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Meaning of mutual fund

A mutual fund is a type of professionally managed investment fund that pools money
from many investors to purchase securities. While there is no legal definition of the term mutual
fund it is most commonly applied only to those collective investment vehicles that are regulated
and sold to the general public. They are sometimes referred to as "investment companies" or
"registered investment companies". Hedge funds are not considered a type of mutual fund,
primarily because they are not sold publicly.

Origin of mutual fund

The first mutual funds were established in Europe. One researcher credits a Dutch
merchant with creating the first mutual fund in 1774.The first mutual fund outside the
Netherlands was the Foreign & Colonial Government Trust, which was established in London in
1868. It is now the Foreign & Colonial Investment Trust and trades on the London stock

Mutual funds were introduced into the United States in the 1890s. They became popular
during the 1920s. These early funds were generally of the closed-end type with a fixed number
of shares which often traded at prices above the value of the portfolio.

The first open-end mutual fund with redeemable shares was established on March 21,
1924. This fund, the Massachusetts Investors Trust, is now part of the MFS family of funds.
However, closed-end funds remained more popular than open-end funds throughout the 1920s.
By 1929, open-end funds accounted for only 5% of the industry's $27 billion in total assets.

After the stock market crash of 1929, Congress passed a series of acts regulating the
securities markets in general and mutual funds in particular. The Securities Act of 1933 requires
that all investments sold to the public, including mutual funds, be registered with the Securities
and Exchange Commission and that they provide prospective investors with a prospectus that
discloses essential facts about the investment. The Securities and Exchange Act of 1934 requires
that issuers of securities, including mutual funds, report regularly to their investors; this act also
created the Securities and Exchange Commission, which is the principal regulator of mutual

funds. The Revenue Act of 1936 established guidelines for the taxation of mutual funds, while
the Investment Company Act of 1940 governs their structure.

Advantages of mutual fund

Increased diversification: A fund normally holds many securities. Diversification

decreases risk.
Daily liquidity: Shareholders of open-end funds and unit investment trusts may sell their
holdings back to the fund at the close of every trading day at a price equal to the closing
net asset value of the fund's holdings. However, there may be fees and restrictions as
stated in the fund prospectus.
Professional investment management: Open-end and closed-end funds hire portfolio
managers to supervise the fund's investments.
Ability to participate in investments that may be available only to larger investors: For
example, individual investors often find it difficult to invest directly in foreign markets.
Service and convenience: Funds often provide services such as check writing.
Government oversight: Mutual funds are regulated by the Securities and Exchange
Ease of comparison: All mutual funds are required to report the same information to
investors, which makes them easy to compare.

Disadvantages of mutual fund

Less control over timing of recognition of gains
Less predictable income
No opportunity to customize

Types of mutual fund

Equity Funds / Growth Funds

Funds that invest in equity shares are called equity funds. They carry the principal
objective of capital appreciation of the investment over a medium to long-term investment
horizon. Equity Funds are high risk funds and their returns are linked to the stock markets. They
are best suited for investors who are seeking long term growth. There are different types of
equity funds such as Diversified funds, Sector specific funds and Index based funds.

Diversified Funds

These funds provide you the benefit of diversification by investing in companies spread
across sectors and market capitalization. They are generally meant for investors who seek
exposure across the market and do not want to be restricted to any particular sector.

Sector Funds

These funds invest primarily in equity shares of companies in a particular business sector
or industry. While these funds may give higher returns, they are riskier as compared to
diversified funds. Investors need to keep a watch on the performance of those sectors/industries
and must exit at an appropriate time.

Index Funds

These funds invest in the same pattern as popular stock market indices like CNX Nifty
Index and S&P BSE sensex. The value of the index fund varies in proportion to the benchmark
index. NAV of such schemes rise and fall in accordance with the rise and fall in the index. This
would vary as compared with the benchmark owing to a factor known as tracking error.

Tax Saving Funds

These funds offer tax benefits to investors under the Income Tax Act, 2961.
Opportunities provided under this scheme are in the form of tax rebates under section 80 C of the
Income Tax Act, 1961. They are best suited for long investors seeking tax rebate and looking for
long term growth.

Debt Fund / Fixed Income Funds

These Funds invest predominantly in rated debt / fixed income securities like corporate
bonds, debentures, government securities, commercial papers and other money market
instruments. They are best suited for the medium to long-term investors who are averse to risk
and seeking regular and steady income. They are less risky when compared with equity funds.

Liquid Funds / Money Market Funds

These funds invest in highly liquid money market instruments and provide easy liquidity.
The period of investment in these funds could be as short as a day. They are ideal for Corporate,
institutional investors and business houses who invest their funds for very short periods.

Gilt Funds

These funds invest in Central and State Government securities and are best suited for the
medium to long-term investors who are averse to risk. Government securities have no default

Balanced Funds

These funds invest both in equity shares and debt (fixed income) instruments and strive to
provide both growth and regular income. They are ideal for medium- to long-term investors
willing to take moderate risks.

Benefits of mutual fund

1. Management Professional Investment

By pooling the money of thousands of investors, mutual funds provide full-time, high-level
professional management that few individual investors can afford to obtain independently.
Such management can be important to achieving results in today's complex markets.

2. Diversification
Mutual funds invest in a broad range of securities. This limits investment risk by reducing the
effect of a possible decline in the value of any one security. Mutual fund shareowners can
benefit from diversification techniques usually available only to investors wealthy enough to
buy significant positions in a wide variety of securities.

3. Low Cost
If you tried to create your own diversified portfolio of 50 stocks, you'd need at least $100,000
and you'd pay thousands of dollars in commissions to assemble your portfolio. A mutual fund
lets you participate in a diversified portfolio for as little as $1,000, and sometimes less.

4. Convenience and Flexibility

You own just one security rather than many, yet enjoy the benefits of a diversified portfolio
and a wide range of services. Fund managers decide what securities to trade, clip the bond
coupons, collect the interest payments and see that your dividends on portfolio securities are
received and your rights exercised. It's easy to purchase and redeem mutual fund shares,
either directly online or with a phone call.

5. Quick, Personalized Service

Most mutual funds now offer extensive websites with a host of shareholder services for
immediate access to information about your fund account. Or a phone call puts you in touch
with a trained investment specialist at a mutual fund company who can provide information
you can use to make your own investment choices, assist you with buying and selling your
mutual funds shares, and answer questions about your mutual fund account status.

6. Ease of investing
It may open or add to your account and conduct transactions or business with the mutual fund
by mail, telephone or bank wire. You can even arrange for automatic monthly investments by
authorizing electronic fund transfers from your checking account in any amount and on a
date you choose.

7. Total Liquidity, Easy Withdrawal

It can easily redeem your shares anytime you need cash by letter, telephone, bank wire or
check, depending on the fund. Your proceeds are usually available within a day or two.

8. Life Cycle Planning
With no-load mutual funds, you can link your investment plans to future individual and
family needs -- and make changes as your life cycles change. You can invest in growth funds
for future college tuition needs, then move to income mutual funds for retirement, and adjust
your investments as your needs change throughout your life. With no-load mutual funds,
there are no commissions to pay when you change your investments.

9. Market Cycle planning

For investors who understand how to actively manage their portfolio, mutual fund
investments can be moved as market conditions change. You can place your funds in equities
when the market is on the upswing and move into money market mutual funds on the
downswing or take any number of steps to ensure that your investments are meeting your
needs in changing market climates. A word of caution: since it is impossible to predict what
the market will do at any point in time, staying on course with a long-term, diversified
investment view is recommended for most investors.

10. Investor Information

Shareholders receive regular reports from the mutual funds, including details of transactions
on a year-to-date basis. The current net asset value of your shares (the price at which you
may purchase or redeem them) appears in the mutual fund price listings of daily newspapers.
You can also obtain pricing and performance results for the all mutual funds at this site, or it
can be obtained by phone from the mutual funds.

11. Periodic Withdrawals

If you want steady monthly income, many funds allow you to arrange for monthly fixed
checks to be sent to you, first by distributing some or all of the income and then, if necessary,
by dipping into your principal.

12. Dividend Options
It can receive all dividend payments in cash. Or you can have them reinvested in the fund
free of charge, in which case the dividends are automatically compounded. This can make a
significant contribution to your long-term investment results. With some funds you can elect
to have your dividends from income paid in cash and your capital gains distributions

Need for the study

The main purpose of doing this project was to know about mutual fund and its
functioning. This helps to know in details about 'mutual fund industry right from its inception
stage, growth and future prospects.

It also helps in understanding different schemes of mutual funds. Because my study

depends upon prominent funds in India and their schemes like equity, income, balance as well as
the returns associated with those schemes.

The project study was done to ascertain the asset allocation, entry load, exit load,
associated with the mutual funds. Ultimately this would help in understanding the benefits of
mutual funds to investors.

Objectives of the study

To study the NAV of selected schemes of SBIMF for the month January 2015.
To study the theoretical aspects relating to different schemes of SBI mutual fund.
To analyse the risk and return from selected mutual fund scheme by SBIMF January 2015.

Mechanism of mutual fund


When you invest in a mutual fund, you receive professional money managers and their
research team. Spectacular returns aren't guaranteed just because the fund is run by a
professional, but you do know your funds are managed by an experienced crew who understand
the financial markets. This means you don't have to spend a lot of time researching stocks
yourself, as you would if you were investing in individual stocks. Instead, mutual fund managers
track the financial markets and the day-to-day fluctuation of different industries.


When you buy into a mutual fund you have the opportunity to buy multiple stocks, bonds
or other assets, depending on the type of fund it is. This diversified approach minimizes the
effect of price fluctuations in a single asset. The more assets you own, the less overall effect each
individual asset has on your portfolio. Invest in a single mutual fund and you are already more
diversified than if you purchased a single stock. Buying multiple funds, including bond, stock
and money-market funds, provides a diversification level nearly impossible to achieve by
purchasing stocks and bonds one at a time.


When you buy a fund, you will have to pay a commission as well as a yearly
management fee. The management fee can range from less than 1 percent of your total
investment to several percent. The fee is charged by the fund for managing your money.
However, you should keep in mind that mutual funds hold multiple assets. Purchasing all those
assets individually, to attain a similar diversification level, could result in an even more
expensive commission bill.


Mutual funds let you tailor your portfolio to meet investment objectives by purchasing
different fund types. Mutual funds range from conservative and low-risk to exotic and high-risk.
Bonds and money-market funds are typically low-risk, providing stable but relatively small
returns. Funds investing in domestic and foreign stock are more risky than bond funds, but over
the long haul usually provide a higher return.

Advantages of mutual funds

Mutual funds can reduce the anxiety of investing.

Most investors constantly live with a certain amount of anxiety and fear about their investments
because they feel they lack one or more of the following essentials: (1) market knowledge, (2)
investing experience, (3) self-discipline, (4) a proven game plan, or (5) time. As a result, they
often invest on impulse or emotion. Because of their inherent design that taps professional
expertise and spreads risk, mutual funds can go a long way toward relieving the anxiety.

Mutual fund shares can be purchased in such small amounts, so it's easy to get started.

If you have been putting off starting your investing program because you don't know which
stocks to invest in (and you can't afford your own personal investment consultant!), mutual funds
will get you on your way. Investing in a mutual fund usually doesnt require a large sum of
money. Most fund organizations do have minimum amounts needed to open an account (usually
$1,000 to $3,000), but minimums are often dramatically lower for IRAs and for "automatic
deposit accounts" (where you agree to make regular monthly deposits to build your account).

Mutual fund accounts can be added to whenever you want (often or seldom) and in small

After meeting the initial minimum to open your account, you can add just about any amount you
want. To make your purchase work out evenly, mutual funds sell "fractional" shares. For
example, if you invest $100 in a fund selling at $7.42 a share, the fund organization will credit
your account with 13.477 shares ($100.00 divided by $7.42 = 13.477).

Mutual funds reduce risk through diversification.

Stock funds typically hold from 50 to 500 stocks in their portfolios; the average is around 100.
They do this so that any loss caused by the unexpected collapse of any one stock will have only a
relatively minor effect on the pool as a whole. Without the availability of mutual funds, the
investor with just $2,000 to invest would likely put it all in just one or two stocks (a risky way to
go). But by using a mutual fund, that same $2,000 can make the investor a part owner in a large,
professionally researched and managed portfolio of stocks.

Price movements of mutual funds are more predictable than those of individual stocks.

Their extensive diversification, coupled with outstanding stock selection, makes it highly
unlikely that the overall market will move up without carrying almost all stock mutual funds up
with it. For example, on Sept. 8, 2008, when the Dow jumped 290 points, more than 95% of
stock mutual funds were up for the day. Yet, of the more than 3,200 stocks that traded on the
New York Stock Exchange, only 63% ended the day with a gain. The rest ended the day
unchanged (2%) or actually fell in price (35%).

The past performance of mutual funds is a matter of public record.

Advisory services, financial planners, and stockbrokers have records of past performance, but
how public are they? And how were they computed? Did they include every recommendation
made for every account? Mutual funds have fully disclosed performance histories, which are
computed according to set standards. With a little research, you can learn exactly how various
mutual funds fared in relation to inflation or other investment alternatives.

Mutual funds provide full-time professional management.

Highly trained investment specialists are hired to make the decisions as to which stocks to buy.
The person with the ultimate decision-making authority is called the portfolio manager. The
manager possesses expertise in many financial areas, and hopefully has learned through
experience to avoid the common mistakes of the amateur investor. Most important, the
manager is expected to have the self-discipline necessary to doggedly stick with the mutual
funds strategy even when events move against him for a time.

Mutual funds allow you to efficiently reinvest your dividends.

If you were to spread $5,000 among five different stocks, your quarterly dividend checks might
amount to $10 from each one. It's not possible to use such a small amount to buy more shares
without paying very high relative commissions. Your mutual fund, however, will gladly reinvest
any size dividends for you automatically. This can add significantly to your profits over several

Mutual funds offer you automatic withdrawal plans.

Most funds let you sell your shares automatically in an amount and frequency of your choosing.
This pre-planned selling enables the fund to mail you a check for a specified amount monthly or

Mutual funds provide you with individual attention.

It has been estimated that the average broker needs 400 accounts to make a living. How does he
spread his time among those accounts? The common-sense way would be to start with the largest
accounts and work his way down. Where would that leave your $2,000 account? But in a mutual
fund, the smallest member of the pool gets exactly the same attention as the largest because
everybody is in it together.

Mutual funds can be used for your IRA and other retirement plans.

Mutual funds offer accounts that can be used for IRAs and 401(k) plans. Theyre especially
useful for rollovers (which is when you take a lump sum payment from an employer's pension
plan because of your retirement or termination of employment and must deposit it into an IRA
investment plan account within 60 days). The new IRA rollover account can be opened at a bank,
mutual fund, or brokerage house and the money then invested in stocks, bonds, or money market
securities. These rollover accounts make it possible for you to transfer your pension benefits to
an account under your control while protecting their tax-deferred status. They are also useful for
combining several small IRAs into one large one.

Mutual funds allow you to sell part or all of your shares at any time and get your money

By regulation, all open-end mutual funds must redeem (buy back) their shares at their net asset
value whenever you wish. It's usually as simple as a toll-free phone call. Of course, the amount
you get back will be more or less than you initially put in, depending on how well the stocks in
the portfolio have done during the time you were a part owner of the pool.

Mutual funds enable you to instantly reduce the risk in your portfolio with just a phone call.

Most large fund organizations (usually referred to as "families") allow investors to switch from
one of their funds to another via a phone call or over the Web and at no cost. One practical use of
this feature is that is makes it easy to reallocate your capital between funds that invest in
different types of asset classes (large-company growth, large-company value, small-company
growth, small-company value, foreign stocks, and fixed-income securities) as your goals and
market expectations evolve.

Mutual funds pay minimum commissions when buying and selling for the pool.

They buy stocks in such large quantities that they always qualify for the lowest brokerage
commissions available. An average purchase of stock can easily cost the small investor 2%-4%
in commissions to buy and sell (depending on broker, dollar size of order, and number of shares).
On the other hand, the cost is a mere fraction of 1% on a large purchase like $100,000. Many
investors would show gains rather than losses if they could save almost 3% on every trade! The
mutual-fund pool enjoys the savings from these massive volume discounts, enhancing the
profitability of the pool. Eventually, then, part of that savings is yours. (These commission
savings, however, should not be confused with the annual operating expenses that every
shareholder pays.)

Mutual funds provide a safe place for your investment money.

Mutual funds are required to hire an independent bank or trust company to hold and account for
all the cash and securities in the pool. This custodian has a legally binding responsibility to
protect the interests of every shareholder. No mutual fund shareholder has ever lost money due to
a mutual fund bankruptcy.

Mutual funds handle your paperwork for you.

Capital gains and losses from the sale of stocks, as well as dividend- and interest-income
earnings, are summarized into a report for each shareholder at the end of the year for tax
purposes. Funds also manage the day-to-day chores such as dealing with transfer agents,
handling stock certificates, reviewing brokerage confirmations, and more.

Mutual funds can be borrowed against in case of an emergency.

Although you hope it will never be necessary, you can use the value of your mutual fund
holdings as collateral for a loan. If the need is short-term and you would rather not sell your
funds because of tax or investment reasons, you can borrow against them rather than sell them.

Mutual funds involve no personal liability beyond the investment risk in the portfolio.

Many investments, primarily partnerships and futures, require investors to sign papers wherein
they agree to accept personal responsibility for certain liabilities generated by the undertaking.
Thus, it is possible for investors to actually lose more money than they invest. This arrangement
is generally indicative of speculative endeavors; I encourage you to avoid such arrangements.

Mutual fund advisory services are available that can greatly ease the research burden.

Due to the tremendous growth in the popularity of mutual fund investing, there has been a big
jump in the number of investment newsletters that specialize in researching and writing about
mutual funds. My Sound Mind Investing newsletter, for example, offers model portfolios geared
to your risk tolerance and stage of life. We provide specific buy/sell recommendations that are
updated each month.

Mutual funds are heavily regulated by the federal government.

The fund industry is regulated by the Securities and Exchange Commission and is subject to the
provisions of the Investment Company Act of 1940. The act requires that all mutual funds
register with the SEC and that investors be given a prospectus, which must contain full
information concerning the funds history, operating policies, cost structure, and so on.
Additionally, all funds use a bank that serves as the custodian of all the pool assets. This
safeguard means the securities in the fund are protected from theft, fraud, and even the
bankruptcy of the fund management organization itself. Of course, money can still be lost if poor
investment decisions cause the value of the pools investments to fall in value.

Disadvantages of mutual funds

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. Be vary of advertising fees and sales charges
in general. There are several good fund companies out there that have no sales charges. Fees
reduce overall investment returns.

Management Abuses
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 Inefficiency
Like 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 Execution

If 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.

Importance of mutual fund


You can choose from hundreds of mutual funds offered by dozens of mutual fund
companies. This wide selection gives you the flexibility to pick mutual funds that suit your
financial objectives and risk tolerance. For example, equity and growth funds are suitable for
aggressive investors who can tolerate periods of extreme market volatility. Balanced funds could
be suitable for a more moderate investor looking for both capital gains and income, while bond
funds would suit conservative investors who want preservation of capital and regular income.


Mutual funds are a cost-effective way to diversify your portfolio across different asset
categories and industry sectors. Instead of buying and monitoring potentially dozens of stocks,
you could buy a few mutual funds to achieve broad diversification at a fraction of the cost. For
example, equity funds offer an indirect way to invest in dozens of companies in different
industry sectors, while balanced funds offer exposure to both stocks and bonds. Further
diversification is possible within each asset category. For example, you could buy mutual funds
that specialize in certain industries within equities, such as technology and energy. Similarly,
international funds and emerging market funds are convenient ways to diversify geographically.


Professional money management expertise at a reasonable cost is another important

attribute of mutual funds. Fund managers typically have postgraduate finance degrees, and
several years of stock analysis and investment management experience. Mutual fund companies
use a combination of in-house research staff and the services of external research firms to
determine the composition of fund portfolios. Fund managers may use information technology
and sophisticated trading strategies to rebalance portfolios and hedge against market volatility.


Mutual funds have leveled the playing field by bringing the financial markets closer to
small investors. For about the price of an average stock, you can participate in the capital gains
and dividend distributions of potentially dozens of companies. You do not have to spend a
sizable amount of your savings to invest in each one of these companies separately. Mutual fund
companies are able to spread research, commissions, and related expenses over a larger asset
base, which reduces the cost for individual fund investors. You can reduce the costs even further
by holding index mutual funds, which track major market and industry indexes. These funds
have low management fees and expenses because they do not have the research and trading costs
of actively managed funds

Important steps taken by SEBI for the regulation of mutual funds

(1) Formation:

Certain structural changes have also been made in the mutual fund industry, as part of
which mutual funds are required to set up asset management companies with fifty percent
independent directors, separate board of trustee companies, consisting of a minimum fifty
percent of independent trustees and to appoint independent custodians.

This is to ensure an arms length relationship between trustees, fund managers and
custodians, and is in contrast with the situation prevailing earlier in which all three functions

were often performed by one body which was usually the sponsor of the fund or a subsidiary of
the sponsor.

Thus, the process of forming and floating mutual funds has been made a tripartite
exercise by authorities. The trustees, the asset management companies (AMCs) and the mutual
fund shareholders form the three legs. SEBI guidelines provide for the trustees to maintain an
arms length relationship with the AMCs and do all those things that would secure the right of

With funds being managed by AMCs and custody of assets remaining with trustees, an
element of counter-balancing of risks exists as both can keep tabs on each other.

(2) Registration:

In January 1993, SEBI prescribed registration of mutual funds taking into account track
record of a sponsor, integrity in business transactions and financial soundness while granting

This will curb excessive growth of the mutual funds and protect investors interest by
registering only the sound promoters with a proven track record and financial strength. In
February 1993, SEBI cleared six private sector mutual funds viz. 20th Century Finance
Corporation, Industrial Credit & Investment Corporation of India, Tata Sons, Credit Capital
Finance Corporation, Ceat Financial Services and Apple Industries.

(3) Documents:

The offer documents of schemes launched by mutual funds and the scheme particulars
are required to be vetted by SEBI. A standard format for mutual fund prospectuses is being

(4) Code of advertisement:

Mutual funds have been required to adhere to a code of advertisement.

(5) Assurance on returns:

SEBI has introduced a change in the Securities Control and Regulations Act governing
the mutual funds. Now the mutual funds were prevented from giving any assurance on the land
of returns they would be providing. However, under pressure from the mutual funds, SEBI
revised the guidelines allowing assurances on return subject to certain conditions.

Hence, only those mutual funds which have been in the market for at least five years are
allowed to assure a maximum return of 12 per cent only, for one year. With this, SEBI, by
default, allowed public sector mutual funds an advantage against the newly set up private mutual

As per basic tenets of investment, it can be justifiably argued that investments in the
capital market carried a certain amount of risk, and any investor investing in the markets with an
aim of making profit from capital appreciation, or otherwise, should also be prepared to bear the
risks of loss.

(6) Minimum corpus:

The current SEBI guidelines on mutual funds prescribe a minimum start-up corpus of
Rs.50 crores for a open-ended scheme, and Rs.20 crores corpus for closed-ended scheme, failing
which application money has to be refunded.

The idea behind forwarding such a proposal to SEBI is that in the past, the minimum
corpus requirements have forced AMCs to solicit funds from corporate bodies, thus reducing
mutual funds into quasi-portfolio management outfits. In fact, the Association of Mutual Funds
in India (AMFI) has repeatedly appealed to the regulatory authorities for scrapping the minimum
corpus requirements.

(7) Institutionalization:

The efforts of SEBI have, in the last few years, been to institutionalise the market by
introducing proportionate allotment and increasing the minimum deposit amount to Rs.5000 etc.
These efforts are to channel the investment of individual investors into the mutual funds.

(8) Investment of funds mobilized:

In November 1992, SEBI increased the time limit from six months to nine months within
which the mutual funds have to invest resources raised from the latest tax saving schemes. The
guideline was issued to protect the mutual funds from the disadvantage of investing funds in the
bullish market at very high prices and suffering from poor NAV thereafter.

(9) Investment in money market:

SEBI guidelines say that mutual funds can invest a maximum of 25 per cent of resources
mobilized into money-market instruments in the first six months after closing the funds and a
maximum of 15 per cent of the corpus after six months to meet short term liquidity requirements.

Private sector mutual funds, for the first time, were allowed to invest in the call money
market after this years budget. However, as SEBI regulations limit their exposure to money
markets, mutual funds are not major players in the call money market. Thus, mutual funds do not
have a significant impact on the call money market.

(10) Valuation of investment:

The transparent and well understood declaration or Net Asset Values (NAVs) of mutual
fund schemes is an important issue in providing investors with information as to the performance
of the fund. SEBI has warned some mutual funds earlier of unhealthy market

(11) Inspection:

SEBI inspect mutual funds every year. A full SEBI inspection of all the 27 mutual funds
was proposed to be done by the March 1996 to streamline their operations and protect the
investors interests. Mutual funds are monitored and inspected by SEBI to ensure compliance
with the regulations.

(12) Underwriting:

In July 1994, SEBI permitted mutual funds to take up underwriting of primary issues as a
part of their investment activity. This step may assist the mutual funds in diversifying their

(13) Conduct:

In September 1994, it was clarified by SEBI that mutual funds shall not offer buy back
schemes or assured returns to corporate investors. The Regulations governing Mutual Funds and
Portfolio Managers ensure transparency in their functioning.

(14) Voting rights:

In September 1993, mutual funds were allowed to exercise their voting rights.
Department of Company Affairs has reportedly granted mutual funds the right to vote as full-
fledged shareholders in companies where they have equity investments.


The State Bank of India is the first public sector bank to start mutual fund business after
the Government of india issued permission to do mutual fund business. Till 1987, Unit Trust of
India was the only Mutual Fund operating in the countryin 1987.
SBI decided to provide an alternative for investors and SBI Mutual Fund was born SBI
Capital Markets Ltd, a wholly owned subsidiary of State Bank of india was appointed as
Trustees and Managers to the fund. SBI Mutual Fund was the first bank sponsored Mutual Fund.
the pioneer in an untapped field With vast potential.
The SBI Mutual Fund launched its first scheme- Magnum Regular Income Scheme 87
in 1987 and mobilized Rs 131 crore from 90,000 investors while in 2000, the Fund with an
investor base of over 2.8 million spread over 23 schemes mobilized Rs.2079 crores Till 1992.
SBI Capital Markets Ltd. operated as Trustees and Managers to the Fund.
The mantle of management has now passed on to SBI Fund Management Ltd. another wholly
owned subsidiary of the State Bank of lndia, which was incorporated on 7th February 1992. This
company took over the management of the Fund with effect from 14th May 1993. State Bank of
India now operates as Pruncrpal Trustee to the fund. The Board of Trustees headed by Dr. AM.
Khusro. Editor of Financial Express and former Member of the Planning Commission, includes
distinguished personalities like Prof. S.K. Barua. Smt. (Dr) Malati Anagol, Shri MM. Chitale and
Shri Vepa Kamesam. The Board of Directors of SBI Fund Management Ltd. includes reputed
personalities like Shri, Janaki Ballabh as Chairman. Shri. Niamatulla as Managing director.

SBI Mutual Fund schemes
Regular Income Scheme

Magnum Regular income Scheme (MRlS 1987) was the first scheme Launched by the fund and
it commenced from 1st January 1988. This was Followed by three others. Magnum regular
income Scheme 1989, which Commenced from 1st April August 1990 and MRIS 1993 launched
on 15th February 1993. The investment objective 1989. Magnum Regular lncome Scheme 1990
which Commenced from 1st 1989.Of the Regular lncome Scheme is to achieve a Combination of
income and growth and to provide a regular income to the investor. The target return specrfied is
a minimum of 12 per cent along with some capital Appreciation. To achieve the investment
objective, the scheme follows a policy of Investing predominantly in fixed income securities

Monthly Income Schemes

There are four schemes which fall under this head, namely, Magnum Monthly Income
Scheme 89 (MMlS 89), which commenced from 1st September. 1989, MMIS 91, which
commenced from 1st July 1991. MMIS 98.
The investment objective of the scheme as the name suggests is to provide a monthly
return on investment to the investor. MMlS 89 Offered a target return of a minimum of 12 per
cent per annum monthly pay out. Scheme. which was to be redeemed on 31st March 1993, has
been extended up to 315t December 1998 at a higher monthly pay out of 15 per cent per annum
Those investors who have exercised the option of extension. MMIS 91 targets at a Return of 13
per cent per annum with monthly pay out. MMlS 98(l) assured a monthly income of 12.5 per
cent per annum. MMIS 98(ii) offered monthly income combining the safety of high quality debt
instrument and return on equity. The Investment policy followed by the scheme is to invest
mainly in fixed income Securities.

80 CC Schemes

Magnum tax savings scheme 88-89 MTSS 88-89 which commenced from1st April 1989. And
MTSS 90 are the schemes falling into this category. MTSS88-89 were redeemed on 315.Marcn
1994 at Rs. 222/- with a capital Appreciationof 122 per cent and MTSS 90, redeemed on 31st
March 95 at Rs.172/- with acapital appreciation of 72 per cent. The investment objective of these
schemeswas to enable subscribers to benefit under Sec, 80 CC of the income Tax Act1961. The
policy followed was to invest in eligible issues of the capital underSection 80 CC and other
securities as were permitted. investors were thereforesaved the trouble of seeking issues eligible
under section 8000 of the income TaxAct 1961.

80 CC B Schemes

The 80 CC B Schemes are Magnum Equity Linked Saving Scheme 91 (MELS 91), which
commenced from 1 st April 1991 and Magnum Growing Investment from Tax Savmg Scheme
Plan A, 1992 (Magnum GIFTS-92 Plan A). which commenced from 1st April 1992?offer
benefits to investors under Sec. 80 CC B of Income Tax Act Magnum GIFTS Plan B, 1992
launched in 1992 also Offer benefits to investors under Sec 80 Co8 of income Tax Act. MELS-
95 launched in 1st April 1995 and MELS-96 launched in 1996 offer benefits under Sec. 88 of lT
Act The investment obiective is to enable subscribers to benefit under Sec. BOCC B and 88 of
income tax Act 1961 and aims at achieving substantial realized income and capital appreciation.
To achieve the investment objective, investments are mainly made in equities and equity related
instruments and also in money market or other liquid instruments.

Growth Schemes

Magnum Multiplier Scheme, 1990 (MMS-QO) which commenced from1st January 1991,
Magnum Express {MEXVQ- which commenced from 1st April 1991, Magnum Multiplier 'Plus
Scheme 1993 (MMPS-QS) which commenced operations On 1st March1993 as close-ended
growth scheme, Magnum Global Fund Scheme. 1994 (MGF-94) which was launched on1st

October 1994 are the growth Schemes of the fund. These four schemes aim at providing long-
term capital Appreciation to the investor the policy followed is to invest primarily in equities
Related instruments.

Cumulative Income Schemes

Magnum Triple is the only cumulative income scheme of the Fund. It Commenced from
2om November 1991 The investment objective of the scheme Is that the investor receives a sum
equal to thrice the amount initially invested or More at the end of 90 months from the date of
allotment. To achieve the Objective, the funds are mainly invested in equities and equity
related instruments As well as in money market instruments

Magnum Equity Fund

Magnum Equity Fund was converted into open-end scheme with effect From1st January
1998 The aim of this fund is to provide capital appreciation through the investment in equities.

Magnum Liquid Bond Fund

Magnum Liquid Bond is a hundred per cent debt fund that provides Investors superior
risks adjusted returns the fund offers high degree of safety is 80 per cent of the investments are
made in Government Securities and Triple A Rated papers. Maximum market liquidity is the
objective of the fund. This fund Was launched in December 1998.

Magnum Tax Gain Scheme

MTGS-93 is a tax saving scheme. Which was launched to offer tax benefits? To investors
under Sec. 88 of the Income Tax Act. This was converted into open- Ended scheme from
November 1999.

Magnum Balanced Fund

MBALF-95 was launched on 31st August 1995. The main objective of the Scheme is to provide
growth through appreciation of capital. It may also provide Periodic income through declaration
of dividends.

Magnum Sector Fund Umbrella
MSFU-99 is an umbrella fund, which covers under its fold four sub-funds. Devoted to
information Technology, Parma. Fast Moving Consumer Goods, and Contra fund. Investors will
have the Option of choosing one or more sector for Investing and will be able to freely switch
across sectors, without any load.
A sector comprises of companies that manufacture or offer products of a Similar nature some
sectors have a higher growth potential because of the Nature of business they are in. A sector
fund focuses on investing in shares of Such a sector. Which has high growth potentiality It
provides an opportunity to the Common investor to participate in the growth of such sector with
an investible Amount within his range The four important funds under MSFU are-IT FUND is a
part of sector fund umbrella launched with the objective to Provide investors worth capital
appreciation through equity investment in the Lt Sectors
i) Parma fund is the part of the sector fund umbrella. Which aims at long? Term capital gains by
investment in the pharmaceutical sector.

ii} FMCG Fund is a part of sector fund umbrella launched with the objective to Provide investors
with capital appreciation through equity investment in the Fast Moving Consumer Goods Sector

iii) Contra Fund is the part of sector fund umbrella, with a view to providing investors with long-
term gains in stocks, which are currently out of favour but are Likely to gain returns in long term.

Magnum lnsta Cash Fund

Magnum lnsta Cash Fund was launched on13th May 1999the main objective of the
scheme is to activate the short-term money investment providing superior returns consistent
.With a high degree of liquidity. This fund offers two options to investors - Cash Plan and
Dividend Plan.

Cash Plan is highly liquid: income scheme. The main objective is to provide Investors
with an investment opportunity likely to be superior to returns offered by Comparable
investment avenues, through investment in debt and money market Instruments.

Dividend Plan. the average maturity of assets is longer than that of cash Plan appreciation
in net asset value. It any is distributed by way of dividend or Reinvested. The objective of the
scheme IS similar to that of cash plan.

Magnum Rising Income Scheme 1993 (MRlS-93)

The Scheme commenced Operation from December 1993. Its objective is to provide the
investors regular income through dividend. MRIS-SQ and MRlS-QO Were also regular Income
schemes but these schemes redeemed on 30th June.



SBI Magnum Equity Fund seeks capital appreciation through investment in diversified
portfolio of equities of high growth companies, along with liquidity of an open ended scheme.


Long term investment

Investments in high growth companies along with the liquidity of an open-ended scheme
through investments primarily in equities.
High risk.


The scheme is ranked in three large cap category by crisil from rank 4 last quarter. If you
are already invested in this scheme, you may consider switching to a better performing scheme.

Graph 1


The graph makes it clear that the NAV of SBI magnum equity fund is 72.45 on 1.1.2015.
On 7.1.2015 it has been reduced to 72.42. Then it gradually increase upto 77.67 on 28.1.2015. At
the end of the month NAV is 76.50


SBI Blue Chip Fund invests in stocks of bluechip companies i.e. in stocks of companies
with market capitalization equal to or more than the least market capitalized stock of BSE 100
Index. These companies have large business presence, good reputation and are possibly market
leaders in their industries. The fund comprises of a well diversified portfolio of predominantly
large cap companies, with steady growth potential opportunity.


Long term investment

Investment in equity shares of companies whose market capitalization is at least equal to
or more than the least market capitalized stock of BSE 100 index to provide long term
capital growth opportunities.
High risk.


The scheme is ranked 1 in large cap category by crisil rank. If you are already invested in
this scheme, you may continue to stay invested.

Graph 2


The graph makes it clear that the NAV of SBI Bluechip fund is 26.85 on 1.1.2015. On
6.1.2015 it has been reduced to 26.42. Then it gradually increase upto 28.22 on 29.1.2015. At the
end of the month NAV is 27.90



SBI Magnum MidCap Fund invests in a basket of equity stocks of midcap companies.
Midcap companies are those companies whose market capitalization at the time of investment is
lower than the last stock.


In a growing economy like India, future large cap companies will emerge for todays
midcap companies. Hence an investment in selected midcap companies may
offer relatively better returns.

Long term investment

Investment in diversified basket of equity stocks of Midcap companies to provide

opportunities for long term growth in capital.

High risk.


The scheme is ranked 3 in small and mid cap category by crisil down. If you are already
invested in this scheme, you may consider switching to a better performing scheme.

Graph 3


The graph makes it clear that the NAV of SBI magnum midcap fund is 26.95 on 1.1.2015.
On 6.1.2015 it has been reduced to 26.42. Then it gradually increase upto 28.22 on 29.1.2015. At
the end of the month NAV is 28



The fund invests in stocks of companies which are involved in infrastructural growth in
Indian economy.
The scheme will be managed as a thematic "multi-sector" fund and not as a diversified
equity fund. The scheme will invest in companies broadly within the following areas/sectors of
the economy namely-

Banks, Financial Institutions & Term lending Institutions

Cement & Cement Products



Electrical & Electronic components engineering


The scheme takes the opportunity in investing in a basket of equity stocks of companies
involved directly or indirectly in Indias infrastructure.

Long term investment

Equity Investments in stock of companies directly involved in the infrastructure growth

of the Indian economy to provide long term capital growth opportunities.

High risk.


The scheme is ranked 5 in Thematic-Infrastructure category by crisil. If you are invested in this

Graph 4


The graph makes it clear that the NAV of SBI Infrastructure fund is 11.12 on 1.1.2015. On
6.1.2015 it has been reduced to 10.91. Then it gradually increase upto 11.54 on 28.1.2015. At the
end of the month NAV is 11.50



SBI Magnum Global Fund is an open-ended equity scheme which makes well researched
investments in stocks and securities of companies from selected industries with high growth


Long term investment.

Investments in Indian equities, PCDs and FCDs from selected industries with high
growth potential to provide investors maximum growth opportunity.
High risk.


The scheme is ranked 3 in small and mid cap category by crisil. If you are already
invested in this scheme.

Graph 5


The graph makes it clear that the NAV of SBI magnum global fund is 128.15 on 1.1.2015.
On 6.1.2015 it has been reduced to 125.88. Then it gradually increase upto 133 on 29.1.2015. At
the end of the month NAV is 132



IT (Information Technology) has given significant boost to Indian economy. This scheme
seeks to provide maximum growth opportunities through investments in IT stocks.


Investors can benefit from the growth in IT sector.

Long term investment

Equity Investments in stock of IT sector of the economy to provide sector specific growth

High risk.


This scheme is not ranked by crisil since it does not fulfill certain eligibility criteria of

Graph 6


The graph makes it clear that the NAV of SBI magnum equity fund is 46.22 on 1.1.2015.
On 7.1.2015 it has been reduced to 45.33. Then it gradually increase upto 47.99 on 23.1.2015. At
the end of the month NAV is 47.90



The large population in India is pushing up the demand for medicine. The Indian
pharmaceutical companies are benefiting from this rising demand. Also there is a demand for
Indian medicines outside the country. The scheme seeks maximum growth opportunities by
investing in Pharma companies.


Through SBI Pharma Fund, investors have an opportunity to invest in an actively

managed portfolio of Pharmaceutical company stocks, and derive potential gains from the
growth of the sector.

Long term investment

Equity Investments in stock of Pharmaceuticals sector of the economy to provide sector

specific growth opportunities.


This scheme is not ranked by CRISIL since it does not fulfill certain eligibility criteria of

Graph 7


The graph makes it clear that the NAV of SBI pharma fund is 120.49 on 1.1.2015. On
7.1.2015 it has been reduced to 118.13. Then it gradually increase upto 125.23 on 28.1.2015. At
the end of the month NAV is 125.23



The investment objective of the scheme is to generate capital appreciation over a period of ten
years by investing predominantly in equities of companies across large, mid and small market
capitalization, along with income tax benefit.


A 10 year close ended Equity Linked Savings Scheme

Dividend Option and Growth Option. Under the Dividend option, only dividend payout
facility is available.
NAV to be disclosed on weekly basis.
Liquidity only after the lock-in period of three years from the date of allotment.
Switch in allowed only during NFO period.
Switch Out from the scheme will be allowed only after the lock in period.


This scheme is not ranked by crisil since it does not fulfill certain eligibility criteria of

Graph 8


The graph makes it clear that the NAV of SBI magnum equity fund is 21.88 on 1.1.2015.
On 7.1.2015 it has been reduced to 21.59. Then it gradually increase upto 22.45 on 28.1.2015. At
the end of the month NAV is 22.40



During January 2015 the lowest net annual value is 72.42 . On 7th January 2015 it was
gradually increased to 76.00


During January 2015 the lowest net annual value is 26.42 . On 6th January 2015 it was
increased to 27.90


During January 2015 the lowest net annual value is 26.42 . On 29th January 2015 it was
increased to 28.22


During January 2015 the lowest net annual value is 10.91 . On 28th January 2015 it was
increased to 11.54


During January 2015 the lowest annual value is 125.88 . on 29th January 2015 it was
increased to 133.00


During January 2015 the lowest annual value is 45.33 . On 23rd January 2015 it was
increased to 47.99


During January 2015 the lowest annual value is 118.13 . On 28th January 2015 it was
increased to 125.23


As we know that mutual fund investment is subject to risk. As a genuine investor for long
period commitment, the investor has to allocate their fund towards equity. Growth funds and gilt
edge funds in order to ensure the consistent return every year and to minimize the risk on



Dr.L.NATARAJANs Investment Management by Margam Publications.