All About Mutual FundComplete Guide

What- It is a legal common pool of money

Money from- Investors bring the money to invest

Investment in- Investment can be in Shares, Bonds, Real estate etc as per wish ofinvestor

Units- Investors get units of mutual fund , for their investment.

Who Does Investment- Expert Fund Manager does all investments

Who Appoints Fund Manager- Investors

What About Profits from Investment- All profits from investments are given back toinvestors

What is Mutual Fund?

Investors

Mutual Fund

Investment

Returns

Pool Money and Create a Fund , called Mutual Fund

Fund Appoints a Fund Manager and Invest money

Investment pool generates return

Returns, post deducting expenses, are given to investors

Process of Mutual Fund

Stress -Managing direct investments in stocks or bonds can be really stressful as the markets are too volatile and it is very difficult for a layman investor to be patient with the swings in the prices of shares, etc

Professional Expert Management- No need for investors to get involved in the fund management on day to day basis. Fund manager manages the complete money

Diversification- Since mutual fund is pool of investment made by a group of investors, an expert fund manager can invest the money in a large choice of shares/ bonds or debentures etc. which reduces risk from one single asset.

Small money can be invested - Often shares or bonds of large corporations, etc trades at a very high base rate andsmall investor can’t invest into it due to the low investment amount. But this becomes possible for a fund managerin case of a mutual fund

Tax Benefits- In equity mutual funds, all returns are tax free if investments are held for more than 1 year. In ELSS (Equity Linked Saving Schemes), one can save taxes under section 80C of income tax act along with benefit of tax free returns.

Liquidity- Investment in Mutual funds are very liquid. Open ended mutual funds can be bought and sold any time. Small investor can plan his investments as per his need in mutual funds.

Advantages of Mutual Fund

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Net Asset Value- NAV

NAV is the market value of each unit of mutual fund scheme , after deducting all charges and liabilities. NAV or Net Asset Value of a Mutual Fund is based on the market price of the securities held in the portfolio. It can calculated with following formula-

Market price of all investments +All other assets such as cash – Expenses- All liabilities

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Total number of units outstanding for the scheme

Units of Mutual fund

Like Shares, Units are part of the ownership of a mutual fund scheme. Unit holders are investors of the fund.

Total investment of a mutual fund scheme is divided into small units of a particular amount each

Unit holders get voting rights and participate in the profits earned by Mutual fund , on the basis ofproportion of units allotted to them .

Types of Mutual Funds

Tenor of Mutual Fund

Open Ended Mutual Fund

In this scheme the investor can invest ( Buy) andredeem (Sell) mutual fund scheme at any time.

There is no lock in period of investment

Close Ended Mutual Fund

In this scheme the investor , once invested will notbe able to redeem any time as per his or her wish.

Mutual Fund will have a lock-in period beforewhich Investor cannot redeem from the scheme.

Types of Mutual Fund

Mutual Fund

Equity Fund

Diversified Fund

Mid Cap fund

Small Cap Fund

Sect oral Fund

Tax Saving Fund

Index Fund

Debt Fund

Income Fund

FMP

Short Term Funds

Gilt Fund

Hybrid Fund

Balanced Fund

Monthly Income Plan

Dynamic Fund

Liquid FundSpecialized

Funds

Commodity Fund

ETF

Funds of Funds

Arbitrage Funds

Capital Protection Funds

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Major Categories of Mutual Fund

Equity Funds

Debt Funds

Hybrid Funds

Liquid Funds

Commodity Funds

Mutual funds With primary objective to invest in Shares and Stocks are called Equity Funds.

Debt Funds invests in Govt. Bonds or securities, Corporate bonds & Other debt securities

Funds with mix of Debt and Equity are hybrid funds. Their proportion change as per opportunities in the market.

Debt funds investing only in very short term securities like certificate of deposits, treasury bills, commercial papers and term deposits.

Mutual funds investing in commodities like Gold, silver etc are commodity funds

Types Equity Fund

Diversified Equity Funds

Mid Cap Equity Funds

Small Cap Equity Funds

Sectoral Equity Funds

Tax Saving Equity Funds

Index fund Equity Funds

Fund investing inequities withoutconcentration ona particularsector or size ofcompany. It caninvest in anyshare as per wishof fund manager

Equity fundinvesting in shareof mid sized listedcompany. Midsized companycan be ofvaluationbetween Rs 500cr- Rs 2000 cr

Equity fundsinvesting inshares of smallsized listedcompany. Smallsized companycan be ofvaluation belowRs 500 cr

Funds investing inshares of aparticularindustry or sector.Example,Pharmacy fundsinvest only sharesof pharmaceuticalcompanies

These arediversified equityfunds, whereinvestor gets taxbenefit u/s 80C ofincome tax act.These are alsocalled ELSS(Equity Linkedsaving schemes)

Equity fundswhich matchperformance ofspecific stockmarket index likeBSE Sensex, orNSE nifty. Theseare passive fundsand invest withright proportionto shares inIndex.

Types of debt funds

Income/ Bond Funds

FMP Funds

Short term Funds

Gilt Funds

Debt Funds invests in Govt. Bonds or securities, Corporate bonds & Other debt securities with long term maturity beyond 3 years. The offer long term returns and tracks returns of bonds and Govt. securities

Close ended debt funds, with debt securities which have maturity similar to the closure of the fund. Post closure Mutual fund give back all money to investor. These fund generally offer an expected returns to investors

Debt funds with less risk, invest in Debt securities, having maturity up to 1 to 3 years . These are generally preferred for short to medium term investments .

Mutual funds investing in all kind of Government securities. Primarily these funds invest in long term Govt. Securities with small component invested in short term securities.

Types of Hybrid Fund

Balanced Funds Monthly income plan Dynamic Fund/Asset Allocation Funds

Balanced Funds Investin mix of Shares andDebt securities forhigher return andminimum risk ofcapital erosion.Generally invest atleast 65% of totalfunds in equity to gettax benefits of equityfunds

Objective is to rewardinvestors with regularincome & moderatecapital appreciationalong with minimumrisk of capital, thoughdon’t guarantee anyreturn. Generallyinvest 80% of funds indebt securities.

Funds with variableasset allocationstrategy that hasflexibility to switchfrom Equity to Debt orvice-a-versa , any timedepending on theoutlook of the market.

Exchange Traded Funds( ETF)

About

Tradable

Types of ETFs

Popular ETFs

Exchange traded funds are index funds, which tracks the composition andperformance of Equity, Commodity, or Debt indices, like BSE Sensex or NSE nifty .They are tradable on stock exchange like any other shares.

ETFs unlike other mutual funds, are traded on stock exchange and tracks real timecomposition and performance of equity indices. One can buy and sell them anytime during market hours of stock exchange and their price change as per index

1) Equity ETF- Invest in equity based Indices2) Gold ETF- Invest in Gold as an asset class3) Debt ETF- Invest in Debt indices

a) Goldman Sachs Nifty BeEs- This ETF tracks NSE nifty indexb) Goldman Sachs Gold BeEs- This ETF tracks Gold Price on real timeOther are Reliance banking ETFs, Motilal Midcap ETF

Funds of Funds ( FOF)

About

Benefit

Popular FOFs

Funds of funds can invest across different mutual fund schemes available inmarket. A FOF can divide money, freely in Diversified equity fund, Small cap fund ,Mid cap fund or debt funds, as per mandate of the fund.

Investor who wishes to invest in multiple mutual funds with a small amount caninvest in FOF .Fund manager can switch between debt funds & equity funds as peropportunity in the markets

a) Kotak Asset allocator fundb) Quantum equity fund of funds

Capital protection oriented funds

About

Benefit

Liquidity

Close ended funds , offering near capital protection to investors, which investmaximum funds in Fixed income securities.Small portion is invested in shares orderivatives to give extra returns. Generally 85% goes in debt and 15% in equity

a) Maturity is fixed and investor looking for a investment for time period can choose to invest in this. b) Offers near capital guarantee and also chance to get higher than FD interest return

• Capital Protection oriented funds are close ended• However they are listed on stock exchanges

Investing Options

Growth Scheme

In Growth scheme , all profits generated from buyingand selling of the investments in the fund, getsaccumulated. Profits get added to NAV of the mutualfund and investor looking to en-cash the profits cansell mutual fund units .

This is best scheme , for investor looking for capitaland profit accumulation over long period as profits arenot distributed to investors.

Dividend Option

In Dividend scheme , all profits generated from buying and selling of the investments in the fund, gets accumulated and then at the wish of fund manager, gets distributed to all investors. There are two versions of this option-

a) Dividend payout Option- Here dividends areactually paid to investors.

b) Dividend Reinvestment option- Here dividendsdistributed are not handed to the investors, butinvested back to the fund and investor is allottedmore units of the fund for the dividend amount.

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