What is a mutual fund?
A mutual fund is a trust that brings together the money of like- minded people called the investors to invest in stocks, debentures, bonds, money market instruments or any other type of securities through professionals called as the fund managers .The investors in turn are entitled to any profits when the shares or stocks are sold and are also subjected to any loss.
- 1963 - UTI (Unit Trust of India) was the first mutual fund set up by the Government of India.
- 1990 - Government allowed PSB’s( Public sector Banks ) and other institutions to set up mutual funds.
- 1992 - SEBI (Securities and Exchange Board of India ) Act was passed which allowed to protect the rights of investors who invested in Securities market.
Net Asset Value ( NAV)
Net Asset Value or NAV for short is a simple calculation to determine the price of a share in a mutual fund. The NAV is adjusted at the end of each business day. A fund‘s NAV fluctuates along with the value of its underlying investments. The formula for NAV is:
NAV = (Market Value of All Securities Held by Fund + Cash and Equivalent Holdings – Fund Liabilities) / Total Fund Shares Outstanding)
Investments by professionals – The investments are done by group of people who are professionals in this field so if a person who wishes to invest in stock market but is new to it can do it with the help of these professionals who with their expertise and research invets the investors money in the right portfolio. Moreover it allows
Diversification- The money managers or the fund managers has a broader understanding of the market and this allows them to invest in broader range of securities thereby reducing the risks of decline in value of one type of security. Thus mutual funds helps in structuring the portfolio by diversifying the risks.
Liquidity – Mutual funds allows the investors to convert their units or shares into cash, however it depends on the scheme the investor has opted.
Transparency – The mutual funds gives a transparent picture of the money that is being invested by mutual fund scheme and also the value of each investment made by the investor.
Who regulates mutual funds in India?
In India mutual funds, are regulated by SEBI ( Securities and Exchange Board of India).All mutual funds before they launch a scheme must be registered under SEBI.
Types of mutual funds
Based on maturity period
- Open ended funds /schemes- A mutual fund that is available for repurchase and subscription at any point of time. The NAV’s of such type of fund are calculated on a daily basis.
- Close ended funds /schemes- Funds that are offered for subscription only for a specific period of time ( at the launch of the scheme) and later on their units can be bought or sold at the stock exchange in which they are listed. These funds have a fixed maturity period.
Based on investment objectives
- Growth-/ Equity-oriented Scheme- Invests a majority of their investments in equities. They have high risks and their aim is to provide cssapital appreciation over medium to long term.
- Income / Debt-oriented schemes- Generally the provide steady and regular investments to the investors. They generally invests in fixed income securities like bonds ,corporate debenture,Governmet securities and other money market instruments. They less risky as compared to the Growth-/ Equity-oriented Scheme.
Provides both growth and income as they invest both in Government Securities as well as fixed income securities in the same ratio as it has been mentioned in the offer document, provides moderate growth to the investors .They generally invest 40-60% in equity and debt instruments.
- Money Market or Liquid Funds- Their aim is to provide easy liquidity, invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. suitable for short term investors.
- Gilt Funds- Invests exclusively in Government Securities and as such have no default risk.
- Index funds- Replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc . Invest in the same weight age as been it is comprised in the index.
- Sector specific schemes- Invests only in those sectors as being mentioned in the offer document and returns are dependent on those sectors in which the investment is being done e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc.
- Mid cap/small cap funds/schemes- Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than Rs. 2500 crores but more than Rs. 500 crores and Small-Cap companies have market capitalization of less than Rs. 500 crores.
Other schemes /funds
- Tax saving schemes- Offers tax benefits to investors under the section 80 C of the Income Tax Act, 1961.Beneficial for investors who seek to have long term growth as well as tax rebate.
Some reputed equity mutual funds in India
ICICI Prudential top 100 fund :
Type : Open – ended Equity funds
Invests in well known, profitable companies with a long term perpective, moreover the stocks are selected from different sectors to ensure risk diversification.
- As the investments are made in different sectors the risk is diversified.
- The stocks that are chosen for investments are the best ones of its sectors .
Schemes under this fund with their NAV’s
Latest NAV (Rs.)
|ICICI Prudential Top 100 Fund – Direct Plan – Dividend||15.05 (06 May 2013)|
|ICICI Prudential Top 100 Fund – Direct Plan – Growth||152.15 (06 May 2013)|
|ICICI Prudential Top 100 Fund – Institutional Option – I||22.15 (06 May 2013)|
|ICICI Prudential Top 100 Fund – Regular Plan – Dividend||13.46 (06 May 2013)|
|ICICI Prudential Top 100 Fund – Regular Plan – Growth||151.86 (06 May 2013)|
Source : ICICI Prudential mutual fund website
- HDFC Index Plan- Sensex Plus Plan
Type : Open Ended Index Linked Scheme
Invests 80-90% of the net asset of the plan in the securities of those companies which are included in SENSEX and rest 10-20% in securities of those companies which are not included in SENSEX.
- Risk Diversification
|Sensex Plus Plan (Growth)||
06 May 2013
|Direct Plan – Growth Option||
06 May 2013
- SBI Magnum Equity fund
Type : open-ended equity fund
Seeks capital appreciation through investment in diversified portfolio of equities of high growth companies, along with liquidity of an open ended scheme.
- · Provides liquidity
|SBI Magnum Equity Fund – Direct Plan – Growth
|SBI Magnum Equity Fund – Direct Plan – Dividend
|SBI Magnum Equity Fund – Regular Plan – Growth
|SBI Magnum Equity Fund – Regular Plan –Dividend
Birla Sun Life Medium Term Plan
Type : Open-ended Income scheme
Generate regular income through investments in money and debt market instruments, thus paying regular dividends to unit holders and also encouraging the growth of capital.
- Flexibility of the plan to change duration according to the prevailing rate of interest.
- Provides liquidity.
- Low-medium risks.