIBLIOGRAPHY

www.google.com

www.scribd.com

https://www.researchgate.net

www.5paisa.com

https://www.bajajfinserv.in

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