MUTUAL FUNDS Mutual Funds in India are financial instruments It is an investment fund that pools money from different

investors to purchase securities to achieve financial goals The owner of a mutual fund unit gets a proportional share of

the fund’s gain or loss Mutual Fund Scheme’s are managed by a Fund Manager’s

ORGANIZATION STRUCTURE OF MUTUAL FUNDS

Mutual fund manager have high responsibility of maximizing return and to minimize the risk. When fund provided high return with high risk, investors attract to invest more fund for same scheme.

The graph indicates how the process was going on to investors to earn returns.

TYPES OF FUNDS

SOME POPULAR OBJECTIVES OF A MUTUAL FUNDSFund Objective What the fund will invest in

Equity (Growth) Only in stocks

Debt (Income) Only in fixed-income securities

Money Market (including Gilt) In short-term money market instruments (includinggovernment securities)

Balanced Partly in stocks and partly in fixed-income securities, inorder to maintain a 'balance' in returns and risk

GROWTH OF MUTUAL FUND INDUSTRY IN INDIA:

The Indian mutual fund industry is one of the fastest growing sectors in the Indian capital and financial markets. The mutual fund industry in India has seen dramatic improvements in quantity as well as quality of product and service offerings in recent years.

The concept of mutual funds was introduced in India with the formation of Unit Trust of India in 1963.

The first scheme launched by UTI was the now infamous Unit Scheme 64 in 1964.

CONTD… UTI continued to be the sole mutual fund until 1987, when

some public sector banks and Life Insurance Corporation of India and General Insurance Corporation of India set up mutual funds.

In 1993, private players entered the market. Today, 32 mutual funds collectively manage Rs 6713575.19

cr under hundreds of schemes

FUTURE AND GROWTH OF MUTUAL FUNDS IN INDIA- KEY FINDINGSAccording to report of Business maps of India, Important aspects related to the future of mutual funds in India are: The growth rate was 100 % in previous years. The saving rate in India is 23 %. There is a huge scope in the future for the expansion of the mutual

funds industry.

The Securities Exchange Board of India has allowed the introduction of commodity mutual funds.

The emphasis is being given on the effective corporate governance of Mutual Funds.

The Mutual funds in India has the scope of penetrating into the rural and semi urban areas.

Financial planners are introduced into the market, which would provide the people with better financial planning.

A number of foreign based assets management companies are venturing into Indian markets

ADVANTAGES OF MUTUAL FUNDS

Advanced Portfolio ManagementYou pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for help in the management of an investment portfolio.

Dividend ReinvestmentAs dividends and other interest income is declared for the fund, it can be used to purchase additional shares in the mutual fund, thus helping your investment grow.

CONTD… Risk Reduction (Safety)

A reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities - depending on their focus. Several index stock mutual funds own 1,000 or more individual stock positions.

Convenience and Fair PricingMutual funds are common and easy to buy. They typically have low minimum investments (some around $2,500) and they are traded only once per day at the closing net asset value (NAV). This eliminates price fluctuation throughout the day and various arbitrage opportunities that day traders practice.

DISADVANTAGES OF MUTUAL FUND High Expense Ratios and Sales Charges If you're not paying attention to mutual fund expense ratios and sales

charges, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than

1.20%, as they will be considered on the higher cost end. There are several good fund companies out there that have no sales

charges. Fees reduce overall investment returns. Management Abuses

Churning, turnover and window dressing may happen if your manager is abusing his or her authority. This includes unnecessary trading, excessive replacement and selling the losers prior to quarter-end to fix the books.

Tax InefficiencyLike it or not, investors do not have a choice when it comes to capital gain payouts in mutual funds. Due to the turnover, redemptions, gains and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event.

Poor Trade ExecutionIf you place your mutual fund trade anytime before the cut-off time for same-day NAV, you'll receive the same closing price NAV for your buy or sell on the mutual fund. For investors looking for faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy.

LIST OF MUTUAL FUND COMPANIES IN INDIA State Bank of India Kotak Mahindra ING ICICI Prudential HSBC

Canara Bank Birla Sun Life Bank of Baroda AIG HDFC Reliance Mutual Fund