The document provides an overview of mutual funds, explaining that they allow investors to pool their money with other investors to invest in a variety of assets like stocks, bonds, and real estate. It describes the main categories of mutual funds as money market, stock, index, bond, and balanced funds. It also notes that mutual funds offer investors opportunities to diversify their portfolios and gain exposure to different asset classes through professionally managed investments.

1. An IntroductionAn Introduction
to Mutual Fundsto Mutual Funds

2. What are MutualWhat are Mutual
Funds?Funds?
 Mutual funds are a type of investmentMutual funds are a type of investment
that takes money from many investorsthat takes money from many investors
and uses it to make investments basedand uses it to make investments based
on a stated investment objective.on a stated investment objective.
 Each shareholder in the mutual fundEach shareholder in the mutual fund
participates proportionally (based uponparticipates proportionally (based upon
the number of shares owned) in the gainthe number of shares owned) in the gain
or loss of the fund.or loss of the fund.

3. Why do People InvestWhy do People Invest
in Mutual Funds?in Mutual Funds?
 Mutual funds offer investors an affordable way toMutual funds offer investors an affordable way to
diversify their investment portfolios.diversify their investment portfolios.
 Mutual funds allow investors the opportunity to have aMutual funds allow investors the opportunity to have a
financial stake in many different types of investments.financial stake in many different types of investments.
 These investments include: stocks, bonds, moneyThese investments include: stocks, bonds, money
markets, real estate, commodities, etc…markets, real estate, commodities, etc…
 Individually, an investor may be able to own stock in aIndividually, an investor may be able to own stock in a
few companies, a few bonds, and have money in afew companies, a few bonds, and have money in a
money market account. Participation in a mutual fund,money market account. Participation in a mutual fund,
however, allows the investor to have much greaterhowever, allows the investor to have much greater
exposure to each of these asset classes.exposure to each of these asset classes.

4. ContinuedContinued
 Most mutual funds are professionally managedMost mutual funds are professionally managed
by an investment expert known as a portfolioby an investment expert known as a portfolio
manager.manager.
 This individual makes all of the buying andThis individual makes all of the buying and
selling decisions for the fund.selling decisions for the fund.
 There are thousands of different mutual fundsThere are thousands of different mutual funds
in the United States.in the United States.
 This provides investors with many options toThis provides investors with many options to
help them achieve their investment objectives.help them achieve their investment objectives.

5. Basic Mutual FundBasic Mutual Fund
CategoriesCategories
 Mutual Funds can be divided into fiveMutual Funds can be divided into five
basic categories based upon the fundsbasic categories based upon the funds
investment objective.investment objective.
 These categories are:These categories are:
1.1. Money Market Mutual FundsMoney Market Mutual Funds
2.2. Stock Mutual FundsStock Mutual Funds
3.3. Index FundsIndex Funds
4.4. Bond Mutual FundsBond Mutual Funds
5.5. Balanced Mutual FundsBalanced Mutual Funds

6. Money Market MutualMoney Market Mutual
FundsFunds
 This is the most conservative type of mutual fund.This is the most conservative type of mutual fund.
 The goal is to maintain the Rs. 100 value of its sharesThe goal is to maintain the Rs. 100 value of its shares
while providing income.while providing income.
 Invests in high-quality, short-term securities such asInvests in high-quality, short-term securities such as
certificates of deposit, Treasury Bills, and CP.certificates of deposit, Treasury Bills, and CP.
 MMMF’s are an appropriate place for savings.MMMF’s are an appropriate place for savings.
 These funds have typically offered higher interest ratesThese funds have typically offered higher interest rates
than bank savings accounts.than bank savings accounts.
 Money market mutual funds are not insured by the RBI.Money market mutual funds are not insured by the RBI.

7. Stock Mutual FundsStock Mutual Funds
 Type of fund that invests in stocks.Type of fund that invests in stocks.
 These funds are also known as equity funds.These funds are also known as equity funds.
 There are many different types of stock mutualThere are many different types of stock mutual
funds.funds.
 Some of the most common include:Some of the most common include:
Large-cap funds, mid-cap funds, small-cap funds,Large-cap funds, mid-cap funds, small-cap funds,
income funds, growth funds, value funds, blendincome funds, growth funds, value funds, blend
funds, international funds, and sector funds.funds, international funds, and sector funds.

8. Index FundsIndex Funds
 These are mutual funds whose holdings aim to trackThese are mutual funds whose holdings aim to track
the performance of a specific stock market index.the performance of a specific stock market index.
 The most common index fund tracks the S&P 500.The most common index fund tracks the S&P 500.
These index funds invest in the exact stocks (and inThese index funds invest in the exact stocks (and in
the same percentages) as those found in the S&P 500.the same percentages) as those found in the S&P 500.
 Index funds also track bonds, real estate, and otherIndex funds also track bonds, real estate, and other
types of assets.types of assets.
 These funds are lower cost than other types of funds.These funds are lower cost than other types of funds.

9. Bond Mutual FundsBond Mutual Funds
 Type of mutual fund that invests inType of mutual fund that invests in
bonds.bonds.
 There are different types of bond mutualThere are different types of bond mutual
funds.funds.
 TypicallyTypically, bond mutual funds have the, bond mutual funds have the
objective of providing stable income withobjective of providing stable income with
minimal risk.minimal risk.

10. Types of Bond MutualTypes of Bond Mutual
FundsFunds
 Short, Intermediate, and Long-Term U.S. BondShort, Intermediate, and Long-Term U.S. Bond
FundsFunds
 Short, Intermediate, and Long-Term CorporateShort, Intermediate, and Long-Term Corporate
Bond FundsBond Funds
 Municipal Bond FundsMunicipal Bond Funds
 High-Yield (junk) Bond FundsHigh-Yield (junk) Bond Funds
 We will talk more about bonds and bond fundsWe will talk more about bonds and bond funds
later in this unit of study.later in this unit of study.

11. Balanced Mutual FundsBalanced Mutual Funds
 These are also known as hybrid funds.These are also known as hybrid funds.
 These mutual funds invest in stocks,These mutual funds invest in stocks,
bonds, and money markets.bonds, and money markets.
 These are very diversified mutual funds.These are very diversified mutual funds.
The stock portion of the fund providesThe stock portion of the fund provides
the potential for capital appreciation,the potential for capital appreciation,
while the bond and money market portionwhile the bond and money market portion
provide income.provide income.

12. The Mutual FundThe Mutual Fund
ProspectusProspectus
 This is a legal document which describesThis is a legal document which describes
the investment objective of the fund, thethe investment objective of the fund, the
manner in which the fund is administeredmanner in which the fund is administered
and operated, the fees and otherand operated, the fees and other
pertinent information.pertinent information.
 The prospectus should be readThe prospectus should be read
thoroughly before making an investmentthoroughly before making an investment
decision.decision.