WHAT ISAMUTUALFUND?

A Mutual Fund is a trust that pools the savings of a

numer of investors !ho share a "ommon finan"ial
goal#An$od$ !ith an investile surplus of as little as a
fe!hundred rupees "an invest in Mutual Funds#These
investors u$ units of a parti"ular Mutual Fund
s"heme that has a defined investment o%e"tive and
strateg$#
The mone$ thus "olle"ted is then invested $ the
fund manager in different t$pes of se"urities# These
"ould range from shares to deentures to mone$
mar&et instruments' depending upon the s"heme(s
stated o%e"tives# The in"ome earned through these
investments and the "apital appre"iation realised $
the s"heme are shared $ its unit in proportion
to the numer of units o!ned $ them# Thus a Mutual
Fund is the most suitale investment for the "ommon
man as it offers an opportunit$ to invest in a diversified'
professionall$ managed as&et of se"urities at a
relativel$ lo!"ost#
holders
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TYPESOFMUTUALFUNDSCHEMES
There are a wide variety of Mutual Fund
schemes that cater to your needs, whatever your
age, financial position, risk tolerance and return
expectations. Whether as the foundation of your
investment programme or as a supplement,
Mutual Fund schemes can help you meet your
financial goals?
These do not have a fixed maturity.You deal with
the Mutual Fund for your investments and
redemptions.The key feature is liuidity.You can
conveniently !uy and sell your units at "et #sset
$alue%"#$& related prices, at any point of time.
'chemes that have a stipulated maturity period
%ranging from ( to )* years& are called closeended
schemes.You can invest in the scheme at
the time of the initial issue and thereafter you can
!uy or sell the units of the scheme on the stock
exchanges where they are listed. The market
price at the stock exchange could vary from the
scheme+s"#$ on account of demand and supply
situation, unitholders+ expectations and other
market factors. ,ne of the characteristics of the
close-ended schemes is that they are generally
traded at a discount to "#$. !ut closer to
maturity, the discount narrows.
'ome close-ended schemes give you an
additional option of selling your units to the
Mutual Fund through periodic repurchase at
"#$ related prices. '/01 2egulations ensure
that at least one of the two exit routes are
provided to the investor under the close ended
schemes.
(A) By Structure
Open-Ended Schemes
Close-Ended Schemes
3
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Interval Schemes
Growth Schemes
Income Schemes
These com!ine the features of open-ended and
close-ended schemes. They may !e traded on
the stock exchange or may !e open for sale or
redemption during predetermined intervals at
"#$ related prices.
#im to provide capital appreciation over the
medium to long term. These schemes normally
invest a ma4ority of their funds in euities and are
willing to !ear short term decline in value for
possi!le future appreciation.
These schemes are not for investors seeking
regular income or needing their money !ack in
the short term.
1deal for5
1nvestors in their prime earning years.
1nvestors seeking growth over the long term.
#im to provide regular and steady income to
investors. These schemes generally invest in
fixed income securities such as !onds and
corporate de!entures.
6apital appreciation in such schemes may !e
limited.
1deal for5
2etired people and others with a need for
capital sta!ility and regular income.
1nvestors who need some income to
supplement their earnings.
(B) By Investment Obect!ve
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Starting out in life?
Invest in funds that will give
you lump sum returns after
a few years.
7
Balanced Schemes
oney ar!et " #i$uid Schemes
%a& Saving Schemes 'E$uity #in!ed Saving
Scheme - E#SS(
#im to provide !oth growth and income !y
periodically distri!uting a part of the income and
capital gains they earn. They invest in !oth
shares and fixed income securities in the
proportion indicated in their offer documents. 1n a
rising stock market, the "#$ of these schemes
may not normally keep pace or fall eually when
the market falls.
1deal for5
1nvestors looking for a com!ination of income
and moderate growth.
#im to provide easy liuidity, preservation of
capital and moderate income. These schemes
generally invest in safer, short term instruments
such as treasury !ills, certificates of deposit,
commercial paper and inter!ank call money.
2eturns on these schemes may fluctuate,
depending upon the interest rates prevailing in
the market.
1deal for5
6orporates and individual investors as a
means to park their surplus funds for short
periods or awaiting a more favoura!le
investment alternative.
These schemes offer tax incentives to the
investors under tax laws as prescri!ed from time
to time and promote long term investments in
euities through Mutual Funds.
1deal for5
1nvestors seeking tax incentives.
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Ot"er Sc"emes
S#ec!$% Sc"emes
This category includes index schemes that
attempt to replicate the performance of a
particular index such as the 0'/ 'ensex, the
"'/ *8 %"1FTY& or sector specific schemes
which invest in specific sectors such as
Technology, 1nfrastructure, 0anking, 9harma
etc.
0esides, there are also schemes which invest
exclusively in certain segments of the capital
market, such as :arge 6aps, Mid 6aps, 'mall
6aps, Micro 6aps, ;#; group shares, shares
issued through 1nitial 9u!lic ,fferings %19,s&,
etc.
Fixed Maturity 9lans %FM9s& are investment
schemes floated !y mutual funds and are closeended
with a fixed tenure, the maturity period
ranging from one month to three<five years.
These plans are predominantly de!t-oriented,
while some of them may have a small euity
component.
The o!4ective of such a scheme is to generate
steady returns over a fixed-maturity period and
protect the investor against market fluctuations.
FM9s are typically passively managed fixedincome
schemes with the fund manager locking
into investments with maturities corresponding
with the maturity of the plan. FM9s are not
guaranteed products.
/xchange Traded Funds are essentially index
funds that are listed and traded on exchanges like
1ndex fund schemes are ideal for investors who
are satisfied with a return approximately eual to
that of an index.
'ectoral fund schemes are ideal for investors
who have already decided to invest in a particular
sector or segment.
F!&e' M$tur!ty P%$ns
E&c"$n(eTr$'e' Fun's (ETFs)
=
arried ?
invest in funds that will give
you regular income to
supplement your salary to
match your growing needs.
stocks. >lo!ally, /TFs have opened a whole new
panorama of investment opportunities to retail as
well as institutional investors. /TFs ena!le
investors to gain !road exposure to entire stock
markets as well as in specific sectors with relative
ease, on a real-time !asis and at a lower cost than
many other forms of investing.
#n /TF is a !asket of stocks that reflects the
composition of an index, like '?9 6"@ "ifty, 0'/
'ensex, 6"@ 0ank 1ndex, 6"@ 9'A 0ank 1ndex,
etc. The /TF;s trading value is !ased on the net
asset value of the underlying stocks that it
represents. 1t can !e compared to a stock that can
!e !ought or sold on real time !asis during the
market hours. The first /TF in 1ndia, 0enchmark
"ifty 0ees, opened for su!scription on Becem!er
)(, (88) and listed on the "'/ on Canuary D,
(88(.
6apital 9rotection ,riented 'chemes are
schemes that endeavour to protect the capital as
the primary o!4ective !y investing in high uality
fixed income securities and generate capital
appreciation !y investing in euity < euity related
instruments as a secondary o!4ective. The first
6apital 9rotection ,riented Fund in 1ndia,
Franklin Templeton 6apital 9rotection ,riented
Fund opened for su!scription on ,cto!er E),
(887.
>old /xchange Traded Funds offer investors an
innovative, cost-efficient and secure way to
access the gold market. >old /TFs are intended
to offer investors a means of participating in
the gold !ullion market !y !uying and selling
units on the 'tock /xchanges, without taking
physical delivery of gold. The first >old /TF in
1ndia, 0enchmark >/TF, opened for su!scription
on Fe!ruary )*, (88= and listed on the "'/ on
#pril )=, (88=.
C$#!t$% Pr)tect!)n Or!ente' Sc"emes
*)%' E&c"$n(eTr$'e' Fun's (*ETFs)
D
+u$nt!t$t!ve Fun's
Fun's Invest!n( Abr)$'
Fun' ), Fun's (FOFs)
# uantitative fund is an investment fund that
selects securities !ased on uantitative analysis.
The managers of such funds !uild computer!ased
models to determine whether or not an
investment is attractive. 1n a pure Fuant shopF
the final decision to !uy or sell is made !y the
model. Gowever, there is a middle ground where
the fund manager will use human 4udgment in
addition to a uantitative model. The first Huant
!ased Mutual Fund 'cheme in 1ndia, :otus #gile
Fund opened for su!scription on ,cto!er (*,
(88=.
With the opening up of the 1ndian economy,
Mutual Funds have !een permitted to invest in
foreign securities< #merican Bepository
2eceipts %#B2s& < >lo!al Bepository 2eceipts
%>B2s&. 'ome of such schemes are dedicated
funds for investment a!road while others invest
partly in foreign securities and partly in domestic
securities. While most such schemes invest in
securities across the world there are also
schemes which are country specific in their
investment approach.
Fund of Funds are schemes that invest in other
mutual fund schemes. The portfolio of these
schemes comprise only of units of other mutual
fund schemes and cash < money market
securities< short term deposits pending
deployment. The first F,F was launched !y
Franklin Templeton Mutual Fund on ,cto!er )=,
(88E.
Fund of Funds can !e 'ector specific e.g. 2eal
/state F,Fs, Theme specific e.g. /uity F,Fs,
,!4ective specific e.g. :ife 'tages F,Fs or 'tyle
specific e.g.#ggressive< 6autious F,Fs etc.
9lease !ear in mind that any one scheme may
not meet all your reuirements for all time. You
re$uirements.
need to place your money 4udiciously in different
schemes to !e a!le to get the com!ination of
growth, income and sta!ility that is right for you.
2emem!er, as always, higher the return you seek
higher the risk you should !e prepared to take.
)8
# few freuently used terms are explained here
!elow5
"et #sset $alue is the market value of the
assets of the scheme minus its lia!ilities. The
per unit "#$ is the net asset value of the
scheme divided !y the num!er of units
outstanding on the valuation date.
1s the price you pay when you invest in a
scheme. #lso called ,ffer 9rice. 1t may include
a sales load.
1s the price at which units under open-ended
schemes are repurchased !y the Mutual Fund.
'uch prices are"#$ related.
1s the price at which close-ended schemes
redeem their units on maturity. 'uch prices are
"#$ related.
1s a charge collected !y a scheme when it sells
the units. #lso called, IFront-end+ load.'chemes
that do not charge a load are called I"o :oad+
schemes.
1s a charge collected !y a scheme when it !uys
!ack the units from the unitholders.
Net AssetValue (NAV)
Sale Price
Repurchase Price
Redemption Price
Sales Load
Repurchase orBack-endLoad