CHAPTER: 1INTRODUCTION TO MUTUAL FUNDS

In the financial industry, the talk of the day is Mutual Funds. Of late, mutual funds have become a hot favorite of millions of people all over the world. The driving force of mutual funds is the safety of the principal guaranteed, plus the added an advantage of capital appreciation together with the income earned in the form of interest or dividend. People prefer mutual funds to bank deposits, life insurance and even bonds because with a little money, they can get into the investment game Thus, mutual funds act a gateway to enter into big companies hitherto inaccessible to an ordinary investor with his small investment.The origin of the Indian mutual fund industry can be traced back to 1964 when the Indian Government, with a view to augment small savings within the country and to channelize these savings to the capital markets, set up the Unit Trust of India (UTI). The UTI was setup under a specific statute, the Unit Trust of India Act, 1963. The Unit Trust of India launched its first open-ended equity scheme called Unit 64 in the year 1964, which turned out to be one of the most popular mutual fund schemes in the country. In 1987, the government permitted other public sector banks and insurance companies to promote mutual fund schemes. Pursuant to this relaxation, six public sector banks and two insurance companies viz. Life Insurance Corporation of India and General Insurance Corporation of India launched mutual fund schemes in the country.

Securities Exchange Board of India, better known as SEBI, formulated the Mutual Fund (Regulation) 1993, which for the first time established a comprehensive regulatory framework for the mutual fund industry. This proved to be a boon for the mutual fund industry and since then several mutual funds have been set up by the private sector as well as the joint sector. Kothari Pioneer Mutual fund became the first from the private sector to establish a mutual fund in association with a foreign fund. Since then several private sector companies have established their own funds in the country, making mutual fund industry one of the most followed sector by critics and investors alike. The share of private sector mutual funds too has gone up rapidly.

What are Mutual Funds?

To state in simple words, a mutual fund collects the savings from small investors, invest them in government and other corporate securities and earn income through interest and dividends, besides capital gains. It works on the principle of small drops of water make a big ocean. For instance, if one has Rs.1, 000 to invest, it may not fetch very much on its own. But when it is pooled with Rs.1, 000 each from a lot of other people, then, one could create a big fund commanding scale and thus, to enjoy the economics of large scale operations. Hence, mutual fund is nothing but a form of collective investment. It is formed by the coming together of a number of investor s who transfers their surplus funds to a professionally qualified organization to manage it. To get the surplus funds from investors, the fund adopts a simple technique. Each fund is divided into a small fraction called units of equal value. Each investor is allocated units in proportion to the size of his investment. Thus, every investor, whether big or small, will have a stake in the fund and can enjoy the wide portfolio of the investment held by fund. Hence, mutual funds enable millions of small and large investors to participate in and derive the benefit of the capital market growth. It has emerged s a popular vehicle of creation of wealth due to high return, lower cost and diversified risk.

DEFINITION OF MUTUAL FUNDS:

The Securities and Exchange Board of India (Mutual Funds)Regulations, 1996 defines a mutual fund as a a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments.

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.

A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as itsportfolio. Each investor in the fund owns shares, which represent a part of these holdings.

The Securities and Exchange Board of India (Mutual Funds) Regulations, 1993 defines a mutual fund 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.

STRUCTURE OF A MUTUAL FUND

A mutual fund is set up in the form of a trust, which has Sponsor, Trustees, Asset Management Company (AMC) and a Custodian. The trust is established by a sponsor or more than one sponsor who is like a promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit-holders. The AMC, approved by SEBI, manages the funds by making investments in various types of securities. The custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.

SponsorThe sponsor is required, under the provisions of the Mutual Fund Regulations, to have a sound track record, a reputation of fairness and integrity in all his business transactions. Additionally, the sponsor should contribute at least 40% to the net worth of the AMC.

TrusteesThe mutual fund is required to have an independent Board of Trustees, i.e. two thirds of the trustees should be independent persons who are not associated with the sponsors in any manner whatsoever. An AMC or any of its officers or employees is not eligible to act as a trustee of any mutual fund. In case a company is appointed as a trustee, then its directors can act as trustees of any other trust provided that the object of such other trust is not in conflict with the object of the mutual fund. Additionally, no person who is appointed as a trustee of a mutual fund can be appointed as a trustee of any other mutual fund unless he is an independent trustee and prior approval of the mutual fund of which he is a trustee has been obtained for such an appointment.

The trustees are responsible for inter alia -ensuring that the AMC has all its systems in place, all key personnel, auditors, registrars etc. have been appointed prior to the launch of any scheme.

Asset Management CompanyThe sponsor or the trustees are required to appoint an AMC to manage the assets of the mutual fund. Under the Mutual Fund Regulations, the applicant must satisfy certain eligibility criteria in order to qualify to register with SEBI as an AMC and other ongoing compliance requirements laid down in the Mutual Fund Regulations, the AMC is required to observe the following restrictions in its normal course of business. Any director of the AMC cannot hold office of a director in another AMC unless such person is an independent director and the approval of the board of the AMC of which such person is a director, has been obtained; the AMC shall not act as a trustee of any mutual fund.

CustodianThe mutual fund is required, under the Mutual Fund Regulations, to appoint a custodian to carry out the custodial services for the schemes of the fund. Only institutions with substantial organizational strength, service capability in terms of computerization, and other infrastructure facilities are approved to act as custodians. The custodian must be totally de-linked from the AMC and must be registered with SEBI. Under the Securities and Exchange Board of India (Custodian of Securities) Guidelines, 1996, any person proposing to carry on the business as a custodian of securities must register with the SEBI and is required to fulfill specified eligibility criteria.

CHAPTER: 2TYPESOF MUTUAL FUNDS

OPEN END FUNDS There is no limit on the number of shares the fund can issue.

CLOSE END FUNDS Fixed numbers of shares outstanding.

INVESTMENT TRUSTS Usually consist of corporate government.

LOAD OR NO LOAD Load charges or commission when shares are (7 8 %) No load no sales charges.

OTHER FEES AND COSTS. Professional management fees.

TYPES OF MUTUAL FUNDS

There are wide varieties of Mutual Fund schemes that cater to investor needs, whatever the age, financial position, risk tolerance and return expectations. The mutual fund schemes can be classified according to both their investment objective (like income, growth, tax saving) as well as the number of units (if these are unlimited then the fund is an open-ended one while if there are limited units then the fund is close-ended).Based on goals and investment horizon, Mutual Funds give you the option to invest your money across various asset classes like equity, debt and gold. This allows you to diversify your investments and strive to reduce your portfolio risk.

The different types of Mutual Funds are as follows

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 risk.

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.

Open Ended Funds: These funds are sold at the NAV based prices, generally calculated on every business day. These schemes have unlimited capitalization, open-ended schemes do not have a fixed maturity - i.e. there is no cap on the amount you can buy from the fund and the unit capital can keep growing. These funds are not listed on any exchange. Open-ended funds are bringing in a revival of the mutual fund industry owing to increased liquidity, transparency and performance in the new open-ended funds promoted by the private sector and foreign players.

Close Ended Funds: Schemes that have a stipulated maturity period, limited capitalization and the units are listed on the stock exchange are called close-ended schemes.These schemes have historically seen a lot of subscription. This popularity is estimated to be on account of firstly, public sector MFs having floated a lot of close-ended income schemes with guaranteed returns and secondly easy liquidity on account of listing on the stock exchanges.

Money Market Funds/Liquid Funds:For the cautious investor, these funds provide a very high stability of principal while seeking a moderate to high current income. They invest in highly liquid, virtually risk-free, short-term debt securities of agencies of the Indian Government, banks and corporations and Treasury Bills. Because of their short-term investments, money market mutual funds are able to keep a virtually constant unit price; only the yield fluctuates.Therefore, they are an attractive alternative to bank accounts. With yields that are generally competitive with - and usually higher than -- yields on bank savings account, they offer several advantages. Money can be withdrawn any time without penalty. Although not insured, money market funds invest only in highly liquid, short-term, top-rated money market instruments. Money market funds are suitable for investors who want high stability of principal and current income with immediate liquidity.

CHAPTER: 3ADVANTAGES AND DISADVANTAGES OF MUTUAL FUNDS

Basics of Mutual Funds

Why Invest through Mutual Funds?A mutual fund is an entity that pools the money of many investors -- its unit-holders -- to invest in different securities. Investments may be in shares, debt securities, money market securities or a combination of these. Those securities are professionally managed on behalf of the unit-holders, and each investor holds a pro-rata share of the portfolio i.e. entitled to any profits when the securities are sold, but subject to any losses in value as well.

What are the benefits of investing through a mutual fund?

Professional Investment ManagementMutual funds hire full-time, high-level investment professionals. Funds can afford to do so as they manage large pools of money. The managers have real-time access to crucial market information and are able to execute trades on the largest and most cost-effective scale. DiversificationMutual 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 unit-holders can benefit from diversification techniques usually available only to investors wealthy enough to buy significant positions in a wide variety of securities. Low CostA mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. Convenience and FlexibilityYou 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 collect the interest payments and see that your dividends on portfolio securities are received and their rights exercised. It also uses the services of a high quality custodian and registrar in order to make sure that your convenience remains at the top of their mind. Personal ServiceOne call puts you in touch with a specialist who can provide you with information you can use to make your own investment choices. They will provide you personal assistance in buying and selling your fund units provide fund information and answer questions about your account status. Their Customer service centers are at your service and their Marketing team would be eager to hear your comments on their schemes. LiquidityA mutual fund let's you participate in a diversified portfolio for as little as Rs.5, 000/-, and sometimes less. And with a no-load fund, you pay little or no sales charges to own them. TransparencyYou get regular information on the value of your investment in addition to disclosure on the specific investments made by the mutual fund scheme.

ADVANTAGES OF MUTUAL FUNDS

These are some of the benefits that come with investing in mutual funds. Diversification Most financial professionals believe that diversification is one of the best ways to enhance a portfolio's risk-adjusted return.

Low minimum investmentMutual funds make it possible for investors with very little cash to own an undivided interest in a diversified portfolio.

Professional managementMutual funds give investors access to professional managers whose required minimum account size would otherwise put their services out of the reach of many.

A wide range of risk and reward trade-offsFunds are available with risk levels ranging from the very conservative to the highly speculative.

ConvenienceThis is perhaps one of the most important advantages that mutual funds offer. Conveniences can include 24-hour phone or Internet access to account information, check-writing privileges and automatic investment plans that deduct a specified amount each month from the investor's bank account. Inexpensive reallocationMost mutual funds are part of fund familiesa series of funds all issued by the same parent company butwith different investment objectives. Most fund families allow their shareholders a reasonable number of opportunities per year to switch their money among the various funds within the family with low or no service charges applied. Because of this, mutual fund investors can often reallocate their portfolios at a substantially lower cost than others who invest directly in the underlying securities. Asset allocation and retirement planning toolsAs a service to their shareholders, many mutual fund companies offer free services, such as asset allocation optimization software or retirement planning analyzers, that are designed to help investors select the most appropriate funds for their needs. A wide range of investment stylesWith literally thousands of mutual funds in existence and more being created all the time, the odds are good that, no matter what investment vehicle, style or approach you prefer, there is amutual fund that specializes in that sort of investment.

DISADVANTAGES OF MUTUAL FUNDSDespite these many advantages, you are wise to approach any investment in a mutual fund with an awareness ofthe following drawbacks. Management turnoverMany investors select mutual funds based on their past performance. Unfortunately, with the high rate of management turnover within the asset management industry, the managers who were primarily responsible for a particular fund's superior performance in the past may no longer be working for that company. Therefore, investors should examine not only a fund's past performance, but also who was responsible for that performance and whether the same manager or team is still running the fund. Investment style fluctuationsAn investor who wants to maintain a certain asset allocation has to rely on the manager of the fund that he or she selects not to deviate from the fund's stated investment styles. Any changes in priorities or investment styles could override and defeat the investor's asset allocation. Panic sellingDuring sharp market downturns, many investors have a tendency to panic. When this happens, they look to sell their fund shares. Since the fund managers must redeem the shares, they have no choice but to sell the underlying securities at a time when there are few, if any, buyers. If not for the flood of redemptions, the fund manager would likely not sell the underlying securities.

USE OF MUTUAL FUNDSMutual funds have a wide variety of uses for savings and investing. Their are mutual funds that can be used for short-term savings and long-term savings. Most are for long-term savings.SAVINGS ACCOUNTS:Short term - An example of a very short-term savings account ( 6 months-one year), could be a money market mutual fund or income fund.

Midterm - An example of a mid- term savings account (2- 3 years) could be an income -equity fund.

Long- term - An example of long-term (greater than 3 years) could be a growth or growth and income mutual fund.

Very long-term - an example of very long term, (five years or more) are growth, growth and appreciation, growth and income, and international funds.

RETIREMENT ACCOUNTS:Retirement accounts are long-term accounts, so examples of mutual fund types appropriate for these accounts would be growth, growth appreciation, international, growth and income or a combination of these funds.

COLLEGE PLANS:Hopefully you will have at least 10 years to invest for college, the longer the better. If you don't have ten years do the best you can. The fund choices will be similar to retirement funds. Use our financial calculators (College Funding Calculator) to calculate funds needed for college. Many mutual fund companies have specific college funds. It is best to start saving for college when your children are babies.You can also save for college in a ROTH IRA, funded with mutual funds. This is also true with other investments.Mutual funds work best when held long term.

COSTS OF FUNDSTypically funds are offered with several classes of shares, or they are no-load funds. Mutual fund companies exist to make money. That money can come from any of several sources:a. A sales charge: incurred upon purchase of sharesb. A deferred sales charge: incurred upon sale of sharesc. Management fees: an on-going operating costd. Distribution fees (12b-1 fees): on-going costs generally associated with advertisinge. Trading costs: costs charged by the broker for executing trades within the fund. These can be high in finds with high turnover rates.f. Other expenses: another category of on-going expensesg. No load funds will typically have no sales charge and no deferred sales charge, but will have the other fees listed.h. Load funds will offer different classes of shares such as A, B, or C shares. These will be defined by different cost structures. An example of the impact of an investment held for different periods of time will be included in the prospectus.i. The best deal for you is largely dependent on how long you hold the shares. No-load funds held for several years can be more expensive than load funds.

CHAPTER 4MUTUAL FUNDS IN INDIA

Despite being available in the market for over two decades now withassets under managementequaling Rs 7,81,71,152 Lakhs (as of 28 February 2010)(Source: Association of Mutual Funds, India), less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm,Boston Analytics, suggestsinvestorsare holding back from putting their money into mutual funds due to their perceived high risk and a lack of information on how mutual funds work. This report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010. There are 43 Mutual Funds recently

The primary reason for not investing appears to be correlated with city size. Among respondents with a highsavings rate, close to 40% of those who live in metros and Tier I cities considered suchinvestmentsto be very risky, whereas 33% of those in Tier II cities said they did not know how or where to invest in suchassets.

On the other hand, among those who invested, close to nine out of tenrespondentsdid so because they felt these assets were more professionally managed than other asset classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds. Interestingly, while non-investors cite "risk" as one of the primary reasons they do not invest in mutual funds, those who do invest consider that they are "professionally managed" and "more diverse" most often as their reasons to invest in mutual funds versus other investments.

A mutual fund is a type of professionally managed collective investment vehicle that pools money from many investors to purchase securities.[1] 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." Most mutual funds are "open-ended," meaning investors can buy or sell shares of the fund at any time. Hedge funds are not considered a type of mutual fund.

SEBI GUIDELINES FOR MUTUAL FUNDS

First, for New Fund Offers (NFOs): They willonly be open for 15 days. (ELSS funds though will continue to stay open for up to 90 days) It will save investors from a prolonged NFO period and being harangued by advisors and advertisements.

NFOscan only be invested at the close of the NFO period. Earlier, Mutual funds would keep an NFO open for 30 days, and the minute they received their first cheque, the money would be directly invested in the market; creating a skewed accounting for those that entered later since they get a fixed NFO price.

Dividends can now only be paid out of actually realized gains.Impact: it will reduce both the quantum of dividends announced, and the measures used by MFs to garner investor money using dividend as a carrot to entice new investors.

Equity Mutual funds have been asked to play amore active role in corporate governanceof the companies they invest in. This will help mutual funds become more active and not just that, they must reveal, in their annual reports from next year, what they did in each vote.

Equity Funds were allowed to charge 1% more as management fees if the funds were no-load; but since SEBI has banned entry loads,this extra 1% has also been removed.

SEBI has also asked Mutual Funds toreveal all commission paid to its sponsor or associate companies, employees and their relatives.Regarding the Fund-of-Fund (FOF)

The market regulator has stated that information documents that Asset Management Companies (AMCs) have been entering into revenue sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Fund schemes create conflict of interest. Henceforth, AMCs shall not enter into any revenue sharing arrangement with the underlying funds in any manner and shall not receive any revenue by whatever means/head from the underlying fund.

SIX CHANGES IN MUTUAL FUNDS RECENTLY

1.Higher expense Ratio allowedDo you know that close to 45% of mutual funds money comes just from Mumbai? Around 87% of AUM in mutual funds comes from top 15 cities in India, which means that only a minuscule 13% of the mutual funds money belongs to small cities in India. Penetration in other parts of country is very, very small and not encouraging. Now SEBI has proposed to increase the Expense ratio by 30 basis points (0.3%) if the mutual funds are able to increase their reach to smaller towns in India and increase their contribution to 30%. In short, if a mutual funds is able to get more than 30% of its AUM from other than top 15 cities in India, they can charge a 30 basis pointsexpense ratiohigher than its current expense ratio. Lower contribution means proportionately lower expense ratios.

2. No internal limits in Expense RatioA very big change which goes in favor of AMCs is the removal of internal limits on the expense ratio and for what it can be used.Earlierthere was a limit on the AMC to chargeup to2.5% expense ratio (up to100 crores AUM), but it was allowed to charge only 1.25% as Fund Management Charge and 0.5% as distribution charges. The rest was taken as their profits. So earlier suppose a Mutual Fund charged 2.25% as the expense ratio, then they compulsorily had to allocate 1.25% as Fund Management Charge and 0.5% for distribution.

3. Putting Exit Loads back into the schemeYou must be wondering what happened to exit loadsearlier, where did it go? When an investor got out of a mutual funds, he wascharge an exit load if he quit before 1 year. That money was not transferred back to mutual fund, nor was it the profit of the mutual fund. It was actually transferred to aseparatefund, which was used forsales, distribution and marketing. But now, when investor exits prematurely, the entire exit load money will be credited back to the scheme account and will not be treated as AMC profit. However an equal amount (capped at 20 basis points) can be included in expense ratio back to compensate the AMC loss due to outgoing investors, which means that overall, for the investors on one hand, the AUM gets increased (NAV increased marginally because of exit load money coming back to them), while at the same time theyre paying more in expense ratios, so the net effect of this would be, no gain no loss to both the parties.

4. Direct Plans with lower expense ratioSEBI has directed that for each mutual fund, there has to be a equivalent Direct Plan with a lower expense ratio. So for every mutual fund XYZ, now you will see XYZ and XYZ-Direct options. So XYZ will come with higher expense ratio, and XYZ-Direct will have lower expense ratio. Many people who research mutual funds and like to buy it on their own directly from AMC by passing agents and other online distributors, this option will be cheaper and makes sense. However, manydistributors are not happywith this move and think this will kill their business, all because investors will then just invest into the direct options.Note, SEBI has not yet clarified by how much lower, the expense ratio of the Direct plans will be and if it will be mandatory for each and every plan or just some categories. Well need to wait for the final circular, to find out.

5. Service Charge will be paid by Investors directlyEarlier the service tax was borne by mutual funds themselves. But now service tax can be passed to investors and charged from the AUM of the Fund.

6. FinancialAdvisersand Distributors separationVery soon, financialadvisorregulation will come into effect. This means, now there will be some minimum qualification, registration and guidelines for financialadvisers. They will have to register with SEBI and aseparatebody of regulators will soon be created for this. A financial advisor is a professional who advises his clients on investments for a fee. The important distinction being, he wont be able to earn any money fromcommissions by selling financial products. If a person wants to sell financial products and earn commissions out of it, then he will not be able to advise the clients. But CA, MBA, and several other professionals are kept out of this rule and even mutual fund agents who have a valid ARN code are kept out of this rule because their basic advice is seen as the extension of their work.There is still more clarity required on this, so dont conclude anything yet.

CHAPTER 5CONCLUSION

Since funds include securities, funds provide investors a return via dividends and distribution of capital gains realized by the sale of individual securities by the fund.

In addition, the shares of the fund itself have a Net Asset Value (NAV). The NAV is the value of all of the fund's holdings divided by the number of shares minus expenses. If the holdings of the fund do well, the NAV will increase and the investor may chose to sell shares to take the gain or to hold shares in the hope of even greater future gain. Most mutual funds are open-end funds and the share price is the same as the NAV. The NAV is calculated nightly.

Mutual funds are a method for investors to diversify risk and to benefit from professional money management. The prospectus identifies key information about the fund including its operating boundaries and its costs. The fund manager operates within those boundaries and is a critical to achieving strong results within those boundaries.

SUMMARY OF MUTUAL FUNDS

Amutual fundbrings together a group of people and invests their money in stocks, bonds, and other securities.The advantages of mutual are professional management,diversification,economies of scale, simplicity and liquidity.The disadvantages of mutual are high costs, over-diversification, possible tax consequences, and the inability of management to guarantee a superior return.There are many, many types of mutual funds. You can classify funds based on asset class, investing strategy, region, etc.Mutual funds have lots of costs.Costs can be broken down into ongoing fees (represented by theexpense ratio) and transaction fees (loads).The biggest problems with mutual funds are their costs and fees.Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party.Mutual fund ads can be very deceiving.

BIBLIOGRAPHY

Financial Markets and Services by E.Gordon & K.Natrajan-Himalaya Publications, Eighth Revised Edition: 2012. http://portal.amfiindia.com/ http://content.icicidirect.com/ http://www.icicipruamc.com/mutual-fund.aspx http://money.usnews.com/

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