Mutual Fund is essentially, in Indian context, a trust formed with the objective of pooling savings of a number of persons and invest in a variety of financial instruments viz. shares, debentures, bonds and other securities. Investments are made in accordance with the objective defined at the time of pooling savings. People with common investment objective come together and assign the task of investments to the trust.

A trust formed as explained above, generally, form/appoints an Assets Management Company, which will invest funds so pooled together. This is an arrangement for which Asset Management Company would charge a fee for professional services.

Mutual Funds in India are regulated by Securities & Exchange Board of India (SEBI), which has framed rules and regulations governing Mutual Fund.

Types of mutual Fund can be broader discussed under two categories

• By structure
• By Investment Objective

Open-ended schemes: These schemes would not have a fixed maturity. Units are bought and sold directly with the Mutual Fund. Nat Asset Value (NAV) of the scheme is calculated generally, on daily basis and units are bought and sold on NAV of the day after taking in to account load structure, if any.

Close-ended schemes: These schemes will have a predefined fixed maturity. One can invest in the scheme at the time of initial offering and thereafter, one can buy and sell units of the schemes through stock exchanges where they are listed. Generally speaking market price of units would vary with the NAV of the scheme and this price would reflect demand and supply of units, investors expectations and a variety of other conditions.

Some close-ended schemes give an exit window at different interval to sell units directly to Mutual Fund at NAV related price.

Open-ended schemes: These schemes would not have a fixed maturity. Units are bought and sold directly with the Mutual Fund. Nat Asset Value (NAV) of the scheme is calculated generally, on daily basis and units are bought and sold on NAV of the day after taking in to account load structure, if any.

Growth Scheme: Objective of theses schemes would be providing capital appreciation from medium to long-term perspective. A person looking for regular return should not invest in these types of schemes.

Income Schemes: Objective of these schemes would be providing regular return to the investor. These schemes generally invest in fixed income securities. However there have some hybrid schemes, which would invest a small percentage in equity under this category.

Balanced Schemes: These schemes would invest both in equity and fixed income securities. An investor can expect blend of both income and growth and enjoy periodic distribution of income.

Other Schemes:

• Money Market/Liquid Fund: Primary objective under these schemes would be preservation of capital with moderate returns. Schemes under this category would be ideal for short-term investment.



• Diversified Fund: Funds under this category would be invested across the sector and market capitalization. Scheme is ideal for investor who would have a positive outlook about the market in general.



• Sector Fund: Investments would be made in the stocks of companies operating in a particular sector viz. Technology, Metal, Infrastructure, FMCG, Media, and Power etc. Schemes would be ideal for investors who are bullish on a particular sector.



• Index Fund: These funds are also known as passive funds. A fund manager does not take any view while investing. He/she would simply mimic the bench mark index.



• Tax Saving Funds (ELSS): Investment under theses schemes would qualify for income tax exemption under section 88 or of Income Tax Act, 1961



• Gilt Funds: Schemes invest in securities issued by Central/State Government. Since respective Governments back these securities they ensure safety of the principal and regular payment of interest thereon. However investment under this category would continue to be exposed to the interest rate volatility.

Professional Management: Asset Management Companies (AMCs), which are given the job of investing, employ qualified and experienced professionals. Dedicated research team supports these professionals to select a right investment option commensuration with the scheme objective.

Diversification: This one of the biggest benefit investing through mutual fund. An Investor can enjoy highest level of diversification with very low investments, as a fund would invest across the sector and market capitalization. This diversification would reduce investment risk, as all stocks in the scheme may not fall at any given point of time.

Liquidity: Open-ended schemes ensure liquidity. Units may be purchased from and sold directly to the mutual fund at NAV related price. Even in case of close-ended scheme, units may be sold through stock exchanges. Some close-ended schemes also provide exit route at NAV related price at regular interval.

Transparency: Mutual Fund would disclose its portfolio on regular interval and value thereof. Fund houses have to adhere to rules laid down by the regulator, which ensures a fair amount of transparence pertaining to all investment and transactions.

Flexibility: Mutual Fund as an investment vehicle comes with a variety of flexibility such as Systematic Investment Plan (SIP), Systematic Transfer Plan (STP), and Dividend Re-investment Plan etc. A number of Mutual Fund houses have gone beyond theses services and inform an investor about their investments on reaching at target level, popularly known as “Triggers.”

Low cost: Investing through Mutual Fund is less expensive than investing directly in to stocks or other securities as Mutual Fund would be able to take the advantage of scale in brokerage, custodial and other charges.

Higher returns: By virtue of investing in a diversified basket of securities, mutual fund would potentially give higher returns.

Well regulated: Securities and Exchange Board of India (SEBI) is the regulatory authority, which monitor operations of Mutual Fund. All Mutual Funds are required to registered with it and follow rules and regulations laid by it. These regulations are designed to give a fair share of importance to the investors' protection.

Higher returns: By virtue of investing in a diversified basket of securities, mutual fund would potentially give higher returns.

NAV is sum total of market value of assets of the fund net of liabilities, if any. NAV is calculated by following simple formula:

(Market value of investments + receivables + accrued income - liabilities - accrued expenses)
/Number of outstanding units

As per regulations laid by SEBI, NAV of an open-ended scheme shall be declared at least once in a week, however all most all mutual funds declare NAV of their open ended schemes on daily basis. NAV of close-ended mutual fund would be declared on monthly basis.

This is nothing but a charge which mutual fund would collect from the investor at time of entering into or going out of the fund.

Charges levied at the time of entering into the schemes are called Entry Load and charges levied at the time of redemptions are called Exit Load.

Sales/Purchase price: This is the price paid to the fund to purchase units in a scheme. If there is any entry load, the load would be added to NAV of the day to arrive at the purchase price of the unit. Therefore, in such a case purchase price would be greater than NAV.

Redemption Price: This is the price at which an investor receive his/her money directly form the mutual fund in case of open-ended scheme. This price would be reduced form the NAV of the day by the exit load, if any.