Introduction What is a Mutual Fund A Mutual Fund is a trust registered with the Securities and Exchange Board of India

(SEBI), which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. This pooled income is professionally managed on behalf of the unit-holders, and each investor holds a proportion of the portfolio i.e. entitled not only to profits when the securities are sold, but also subject to any losses in value as well. [Top] Why Mutual Funds Why should I choose to Invest in Mutual Fund For retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative. This is because: Mutual Funds provide the benefit of cheap access to expensive stocks. Mutual funds diversify the risk of the investor by investing in a basket of assets. A team of professional fund managers manages them with in-depth research inputs from investment analysts. Being institutions with good bargaining power in markets, mutual funds have access to crucial corporate information which individual investors cannot access. [Top] Concept of Mutual Fund How Mutual Fund operates The following chart gives us operational flow of a Mutual Fund Organisational Structure of MF : There are many entities involved and the diagram below illustrates the organisational set up of a mutual fund:

Advantages of Mutual Fund Advantages Affordability Professional Management Diversification Variety of Investment according to Financial status of the Investor Return potential Flexibility Transparency Tax Benefits Liquidity Clear Cut regulations [SEBI] [Top] Limitations of Mutual funds

Investors cannot contain costs so long as SEBI specified limits are complied with. Investors pay management fees so long as they remain invested in the fund. No tailor made portfolios Investors end up delegating investment decisions to fund managers and have no say/control on their decisions The availability of a large number of mutual fund schemes means that, except for the empowered investor , others require advice when selecting a fund which best meets their investment objectives [Top] Types of Mutual Funds

What are open-ended and close-ended mutual funds schemes? In an open-ended mutual fund there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended scheme at any point of time at a price that is linked to the net asset value (NAV). In case of close-ended funds, the total size of the corpus is limited by the size of the initial offer. Do both open-ended and close-ended funds come out with an initial offering? Yes. But the only difference is that in case of open-ended funds, a month after the initial offer closes the continuous offer period starts when the investor can enter and exit the fund at a price linked to the NAV [Top] History of Mutual Funds Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64 In the year 1987 Public Sector banks like State Bank of India, Punjab National Bank, Indian Bank, Bank of India, and Bank of Baroda have set up mutual funds. Apart from these above mentioned banks Life Insurance Corporation [LIC] and General Insurance Corporation [GIC] too have set up mutual funds With the entry of Private Sector Funds a new era has started in Mutual Fund Industry [e.g:- Principal Mutual Fund] Which are the other institutions that have floated Mutual Funds in India? Currently sector banks like SBI, Canara Bank, BOB, Private sector banks like ICICI, HDFC, Kotak, Foreign

Institutions like Principal, Morgan Stanley, Templeton, Fidelity and Private financial companies like Kotak,DSP Merrill Lynch, Sundaram etc. have floated their own mutual funds How many Mutual Funds are there in India currently? Presently there are 33 Mutual Funds in India and close to 700 mutual fund schemes. Why has the concept of mutual funds taken so long to pick up in India? Even in the US the concept of mutual funds has started picking up only in the last decade. This whole process of investor education and investor awareness takes a lot of time. But Indian investors are now beginning to understand the benefits of investing through the mutual funds route and hence the collections are beginning to pick up [Top] Regulatory Body of Mutual Fund What is the Regulatory Body for Mutual Funds? Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament. [Top] Risk Management How do mutual funds diversify their risks? Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortune of your portfolio depends on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced. Can mutual funds be viewed as risk-free investments? No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced. What are the risks involved in investing in mutual funds? A very important risk involved in mutual fund investments is the market risk. When the markets experience a downturn, most funds will reflect this decline in their NAVs. However,the company specific risks are largely eliminated due to professional fund management. [Top] Miscellaneous How much return can I expect by investing in mutual funds? Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management What is the difference between mutual funds and portfolio management schemes? While the concept remains the same of collecting money from investors, pooling them and investing the funds, the target investors are different. In the case of portfolio management the target investors are high networth investors while in case of mutual funds the target investors are the retail investors Association of Mutual Funds in India (AMFI) The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protect and promot the interests of mutual funds and their unit holders.