Mutual funds are collective investment schemes managed by professional fund managers, pooling money from multiple investors to invest in various securities. They can be categorized by structure (open-ended, close-ended, interval), nature (equity, debt, balanced), and investment objectives (growth, income, balanced, money market). While they offer diversification and professional management, investors should be aware of costs, market risks, and potential complexity.

1. MUTUAL FUND AS AN
INVESTMENT AVENUE

2. MUTUAL FUND
 Mutual fund is a pool of money managed by a professional fund manager.it is a trust
that collects money from a number of investors who share a common investment
objective and invests the same in equities, bonds, money market instrument and other
securities.
 Investments are held in a trust of which the investors alone are the joint beneficial
owners.
 Trustees oversee the management by investment manager.
 Mutual fund is a portfolio of stocks, bonds, or other securities purchased with the
pooled capital of investors.

3. HISTORY OF MUTUAL FUND
 Phase I (1964-87) : In 1963,UTI was set up by parliament under UTI act and given a
monopoly, the first equity fund was launched in 1986.
 Phase II (1987-93): NON-UTI,Public Sector mutual funds like :
• SBI MUTUAL FUND
• CANBANK MUTUAL FUND
• LIC MUTUAL FUND
• INDIAN BANK MUTUAL FUND
 Phase III (1993-96): Introducing private sector funds, as well as open-end funds.
 Phase IV (1996): Investor friendly regulatory measures action taken by SEBI to protect
the investor ,andto enhance investor’s return through tax benefits.

4. TYPES OF MUTUAL FUNDS

5. By structure
 Open-Ended Schemes:- An open ended scheme means that these funds do not have a
fixed maturity date , so investors can buy or sell units at any time.it offer flexibility.
 Close – Ended Schemes:- A close ended scheme is a fixed maturity period , and
investors can only buy units during the initial offer period . after that no new units are
issued.
 Interval Schemes: Interval schemes are a unique type of mutual fund schemes these
funds allow investor to buy or sell units at specific intervals, such as every few months
or once a year. It falls between open-ended and close-ended funds in term of flexibility.

6. By Nature
 Equity funds:- Equity funds are a type of mutual fund that primarily invests in stock or
equities. These funds aim for capital appreciation by investing in shares of companies
across different sectors and market capitalization equity fund can be further classified
based on factor like market capitalization.
 Large cap
 Mid cap
 Small cap
 Debt Funds :- Debt funds are type of mutual fund that primarily invest in fixed
income securities like bonds, treasury bills, and other debt instruments.These funds
aims to generate regular income for investors through interst payment receive from the
underlying securities .
 Balanced Funds :- Balanced funds , in simple terms, are mutual funds that invest in a
mix of both of stocks (equities) and bonds (debt instruments). These funds aim to
provide investors with balanced approach by offering both growth potential from stocks
and stability from bonds.

7. By Investment Objective
 Growth Scheme :- Growth Schemes are a type of mutual fund that focuses on capital appreciation
by primarily investing in growth-oriented assets like stocks like stocks of companies with high
assets like stocks of companies with high growth potential. These funds aim to achieve long term
capital growth for investors by investing in companies expected to experience significant growth in
earnings and share prices.
 Income Scheme:- Income schemes are mutual funds that focus on generating regular income for
investors through investments in fixed – income securities like bonds , debentures , and other
interest–bearing instruments . These schemes aim to provide a steady stream of income to
investors through periodic interest payments.
 Balanced Scheme :- Balanced schemes, in simple words, are like those mutual funds that invest in
a mix of both stocks and bonds. These schemes try to give investors a mix growth potential from
stocks and stability from bonds. They balance the risk and return by investing in both types of
assets . Balanced schemes are good for those who want a bit of growth and some stability in their
bit of growth and some stability in their investments.
 Money Market Scheme :- Money market schemes are mutual funds that invest in short-term, low-
risk instruments like Treasury bills, commercial paper, and certificates of deposit. These schemes
aim to provide investors with a safe place to park their funds while earnings modest return. Money
market schemes are suitable for investors looking for liquidity and stability in their investments.

8. Other Schemes
 Tax Saving Schemes :- Tax saving schemes also known as Equity Linked Savings
Schemes (ELSS) are mutual funds that offer tax benefits under Section 80C of the
Income Tax Act in India . These schemes primarily invest in equity and equity-
related instruments with a lock – in period of three years.
 Index Scheme :- Index Scheme are mutual funds that aim to replicate the
performance of a specific stock market index, such as the S&P 500 OR THE Nifty
50. These schemes invest in the same production of stocks as the index in they are
tracking. The goal of index schemes is to match the returns of the chosen index
rather than trying to outperform it. Index schemes are known for their lower costs
compared to actively managed funds since they require less research are trading.
 Sector Specific Schemes :- Sector Specific Schemes are mutual funds that focus on
investing in a specific sector or industry ,like technology, healthcare, energy , or
financial services.these schemes concentrate their Investments in companies
operating within the chosen sector.

9. Why invest Mutual Fund
 Investing in mutual funds can be beneficial for several reasons mutual fund
offer diversification by pooling money from multiple investors to invest in a
variety of securities reducing individual risk they are managed by professional
fund manager who make investment decision on behalf of investors based on
research and market analysis . Mutual funds provide access to a wide range of
asset classes , including stocks, bonds and other securities allowing investors
to create a well –rounded investment portfolio without the need for extensive
knowledge or time commitment.
 Additionally mutual funds offer liquidity , flexibility and the potential for long
term growth.

10. Asset Management Company(AMC)
 Investment manager of the Mutual Fund.
 Appointed by the trustees , with SEBI approval.
 Trustees and AMC enter into an investment management agreement.
 Required to invest seed capital of 1% of amount raised subject to a maximum
of Rs.50 lakh in all open-ended schemes.
 Should have a net worth of at least Rs. 50 crore at all times.
 At least 50% of members of the board of an AMC have to be independent.
 AMC of one Mutual Fund cannot be an AMC or trustee of another fund.
 AMCs cannot engage in any business other than that of financial advisory and
investment management.

11. How Does a Mutual Fund Work?

12. Investment Modes in Mutual Funds
• One time investment
• Usually large sum of money is invested
in one go.
• Investor faces risk of volatility in
markets.
Lump-sum
Investment
• Staggered Investment.
• Period of Commitment -6
months,1,3,5 years.
• Specific intervals- monthly
Quarterly , half-yearly.
Systematic
Investment
Plan(SIP)

13. How to invest in Mutual Funds?
Via physical
mutual fund
application form
Via online
mode(website
of Mutual Fund)
Via Mobile App of
Mutual Fund
Via AMFI Registered
Mutual Fund Distributor
(using physical form
/online/mobile app)

14. Advantages of Mutual Funds
 Mutual funds are managed by professional asset managers who have years of
experience in the financial markets.
 Mutual funds invest in a variety of securities, which helps reduce or mitigate
the risk. The diversification helps protect the investor’s portfolio from market
volatility.
 Mutual funds are highly liquid investments, which means that investors can
easily buy and sell their units at any time.
 Mutual funds offer tax benefits to investors. For example, in general long-
term capital gains from mutual funds are taxed at a lower rate than short-
term capital gains.

15. Disadvantages of Mutual Funds
 Fees and Expenses :- Mutual funds charge a variety of fees, such as
management fees and transaction fees. These fees can eat into your returns.
 Lack of Control :- Investors have limited control over specific investments
made by the fund manager.
 Market Risk :- The value of mutual funds can go up and down, just like the
stock market. This means that you my lose money if you invest in a mutual
fund.
 Possible Underperformance :- The fund’s returns might not always beat the
market or meet your expectations.
 Complexity :- Mutual funds can be complex, and it can be difficult to
understand their risks and fees. This can make it difficult for investors to make
informed decisions.