It is a pool of money, collected from investors, and is invested according to certain investment objectives The SEBI (Mutual Funds)

Regulations 1993 define a mutual fund (MF) as a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. The investors share is denominated by units whose value is called as Net Asset Value (NAV) which changes everyday.

Portfolio diversification Professional Management Reduction in Risk Reduction in Transaction costs Liquidity Convenience and Flexibility Safety Well regulated by SEBI No control over the costs. Regulators limit the expenses of Mutual Funds. Fees are paid as percentage of the value of investment. No tailor made portfolios. Managing a portfolio of funds. ( Investor has to hold a portfolio for funds for different objectives ).

In an open ended fund, investors can buy and sell units of the fund, at NAV related prices, at any time, directly from the fund. Open ended scheme are offered for sale at a prespecified price, say Rs. 10, in the New Fund Offer. After a pre-specified period say 15 days, the fund is declared open for further sales and repurchases Closed ended:- A closed -end fund is open for sale to investors for a specified period, after which further sales are closed.

Equity
Equity Funds Index Funds Sector Funds

Debt
Fixed Income Funds GILT Funds Liquid Funds

Money Market
Money Market Mutual Funds

Balanced Funds

Savings Trust Units

AMC Investments Returns

Unit holders

Registrar

SEBI
Custodian

Trust AMC

Earnings can be either dividend or capital gains. Rate of Return = Income Earned *100/ Amount invested. Simple total return (STR) method includes the dividends paid to the investor STR = {NAV(end) NAV ( begin)}+ Dividend paid *100 NAV at beginning
Rule of 72 is a thumb rule used in finding doubling period. If Rate = 12%, then money will double in 72/12 = 6 years. While comparing funds performance with peer group funds, size and composition of the portfolios should be comparable.

Change in NAV= ( NAV at end NAV at beg.)*100 NAV at the beginning Total Return = ( Change in NAV+ Dividend) *100 NAV at beg. Return on investment or Total Return with dividend reinvested at NAV. Portfolio Turnover Rate It is lesser of assets purchased or sold divided by the funds net assets. A 100% turnover implies that the manager replaced his entire portfolio during the period in question 200% means portfolio changed in 6 months A liquid fund has the highest portfolio turnover.

Purchase price Rs. 22 per Unit NAV at year end Rs. 23 per Unit Interim Div. Rs. 3 Ex.-Div. NAV Rs. 21 Total Return=? Assume investment of Rs. 10000 Step 1: Initial Units alloted =10000/22=454.55 Step 2:Total Div.=454.55*3=1363.65 Step 3: Additional Units=1363.65/21=64.94 Step 4:Total Units=454.55+64.94=519.49 Step 5:Withdral Amt. =519.49*23=11947.17 Gain =11947.17-10000=1947.17 Gain of 1947.17 on the investment of Rs. 10000 So that on the investment of Rs. 100 gain is 19.47 Ans:19.47%

Allocation of money between equity, debt and money market instruments. Depends upon situations, financial goals and risk appetite.

Fixed AA and Flexible Asset Allocation.

Fixed Asset Allocation is preferable because of periodical review and more disciplined.

Develop long term goals.

Determine asset allocation.

Determine sector distribution.

Select specific fund managers and their schemes.

WIDOW 30% in aggressive equity funds. 45% in high yield bond funds, growth and income funds. 25% in conservative money market funds.

Young couple 2 children: 10% in money market funds. 30% in aggressive equity funds. 25% in high yield bond funds and long term growth funds. 35% in municipal bond funds.

far you are away from retirement influences investment decisions finding the right balance between seeking to grow or to preserve your savings
How

Time until retirement 25+ years

Your main objectives Start investing for your future Make your money grow Preserve what you've saved Allow room for growth Prepare for retirement Preserve what you've saved
The closer to retirement, the greater the importance of preserving your savings The further from retirement, the greater the importance of growing your savings

15 years

5 years

The

asset allocation of your portfolio should be based on a preset list of ingredients and proportions that match your age and risk tolerance Hypothetical asset allocation Stock Bonds Stable Value
Beyond stocks, bonds and stable value investments, some mutual funds and portfolios also take advantage of additional investment classes like real estate or commodities (oil, gold, food, etc.) The relative proportion of each investment class is what determines the asset allocation of your portfolio

Higher Potential Return

Stock mutual funds typically offer the highest potential return but also the highest risk Balanced funds combine stocks and bonds for potentially moderate return and risk

Medium Potential Return

Bond funds are generally less volatile than stocks but offer more moderate return potential

Lower Potential Return Lower Risk Medium Risk

Stable Value funds are lower risk and lower potential return alternatives
Higher Risk

All investments have risk including potential loss of principal.

Appropriate Age

AGE: 21-40
Potentially Higher Return/ Higher Risk

AGE: 41-55

AGE: 56-65

AGE: 65+ Stock Bonds % %

55

50

40

30

Stable Value %

The relative proportion of each investment class is what determines the asset allocation of your portfolio

Potentially Medium Return/ Medium Risk

35
Potentiall Lower Return/ Lower Risk GROW

40

40

50

10

10

20

20
PRESERVE

The younger the investor, the higher the amount of stocks in the asset allocation because younger investors with time on their side are in a better position to grow (rather than preserve) their savings for the future.

Appropriate Age

AGE: 21-40
Potentially Higher Return/ Higher Risk

AGE: 41-55

AGE: 56-65

AGE: 65+ Stock Bonds % %

65

60

50

30

Stable Value %

Potentially Medium Return/ Medium Risk

30
Potentially Lower Return/ Lower Risk GROW

30

40

50

The more conservative the portfolio, the higher its proportion of bonds which helps moderates the risk and return of the entire portfolio

10

10

20
PRESERVE

Appropriate Age

AGE: 21-40
Potentially Higher Return/ Higher Risk

AGE: 41-55

AGE: 56-65

AGE: 65+ Stock Bonds % %

75

70

55

35

Stable Value %

Potentially Medium Return/ Medium Risk

45 30 25 5 15 20
PRESERVE

Potentially Lower Return/ Lower Risk GROW

20 5

The more aggressive the portfolio, the higher its proportion of stocks and therefore the higher its potential risk and return

Appropriate Age

AGE: 21-40
Potentially Higher Return/ Higher Risk

AGE: 41-55

AGE: 56-65

AGE: 65+ Stock % %

85

75

60

40

Bonds

Stable Value %

Potentially Medium Return/ Medium Risk

45
25 20 15 5 15 15 20
PRESERVE

Potentially Lower Return/ Lower Risk GROW

The dark blue in the portfolio represents Stable Value potentially the lowest risk and the lowest return that disappears from the portfolio of a young, aggressive investor