What are Mutual Funds ?

A Mutual Fund is a trust that pools together the savings of a number of investors
who share a common financial goal. The fund manager invests this pool of
money in securities -- ranging from shares and debentures to money market
instruments or in a mixture of equity and debt, depending upon the objectives of
the scheme.

Why choose Mutual Funds ?

Investing in Mutual Funds offers several benefits:

• Professional expertise: Fund managers are professionals who track the

market on an on-going basis. With their mix of professional qualification and
market knowledge, they are better placed than the average investor to
understand the markets
• Diversification: Since a Mutual Fund scheme invests in number of stocks
and/or debentures, the associated risks are greatly reduced.
• Relatively less expensive: When compared to direct investments in the
capital market, Mutual Funds cost less. This is due to savings in brokerage
costs, demat costs, depository costs etc.
• Liquidity: Investments in Mutual Funds are completely liquid and can be
redeemed at their Net Assets Value-related price on any working day.
• Transparency: You will always have access to up-to-date information on
the value of your investment in addition to the complete portfolio of
investments, the proportion allocated to different assets and the fund
manager’s investment strategy.
• Flexibility: Through features such as Systematic Investment Plans,
Systematic Withdrawal Plans and Dividend Investment Plans, you can
systematically invest or withdraw funds according to your needs and
convenience.
• SEBI regulated market: All Mutual Funds are registered with SEBI and
function within the provisions and regulations that protect the interests of
investors. AMFI is the supervisory body of the Mutual Funds industry.

Top

Types of Funds

There are a wide variety of Mutual Fund schemes that cater to your needs,
whatever your age, financial position, risk tolerance and return expectation.
Whether as the foundation of your investment program or as a supplement,
Mutual Fund schemes can help you meet your financial goals. The different types
of Mutual Funds are as follows:
Diversified Equity Mutual Fund Scheme
A mutual fund scheme that achieves the benefits of diversification by investing in
the stocks of companies across a large number of sectors. As a result, it
minimizes the risk of exposure to a single company or sector.
Sectoral Equity Mutual Fund Scheme
A mutual fund scheme which focuses on investments in the equity of companies
across a limited number of sectors -- usually one to three.
Index Funds
These funds invest in the stocks of companies, which comprise major indices
such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the
respective indice.
Equity Linked Tax Saving Schemes (ELSS)
Mutual Fund schemes investing predominantly in equity, and offering tax
deduction to investors under section 80 C of the Income Tax Act. Currently
rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A
lock-in of 3 years is mandatory.
Monthly Income Plan Scheme
A mutual fund scheme which aims at providing regular income (not necessarily
monthly, don't get misled by the name) to the unitholder, usually by way of
dividend, with investments predominantly in debt securities (upto 95%) of
corporates and the government, to ensure regularity of returns, and having a
smaller component of equity investments (5% to 15%)to ensure higher return.
Income schemes
Debt oriented schemes investing in fixed income securities such as bonds,
corporate debentures, Government securities and money market instruments.
Floating-Rate Debt Fund
A fund comprising of bonds for which the interest rate is adjusted periodically
according to a predetermined formula, usually linked to an index.
Gilt Funds - These funds invest exclusively in government securities.
Balanced Funds
The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion
indicated in their offer documents. They generally invest 40-60% in equity and
debt instruments.
Fund of Funds
A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund
schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in
other mutual fund schemes.

Top

Mutual
Investment Who should Investment
Fund Objective Risk
Portfolio invest horizon
Type
Money Liquidity + Negligible Treasury Bills, Those who 2 days - 3
 park their
Certificate of funds in
Moderate
Deposits, current
Income +
Market Commercial accounts or weeks
Reservation of
Papers, Call short-term
Capital
Money bank
deposits
Short- Call Money,
term Commercial
Funds Papers, Those with
Liquidity +
(Floating - Little Interest Treasury Bills, surplus 3 weeks -
Moderate
short- Rate CDs, Short- short-term 3 months
Income
term) term funds
Government
securities.
Bond Predominantly
Funds Debentures,
Credit Risk Salaried &
Regular Government More than 9 -
& Interest conservative
(Floating - Income securities, 12 months
Rate Risk investors
Long- Corporate
term) Bonds
Salaried &
Gilt Security & Interest Rate Government 12 months &
conservative
Funds Income Risk securities more
investors
Aggressive
Long-term investors
Equity
Capital High Risk Stocks with long 3 years plus
Funds
Appreciation term out
look.
To generate
returns that are Portfolio
NAV varies
Index commensurate indices like Aggressive
with index 3 years plus
Funds with returns of BSE, NIFTY investors.
performance
respective etc
indices
Balanced ratio
Capital of equity and
Growth &
Balanced Market Risk debt funds to Moderate &
Regular 2 years plus
Funds and Interest ensure igher Aggressive
Income
Rate Risk returns at
lower risk

How to choose the right Mutual Fund scheme

Once you are comfortable with the basics, the next step is to understand your
investment choices, and draw up your investment plan relevant to your
requirements. Choosing your investment mix depends on factors such as your
risk appetite, time horizon of your investment, your investment objectives, age,
etc.

What should be kept in mind before investing in Mutual Funds ?

Mutual Fund investment decisions require consistent effort on the part of the
investor. Before investing in Mutual Funds, the following steps must be given due
weightage to decide on the right type of scheme:
1. Identifying the Investment Objective

2. Selecting the right Scheme Category

3. Selecting the right Mutual Fund

4. Evaluating the Portfolio

A) Identifying the Investment Objective

Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, level of income and expenses, among many
other factors. Therefore, the first step is to assess you needs. Begin by asking
yourself these simple questions:
Why do I want to invest?
The probable answers could be:

• "I need a regular income"

• "I need to buy a house/finance a wedding"
• "I need to educate my children," or
• A combination of all the above

How much risk am I willing to take?

The risk-taking capacity of individuals vary depending on various factors. Based
on their risk bearing capacity, investors can be classified as:

• Very conservative
• Conservative
• Moderate
• Aggressive
• Very Aggressive

To ascertain your risk appetite, try out our Risk Thermometer.

What are my cash flow requirements?
For example, you may require:
 • A regular Cash Flow
• A lumpsum after a fixed period of time for some specific need in the future
• Or, you may have no need for cash, but you may want to create fixed
assets for the future

B) Selecting the scheme category

The next step is to select a scheme category that matches your investment
objectives:

• For Capital Appreciation go for equity sectoral funds, equity diversified

funds or balanced funds.
• For Regular Income and Stability you should opt for income funds/MIPs
• For Short-Term Parking of Funds go for liquid funds, floating rate funds,
short-term funds.
• For Growth and Tax Savings go for Equity-Linked Savings Schemes.

Investment Investment
Ideal Instruments
Objective horizon
Short-term Liquid/Short-term
1- 6 months
Investment plans
Capital Diversified Equity/
Over 3 years
Appreciation Balanced Funds
Monthly Income
Regular
Flexible Plans / Income
Income
Funds
Equity-Linked
Tax Saving 3 yrs lock-in Saving Schemes
(ELSS)

C) Selecting the right Mutual fund

Once you have a clear strategy in mind, you now have to choose which Mutual
fund and scheme you want to invest in. The offer document of the scheme tells
you its objectives and provides supplementary details like the track record of
other schemes managed by the same Fund Manager. Some important factors to
evaluate before choosing a particular Mutual Fund are:
The track record of performance over that last few years in relation to the
appropriate yardstick and similar funds in the same category.
How well the Mutual Fund is organized to provide efficient, prompt and
personalized service.
The degree of transparency as reflected in frequency and quality of their
communications.
D) Evaluation of portfolio
Evaluation of equity fund involve analysis of risk and return, volatility, expense
ratio, fund manager’s style of investment, portfolio diversification, fund manager’s
experience. Good equity fund should provide consistent returns over a period of
time. Also expense ratio should be within the prescribed limits. These days fund
house charge around 2.50% as management fees.
Evaluation of bond funds involve it's assets allocation analysis, return's
consistency, it’s rating profile, maturity profile, and it’s performance over a period
of time. The bond fund with ideal mix of corporate debt and gilt fund should be
selected.

How to calculate the growth of your Mutual Fund investments ?

Let's assume that Mr. Gupta has purchased Mutual Fund units worth Rs. 10,000
at an NAV of Rs. 10 per unit on February 1. The Entry Load on the Mutual Fund
was 2%. On September 15, he sold all the units at an NAV of Rs 20. The exit
load was 0.5%.

His growth/ returns is calculated as under:

1. Calculation of Applicable NAV and No. of units purchased:

(a) Amount of Investment = Rs. 10,000
(b) Market NAV = Rs. 10
(c) Entry Load = 2% = Rs. 0.20
(d) Applicable NAV (Purchase Price) = (b) + (c) = Rs. 10.20
(e) Actual Units Purchased = (a) / (d) = 980.392 units

2. Calculation of NAV at the time of Sale

(a) NAV at the time of Sale = Rs 20
(b) Exit Load = 0.5% or Rs.0.10
(c) Applicable NAV = (a) – (b) = Rs. 19.90

3. Returns/Growth on Mutual Funds

(a) Applicable NAV at the time of Redemption = Rs. 19.90
(b) Applicable NAV at the time of Purchase = Rs. 10.20
(c) Growth/ Returns on Investment = {(a) – (b)/(b) * 100} = 95.30%

Top

Points to Remember

• Do not speculate: Always evaluate risk-taking capacity.

• Do not chase returns: Because what goes up must come down.
• Do not put all eggs in one basket: Diversification reduces the risk.
• Do not stop working on Mutual Funds: Continuous evaluation of funds
is a must.
 • Do not time the market: Every time is good for investments.
• Mutual Funds are subject to market risks and there is no assurance that
the fund objective will be achieved.
• NAVs fluctuate depending on forces affecting the Capital market.
• Past performance may or may not be sustained in the future.

Assets Management Company: A highly regulated organization that pools

money from many people into portfolio structured to achieve certain objectives.
Typically an AMC manages several funds –open ended/ close ended across
several categories- growth, income, balanced.
Balanced Fund: A hybrid portfolio of stocks and bonds.

Close Ended Fund: They neither issue nor redeem fresh units to investors.
Some closed ended funds can be bought or sold over the stock exchange if the
fund is listed. Else, investor have to wait till redemption date to exit. Most listed
close ended funds trade at discount to the NAV.

Open Ended Fund: A diversified and professionally managed scheme, it issues

fresh units to incoming investors at NAV plus any applicable sales charge, and it
redeems shares at NAV from sellers, less any redemption fees.

Entry/ Exit Load: A charge paid when an investor buys/sells a fund. There could
be a load at the time of entry or exit, but rarely at both times.

Expense Ratio : The annual expenses of the funds, including the management
fee, administrative cost, divided by the fund under management.

Growth/Equity Fund: A fund holding stocks with good or improving profit

prospects. The primary emphasis is on appreciation.

Liquidity: The ease with which an investment can be bought or sold. A person
should be able to buy or sell a liquid asset quickly with virtually no adverse price
impact.

Net Assets Value : A price or value of one unit of a fund. It is calculated by

summing the current market values of all securities held by the fund, adding the
cash and any accrued income, then subtracting liabilities and dividing the result
by the number of units outstanding.

Interest Rate Risk: The risk borne by fixed-interest securities, and by borrowers
with floating rate loans, when interest rates fluctuate. When interest rates rise,
the market value of fixed-interest securities declines and vice versa.

Credit Risk: Credit risk involves the loss arising due to a customer’s or
counterparty’s inability or unwillingness to meet commitments in relation to
lending, trading, hedging, settlement and other financial transactions.
 Capital Market Risk : Capital Market Risk is the risk arising due to changes
in the Stock Market conditions.

Introducing Company Fixed Deposits

Fixed Deposits in companies that earn a fixed rate of return over a period of time are
called Company Fixed Deposits. Financial institutions and Non-Banking Finance
Companies (NBFCs) also accept such deposits. Deposits thus mobilised are governed by
the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company
defaults, the investor cannot sell the documents to recover his capital, thus making them a
risky investment option.

Benefits of investing in Company Fixed Deposits

• High interest.
• Short-term deposits.
• Lock-in period is only 6 months.
• No Income Tax is deducted at source if the interest income is up to Rs 5,000 in
one financial year
• Investment can be spread in more than one company, so that interest from one
company does not exceed Rs. 5,000
Companies where you should not invest

How to choose a company for investing in FDs

Like most investment option, Company Fixed Deposits are a mixed bag. Company FDs
can be an interesting investment option if you know how to select the right FD, and how
to avoid the no-so-good ones.
Here are sone of the points that investors should keep in mind.

Spread your risk

The deposits should be spread over a large number of companies engaged in different
industries. This way, you'll be able to diversify your risk among various
industries/companies. Try not to put more than 10% of your total investments in one
particular company.

Choose the right period of deposit

Ideally, the investment should be for 1 to 3 years depending upon the rate of interest.
 Periodic review
The performance of the companies should be reviewed at maturity. This will help you
decide whether to renew or reshuffle the deposit. It is also wise to keep a track of
these companies by checking their share prices, annual reports and other details
reported in newspapers.

Investment Planning
Everyone needs to save for a rainy day. Once you have saved enough to take care of
emergencies, you should start thinking about investing and to make your money grow.
We can help you plan your investments so that you can reap adequate benefits and
achieve your financial goals.

Bajaj Capital’s Investment Planning Service includes:

 Risk Profiling
 Asset Allocation and Portfolio Construction
 Creation and Accumulation of Wealth through Systematic Investment Plans (SIP)
 Regular review of progress and Portfolio Rebalancing

Essentially, Investment Planning involves identifying your financial goals throughout

your life, and prioritising them. Investment Planning is important because it helps you to derive
the maximum benefit from your investments.

Your success as an investor depends upon your ability to choose the right investment options.
This, in turn, depends on your requirements, needs and goals. For most investors,
however, the three prime criteria of evaluating any investment option are liquidity, safety
and return.

Investment Planning also helps you to decide upon the right investment strategy. Besides
your individual requirement, your investment strategy would also depend upon your age,
personal circumstances and your risk appetite. These aspects are typically taken care of
during investment planning.

Investment Planning also helps you to strike a balance between risk and returns. By prudent
planning, it is possible to arrive at an optimal mix of risk and returns, that suits your
particular needs and requirements.

General Insurance
Health

Health Insurance (popularly known as Medi-claim Policy) offers protection from

unexpected medical emergencies, providing a financial support.
Health insurance therefore, can be a source of support as it takes care of the financial
burden your family may have to go through. It will help you tackle such situations with
ease by providing you with timely and adequate medical care.

This policy covers individual & ones family from medical expenses during

• sudden illness,
• surgeries (acquired in respect of any disease, which has arisen during the policy
period.)
• accidents including room charges, doctor's fees, medicines, tests etc.

that may arise in future.

Options available -

1. Family Floater
2. Individual Health Insurance
3. Individual Health Insurance + Critical Care
4. Critical Care
5. Personal Accident

Motor
Motor Insurance is a wide comprehensive cover designed to provide protection to you &
your car. Protection from loss of car or damage to the car – giving a secured driving.

It covers -

• Own damage
• Legal liability of insured towards third party personal injury and property damage
arising out of an accident involving the insured vehicle .
• Passengers
• Hired driver

Options available -

1. Car Insurance
2. Two wheeler
3. Commercial vehicles
4. Passenger Carrying Vehicle
5. 3 - wheeler
6. Tractors etc.

Home

Home Insurance policy provides a cover to the structure and contents of your home from
all unforeseen natural & man-made catastrophes.
It provides protection for property and interests of the insured and his family members.
It is imperative that you secure your home which gives one peace of mind protecting the
most valued possession.

Coverages are -

• Fire & Allied Perils

• Burglary & Theft
• Electrical & Mechanical breakdown (Domestic, Audio & Audio-visual
appliances)
• Public Liability (Third Party Liability)
• Covers Accidental breakage
• Coverage to building & contents
• Personal Accident to self & family
Travel

Travel Insurance / Overseas Medi-claim policy is a basic requirement when one travels
abroad, either its for business,sight-seeing,shopping or pleasure.
This policy covers you for any kind of hospitalization which is very expensively priced
overseas. Also covers for

• Baggage loss,
• Passport loss,
• Personal accident,
• Trip cancellation
• Home Insurance when you are travelling
• Dental Expenses
• Maternity expenses in life saving scenario etc.

It is a single policy which covers all unforeseen risks – medical & non-medical when one
is in a strange place.
Options available -

1. Single Trip
2. Multi Trip
3. Student Medical
4. Senior Citizen
5. Pay per day basis

Personal accidnet

Accidents do not happen when you are driving a car, or away on a vacation. It may
happen anytime & anywhere.
Considering that modern day life is so dangerous, a personal accident policy is a solution
to such vagaries of life.
Its a Benefit Policy.

Coverages are -

• Accidental Death Benefit

• Accidental Permanent Total / Partial Disability Benefit
• Accidental Partial / Temporary Disability Benefit
• Broken Bones
• Burns