RISK AND RETURN GRID:

1. Safety of Principal
2. Return
3. Liquidity
BANKS FIXED DEPOSIT BONDS AND DEBENTURES EQUITY MARKET MUTUAL FUND
Returns Low Low to Moderate Low to moderate Moderate to high Better
Administrative expenses High Moderate to High Moderate to high Low to Moderate
Low
Risk Low Low to Moderate Low to moderate High Moderate
Investment options Less Few Few Many More
Network High penetration Low penetration Low penetration Low but improving
fast Low but improving
Liquidity At a cost Low Low to moderate Moderate to High Better
Quality of Assets Not transparent Not transparent Not transparent Transparent
Transparent
Pricing
The net asset value of the fund is the cumulative market value of the asset fund
net of its liabilities. In other words, if the fund is dissolved or liquidated, by
selling off all the assets in the fund, this is the amount that the shareholders
would collectively own. This gives rise to the concept of the net asset value per
unit, which is the value, represented by the ownership of one unit in the fund. It
is calculated simply by dividing the net asset value of the fund by the number of
units. However, most people refer loosely to the NAV per unit as NAV, ignoring the
�per unit�. We also abide by the same convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of assets
divided by the number of units outstanding. The detailed methodology for the
calculation of the asset value is given below.
Asset value = (Value of investments+ receivables+ accrued income+ other current
assets- liabilities- accrued expenses) /Number of units outstanding.
ADVANTAGES OF INVESTING IN MUTUAL FUND:
Number of options available
Mutual funds invest according to the underlying investment objective
as specified at the time of launching a scheme. Mutual fund have equity funds, debt
funds, gilt funds and many others that cater to the different needs of the
investor. While equity funds can be as risky as the stock markets themselves, debt
funds offer the kind of security that is aimed for at the time making investments.
The only pertinent factor here is that the fund has to be selected keeping the risk
profile of the investor in mind because the products listed above have different
risks associated with them.

Diversification
Diversification reduces the risk because all stocks don�t move in the same
direction at the same time. One can achieve this diversification through a Mutual
Fund with far less money that one can on his own.
Professional Management
Mutual Funds employ the services of the skilled professionals who have years
of experience to back them up. They use intensive research techniques to analyze
each investment option for the potential of returns along with their risk levels to
come up with the figures for the performance that determine the suitability of any
potential investment.
Potential of returns
Returns in the mutual are generally better than any option in any other
avenue over a reasonable period of time. People can pick their investment horizon
and stay put in the chosen fund for the duration.
Liquidity
The investors can withdraw or redeem money at the Net Asset Value related
prices in the open-end schemes. In the Closed-end Schemes, the units can be
transacted at the prevailing market price on a stock exchange. Mutual Funds also
provide the facility of direct repurchase at NAV related prices.
Well Regulated
The Mutual Fund industry is very well regulated. All investment has to be
accounted for, decisions judiciously taken. SEBI acts as a true watch dog in this
case and can impose penalties on the AMC�s at fault. The regulations designed to
protect the investors interests are implemented effectively.
Transparency
Being under a regulatory framework, Mutual Funds have to disclose their
holdings, investment pattern and all the information that can be considered as
material, before all investors. This means that investment strategy, outlooks of
the markets and scheme related details are disclosed with reasonable frequency to
ensure that transparency exists in the system.
Flexible, Affordable and Low cost
Mutual Funds offer a relatively less expensive way to invest when
compared to other avenues such as capital market operations. The fee in terms of
brokerages, custodial fees and other management fees are substantially lower than
other options and are directly linked to the performance of the scheme. Investment
in Mutual Funds also offer a lot of flexibility with features such as regular
investment plans, regular withdrawal plans and dividend investment plans enabling
systematic investment or withdrawal of funds.
Convenient Administration
Investment in the mutual fund reduces paperwork and helps you avoid many
problems such as bad deliveries, delayed payments and follow up with brokers and
companies. Mutual Funds save your time and make investing easy and convenient.
TAXATION ON MUTUAL FUNDS
An Indian mutual fund registered with the SEBI, or schemes sponsored by
specified public sector banks/financial institutions and approved by the central
government or authorized by the RBI are tax exempt as per the provisions of section
10(23D) of the income tax act. The mutual fund will receive all income without any
deduction of tax at source under the provisions of section 196(iv), of the income
tax act.