Mutual Fund is essentially a mechanism of pooling together the savings of a large number of small investors for collective investment, with an avowed objective of attractive yields and capital appreciation, holding the safety and liquidity as prime parameters.

• Channeling the savings of the public
• Helps strengthen and develop a strong capital market
• Thereby contributes to capital formation and the growth of the economy

• Professional Management
• Easy Liquidity
• Reduction / Diversification of Risk
• Reduction in transaction costs
• Return Potential
• Convenience and Flexibility
• Portfolio Diversification
• Well Regulated
• Investor Protection
• Switchover Facility
• Low Operating Costs
• Tax Benefit

Operational Classification:

OPEN ENDED SCHEMES	CLOSE ENDED SCHEMES	INTERVAL SCHEMES
Accepts funds from investors on continuous basis.	Schemes are opened for specified time period.	Basically a close ended scheme with a peculiar feature that every year for a specified period (interval) it is made open.
Repurchase facility available.	Corpus normally does not change throughout the year.	Prior to and such interval the scheme operates as close ended.
No listing in the stock exchange	Such schemes are normally listed in the stock exchange. Otherwise repurchase facility provided.	During the said period, mutual fund is ready to buy or sell the units directly from or to the investors.
Better liquidity due to continuous repurchase.	Liquidity normally at the time of redemption.
Sale and Repurchase based on NAV	Long term investment strategies depending on the life of the scheme.
	Market price may be below or above par.

Classification by Investment Objectives:

INCOME SCHEMES	To maximize the current income is the objective. Periodical income distribution is the feature. Investment in low risk securities.
GROWTH SCHEMES	To achieve capital appreciation is the objective. Investment in growth oriented securities.
BALANCED SCHEMES	To provide current income as well as capital appreciation is the objective. Investment in Equity and Fixed income securities as per the offer document.
TAX SAVING SCHEMES	To provide tax incentives; e.g. Equity Linked Saving Schemes under sec. 88 of Income Tax Act.
SECTOR FUNDS	Investment in securities of certain sector of the economy. The risk is confined to one particular sector. Example: Information Technology Funds – investing only in companies dealing in hardware, software and other related activities.
INDEX FUNDS	The objective is to match the performance of the stock market by tracking an Index that represents the overall market. The investment is in a diversified market index.
MONEY MARKET FUNDS	Investment is in securities of short-term nature, which generally means securities of less than one- year maturity. The major advantages are the Liquidity and safety of principal that the investors can normally expect from short-term investments.
GILT FUNDS	Investment is in government securities. Since the issuer is the Government of India / State, these funds have little risk of default as there is no credit risk involved.

Classification by Geography:

DOMESTIC MUTUAL FUND SCHEMES: Schemes launched with a view to mobilize savings of the citizens of the country.
OFF SHORE SCHEMES: Mutual fund schemes launched with a view to mobilize the savings of the foreign countries for the investments in local markets.

Normally collected through the countries enjoying zero status. The aim is normally long-term capital growth by investing in local equities.

Fixed Deposits	Mutual Fund schemes
Investment for a fixed period	No fixed tenure in Open ended schemes
Assured return on fixed deposits	No assurance for either returns or capital growth
Interest income is taxable	Income earned by way of distribution from the open ended schemes are exempted from income tax till MARCH 2002.
Low returns	High returns
High safety in Banks, otherwise depends upon rating	Safety depends upon the investment objective
Objective is to earn income	Objective is to earn income and capital growth.

Repurchase is a facility to liquidate the investments made in any of the scheme during the tenor of the scheme by surrendering the unit certificates / statement of accounts at the Net Asset Value of the scheme.

Redemption is the closure of the scheme at the expiry of the tenor of the scheme.

The charges made by the fund managers to the investors to cover the distribution / sales / marketing expenses are often called "LOAD". The Load charged to the investor at the time of entry into a scheme is called Entry Load. The Load that the investor pays at the time of exit is called a back-end or Exit Load.

Contingent Deferred Sales Charges (CDSC) is imposed at the time of redemption or repurchase during a specified period. It is a form of load to recover the selling expenses of a fund.

• Credit Risk: Risk of default by the issuer of the underlying securities invested by the Fund.
• Liquidity Risk: At circumstances of extreme volatility the investments become illiquid.
• Inflation Risk: Erosion in value due to inflation.

• Money Market Funds: Investment only in Government Securities and Treasury Bills.
• Cash / Liquid Funds: Investment in a combination of money market instruments and short term debt like Commercial Paper of Certificate of Deposits.
  The above two funds are ideal to park the surplus funds for short periods.
• Bond Funds: Investment in medium to long term Bonds issued by corporate's and governments

INCOME FUNDS ARE IDEAL FOR INVESTORS WHO ARE AVERSE TO RISK.

• Chances of appreciation over time
• Better hedge against inflation
• Growth funds have outperformed the other asset class over long term
• Better than Gold, real estate: due to better liquidity and low transaction cost

Due to the portfolio mix of stocks Depends upon the degree of diversification in the fund. Extent to which the fund manager tries to hedge

Look at equity as a long -term investment. Stocks may go up and down in the short term but in the long term it will always perform. Is it so?

Yes. For e.g. BSE Sensex in

HIGH LOW

1992	4547 (Apr)	2709 (Dec)
1994	4643 (Sep)	3576 (May)
1996	4131 (Jun)	2713 (Dec)
1997	4605 (Aug)	3097 (Jan)
1998	4322 (Apr)	2742 (Nov)
1999	5151 (Oct)	3042 (Jan)
2000	6151 (Feb)	3593 (Oct)
2001	4462 (Feb)	2600 (Sep)

This is given as on 5^th November, 2001.

• Balanced Funds: Ideal for investors preferring moderate capital appreciation and income regularly
• Diversified funds: Ideal for the investors seeking appreciation over medium to long term. Investments in equities across various industries / sectors either large cap or small cap
• Index funds: Ideal for the investors who wishes to and also satisfied with returns equal to that of index
• Sector specific fund: Ideal for investors who wish to invest in a particular segment or sector

• From the investor point of view to see the returns over a period of 3 months, 6 months, and 12 months etc.
• Compare the peer group in the category and benchmark the return.
• Look at the risk -return relationship.
• Analyze the long- term performance to understand the consistency of performance in bull and bear markets.
• The performance of a fund can be measured by quantitative tools like Sharpe and Treynor ratios.

Risk can only be minimised by professional management of fund. RISK CANNOT BE ELIMINATED. In the long run the fund will always gain.

No. There are no assured returns in Mutual funds. The returns can be higher over a long period. In case any mutual fund wants to assure returns they can do so, by clearly expressing the safety net / safety cushion available equivalent to the amount assured and the source in place.

Systematic Investment Plan is a method of investing into the fund of investor’s choice at regular intervals over defined time frame. This helps the investor to invest monthly, quarterly etc.

Since the amount is invested regularly and it is constant, the investor is able to get more number of units in the falling market and fewer unit when the price is high.

This helps the investor to smoothen out the market fluctuations and the investment will be at a low cost over a period. This strategy in investing is called "Rupee Cost Averaging".

Just like the above, withdrawal of funds in a regular interval; benefit in the rising market to reap the benefit out of average increase in the earnings.

As per SEBI Guidelines; and also, the reason that any investment has certain amount of risk like; Market volatility in case of investment in Equities, Credit risk / interest risks in case of debt funds etc. However in the medium to long run there is always growth in the Mutual Fund schemes due to their wide and varied portfolio.