Introduction

There are a lot of investment avenues available today in

the financial market for an investor with an investable surplus. He
can invest in Bank Deposits, Corporate debentures and Bonds
where there is low risk but low return.He may invest in Stock of
companies where the risk is high and the returns are also
proportionately high. The recent trends in the Stock Market have
shown that an average retail investor always lost with periodic
bearish tends. People began opting for portfolio managers with
expertise in stock markets who would invest on their behalf. Thus
we had wealth management services provided by many
institutions. However they proved too costly for a small investor.
These investors have found a good shelter with the mutual
funds.
Mutual fund industry has seen a lot of changes in past few years
with multinational companies coming into the country, bringing in
their professional expertise in managing funds worldwide.In the
past few months there has been a consolidation phase going on in
the mutual fund industry in India. Now investors have a wide
range of Schemes to choose from depending on their individual
profiles.My study gives an overview of mutual funds – definition,
types, benefits, risks, limitations, history of mutual funds in India,
latest trends, global scenarios..
Mutual fund have gained popularity as an investment vehicle
very recently through technically, mutual fund have been in India
since 1964 through unit trust of India. UTI had virtual monopoly in
the field of mutual fund from 1964 to 1987.after 1987, state bank
of India and other bank started their mutual fund.
After 1991(due to economic liberalisation) many financial
institution started their mutual fund (e.g., kothari pioneer fund,
CRB capital market and so on). In brief along with many more
mutual fund are now started for their benefit of small investor
they are given recognition by RBI /SEBI.
Mutual fund, in general are popular among the investing class.
Moreover, practically all mutual fund organization are successful
in collecting crores of rupees from investing class. A mutual fund
is formed by the coming together of a number of investors who
hand over their surplus fund to a professional organization to
manage their funds.

The main function of mutual is to mobilize the savings of the

general public and invest them in stock market securities. At
present there is diversion of saving of the middle class investors
from banks to mutual fund.
The government has thrown the field open to the private sector
and joint sector of mutual fund. The performance of mutual fund
is showing significant growth during 1998-99and99-2000. During
2000-2001, the public sector and private sector mutual fund
mobilised resource worth Rs.11,340 crores as againstRs.15,400
crores during 1999-00.

Mutual fund have often been associated with equity market.

While that is probably the more visible and glamorous side of the
industry the debt or fixed income side has also gained province in
the recent past in fact now mutual fund offer verity scheme to
suite all type of investor for the risk average to risk taker.

A mutual fund is ideal investment vehicle for today complex

modern world market for equity share bond and other fixed
income investment real estate derivative and other asset have
become matter and knowledge driven price change in these asset
are driven by global event occurring far way places a typical
individual is unlikely to have knowledge, skill , inclination and
time to keep track of event unstained their implication and
speedy Mutual fund is answers to all these situation it appoint
professionally qualified and expert staff that manage each of
function on time base the large pool of money collected in the
fund allow it to hire such staff at very low
cost to each investor in effect the mutual fund.

MF are also popular as they have introduced various open-ended

schemes in order to offer convenience to all Categories of
investors.The professional management of mutual fund is also
one important reason of their popularity. Small investor do not
have substantial amount to invest sufficient time to study various
avenues available avenue for investment.
 Characteristics of a Mutual Fund

The following are the characteristics of the mutual funds:-

 A mutual fund belongs to the investors who have pooled their funds. The
ownership of the mutual fund is in the hands of the investors.
 Investment professionals and other service providers, who earn a fee for
their services, from the fund, manage the mutual fund.
 The pool of funds is invested in a portfolio of marketable investments. The
value of the portfolio is updated every day.
 The investors share in the fund is denominated by “units”. The value of the
units changes with change in the portfolio’s value, every day. The value of one unit
of investment is called as the Net Asset Value or NAV.
 The investment portfolio of the mutual fund is created according to the
stated investment objectives of the fund.

Mutual fund industry has grown at phenomenal rate in the recent past. One can
witness a revolution in the mutual fund industry in view of it importance to the
investor in general and the country economy at large.
 Advantages of a Mutual Fund to Investors

Every investment has advantages and disadvantages. But it's important to

remember that features that matter to one investor may not be important to you.
Whether any particular feature is an advantage for you will depend on your unique
circumstances. For some investors, mutual funds provide an attractive investment
choice because they generally offer the following benefits:

 Professional Management: The primary advantage of funds (at least

theoretically) is the professional management of your money. Investors purchase
funds because they do not have the time or the expertise to manage their own
portfolio. A mutual fund is a relatively inexpensive way for a small investor to get
a full-time manager to make and monitor investments.

 Portfolio Diversification: A proven principle of sound investment is that of

diversification, which is the idea of not putting all eggs in one basket. By investing
in many companies, the mutual funds protect themselves from drop in value of
shares. Majority of people consider diversification as the major strength of mutual
funds.
 Reduction of Risk: Risk in investment is as to recovery of the principal
amount and as to return on it. Mutual funds, on both fronts provide a comfortable
situation for investors. The expert supervision, diversification, and liquidity of
units ensured in mutual funds minimize the risks.

 Economies of Scale: Mutual funds having large funds at their disposal avail
economies of scale. The brokerage fee or trading commission may be reduced
substantially. The reduced transaction costs obviously increases the income
available for investors.

 Liquidity: A distinct advantage of mutual fund over other investments is

that, there is always a market for its units/shares. Moreover, Securities & Exchange
Board of India requires that mutual funds in India have to ensure liquidity.

 Safety of Investment: Besides depending on the expert supervision of fund

managers, the legislation in a country (SEBI) also provide for safety of
investments. Mutual funds have to broadly follow the laid down provisions for
their regulation. SEBI acts as a watch dog and attempts whole heartedly to
safeguard investor’s interests.

 Choice: Mutual funds come in a wide variety of types. Some mutual funds
invest exclusively in a particular sector (e.g. energy funds), while others might
target growth opportunities in general. There are thousands of funds, and each has
 its own objectives and focus. The key is for you to find the mutual funds that most
closely match your own particular investment objective

Disadvantages of Mutual Fund

There are more benefits to mutual fund investing, but you should also be aware of
the drawbacks associated with mutual funds. They are as follows:

 Professional Management you notice: Did how we qualified the advantage

of professional management with the word "theoretically"? Many investors debate
over whether or not the so-called professionals are any better than you or I at
picking stocks. Management is by no means infallible, and, even if the fund loses
money, the manager still takes his/her cut.

 No control over costs: Since investors do not directly monitor the fund’s
operations they cannot control the cost effectively. Regulators therefore usually
limit the expenses of mutual funds. Investors must pay sales charges, annual fees,
and other expenses regardless of how the fund performs. And, depending on the
timing of their investment, investors may also have to pay taxes on any capital
gains distribution they receive — even if the fund went on to perform poorly after
they bought shares.

 Taxes: When making decisions about your money, fund managers don't
consider your personal tax situation. For example, when a fund manager sells a
security, a capital-gain tax is triggered, which affects how profitable the individual
 is from the sale. It might have been more advantageous for the individual to defer
the capital gains liability.

 No Insurance: Mutual funds, although regulated by the government, are not

insured against losses. That means that despite the risk-reducing diversification
benefits provided by mutual funds, losses can occur, and it is possible that you
could even lose your entire investment.

 Trading Limitations: Although mutual funds are highly liquid in general,

most mutual funds cannot be bought or sold in the middle of the trading day. You
can only buy and sell them at the end of the day, after they've calculated the current
value of their holdings.

 Poor Performance: Returns on a mutual fund are by no means guaranteed.

In fact, on average, around 75% of all mutual funds fail to beat the major market
indexes, and a growing number of critics now question whether or not professional
money managers have better stock-picking capabilities than the average investor
 Fees and Expenses: Most mutual funds charge management and operating
fees that pay for the fund's management expenses (usually around 1.0% to 1.5%
per year). In addition, some mutual funds charge high sales commissions, fees, and
redemption fees. And some funds buy and trade shares so often that the transaction
costs add up significantly. Some of these expenses are charged on an ongoing
basis, unlike stock investments, for which a commission is paid only when you buy
and sell.

TOP Mutual Fund Companies in India

 ABN AMRO Mutual Fund

 Franklin India Mutual Fund
 Birla Sun Life Mutual Fund
 HDFC Mutual fund
 Prudential ICICI Mutual Fund
 State Bank of India Mutual Fund
 Tata Mutual Fund
 Kotak Mahindra Mutual Fund
 Unit Trust of India Mutual Fund
 Reliance Mutual Fund
 DSP BlackRock Micro cap fund
 HSBC Mutual Find
 Fortis Mutual Fund
 Canara Robeco Mutual Fund
 Standard Chartered Mutual Fund
By Structure

Open-Ended Funds:

All mutual funds fall into one of two broad categories: open-end
funds and closed-end funds. Most mutual funds are open-end. The
reason why these funds are called "open-end" is because there is
no limit to the number of new shares that they can issue. New
and existing shareholders may add as much money to the fund as
they want and the fund will simply issue new shares to them.
Open-end funds also redeem, or buy back, shares from
shareholders. In order to determine the value of a share in an
open-end fund at any time, a number called the Net Asset Value
(described below) is used. You purchase shares in open-end
mutual funds from the mutual fund itself or one of its agents; they
are not traded on exchange

The main Feature of the open Ended fund are:

(1)There is complete flexibility with regard to ones investment or

disinvestment In other word there is free entry and exit of
investors in an open ended fund there is time limit the investor
can join in and come from the fund as and when he desires.

(2) There units are not publicly traded but the fund is ready to re
p purchase them and resell them at any time.
(3) The investor is offered instant liquidity in that units can be
sold on any working day to the fund. In fact the fund operates
just like any number of unit sold.

(4) The main objective of this fund is income generation the

investor get dividend right or bonuses as reward for their
investment

(5) Since the units are not listed on the stock market their prices
are linked to the Net Asset Value (NAV) of the units. The NAV is
determined by the fund it varies from the time to time.

(6)Generally the listed prices are very close to their net asset
value the fund fixes a different prices for their purchases and
sales.

(7)The fund manager has to be very care full in managing the

investment because he has to meet the redemption demand at
any time during the life of the scheme.

To put it in a nutshell the open ended fund have a perpetual

existence and their corpus is ever changing depending upon the
entry and exit of member.

Close-ended Funds:

Closed-end funds behave more like stock than open-end funds;

that is to say, closed-end funds issue a fixed number of shares to
the public in an initial public offering, after which time shares in
the fund are bought and sold on a stock exchange. Unlike open-
end funds, closed-end funds are not obligated to issue new shares
or redeem outstanding shares. The price of a share in a closed-
end fund is determined entirely by market demand, so shares can
either trade below their net asset value ("at a discount") or above
it ("at a premium"). Since you must take into consideration not
only the fund's net asset value but also the discount or premium
at which the fund is trading, closed-end funds are considered to
be more suitable for experienced investors.

You can purchase shares in a closed-end fund through a

broker, or agents, or also just as you would purchase a
shares.Under this scheme the corpus of the fund and its duration
are prefixed. In other word the corous of the number of unit are
determined in advance once the subscription reaches the pre
determined level the en try of investors is closed after the expiry
of fixed period the enter corpus is disinvested and the proceed
are distributed to the various unit holder in proportion to their
holding thus the fund ceases to be a fund after the final
distribution.

The main Feature of the close Ended fund are:

(1)The period and /or the target amount of the fund is define and
fixed beforehand.
(2)Once the period is over and /or the target is reached the door
is closed for the investor they cannot purchase facility by the
fund.

(3)These unit are publicly traded through stock exchange and

generally there is no repurchase facility by the fund.

(4) The main objective o f this fund is capital appreciation

(5) The whole fund is available for the entire duration of the
scheme and there will not be any redemption demand before its
maturity hence the fund manager can manage the investment
efficiently and profitably without the necessary of maintaining
and liquidity.

(6)From the investor point of view it may attract more tax since
the entire capital appreciation is relished in to one stage it self tax
itself.

(7)At the time of redemption the entire investment pertaining a

closed end scheme is liquidated and the proceed are distributed
among the unit holder.

(8)If the market condition is not favorable it may affect the

investor since he may not get the benefit of capital appreciation
in the value of the investment.

By Investments
The aim of growth funds is to provide capital appreciation over
the medium to long term. Such schemes normally invest a
majority of their corpus in equities. Growth schemes are ideal for
investors who have a long-term outlook and are seeking growth
over a period of time. The primary investment objective of the
Scheme is to achieve long-term growth of capital by investment in
equity and equity related securities through a research based
investment approach.

The aim of Income Funds is to provide regular and steady income

to investors. Such schemes generally invest in fixed income
securities such as

bonds, corporate debentures and Government securities.Income

Funds are ideal for capital stability and regular income. Capital
appreciation in such funds may be limited, though risks are
typically lower than that in a growth fund

Money Market Funds:

The aim of Money Market Funds is to provide easy liquidity,

preservation of capital and moderate income. These schemes
generally invest in safer short-term instruments such as Treasury
Bills, Certificates of Deposit, Commercial Paper and Inter-Bank
Call Money. Returns on these schemes may fluctuate depending
upon the interest rates prevailing in the market.These are ideal
for corporate and individual investors as a means to park their
surplus funds for short periods.

Balanced Funds:

The aim of Balanced Funds is to provide both growth and regular

income. Such schemes periodically distribute a part of their
earning and invest both in equities and fixed income securities in
the proportion indicated in their offer documents. This proportion
affects the risks and the returns associated with the balanced
fund - in case equities are allocated a higher proportion, investors
would be exposed to risks similar to that of the equity market.
Balanced funds with equal allocation to equities and fixed income
securities are ideal for investors looking for a combination of
income and moderate growth.