Working of Mutual Funds

Posted Date: Total Responses: 0 Level: Silver Points/Cash: 10 INTRODUCTION Helping Indians experiencing the joy of home ownership is the objective of the bank. The road to success is a tough and challenging journey in the dark, where only obstacles light a path, however success on a terrain like this is not without a solution. As the bank was found out over 2 decades ago in 1977, the solution for success is customer satisfaction. All you need is the courage to innovate the skill to understand your client and the desire to give them your best. Today over a million satisfied customers whose dreams we helped realized, stand testimony to the banks success. The objective of the bank from the very beginning has been to finance residential housing stock and promote home ownerships. Now offerings range from home loans, deposits, products to property related services and a training facility. Bank also offers specialized financial services to our customer base through partnerships with some of the best financial institutions worldwide. BACKGROUND: The bank was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownerships. It was promoted with an initial share capital of Rs 100 million.28years has been successfully completed. BANK PROFILE The Housing Development Finance Co-Operation Limited (HDFC) was amongst the first to achieve an in principle approval from the Reserve Bank of India (RBI) to set up a bank in the private sector as part of the RBIs liberalization of the Indian Banking Industry. It was incorporated in August 1994 in the name of HDFC Bank Limited with its registered office in Mumbai. It began its operations as a scheduled commercial Bank in January 1995. LINEAGE HDFC and NAT WEST Group, UK-both are promoters of HDFC Bank. In 1994 HDFC Bank, into a strategic alliance with the Nat west group in UK, which acquired 20% of its equity. The promoter of the Bank, HDFC is Indias premier housing finance company. It enjoys an in acceptable track record in India as well as in International Market. Since its inception in 1997, HDFC has maintained a consistent growth in its operations and profitability and over the past 5 years it has achieved annual growth rate of 25-30%. Its outstanding loan portfolio covers over a million dwelling units. HDFC BANK The banking industry was thrown open to private sector by Government of India in 1992 in the constitution of its policy of economic liberalization and privatization. HDFC Bank is a scheduled commercial bank, promoted by the largest bank of USA and Housing Development Finance CoPosted By: vikas papreja Member

Operation (which was promoted by GIC, LIC, World Bank & UTI). Mission Statement ? To build a sound customer franchise across distinct businesses so as to be the preferred provider of banking services in the niche segments that the bank operates in and to achieve healthy growth in profitability, consistent with the banks risk appetite. ? To ensure the highest level of ethical standards, professional integrity and regulatory compliance. ORGANIZATION STRUCTURE HDFC Bank is a two tier organization, head office and Branch Office. It has been done so as to make decision making more responsive to the needs of the customers. The branches are directly linked to the head office at Mumbai. The bank presently has 220 branches.

ORGANISATIONAL GOALS ? To develop close relationships with individual households. ? To maintain its position as the premier housing finance institution in the country. ? To transform ideas into viable and creative solutions. ? To provide consistently high returns to shareholders. ? To grow through diversification by bearing off the existing client ways. DISTRIBUTION NETWORK HDFC Banks head-quarter is in Mumbai. The branch network will be extended to cover major cities in India, as well as some semi-urban locations in line with RBI guidelines. Mumbai, Calcutta, Chennai and Delhi are supported by phone Banking Centers.

BUSINESS OBJECTIVES. ? PRIMARY OBJECTIVE: To enhance the residential housing stock in the country through the provision of housing finance in a systematic and professional manner. ? OTHER OBJECTIVE: To increase the housing finance sector with the overall domestic financial markets.

HDFC ASSET MANAGEMENT COMPANY LIMITED (AMC) HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000. The registered office of the AMC is situated at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. In terms of the Investment Management Agreement, the Trustee has appointed the HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up capital of the AMC is Rs. 25.161 crore.

The present equity shareholding pattern of the AMC is as follows : Particulars % of the paid up equity capital Housing Development Finance Corporation Limited 60 Standard Life Investments Limited 40 Zurich Insurance Company (ZIC), the Sponsor of Zurich India Mutual Fund, following a review of its overall strategy, had decided to divest its Asset Management business in India. The AMC had entered into an agreement with ZIC to acquire the said business, subject to necessary regulatory approvals. On obtaining the regulatory approvals, the following Schemes of Zurich India Mutual Fund have migrated to HDFC Mutual Fund on June 19, 2003. These Schemes have been renamed as follows: Former Name New Name Zurich India Equity Fund HDFC Equity Fund Zurich India Prudence Fund HDFC Prudence Fund Zurich India Capital Builder Fund HDFC Capital Builder Fund Zurich India TaxSaver Fund HDFC TaxSaver Zurich India Top 200 Fund HDFC Top 200 Fund Zurich India High Interest Fund HDFC High Interest Fund Zurich India Liquidity Fund HDFC Cash Management Fund Zurich India Sovereign Gilt Fund HDFC Sovereign Gilt Fund* The AMC is managing 24 open-ended schemes of the Mutual Fund viz. HDFC Growth Fund (HGF), HDFC Balanced Fund (HBF), HDFC Income Fund (HIF), HDFC Liquid Fund (HLF), HDFC Long Term Advantage Fund (HLTAF), HDFC Children's Gift Fund (HDFC CGF), HDFC Gilt Fund (HGILT), HDFC Short Term Plan (HSTP), HDFC Index Fund, HDFC Floating Rate Income Fund (HFRIF), HDFC Equity Fund (HEF), HDFC Top 200 Fund (HT200), HDFC Capital Builder Fund (HCBF), HDFC TaxSaver (HTS), HDFC Prudence Fund (HPF), HDFC High Interest Fund (HHIF), HDFC Cash Management Fund (HCMF), HDFC MF Monthly Income Plan (HMIP), HDFC Core & Satellite Fund (HCSF), HDFC Multiple Yield Fund (HMYF), HDFC Premier Multi-Cap Fund (HPMCF), HDFC Multiple Yield Fund . Plan 2005 (HMYF-Plan 2005), HDFC Quarterly Interval Fund (HQIF) and HDFC Arbitrage Fund (HAF). The AMC is also managing 11 closed ended Schemes of the HDFC Mutual Fund viz. HDFC Long Term Equity Fund, HDFC Mid-Cap Opportunities Fund, HDFC Infrastructure Fund, HDFC Fixed Maturity Plans, HDFC Fixed Maturity Plans - Series II, HDFC Fixed Maturity Plans - Series III, HDFC Fixed Maturity Plans - Series IV, HDFC Fixed Maturity Plans - Series V, HDFC Fixed Maturity Plans - Series VI, HFDC Fixed Maturity Plans - Series VII and HFDC Fixed Maturity Plans - Series VIII. The AMC is also providing portfolio management / advisory services and such activities are not in conflict with the activities of the Mutual Fund. The AMC has renewed its registration from SEBI vide Registration No. - PM / INP000000506 dated December 8, 2006 to act as a Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993. The Certificate of Registration is valid from January 1, 2007 to December 31, 2009.

The Board of Directors of the HDFC Asset Management Company Limited (AMC) consists of the following eminent persons.

 Mr. Deepak S. Parekh Mr. N. Keith Skeoch Mr. Keki M. Mistry Mr. Mark Connolly Mr. P. M. Thampi Mr. Humayun Dhanrajgir Dr. Deepak B. Phatak Mr. Hoshang S. Billimoria Mr. Rajeshwar Raj Bajaaj Mr. Vijay Merchant Ms. Renu S. Karnad Mr. Milind Barve Trustees HDFC Trustee Company Limited, a company incorporated under the Companies Act, 1956 is the Trustee to HDFC Mutual Fund vide the Trust deed dated June 8, 2000, as amended from time to time. HDFC Trustee Company Ltd is wholly owned subsidiary of HDFC The Board of Directors of HDFC Trustee company Limited consists of the following eminent persons. Mr. Anil Kumar Hirjee Mr. James Aird Mr. Shishir K. Diwanji Mr. Ranjan Sanghi Mr. V. Srinivasa Rangan SPONSORS Housing Development Finance Corporation Limited (HDFC) HDFC was incorporated in 1977 as the first specialised mortgage company in India. HDFC provides financial assistance to individuals, corporates and developers for the purchase or construction of residential housing. It also provides property related services (e.g. property identification, sales services and valuation), training and consultancy. Of these activities, housing finance remains the dominant activity.HDFC has a client base of around 12 lac borrowers, around 8 lac depositors, over 1.08 lac shareholders and 50,000 deposit agents, as at March 31, 2008. HDFC has raised funds from international agencies such as the World Bank, IFC (Washington), USAID, DEG, ADB and KfW, international syndicated loans, domestic term loans from banks and insurance companies, bonds and deposits. Standard Life Investments Limited The Standard Life Assurance Company was established in 1825 and has considerable experience in global financial markets. The company was present in the Indian life insurance market from 1847 to 1938 when agencies were set up in Kolkata and Mumbai. The company re-entered the Indian market in 1995, when an agreement was signed with HDFC to launch an insurance joint venture. On April 2006, the Board of The Standard Life Assurance Company recommended that it should demutualise and Standard Life plc float on the London Stock Exchange. At a Special

General Meeting held in May voting members overwhelmingly voted in favour of this. The Court of Session in Scotland approved this in June and Standard Life plc floated on the London Stock Exchange on 10th July 2006. Standard Life Investments was launched as an investment management company in 1998.

HDFC Mutual Fund is one of the largest mutual funds and well-established fund house in the country with consistent and above average fund performance across categories since its incorporation on December 10, 1999. While our past experience does make us a veteran, but when it comes to investments, we have never believed that the experience is enough. Our Investment Philosophy The single most important factor that drives HDFC Mutual Fund is its belief to give the investor the chance to profitably invest in the financial market, without constantly worrying about the market swings. To realize this belief, HDFC Mutual Fund has set up the infrastructure required to conduct all the fundamental research and back it up with effective analysis. Our strong emphasis on managing and controlling portfolio risk avoids chasing the latest fads and trends. We Offer We believe, that, by giving the investor long-term benefits, we have to constantly review the markets for new trends, to identify new growth sectors and share this knowledge with our investors in the form of product offerings. We have come up with various products across asset and risk categories to enable investors to invest in line with their investment objectives and risk taking capacity. Besides, we also offer Portfolio Management Services. Our Achievements HDFC Asset Management Company (AMC) is the first AMC in India to have been assigned the CRISIL Fund House Level 1 rating. This is its highest Fund Governance and Process Quality Rating which reflects the highest governance levels and fund management practices at HDFC AMC It is the only fund house to have been assigned this rating for two years in succession. Over the past, we have won a number of awards and accolades for our performance. INTRODUCTION TO THE STUDY MUTUAL FUND A Mutual fund is a pool of money, collected from investors and is invested according to certain investment objectives. A Mutual fund is created when investors put their money together. It is therefore a pool of the investors funds. The most important characteristic of the Mutual fund is that the contributories and the beneficiaries are the same class of people, namely the investors. The term mutual means that the investors contribute to the pool, and also benefit from the pool. There are no other claimants to the funds. The pool of funds held mutually by investors is the mutual fund. A Mutual fund business is to invest the funds thus collected, according to the wishes of the investors who created the pool. Usually the investors appoint professional investment managers, to manage their funds. The same objective is achieved when professional investment managers create a `product and offer it for investments to the investors. This product represents a share in

the pool, and Pre states investment objectives.

WORKING OF MUTUAL FUNDS

CHARACTERISTICS ? A Mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hands of the investors ? A Mutual fund is managed by investment professionals and other service providers. ? The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated everyday. ? The investors share fund is denominated by units. The value of the units changes with change in the portfolios value everyday. The value of one unit of investment is called as the net assets value. ? The investment portfolio of the mutual fund is created according to the stated investment objectives.

ORGANISATION OF MUTUAL FUNDS

IMPORTANT PHASES IN THE HISTORY OF MUTUAL FUNDS. ? 1963-1987: The Unit Trust of India was the sole player in the market. Created by an act of parliament in 1963, UTI launched its first product, THE UNIT SCHEME 1964 which is even today the single largest mutual fund scheme. UTI created a number of products such as monthly income plans, equity oriented schemes and offshore funds during this period. UTI managed assets of Rs 6700 crore at the end of this phase. ? 1987-1993: In 1987 public sector banks and financial institutions entered the mutual fund industry. SBI mutual fund was the first non UTI fund. Signifant shift of investors from deposits to mutual fund industry happened in this period. By the end of this period, assets under UTI grew to Rs 38,247 crores and public sector managed Rs 8750 crores. ? 1993-1996: In 1993 the mutual fund industry was opened to private players, both Indian and foreign. SEBI first set of regulations for the industry was formulated in 1993, and substantially revised in 1996.Significant innovations in servicing, product design and information disclosure happened in this phase, mostly initiated by private sector players. ? 1996-1999: The implementation of the new SEBI regulations and the restructuring of the mutual fund industry led to rapid industry growth. Bank mutual funds were recast according to the SEBI recommended structure, and UTI came under the SEBI voluntary supervision. ? 1999-2002: This phase was marked by very rapid growth in the industry, and significant increase in the share of private sector players in the market. Assets crossed Rs. 1 crore. UTI share dropped to nearly 50%.

ADVANTAGES FINANCIAL PLANNING: Investors in the mutual fund industry today have a choice of 39 mutual funds, offering nearly 500 products. Though the categories of products offered can be classified under about a dozen generic heads. It is also possible for investors to decide the manner in which their returns would be distributed and choose from the product itself. The most important benefit of product choice is that it enables investors to choose options that suit their return requirements and risk appetite. Investors can combine the options to arrive at their own mutual fund portfolios that fit with their financial planning objectives. REDUCES RISK: Mutual funds invest in a portfolio of securities. This means that all funds are not invested in the same investment avenue. It is well known that risk and returns of various investment options do not move uniformly or in sympathy with each other. If a pharma company share is going down, an automobile company shares could be moving up , if the equity market is going down, the debt market may be moving up. Therefore the holding a portfolio that is diversified across avenues is a wise way to manage risk. REDUCES TRANSACTION COSTS: Mutual funds provide the investor the benefits of economies of scale, by virtue of their size. Though the investors individual contribution is small the mutual fund itself is large enough to be able to reduce costs in transactions. These benefits are passed on to the investors. PROVIDES LIQUIDITY: Most of the funds being sold today are open ended. That is investors can sell existing units or buy new units at any point if time, at prices that are related to the NAV of the fund on the date of the transaction. This enables investors to enjoy a high level of liquidity on their investments. Since investors continuously enter and exit funds, funds are actually able to provide liquidity to the investors, even if the underlying markets, in which the portfolio is invested, may not have the liquidity that the investors seek. REGULAR PERIODIC SAVINGS: Mutual funds units in modern times are not issued in the form of certificates, with a minimum denomination. They are instead issued as account statements, with the facility to hold units in fractions up to 4 decimal points. It is also simpler for investors to make additional investments, to repurchase a part of their, to reinvest dividends, to convert their holdings in one fund into a holding in another, and to alter the investment options regarding their periodical dividends. these facilities make it possible for small investors to regularly save a fixed amount in a mutual fund, and create saving plans that suit their saving habits and financial goals. PROVIDES INFORMATION: MUTUAL FUNDS inform investors periodically about the performance of the fund .They disclose the NAVS daily and in most cases this information is available on phone and on internet. The complete portfolio of the fund is available to investors. They also provide additional information on the maturity profile of their investments, credit

quality of their portfolios, and the behavior of NAV, over the period since the inception of the fund

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS ? NO CONTROL OVER COSTS: Since investors do not directly monitor the funds operations, they can not control the costs effectively. Regulators therefore usually limit the expenses of mutual funds. ? NO TAILOR MADE PORTFOLIOS: Mutual fund portfolios are created and marketed by AMCS, into which investors invest. They can not create tailor made portfolios. ? MANAGING A PORTFOLIO OF FUNDS: As the number of mutual funds increase, in order to tailor a portfolio for himself, an investor may be holding a portfolio of funds, with the costs of monitoring them and using them, being incurred by him. ? FUNDS ARE NOT RISK FREE: It is possible that we could lose money. ? DISTRIBUTIONS ARE TAXABLE: We will owe taxes and on any dividend or capital gain distributions from the fund portfolio in the year they received, even if distribution is reinvested. ? FEES AND EXPENSES ARE INVOLVED: Some fund companies can impose loads like redemption fees, advertising and distribution fee, low balance account fee or custodian fees. ? BURRIED COSTS: Many mutual funds specialize in burying their costs and in hiring salesman who do not make those costs clear to their clients. ? DILUTION: Mutual funds have such small holdings of so many different stocks that insanely great performance by a funds top holdings still does not make much of a difference in a mutual funds total performance. ? THE WISDOM OF PROFESSIONAL MANAGEMENT: The average mutual fund manager is no better at picking stocks than the average non professional MUTUAL FUND PRODUCT Generic choices to mutual funds. ? Nature of participation: Open and Close ended funds. ? Nature of income distribution: Dividend, Growth, reinvestment of dividends. ? OPEN ENDED FUNDS: In an open ended funds, investors can buy and sell units of the fund, at NAV related prices, at any time direct from the fund. This called an open ended fund, because pool of fund is open for additional sales and purchases. Therefore both the amount of funds that the mutual fund manages and the number of units vary everyday. The price at which investors buy and sell units is linked to the NAV.Open ended funds are offered for sale at a pre specified price. ? CLOSED ENDED FUNDS: These are open for sale to investors for a specific period, after which further sales are closed. Any further for buying the units or repurchasing them, happen in the secondary markets where closed end funds are listed. Therefore new investors buy from the existing investors, and existing investors can liquidate their units by selling them to other willing buyers. Thus the pool of funds can be technically be kept constant. The price at which the units

can be sold or redeemed depends on the market prices, which are fundamentally linked to NAV.Investors receive either certificates or depository receipts, for their holdings in a closed end mutual fund.

OPTIONS FOR STRUCTURING RETURNS TO AN INVESTOR IN A MUTUAL FUND DIVIDEND OPTION: Investors will receive dividends from mutual fund, as and when such dividends are declared. Dividends are paid in the form of warrants or are directly credited to the investors bank accounts. GROWTH OPTION: Investors who do not require periodic income distributions can choose the growth option, where the incomes earned are retained in the investment portfolio, and allowed to grow rather than being distributed to the investors. Investors with longer term investment horizons, and limited requirements for income choose this option. The return to the investor who chooses a growth option is the rate at which his initial investment grows over the period for which he has invested in the fund. The NAV of the investor choosing this option will vary with the value of the investment portfolio, while the number of units will remain constant. RE-INVESTMENT OPTION: Investors re- invest the dividends that are declared by the mutual fund back into the fund itself, at NAV, that is prevalent at the time of re-investment. In this option, the number of units held by the investor will change with every re-investment. The value of the units will be similar to that under the dividend option. PRODUCT TYPES AVAILABLE WITH RESPECT TO INVESTMENT OBJECTIVES. ? EQUITY FUNDS: Equity funds are those that invest pre-dominantly in equity shares of companies, there are A variety of ways in which equity portfolio can be created for investors. Following are choices in equity funds: ? SIMPLE EQUITY FUNDS: These funds invest predominant portion of the funds mobilized in equity, and equity related products in most cases about 80-90% of their investments in equity shares. These funds have the freedom to invest both in primary and secondary markets of equity. ? PRIMARY MARKET FUNDS: The primary market funds invest in equity shares but do so only when a primary market offering is available. The focus is on capturing the opportunity to buy those companies which issue their equity in primary markets either through primary markets, either through a public offer or through private placements. ? SECTORAL FUNDS: Sect oral funds choose to invest in one or more chosen sectors of the equity markets. These sectors could vary depending on the investor preference and risk return attributes of the sector. These are not well diversified as simple equity funds as they tend to focus on fewer sectors in the equity markets. They can exhibit very volatile returns. ? INDEX FUNDS: Costs of index funds are lower and the funds performance virtually tracks the market index. It provides an ideal exposure to equity markets, without investors having to bear the risk and costs arising from the market views that a fund manager may take. ? DEBT FUNDS: Debt funds are those that predominantly invest in debt securities. Since most debt securities pay periodic interest to investors. These funds are also known as income funds. However it must be remembered that funds invested in debt products can also offer a growth

option to investors. What is important is that the portfolio is pre dominantly made up of debt securities. ? LIQUID FUNDS AND MONEY MARKET FUNDS: These debt funds only invest in instruments with maturities less than a year. The investment portfolio is very liquid, and enables investors to hold their investments for very short horizons of a day or more. The fund predominantly invests in money market instruments and provides investors a return that are available on these instruments. in some cases , the funds also provide investors with cheque writing facility as an additional facility for liquidity. ? GILT FUNDS: A gilt fund invest only in securities that are issued by the government and therefore does not carry any credit risk. These funds invest in short and long term securities issued by the government. These are preferred by the institutional investors who have to invest only in government paper. These funds also enable retail investors to participate in the market for government securities, which is otherwise a large ticket wholesale market. ? SIMPLE DEBT FUNDS: These funds invest in portfolios of debt securities chosen from the universe of debt. The fund manager has the freedom to choose from the universe of debt securities government and others as well as long and short term. ? SECTORAL DEBT FUNDS: These funds invest in a pre specified subset of the debt markets. ? TERM PLANS: SERIAL PLANS OR FIXED This is a variation to the simple debt fund, where the objective is to match the holding period horizon of the investor with the maturity of the investment. A variety of serial plans that enable investors to choose from 14 days to 5 years are available. ? BALANCED FUNDS: Funds that invest both in debt and equity markets are called balanced funds. A typically balanced fund would be almost equally invested in both markets. The variations are funds that invest pre dominantly in equity, about 70% and keep a smaller part of their portfolios in debt securities. These funds seek to enhance the income potential of their equity component by bringing in debt. Similarly there are predominantly debt funds over70% in debt securities which invest in equity to provide some growth potential to their funds. It also tends to provide investors exposure to both equity and debt markets in one product. Therefore the benefits of diversification get further enhanced, as equity and debt markets have different risk and return profiles. REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These regulations make it mandatory for mutual fund to have three structure of sponsor trustee and asset management company. The sponsor of the mutual fund and appoints the trustees. The trustees are responsible to the investors in mutual fund and appoints the AMC for managing the investment portfolio. The AMC is the business face of the mutual fund, as it manages all the affairs of the mutual fund. The AMC and the mutual fund have to be registered with SEBI. WHO CAN BE THE SPONSOR?WHAT DOES THE SPONSOR DO? ? Sponsor appoints the trustees, custodians and AMC with prior approval of SEBI. ? Sponsor must have at least 5 year track record. of business interest in the financial market. ? Sponsor must have been profit making in 3 out of the above 5 years. ? Sponsor must contribute at least 40% of the capital of the AMC.

HOW ARE MUTUAL FUNDS STRUCTURED? Mutual funds can be structured in the following way: ? COMPANY FORM, in which investors hold shares of the mutual fund. In this structure, management of the fund is in the hands of an elected board which in turn appoints investment managers who manage the fund. ? TRUST FORM, in which the funds of the investors are held by a trust on behalf of the investors. The trust appoints the investment managers and monitors their functioning in the interest of investors.

WHO ACTUALLY MANAGES THE MUTUAL FUND? The sponsors acting through the trustees appoint all the functionaries required for managing the investors money. These are: ? Asset Management Company. ? Registrars and transfer agents. ? Brokers ? Selling agents and distributors. ? Custodians ? Depository participants. ? Bankers. ? Legal advisors. ? Auditors. WHAT ARE THE REGULATORY REQUIREMENTS FOR TRUSTEES? The mutual fund which is a trust is either managed by a trust company or a board of trustee and trust companies are governed by the provisions of the Indian Trust Act. If a trustee is a company then it is also regulated by the provisions of the Indians companies act. The AMC and the other functionary are functionally responsible to the investors. ? The sponsor executes and registers a trust deed in favour of the trustees. ? The appointment of all the trustees has to be done with prior approval of SEBI. ? There must be at least 4 members in the board of trustees and at least 2/3 of the members of the board of trustees must be independent. ? The trustee of one mutual fund can not be a trustee of another mutual fund, unless he is independent trustee in both cases, and has the approval of both the boards. WHAT ARE THE RIGHTS OF THE TRUSTEES? ? Trustees appoint the AMC in consultation with the sponsor and according to SEBI regulations. ? All mutual fund schemes floated by the AMC on the operations and the compliance of the mutual fund with provisions of the trust deed, investment management agreement and the SEBI regulations. ? Trustees can seek remedial actions from AMC and in the extreme situation of dissatisfactory performance, dismiss the AMC.

? Trustees review and ensure that net worth of AMC is according to stipulated norms of quarter. WHAT ARE THE OBLIGATIONS OF THE TRUSTEES. ? Trustees must ensure that the transactions of the mutual fund are in accordance with the trust deed. ? Trustees must ensure that the AMC has systems and procedures in place, and that all the constituents are appointed. ? Trustees must ensure that due diligence on the part of AMC in the appointment of constituents and business associates. ? Trustees must furnish to SEBI, on half yearly basis, a report on the activity of AMC ? Trustees must ensure that the activities of mutual fund are in compliance with the SEBI regulations. OTHER CONSTITUENTS ? REGISTRAR AND TRANSFER AGENTS: These are responsible for the investor servicing function, as they maintain the records of investors in mutual funds. They process investors applications, record details provided but the investors sent on application forms send details regarding investment in the mutual fund process dividend payout, send out information on the performance of mutual funds. keep the investors record up to date. ? BROKERS: They support the investment management function. By enabling the investment managers to buy and sell securities. Brokers are registered members of stock exchanges. They manage to buy and sell securities. They charge a commission for their services. They also provide information on the performance of the various companies and industrial sectors and investment recommendations. ? SELLING AND DISTRIBUTING AGENTS.: Mutual fund products reach across the country through selling agents and distributors. Selling agents are usually individuals who bring in investors funds for a commission .Distributors are the institutions that appoints agents and other mechanisms to mobilize funds from investors. Banks tend to offer mutual fund products to their choose customers. ? CUSTODIANS: They are responsible for the securities held in the mutual funds portfolio. They discharge an important back office function, by ensuring that securities that are bought are delivered and transferred to the books of mutual fund and that the funds are paid out when a mutual fund buy securities. They also track corporate actions like bonus issues, right offers offer for sale, buy back and open offers for acquisitions. On the advise of the fund managers, they act on these corporate actions. ? LEGAL ADVISORS AND AUDITORS: They advise on regulatory and taxation issues. Every mutual fund has a compliance officer who works under the advise of legal advisors. The accounts of the mutual funds are actually the accounts of the pool in which investors have invested.

Growth of Top Seven AMCs (Assets Under Management)

Rank AMC AAUM (Rs. In Lacs) 1 Relaince Mutual Fund 9081345.11 2. ICICI Prudential Mutual Fund 5947358.64 3. HDFC Mutual Fund 5271080.51 4. UTI Mutual Fund 5077056.56 5. Birla Sun Life Mutual Fund 4107523.54 6. SBI Mutual Fund 3013240.09 7 Franklin Templeton Mutual Fund 2474206.35

. Needs: The need of the study is to know the savings in investment levels among general masses as the investment criteria has been shifted to banks-postoffice schemes to securities investments such as shares & mutual funds. The need is also confined to know the influential groups who influence people to invest in mutual funds and the returns expected by investors by investing in mutual funds.

SCOPE OF THE STUDY The scope of the study is confined to current time period. For the sake of study survey was limited to Punjab specifically in Jalandhar. A limited sample was selected to fulfill the various objectives of the study and diverse customers on the basis of their economic stability and they type of response while investing in Mutual Funds. The scope of research is related to having a general view of people regarding Mutual fund and also know about the experience with present AMCs and general perception of people towards Mutual Funds.

OBJECTIVES

? To know the investment preferences of the investors among various investment avenues. ? To study the investors awareness and confidence towards mutual funds. ? To study the factors influencing the decision of investment in Mutual Funds. ? To check whether people are aware of different funds available with different AMCs. ? To know the satisfaction level of investors in Mutual Funds. RESEARCH METHODOLOGY Definition: Research methodology is a way to systematically solve the research problem. The research

methodology includes the various methods and techniques for conducting a research. Marketing Research is the systematic design. Collection analysis and reporting of data and finding relevant solution to a specific situation or problem. D. Slesinger and M. Stephensn in the encyclopedia of social sciences define Research as a The manipulation of things, concept or symbols for the purpose of generalizing to extend, correct or verify knowledge, whether the knowledge aid in construction of theory and practice of an art. Defining The Problem & Research Objectives It is said, A problem well defined is half solved. The first step of research methodology is to define the problem and deciding the research objective. The objective of my study is to know about the investment of people in Mutual Funds. Research Design: Research Design is a blueprint or framework for conducting the marketing research project. It specifies the details of the procedures necessary for obtaining the information needed to structure and solve marketing research problems. The research design used in study is descriptive research. Descriptive Research: It is that type of research which can explain what had happened and what is happening. Sampling Design Sampling can be defined as the section of some part of an aggregate or totality on the basis of which judgment or an inference about aggregate or totality is made. The steps involved in sampling design are as follows:Universe: Universe refers to the total of the units in field of inquiry. The study is restricted to Jalandhar City only. Sampling Unit: Sampling frame is the representation of the elements of the target population. Sampling unit of my study is a person who is qualified, well aware of mutual funds, earning income more than one lakh per annum and who is residing in jalandhar city.. Sampling Size: Sampling size is the total no. of units which we covered in our study. The sample size is 50. Sampling Technique: Te sampling technique is convenient sampling.tecnique Data Collection and Analysis: Data can be collected in two ways: Primary data : Primary data are those, which are collected a fresh and for the first time, and thus happen to be original in character. It is the backbone of any study. Secondary data: Secondary data are those which have already been collected by someone else and which have already been passed through the statistical process. In this case on is not confronted with the problems that are usually associated with the collection of original data. Secondary data either be published data or unpublished data.

Source of data: Source of my research is both primary and secondary data. Primary data is obtained from respondent with the help of widely used and well-known method of survey through a well-structured questionnaire and the secondary data is collected from the internet, magazines, journals and new papers. Research Instrument: Research instrument is that with the help of which we collect the data from respondents. The questionnaire of my research consists of open ended close ended and ranking questions. Tools of Analysis: The resuts of the analysis has been presented with the help of percentages, rankings , graphs and charts.

LIMITATIONS ? Due to paucity of time and resources a countrywide survey was not possible. Hence only Jalandhar district has been taken for the study. ? Since a smaller sample was chosen so it may not be a true representative of the population under study. ? The possibility of the respondents responses being biased cannot be ruled out. ? Limited access to secondary data pertaining to HDFC Banks performance in other regions or any other information was another problem in finding a correct market response.

DATA ANALYSIS AND INTERPRETATION Q1. To know about the savings & investment habits that are prevailing among the people. Table 7.1 Investment habits among the people. Investment No. of Respondents %age of Respondents People who invest 41 83% People who do not invest 9 17% Total 50 100% Figure 7.1 : Investment habits among the people

Interpretation : It represents that among yearly income of more than Rs. 1,20,000. 83% of them are investing their money and 17% are not investing at all. It implies that most of the investors do save from their monthly incomes. Q2. To know about the investment areas where people invest.

Table 7.2. : Showing the investment preference of the investors. Investment No. of Respondents %age of Respondents Fixed Deposits 18 36% Recurring Deposit 6 12% Post Office Deposit 13 26% Gold 8 16% Others 5 10% Total 50 100% Figure 7.2. : Showing the investment preference of the investors

Interpretation :- The above graph reveals that 36% people invest in FDs, 26% people invest in Post Office Deposit, 16% people invest in Gold, 12% invest in Recurring Deposit and 10% people invest in others which there by reveals that maximum people invest in FDs. Q3. To know the level of awareness and knowledge among respondents regarding mutual funds. Table .7.3:Knowledge about Mutual funds Knowledge No. of Respondents % age of respondents Very Good 4 7 Good 10 21 Average 26 53 Poor 6 12 Very poor 4 7 Total 50 100% Figure. 7.3:Knowledge about Mutual funds

Interpretation: It was attempted to understand from the investors their knowledge of mutual funds,. It was found that 53% of the investors said that they rank their understanding about mutual funds as average while 7% of the investors rated their understanding as very good and 21% of them considered their knowledge as good. It reveals that the knowledge among investors is not too good. It is just average, so mutual fund should be increased through TVs & news. Q4. To know the confidence level in investors while investing in Mutual Funds. Table.7.4: Confidence level in terms of making investments in Mutual Funds. Level of Confidence No. of Respondents %age of respondents High 9 18% Moderate 35 70% Low 6 12% Total 50 100% Fig . 7.4: Confidence level in terms of making investments in Mutual Funds.

Interpretation: It is evident from the above graph that 70% of people (investors) have Moderate level of confidence, 18% have high level of confidence while 12% of people have low level of confidence while invest in Mutual Funds. It means that confidence level should be increased among investors. Q5. Sources influencing in the mutual fund investment. Table . 7.5 : Various sources influencing the mutual fund investment Sources No. of Respondents % age of respondents Friends/ Relatives 12 23% Advertisements 11 23% Agents/ Distributors/ Financial Advisors 27 54% Total 50 100% Figure .7.5: Various sources influencing the mutual fund investment

Interpretation: From the above graph, it is learnt that 23% of people are influenced by their friends and relatives, 23% by advertisements while 54% of people are influenced by their agents/ distributors/ financial advisors to invest in Mutual Funds. Their by reveals that most of the people are influence by their agents and financial advisors. Q6. To know the reasons to invest in Mutual Funds. Table . 7.6: Reasons for investing in Mutual Funds Reasons No. of Respondents % age of respondents Attractive Returns 18 36% Safety 15 30% Liquidity 7 14% Tax Saving 10 20% Total 50 100% Figure. 7.6: Factors influencing the mutual investment

Interpretation: From the above data depicts that 36% of investors who invest in Mutual Funds are influenced by attractive returns, 30% by safety in investments, 14% by liquidity while 20% because of Tax saving reasons. It there reveals that majority of investors invest because of attractive returns and safety factor while investing. Q7. To know time horizon for investing in Mutual Funds. Table . 7.7: Usual Investment time horizon in Mutual Fund

Time Horizon No. of respondents % age of respondents Upto 1 year 11 22% 1 year - 3 years 28 55% 3 years - 5 years 7 14% Above 5 years 4 9% Total 50 100% Figure . 7.7: Usual Investment time horizon in Mutual Fund

Interpretation: It represents that 55% of the investor said that they would prefer to keep their investment in mutual funds for 1 3 years, while 22% preferred to park their money in mutual funds for a period of 1 year, while only 9% are interested for a period above 5 years. 14% investors preferred for a period of 3 5 years. It implies that investors are interested to keep the investment for an average period in mutual funds. Q8. To know about the different funds where investors invest. Table . 7.8 Type of funds where investors prefer to invest Fund Types No.of respondents % age of respondents Equity 21 42% Debt 14 27% Hybrid Funds 9 19% Liquid Funds 6 12% Total 50 100% Figure . 7.8: Type of funds where investors prefer to invest

Interpretation: It represents that 42% of the investor prefer to invest in Equity funds, 27% in Debt, 19% in Hybrid Funds while rest 12% invest in Liquid Funds. It there that majority of investors are influenced by good returns. It implies that Debt and balanced are very popular among the old aged investors and risk averters.

Q9. To know about the expected rate of return among investors Table. 7.9: Expected rate of return among investors Expected Rate No. of Respondents % age of respondents 5-10% 7 15% 10-15% 15 31% 15-25% 18 35% 25% and above 10 19% Total 50 100% Figure. 7.9: Expected rate of return among investors

Interpretation: The above data shows that 35% of investors are expecting rate of return between 15-25%, 31% of investors expect rate of return between 10-15% while 15% of respondents expect 5-10% returns while 19% of investors expected returns above 25%. It reveals that respondents expect rate of return between 15 to 25 percent.

Q10. To know the satisfaction level of investors and the reasons for their dissatisfaction. Table. 7.10{a} : Satisfaction level of investors Response No. of Respondents % age of respondents Yes 40 81 No 10 19 Total 50 100% Figure. 7.10{a} : Satisfaction level of investors

Interpretation: From the above data it is clear that only 19% respondents are not satisfied with their investments while 81% of the respondents feel contended with their decision of investing in mutual funds. It implies that majority of respondents expectations are being met.

Table 7.10{b} : Reasons for dissatisfaction Response No. of Respondents % age of respondents Low Income 0 0 Longer redemption period 16 32 Poor after sales service 26 52 Better paying avenues in market 8 16 Total 50 100% Figure . 7.10 (b): Reasons for dissatisfaction

Interpretation: It represents that there is no investor who is dissatisfied due to low income. But 3% investors are dissatisfied due to longer redemption period, 10% due to poor after sales service, and 6% feel that there are other better paying avenues in the market. It impl;ies that inspite of many reasons of dis-satisfaction among respondents the main reason was poor after sales service as quarterly statements dont reach in time to them. Q11. To know the potential for mutual funds market in future. Table . 7.11 : Potential for mutual funds market in future

Response No. of Respondents %age of respondents Yes 40 79 No 10 21 Total 50 100% Figure. 7.11: Potential for mutual funds market in future s

Interpretation: From the above data it is clear that 79% of the present investors are willing to invest in the mutual funds in future also and 21% of them are not willing to invest in future. It shows that majority of the respondents are having a high potential for further investment in mutual funds. Q12. Perception regarding the future of mutual funds Table . 7.12 perception regarding the future Response No. of Respondents % age of respondents Bright 30 59 Slow growth 2 5 Risky avenue 6 11 Dark 2 4 No response 10 21 Total 50 100% Figure . 7.12 : Perception regarding the future of mutual funds

Interpretation: As the question is aimed to know the future of mutual funds investors, so from the analysis we will interpret that there are 59% respondents that believe the future of industry is bright 5% feel that it is growing slowly, 11% believe that it is a risky avenue, 4% believe it to be dark 21% respondents said that most of the people are unaware about the functioning of mutual funds. So some steps must be taken to make people more aware about these funds, so that these funds can have a bright future. FINDINGS ? 83% of the respondents who have been earning more than Rs. 1,20,000 were found to have invested their money. ? Most of the respondents prefer investing in Mutual funds over investing in FDs or Post office saving accounts. This depicts that changing investment behavior of the people these days. ? The reasons behind their changing pattern of investment as per the respondents is the attractive

returns & liquidity feature of Mutual Funds. ? Majority of investors are willing to take medium risk only and they do hesitate in taking huge risks. ? Friends, relatives, newspapers, financial advisors, fund managers are the main source of influence to invest in Mutual Funds. ? On an average due to high yield available maximum number of investors expect the rate of return between 15-25%. ? Being practical, investors believe in investing in debt funds rather than equity funds due to high risk available.

RECOMMENDATIONS 1) Generally, the projection of investors about the stock market (in which mutual fund invest) is as a speculative market. So the investors hesitate to invest in Mutual Funds. 2) Mutual Funds are not so popular among the masses, so advertisement should be increased to generate awareness among the masses regarding Mutual Funds. 3) There should be proper trade off between risk and return in Mutual Fund as till now there is more risk in Mutual Fund that is why people investing in post offices and banks. 4) Investing should be a habit and not merely an exercise undertaken at ones wishes, if one has to take really a benefit from them. Since it is very difficult to assess when to enter or exit in the market. 5) Investors should be well versed with the present NAV values so that they may know from where they can get good avenues.

CONCLUSION Mutual Funds now represent perhaps most appropriate investment opportunity for most investors. As financial markets become more sophisticated and complex, investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing. As the investor always try to maximize the returns and minimize the risk. Mutual fund satisfies these requirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. With the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth, equity schemes. Investors who are in need of regular income should invest in income plans.

BIBLIOGRAPHY Books: ? Avadhani V.A. (1999), Marketing of Financial Services,Mumbai., Himalaya Publishing House ? Gordon.N (2004) Financial Market & Services . Mumbai, Himalaya Publishing House ? Kothari, C. R(1990) Research Methodology: Methods and Techniques. New Delhi, Wishwa Prakashan. ? Bogle J. (2005), The greatest mathematical discovery of all time, Newyork References: ? .Mark.G (1995) Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior available at ideas.repec.org/a/aea/aecrev/v85y1995i5p10881105.html - 10k ? Roger.E(1999), Investor flows and the assessed performance of open-end mutual funds available at linkinghub.elsevier.com/retrieve/pii/S0304405X99000288 ? Murad J.A (2005) Someone Will Make Money on Your FundsWhy Not You? A Better Way to Pick Mutual and Exchange-Traded Funds available at www.cfapubs.org/doi/abs/10.2469/br.v2.n1.15 SOME IMPORTANT WEBSITES: ? http://www.amazon.com/Bogle-mutualfunds-perspectives ? cje.oxford journals.org/cgi/content ? www.hdfcbank.com ? http://www.hdfcfund.com/AboutUs/

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Author: Ramnarayan Shah An Introduction to Mutual Funds Over the past decade, American investors increasingly have turned to mutual funds to save for retirement and other financial goals. Mutual funds can offer the advantages of diversification and professional management. But, as with other investment choices, investing in mutual funds involves risk. And fees and taxes will diminish a fund's returns. It pays to understand both the upsides and the downsides of mutual fund investing and how to choose products that match your goals and tolerance for risk. This brochure explains the basics of mutual fund investing how mutual funds work, what factors to consider before investing, and how to avoid common pitfalls. Member Level: Silver Revenue Score:

Key Points to Remember Mutual funds are not guaranteed or insured by the FDIC or any other government agency even if you buy through a bank and the fund carries the bank's name. You can lose money investing in mutual funds. Past performance is not a reliable indicator of future performance. So don't be dazzled by last year's high returns. But past performance can help you assess a fund's volatility over time. All mutual funds have costs that lower your investment returns. Shop around, and use a mutual fund cost calculator at www.sec.gov/investor/tools.shtml to compare many of the costs of owning different funds before you buy. How Mutual Funds Work What They Are A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate. Other Types of Investment Companies Legally known as an "open-end company," a mutual fund is one of three basic types of investment companies. While this brochure discusses only mutual funds, you should be aware that other pooled investment vehicles exist and may offer features that you desire. The two other basic types of investment companies are: Closed-end funds which, unlike mutual funds, sell a fixed number of shares at one time (in an initial public offering) that later trade on a secondary market; and Unit Investment Trusts (UITs) which make a one-time public offering of only a specific, fixed number of redeemable securities called "units" and which will terminate and dissolve on a date specified at the creation of the UIT. "Exchange-traded funds" (ETFs) are a type of investment company that aims to achieve the same return as a particular market index. They can be either open-end companies or UITs. But ETFs are not considered to be, and are not permitted to call themselves, mutual funds.

Some of the traditional, distinguishing characteristics of mutual funds include the following: Investors purchase mutual fund shares from the fund itself (or through a broker for the fund) instead of from other investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock Market. The price that investors pay for mutual fund shares is the fund's per share net asset value (NAV)

plus any shareholder fees that the fund imposes at the time of purchase (such as sales loads).

Mutual fund shares are "redeemable," meaning investors can sell their shares back to the fund (or to a broker acting for the fund).

Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis, although some funds stop selling when, for example, they become too large. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. A Word About Hedge Funds and "Funds of Hedge Funds" "Hedge fund" is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more. "Funds of hedge funds," a relatively new type of investment product, are investment companies that invest in hedge funds. Some, but not all, register with the SEC and file semi-annual reports. They often have lower minimum investment thresholds than traditional, unregistered hedge funds and can sell their shares to a larger number of investors. Like hedge funds, funds of hedge funds are not mutual funds. Unlike open-end mutual funds, funds of hedge funds offer very limited rights of redemption. And, unlike ETFs, their shares are not typically listed on an exchange. You'll find more information about hedge funds on our website. To learn more about funds of hedge funds, please read NASD's Investor Alert entitled Funds of Hedge Funds: Higher Costs and Risks for Higher Potential Returns.

Advantages and Disadvantages Every investment has advantages and disadvantages. But it's important to remember that features that matter to one investor may not be important to you. Whether any particular feature is an advantage for you will depend on your unique circumstances. For some investors, mutual funds provide an attractive investment choice because they generally offer the following features:

Professional Management Professional money managers research, select, and monitor the performance of the securities the fund purchases. Diversification Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds. Affordability Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both. Liquidity Mutual fund investors can readily redeem their shares at the current NAV plus any fees and charges assessed on redemption at any time. But mutual funds also have features that some investors might view as disadvantages, such as: Costs Despite Negative Returns Investors must pay sales charges, annual fees, and other expenses (which we'll discuss below) regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive even if the fund went on to perform poorly after they bought shares. Lack of Control Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades. Price Uncertainty With an individual stock, you can obtain real-time (or close to real-time) pricing information with relative ease by checking financial websites or by calling your broker. You can also monitor how a stock's price changes from hour to hour or even second to second. By contrast, with a mutual fund, the price at which you purchase or redeem shares will typically depend on the fund's NAV, which the fund might not calculate until many hours after you've placed your order. In general, mutual funds must calculate their NAV at least once every business day, typically after the major U.S. exchanges close. Different Types of Funds When it comes to investing in mutual funds, investors have literally thousands of choices. Before you invest in any given fund, decide whether the investment strategy and risks of the fund are a good fit for you. The first step to successful investing is figuring out your financial goals and risk tolerance either on your own or with the help of a financial professional. Once you know what you're saving for, when you'll need the money, and how much risk you can tolerate, you can more easily narrow your choices. Most mutual funds fall into one of three main categories money market funds, bond funds (also called "fixed income" funds), and stock funds (also called "equity" funds). Each type has different features and different risks and rewards. Generally, the higher the potential return, the higher the risk of loss. Money Market Funds Money market funds have relatively low risks, compared to other mutual funds (and most other investments). By law, they can invest in only certain high-quality, short-term investments issued by the U.S. government, U.S. corporations, and state and local governments. Money market

funds try to keep their net asset value (NAV) which represents the value of one share in a fund at a stable $1.00 per share. But the NAV may fall below $1.00 if the fund's investments perform poorly. Investor losses have been rare, but they are possible. Money market funds pay dividends that generally reflect short-term interest rates, and historically the returns for money market funds have been lower than for either bond or stock funds. That's why "inflation risk" the risk that inflation will outpace and erode investment returns over time can be a potential concern for investors in money market funds. Bond Funds Bond funds generally have higher risks than money market funds, largely because they typically pursue strategies aimed at producing higher yields. Unlike money market funds, the SEC's rules do not restrict bond funds to high-quality or short-term investments. Because there are many different types of bonds, bond funds can vary dramatically in their risks and rewards. Some of the risks associated with bond funds include: Credit Risk the possibility that companies or other issuers whose bonds are owned by the fund may fail to pay their debts (including the debt owed to holders of their bonds). Credit risk is less of a factor for bond funds that invest in insured bonds or U.S. Treasury bonds. By contrast, those that invest in the bonds of companies with poor credit ratings generally will be subject to higher risk. Interest Rate Risk the risk that the market value of the bonds will go down when interest rates go up. Because of this, you can lose money in any bond fund, including those that invest only in insured bonds or Treasury bonds. Funds that invest in longer-term bonds tend to have higher interest rate risk. Prepayment Risk the chance that a bond will be paid off early. For example, if interest rates fall, a bond issuer may decide to pay off (or "retire") its debt and issue new bonds that pay a lower rate. When this happens, the fund may not be able to reinvest the proceeds in an investment with as high a return or yield. Stock Funds Although a stock fund's value can rise and fall quickly (and dramatically) over the short term, historically stocks have performed better over the long term than other types of investments including corporate bonds, government bonds, and treasury securities. Overall "market risk" poses the greatest potential danger for investors in stocks funds. Stock prices can fluctuate for a broad range of reasons such as the overall strength of the economy or demand for particular products or services. Not all stock funds are the same. For example: Growth funds focus on stocks that may not pay a regular dividend but have the potential for large capital gains.

 Income funds invest in stocks that pay regular dividends. Index funds aim to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, by investing in all or perhaps a representative sample of the companies included in an index. Sector funds may specialize in a particular industry segment, such as technology or consumer products stocks. How to Buy and Sell Shares You can purchase shares in some mutual funds by contacting the fund directly. Other mutual fund shares are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day and must send you the payment within seven days. The easiest way to determine the value of your shares is to call the fund's toll-free number or visit its website. The financial pages of major newspapers sometimes print the NAVs for various mutual funds. When you buy shares, you pay the current NAV per share plus any fee the fund assesses at the time of purchase, such as a purchase sales load or other type of purchase fee. When you sell your shares, the fund will pay you the NAV minus any fee the fund assesses at the time of redemption, such as a deferred (or back-end) sales load or redemption fee. A fund's NAV goes up or down daily as its holdings change in value. Exchanging Shares A "family of funds" is a group of mutual funds that share administrative and distribution systems. Each fund in a family may have different investment objectives and follow different strategies. Some funds offer exchange privileges within a family of funds, allowing shareholders to transfer their holdings from one fund to another as their investment goals or tolerance for risk change. While some funds impose fees for exchanges, most funds typically do not. To learn more about a fund's exchange policies, call the fund's toll-free number, visit its website, or read the "shareholder information" section of the prospectus. Bear in mind that exchanges have tax consequences. Even if the fund doesn't charge you for the transfer, you'll be liable for any capital gain on the sale of your old shares or, depending on the circumstances, eligible to take a capital loss. We'll discuss taxes in further detail below.

How Funds Can Earn Money for You You can earn money from your investment in three ways: Dividend Payments A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.

Capital Gains Distributions The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors. Increased NAV If the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment. With respect to dividend payments and capital gains distributions, funds usually will give you a choice: the fund can send you a check or other form of payment, or you can have your dividends or distributions reinvested in the fund to buy more shares (often without paying an additional sales load). Factors to Consider Thinking about your long-term investment strategies and tolerance for risk can help you decide what type of fund is best suited for you. But you should also consider the effect that fees and taxes will have on your returns over time. Degrees of Risk All funds carry some level of risk. You may lose some or all of the money you invest your principal because the securities held by a fund go up and down in value. Dividend or interest payments may also fluctuate as market conditions change. Before you invest, be sure to read a fund's prospectus and shareholder reports to learn about its investment strategy and the potential risks. Funds with higher rates of return may take risks that are beyond your comfort level and are inconsistent with your financial goals. A Word About Derivatives Derivatives are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security, or index. Even small market movements can dramatically affect their value, sometimes in unpredictable ways. There are many types of derivatives with many different uses. A fund's prospectus will disclose whether and how it may use derivatives. You may also want to call a fund and ask how it uses these instruments.

Fees and Expenses As with any business, running a mutual fund involves costs including shareholder transaction costs, investment advisory fees, and marketing and distribution expenses. Funds pass along these costs to investors by imposing fees and expenses. It is important that you understand these charges because they lower your returns. Some funds impose "shareholder fees" directly on investors whenever they buy or sell shares. In addition, every fund has regular, recurring, fund-wide "operating expenses." Funds typically pay their operating expenses out of fund assets which means that investors indirectly pay these costs.

SEC rules require funds to disclose both shareholder fees and operating expenses in a "fee table" near the front of a fund's prospectus. The lists below will help you decode the fee table and understand the various fees a fund may impose: Shareholder Fees Sales Charge (Load) on Purchases the amount you pay when you buy shares in a mutual fund. Also known as a "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end loads reduce the amount of your investment. For example, let's say you have $1,000 and want to invest it in a mutual fund with a 5% front-end load. The $50 sales load you must pay comes off the top, and the remaining $950 will be invested in the fund. According to NASD rules, a front-end load cannot be higher than 8.5% of your investment. Purchase Fee another type of fee that some funds charge their shareholders when they buy shares. Unlike a front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some of the fund's costs associated with the purchase. Deferred Sales Charge (Load) a fee you pay when you sell your shares. Also known as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The most common type of back-end sales load is the "contingent deferred sales load" (also known as a "CDSC" or "CDSL"). The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to zero if the investor holds his or her shares long enough. Redemption Fee another type of fee that some funds charge their shareholders when they sell or redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and is typically used to defray fund costs associated with a shareholder's redemption. Exchange Fee a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group or "family of funds." Account fee a fee that some funds separately impose on investors in connection with the maintenance of their accounts. For example, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount. Annual Fund Operating Expenses Management Fees fees that are paid out of fund assets to the fund's investment adviser for investment portfolio management, any other management fees payable to the fund's investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the "Other Expenses" category (discussed below). Distribution [and/or Service] Fees ("12b-1" Fees) fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. Other Expenses expenses not included under "Management Fees" or "Distribution or Service

(12b-1) Fees," such as any shareholder service expenses that are not already included in the 12b1 fees, custodial expenses, legal and accounting expenses, transfer agent expenses, and other administrative expenses. Total Annual Fund Operating Expenses ("Expense Ratio") the line of the fee table that represents the total of all of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. Looking at the expense ratio can help you make comparisons among funds. A Word About "No-Load" Funds Some funds call themselves "no-load." As the name implies, this means that the fund does not charge any type of sales load. But, as discussed above, not every type of shareholder fee is a "sales load." A no-load fund may charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and account fees. No-load funds will also have operating expenses.

Be sure to review carefully the fee tables of any funds you're considering, including no-load funds. Even small differences in fees can translate into large differences in returns over time. For example, if you invested $10,000 in a fund that produced a 10% annual return before expenses and had annual operating expenses of 1.5%, then after 20 years you would have roughly $49,725. But if the fund had expenses of only 0.5%, then you would end up with $60,858 an 18% difference. A mutual fund cost calculator can help you understand the impact that many types of fees and expenses can have over time. It takes only minutes to compare the costs of different mutual funds. A Word About Breakpoints Some mutual funds that charge front-end sales loads will charge lower sales loads for larger investments. The investment levels required to obtain a reduced sales load are commonly referred to as "breakpoints." The SEC does not require a fund to offer breakpoints in the fund's sales load. But, if breakpoints exist, the fund must disclose them. In addition, a NASD member brokerage firm should not sell you shares of a fund in an amount that is "just below" the fund's sales load breakpoint simply to earn a higher commission. Each fund company establishes its own formula for how they will calculate whether an investor is entitled to receive a breakpoint. For that reason, it is important to seek out breakpoint information from your financial advisor or the fund itself. You'll need to ask how a particular fund establishes eligibility for breakpoint discounts, as well as what the fund's breakpoint amounts are. NASD's Mutual Fund Breakpoint Search Tool can help you determine whether you're entitled to breakpoint discounts.

Classes of Funds Many mutual funds offer more than one class of shares. For example, you may have seen a fund that offers "Class A" and "Class B" shares. Each class will invest in the same "pool" (or investment portfolio) of securities and will have the same investment objectives and policies. But each class will have different shareholder services and/or distribution arrangements with different fees and expenses. As a result, each class will likely have different performance results. A multi-class structure offers investors the ability to select a fee and expense structure that is most appropriate for their investment goals (including the time that they expect to remain invested in the fund). Here are some key characteristics of the most common mutual fund share classes offered to individual investors: Class A Shares Class A shares typically impose a front-end sales load. They also tend to have a lower 12b-1 fee and lower annual expenses than other mutual fund share classes. Be aware that some mutual funds reduce the front-end load as the size of your investment increases. If you're considering Class A shares, be sure to inquire about breakpoints. Class B Shares Class B shares typically do not have a front-end sales load. Instead, they may impose a contingent deferred sales load and a 12b-1 fee (along with other annual expenses). Class B shares also might convert automatically to a class with a lower 12b-1 fee if the investor holds the shares long enough. Class C Shares Class C shares might have a 12b-1 fee, other annual expenses, and either a front- or back-end sales load. But the front- or back-end load for Class C shares tends to be lower than for Class A or Class B shares, respectively. Unlike Class B shares, Class C shares generally do not convert to another class. Class C shares tend to have higher annual expenses than either Class A or Class B shares. Tax Consequences When you buy and hold an individual stock or bond, you must pay income tax each year on the dividends or interest you receive. But you won't have to pay any capital gains tax until you actually sell and unless you make a profit. Mutual funds are different. When you buy and hold mutual fund shares, you will owe income tax on any ordinary dividends in the year you receive or reinvest them. And, in addition to owing taxes on any personal capital gains when you sell your shares, you may also have to pay taxes each year on the fund's capital gains. That's because the law requires mutual funds to distribute capital gains to shareholders if they sell securities for a profit that can't be offset by a loss. Tax Exempt Funds: If you invest in a tax-exempt fund such as a municipal bond fund some or all of your dividends will be exempt from federal (and sometimes state and local) income tax. You will, however, owe taxes on any capital gains. Bear in mind that if you receive a capital gains distribution, you will likely owe taxes even if the fund has had a negative return from the point during the year when you purchased your shares. For this reason, you should call the fund to find out when it makes distributions so you won't pay more than your fair share of taxes. Some funds post that information on their websites.

SEC rules require mutual funds to disclose in their prospectuses after-tax returns. In calculating after-tax returns, mutual funds must use standardized formulas similar to the ones used to calculate before-tax average annual total returns. You'll find a fund's after-tax returns in the "Risk/Return Summary" section of the prospectus. When comparing funds, be sure to take taxes into account. Avoiding Common Pitfalls If you decide to invest in mutual funds, be sure to obtain as much information about the fund before you invest. And don't make assumptions about the soundness of the fund based solely on its past performance or its name. Sources of Information Prospectus When you purchase shares of a mutual fund, the fund must provide you with a prospectus. But you can and should request and read a fund's prospectus before you invest. The prospectus is the fund's selling document and contains valuable information, such as the fund's investment objectives or goals, principal strategies for achieving those goals, principal risks of investing in the fund, fees and expenses, and past performance. The prospectus also identifies the fund's managers and advisers and describes how to purchase and redeem fund shares. While they may seem daunting at first, mutual fund prospectuses contain a treasure trove of valuable information. The SEC requires funds to include specific categories of information in their prospectuses and to present key data (such as fees and past performance) in a standard format so that investors can more easily compare different funds. Here's some of what you'll find in mutual fund prospectuses: Date of Issue The date of the prospectus should appear on the front cover. Mutual funds must update their prospectuses at least once a year, so always check to make sure you're looking at the most recent version. Risk/Return Bar Chart and Table Near the front of the prospectus, right after the fund's narrative description of its investment objectives or goals, strategies, and risks, you'll find a bar chart showing the fund's annual total returns for each of the last 10 years (or for the life of the fund if it is less than 10 years old). All funds that have had annual returns for at least one calendar year must include this chart. Fee Table Following the performance bar chart and annual returns table, you'll find a table that describes the fund's fees and expenses. These include the shareholder fees and annual fund operating expenses described in greater detail above. The fee table includes an example that will help you compare costs among different funds by showing you the costs associated with investing a hypothetical $10,000 over a 1-, 3-, 5-, and 10-year period. Financial Highlights This section, which generally appears towards the back of the prospectus, contains audited data concerning the fund's financial performance for each of the past 5 years. Here you'll find net asset values (for both the beginning and end of each period), total returns, and various ratios, including the ratio of expenses to average net assets, the ratio of net income to average net assets, and the portfolio turnover rate.

Profile Some mutual funds also furnish investors with a "profile," which summarizes key information contained in the fund's prospectus, such as the fund's investment objectives, principal investment strategies, principal risks, performance, fees and expenses, after-tax returns, identity of the fund's investment adviser, investment requirements, and other information. Statement of Additional Information ("SAI") Also known as "Part B" of the registration statement, the SAI explains a fund's operations in greater detail than the prospectus including the fund's financial statements and details about the history of the fund, fund policies on borrowing and concentration, the identity of officers, directors, and persons who control the fund, investment advisory and other services, brokerage commissions, tax matters, and performance such as yield and average annual total return information. If you ask, the fund must send you an SAI. The back cover of the fund's prospectus should contain information on how to obtain the SAI. Shareholder Reports A mutual fund also must provide shareholders with annual and semi-annual reports within 60 days after the end of the fund's fiscal year and 60 days after the fund's fiscal mid-year. These reports contain a variety of updated financial information, a list of the fund's portfolio securities, and other information. The information in the shareholder reports will be current as of the date of the particular report (that is, the last day of the fund's fiscal year for the annual report, and the last day of the fund's fiscal mid-year for the semi-annual report). Past Performance A fund's past performance is not as important as you might think. Advertisements, rankings, and ratings often emphasize how well a fund has performed in the past. But studies show that the future is often different. This year's "number one" fund can easily become next year's below average fund. Be sure to find out how long the fund has been in existence. Newly created or small funds sometimes have excellent short-term performance records. Because these funds may invest in only a small number of stocks, a few successful stocks can have a large impact on their performance. But as these funds grow larger and increase the number of stocks they own, each stock has less impact on performance. This may make it more difficult to sustain initial results. While past performance does not necessarily predict future returns, it can tell you how volatile (or stable) a fund has been over a period of time. Generally, the more volatile a fund, the higher the investment risk. If you'll need your money to meet a financial goal in the near-term, you probably can't afford the risk of investing in a fund with a volatile history because you will not have enough time to ride out any declines in the stock market. Looking Beyond a Fund's Name Don't assume that a fund called the "XYZ Stock Fund" invests only in stocks or that the "Martian High-Yield Fund" invests only in the securities of companies headquartered on the planet Mars. The SEC requires that any mutual fund with a name suggesting that it focuses on a particular type of investment must invest at least 80% of its assets in the type of investment suggested by

its name. But funds can still invest up to one-fifth of their holdings in other types of securities including securities that you might consider too risky or perhaps not aggressive enough. Bank Products versus Mutual Funds Many banks now sell mutual funds, some of which carry the bank's name. But mutual funds sold in banks, including money market funds, are not bank deposits. As a result, they are not federally insured by the Federal Deposit Insurance Corporation (FDIC). Money Market Matters Don't confuse a "money market fund" with a "money market deposit account." The names are similar, but they are completely different: A money market fund is a type of mutual fund. It is not guaranteed or FDIC insured. When you buy shares in a money market fund, you should receive a prospectus. A money market deposit account is a bank deposit. It is guaranteed and FDIC insured. When you deposit money in a money market deposit account, you should receive a Truth in Savings form.

Glossary of Key Mutual Fund Terms 12b-1 Fees fees paid by the fund out of fund assets to cover the costs of marketing and selling fund shares and sometimes to cover the costs of providing shareholder services. "Distribution fees" include fees to compensate brokers and others who sell fund shares and to pay for advertising, the printing and mailing of prospectuses to new investors, and the printing and mailing of sales literature. "Shareholder Service Fees" are fees paid to persons to respond to investor inquiries and provide investors with information about their investments. Account Fee a fee that some funds separately impose on investors for the maintenance of their accounts. For example, accounts below a specified dollar amount may have to pay an account fee. Back-end Load a sales charge (also known as a "deferred sales charge") investors pay when they redeem (or sell) mutual fund shares, generally used by the fund to compensate brokers. Classes different types of shares issued by a single fund, often referred to as Class A shares, Class B shares, and so on. Each class invests in the same "pool" (or investment portfolio) of securities and has the same investment objectives and policies. But each class has different shareholder services and/or distribution arrangements with different fees and expenses and therefore different performance results. Closed-End Fund a type of investment company that does not continuously offer its shares for sale but instead sells a fixed number of shares at one time (in the initial public offering) which then typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. Legally known as a "closed-end company."

Contingent Deferred Sales Load a type of back-end load, the amount of which depends on the length of time the investor held his or her shares. For example, a contingent deferred sales load might be (X)% if an investor holds his or her shares for one year, (X-1)% after two years, and so on until the load reaches zero and goes away completely. Conversion a feature some funds offer that allows investors to automatically change from one class to another (typically with lower annual expenses) after a set period of time. The fund's prospectus or profile will state whether a class ever converts to another class. Deferred Sales Charge see "back-end load" (above). Distribution Fees fees paid out of fund assets to cover expenses for marketing and selling fund shares, including advertising costs, compensation for brokers and others who sell fund shares, and payments for printing and mailing prospectuses to new investors and sales literature prospective investors. Sometimes referred to as "12b-1 fees." Exchange Fee a fee that some funds impose on shareholders if they exchange (transfer) to another fund within the same fund group. Exchange-Traded Funds a type of an investment company (either an open-end company or UIT) whose objective is to achieve the same return as a particular market index. ETFs differ from traditional open-end companies and UITs, because, pursuant to SEC exemptive orders, shares issued by ETFs trade on a secondary market and are only redeemable from the fund itself in very large blocks (blocks of 50,000 shares for example). Expense Ratio the fund's total annual operating expenses (including management fees, distribution (12b-1) fees, and other expenses) expressed as a percentage of average net assets. Front-end Load an upfront sales charge investors pay when they purchase fund shares, generally used by the fund to compensate brokers. A front-end load reduces the amount available to purchase fund shares. Index Fund describes a type of mutual fund or Unit Investment Trust (UIT) whose investment objective typically is to achieve the same return as a particular market index, such as the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index. Investment Adviser generally, a person or entity who receives compensation for giving individually tailored advice to a specific person on investing in stocks, bonds, or mutual funds. Some investment advisers also manage portfolios of securities, including mutual funds. Investment Company a company (corporation, business trust, partnership, or limited liability company) that issues securities and is primarily engaged in the business of investing in securities. The three basic types of investment companies are mutual funds, closed-end funds, and unit investment trusts.

Load see "Sales Charge." Management Fee fee paid out of fund assets to the fund's investment adviser or its affiliates for managing the fund's portfolio, any other management fee payable to the fund's investment adviser or its affiliates, and any administrative fee payable to the investment adviser that are not included in the "Other Expenses" category. A fund's management fee appears as a category under "Annual Fund Operating Expenses" in the Fee Table. Market Index a measurement of the performance of a specific "basket" of stocks considered to represent a particular market or sector of the U.S. stock market or the economy. For example, the Dow Jones Industrial Average (DJIA) is an index of 30 "blue chip" U.S. stocks of industrial companies (excluding transportation and utility companies). Mutual Fund the common name for an open-end investment company. Like other types of investment companies, mutual funds pool money from many investors and invest the money in stocks, bonds, short-term money-market instruments, or other securities. Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market. NAV (Net Asset Value) the value of the fund's assets minus its liabilities. SEC rules require funds to calculate the NAV at least once daily. To calculate the NAV per share, simply subtract the fund's liabilities from its assets and then divide the result by the number of shares outstanding. No-load Fund a fund that does not charge any type of sales load. But not every type of shareholder fee is a "sales load," and a no-load fund may charge fees that are not sales loads. Noload funds also charge operating expenses. Open-End Company the legal name for a mutual fund. An open-end company is a type of investment company Operating Expenses the costs a fund incurs in connection with running the fund, including management fees, distribution (12b-1) fees, and other expenses. Portfolio an individual's or entity's combined holdings of stocks, bonds, or other securities and assets. Profile summarizes key information about a mutual fund's costs, investment objectives, risks, and performance. Although every mutual fund has a prospectus, not every mutual fund has a profile. Prospectus describes the mutual fund to prospective investors. Every mutual fund has a prospectus. The prospectus contains information about the mutual fund's costs, investment objectives, risks, and performance. You can get a prospectus from the mutual fund company (through its website or by phone or mail). Your financial professional or broker can also provide you with a copy.

Purchase Fee a shareholder fee that some funds charge when investors purchase mutual fund shares. Not the same as (and may be in addition to) a front-end load. Redemption Fee a shareholder fee that some funds charge when investors redeem (or sell) mutual fund shares. Redemption fees (which must be paid to the fund) are not the same as (and may be in addition to) a back-end load (which is typically paid to a broker). The SEC generally limits redemption fees to 2%. Sales Charge (or "Load") the amount that investors pay when they purchase (front-end load) or redeem (back-end load) shares in a mutual fund, similar to a commission. The SEC's rules do not limit the size of sales load a fund may charge, but NASD rules state that mutual fund sales loads cannot exceed 8.5% and must be even lower depending on other fees and charges assessed. Shareholder Service Fees fees paid to persons to respond to investor inquiries and provide investors with information about their investments. See also "12b-1 fees." Statement of Additional Information (SAI) conveys information about an open- or closed-end fund that is not necessarily needed by investors to make an informed investment decision, but that some investors find useful. Although funds are not required to provide investors with the SAI, they must give investors the SAI upon request and without charge. Also known as "Part B" of the fund's registration statement. Total Annual Fund Operating Expense the total of a fund's annual fund operating expenses, expressed as a percentage of the fund's average net assets. You'll find the total in the fund's fee table in the prospectus. Unit Investment Trust (UIT) a type of investment company that typically makes a one-time "public offering" of only a specific, fixed number of units. A UIT will terminate and dissolve on a date established when the UIT is created (although some may terminate more than fifty years after they are created). UITs do not actively trade their investment portfolios. How do I invest in a scheme of a mutual fund? Mutual funds normally come out with an advertisement in newspapers publishing the date of launch of the new schemes. Investors can also contact the agents and distributors of mutual funds who are spread all over the country for necessary information and application forms, filled application forms can be deposited with mutual funds through these agents/distributors etc. Now a days post offices and banks also distribute the units of mutual funds. However, you may please note that the mutual funds schemes being marketed by banks and post offices should not be taken as their own schemes and no assurance of returns is given by them. How do I fill up the application form of a mutual fund scheme? You must mention clearly your name, address, number of units applied for and such other information as required in the application form. You must give your bank account details so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual fund at a later date for the purpose of dividend or repurchase. Any changes in the address, bank account details etc at a

later date should be informed to the mutual fund immediately. Can non-resident Indians (NRIs) invest in mutual funds? Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect are given in the offer documents of the schemes. How much should I invest in debt or equity oriented schemes? It is for you to decide as to how much to invest where but you should take into account your risk taking capacity, age, financial position, etc. before making any investment. As already mentioned, the schemes invest in different type of securities as disclosed in the offer documents and offer different returns and risks. What should I look for into an offer document? An abridged offer document, which contains very useful information, is required to be given to the prospective investor by the mutual fund. You should read the whole offer document very carefully. The application form for subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. Due care must be given to portions relating to main features of the scheme, risk factors, initial issue expenses and recurring expenses to be charged to the scheme, entry or exit loads, sponsors track record, educational qualification and work experience of key personnel including fund managers, performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed. When will the investor get certificate or statement of account after investing in a mutual fund? Mutual funds are required to despatch certificates or statements of accounts within six weeks from the date of closure of the initial subscription of the scheme. In case of close-ended schemes, the investors would get either a demat account statement or unit certificates as these are traded in the stock exchanges. In case of open-ended schemes, a statement of account is issued by the mutual fund within 30 days from the date of closure of initial public offer of the scheme. The procedure of repurchase is mentioned in the offer document. What is sale or repurchase/redemption price? The price or NAV a unitholder is charged while investing in an open-ended scheme is called sales price. It may include sales load, if any. Repurchase or redemption price is the price or NAV at which an open-ended scheme purchases or redeems its units from the unitholders. It may include exit load, if any. What is an assured return scheme? Assured return schemes are those schemes that assure a specific return to the unitholders irrespective of performance of the scheme. A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer document. Investors should carefully read the offer document whether return is assured for the entire period of the scheme or only for a certain period. Some schemes assure returns one year at a time and they review and change it at the beginning of the next year. Can a mutual fund change the asset allocation while deploying funds of investors? Considering the market trends, any prudent fund managers can change the asset allocation i.e. he can invest higher or lower percentage of the fund in equity or debt instruments compared to what is disclosed in the offer document. It can be done on a short term basis on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed certain flexibility in altering the asset allocation considering the interest of the investors. In case the mutual fund wants to change the asset allocation on a permanent basis, they are required to inform the unitholders and giving them option to exit the scheme at prevailing NAV without any load.

 How do I know where the mutual fund scheme has invested money mobilised from the investors? The mutual funds are required to disclose full portfolios of all of their schemes on half-yearly basis which are published in the newspapers. Some mutual funds send the portfolios to their unitholders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements also required to disclose illiquid securities in the portfolio, investment made in rated and unrated debt securities, non-performing assets (NPAs), etc. Some of the mutual funds send newsletters to the unitholders on quarterly basis which also contain portfolios of the schemes. Can a mutual fund change the nature of the scheme from the one specified in the offer document? Yes, however, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc. can be carried out unless a written communication is sent to each unitholder and an advertisement is given in one English daily having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. The mutual funds are also required to follow similar procedure while converting the scheme from close-ended to open-ended scheme and in case of change in sponsor. The mutual funds are required to inform about any material changes to their unitholders. At present, offer documents are required to be revised and updated at least once in two years. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time offer document is revised and reprinted. How long will it take for transfer of units after purchase from stock markets in case of closeended schemes? According to SEBI Regulations, transfer of units is required to be done within thirty days from the date of lodgment of certificates with the mutual fund. As a unitholder, how much time will it take to receive dividends/repurchase proceeds? A mutual fund is required to despatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unitholder. In case of failures to despatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present). How do I know the performance of a mutual fund scheme? The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. NAV of mutual funds are required to be published in newspapers. The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) http://investor.sebi.gov.in/www.amfiindia.com/index.html and thus the investors can access NAVs of all mutual funds at one place. The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also look into other details like percentage of expenses of total assets as these have

an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unitholders at the end of the year. Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme. Is there any difference between issue of a mutual fund and an initial public offering (IPO) of a company? Yes, there is a difference. IPOs of companies may open at lower or higher price than the issue price depending on market sentiment and perception of investors. However, in the case of mutual funds, the par value of the units may not rise or fall immediately after allotment. A mutual fund scheme takes some time to make investment in securities. NAV of the scheme depends on the value of securities in which the funds have been deployed. If schemes in the same category of different mutual funds are available, should I choose a scheme with lower NAV? Some of the investors have the tendency to prefer a scheme that is available at lower NAV compared to the one available at higher NAV. Sometimes, they prefer a new scheme which is issuing units at Rs.10 whereas the existing schemes in the same category are available at much higher NAVs. Investors may please note that in case of mutual funds schemes, lower or higher NAVs of similar type schemes of different mutual funds have no relevance. On the other hand, investors should choose a scheme based on its merit considering performance track record of the mutual fund, service standards, professional management etc. How do I choose a scheme for investment from a number of schemes available? As already mentioned, the investors must read the offer document of the mutual fund scheme very carefully. They may also look into the past track record of performance of the scheme or other schemes of the same mutual fund. They may also compare the performance with other schemes having similar investment objectives. Though past performance of a scheme is not an indicator of its future performance and good performance in the past may or may not be sustained in the future, this is one of the important factors for making investment decision. In case of debt oriented schemes, apart from looking into past returns, the investors should also see the quality of debt instruments which is reflected in their rating. A scheme with lower rate of return but having investments in better rated instruments may be safer. Similarly, in equities schemes also, investors may look for quality of portfolio. They may also seek advice of experts. Are the companies having names like mutual benefit the same as mutual funds schemes? You should not assume some companies having the name "mutual benefit" as mutual funds. These companies do not come under the purview of SEBI. On the other hand, mutual funds can mobilise funds from the investors by launching schemes only after getting registered with SEBI as mutual funds. Is the higher net worth of the sponsor a guarantee for better returns? In the offer document of any mutual fund scheme, financial performance including the net worth

of the sponsor for a period of three years is required to be given. The only purpose is that the investors should know the track record of the company which has sponsored the mutual fund. However, higher net worth of the sponsor does not mean that the scheme would give better returns or the sponsor would compensate in case the NAV falls. Where do I look out for information on mutual funds? Almost all the mutual funds have their own web sites. You can also access the NAVs, half-yearly results and portfolios of all mutual funds at the web site of Association of mutual funds in India (AMFI) http://investor.sebi.gov.in/www.amfiindia.com/index.html. AMFI has also published useful literature for the investors. You can also log on to the web site of SEBI i.e. http://investor.sebi.gov.in/www.sebi.gov.in/index.html and go to "Mutual Funds" section for information on SEBI regulations and guidelines, data on mutual funds, draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual reports of SEBI available on the web site, a lot of information on mutual funds is given. Many newspapers also publish useful information on mutual funds on daily and weekly basis. Investors may approach their agents and distributors to guide them in this regard. If mutual fund scheme is wound up, what happens to money invested? In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV after adjustment of expenses. Unitholders are entitled to receive a report on winding up from the mutual funds which gives all necessary details. How can I redress my complaints? You would find the name of contact person, in the offer document of the mutual fund scheme, whom you may approach in case of any query, complaints or grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The names of the directors of asset management company and trustees are also given in the offer documents. You can also approach SEBI for redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the concerned mutual fund and follows up with them till the matter is resolved.