INTRODUCTION TO MUTUAL FUND AND ITS VARIOUS ASPECTS.

Mutual fund is a trust that pools the savings of a number of investors who share a common financial goal. This pool of money is invested in accordance with a stated objective. The joint ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determined each day.

Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unit holders. When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder. Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors

All About Mutual Funds

Before we understand what is mutual fund, its very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.

Stocks : Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.

Bonds : Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64.

Overview of existing schemes existed in mutual fund category

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry. BY NATURE 1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.

MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.

Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.

3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provide growth and the debt part provides stability in returns.

Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. BY INVESTMENT OBJECTIVE

Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.

Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.

Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

OTHER SCHEMES

Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.

Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.

2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.

3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.

4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.

5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesnt perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor himself, for picking up stocks. 2. Costs The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Investment Objective To generate long term capital appreciation from a portfolio of equity and equity-linked instruments primarily drawn from the companies in BSE 200 index. Basic Scheme Information Nature of Scheme Inception Date Open Ended Growth Scheme October 11, 1996 Existing Plan : Dividend Option,Growth Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. Direct Plan (w.e.f. 01 Jan 2013) : Dividend Option, Growth

Option/Plan

Entry Load (For Lumpsum Purchases and investments through SIP/STP)

Option. The Dividend Option offers Dividend Payout and Reinvestment Facility. NIL Unfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors' assessment of various factors including the service rendered by the ARN Holder.

Please click here to go through the addendum. In respect of each purchase / switchin of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment.. No Exit Load is payable if Units are redeemed / Exit Load switched-out after 1 year from the date of allotment. (as a % of the Applicable NAV) Introduction of Direct Plan - modification in the Exit Load provisions, click here to read Minimum Application Amount (click here for SIP Details) Lock-In-Period Net Asset Value Periodicity Redemption Proceeds Tax Benefits (As per present Laws) For new investors : Rs.5000 and any amount thereafter. For existing investors : Rs. 1000 and any amount thereafter. Nil Every Business Day. Normally dispatched within 3-4 Business days Please click for details On the first 100 crores daily net assets 2.50% On the next 300 crores daily net assets 2.25% On the next 300 crores daily net assets 2.00% On the balance of the net assets 1.75% Current Expense Ratio (#) (Effective Date 01st October 2012) In addition to the above a charge of 20 bps on the daily net assets plus a proportionate charge in respect sales beyond T-15 cities subject to maximum of 30 bps on daily net assets

Excluding Service Tax on Investment Management Fees, if any. Direct Plan shall have a lower expense ratio by 0.55%. (#) Any change in the expense ratio will be updated within two working days. Plan Name NAV Date Dividend Option 07 Aug 2013 Growth Option 07 Aug 2013 Direct Plan - Dividend Option 07 Aug 2013 Direct Plan - Growth Option 07 Aug 2013 TOP Investment Pattern The asset allocation under the Scheme will be as follows : Sr.No. Asset Type (% of Portfolio) NAV Amount 34.4670 193.2820 34.5890 193.9420

Risk Profile

1 2

Equities and Equity Related Instruments

Upto 100% (including use of derivatives for hedging and other uses as permitted by prevailing SEBI Regulations)

Medium to High

Debt & Money Market Balance in Debt & Money Market Instruments Low to Medium Instruments*

* Investment in Securitised debt, if undertaken, would not exceed 20% of the net assets of the scheme. The Scheme may also invest upto 25% of net assets of the Scheme in derivatives such as Futures & Options and such other derivative instruments as may be introduced from time to time for the purpose of hedging and portfolio balancing and and other uses as may be permitted under the regulations and guidelines. The Scheme may also invest a part of its corpus, not exceeding 40% of its net assets, in overseas markets in Global Depository Receipts (GDRs), ADRs, overseas equity, bonds and mutual funds and such other instruments as may be allowed under the Regulations from time to time. Subject to the Regulations and the applicable guidelines, the Scheme may, engage in Stock Lending activities. Also refer to Section on Stock Lending by the Fund in the SID. If the investment in equities and related instruments falls below 65% of the portfolio of the Scheme at any point in time, it would be endeavoured to review and rebalance the composition. TOP Investment Strategy

The investment strategy of primarily restricting the equity portfolio to the BSE 200 Index scrips is intended to reduce risks while maintaining steady growth. Stock specific risk will be minimised by investing only in those companies / industries that have been thoroughly researched by the investment manager's research team. Risk will also be reduced through a diversification of the portfolio. The Trustee may from time to time at their absolute discretion review and modify the strategy, provided such modification is in accordance with the Regulations or in the event of a discontinuation of or change in the compilation or the constituents of the BSE 200 Index. TOP Systematic Investment Plan (SIP) Details Serial Scheme Name No. Minimum Application Entry Load Amount(Rs.)

Exit Load

Rs.500 for HDFC Top 200 Monthly & Fund - Dividend / Rs.1500 for Growth* Quarterly

NIL

In respect of each purchase / switch-in of units, an Exit Load of 1.00% is payable if Units are redeemed / switched-out within 1 year from the date of allotment No Exit Load is payable if Units are redeemed / switched-out after 1

year from the date of allotment.

HDFC Rajiv Gandhi Equity Savings Scheme Investment Objective | Scheme Information & NAV | Investment Pattern & Strategy | Fund Manager | Offer Document / Scheme Information Document (SID) | Application Form

This product is suitable for investors who are seeking*: capital appreciation over long term. investment in equity securities specified as Eligible Securities in Rajiv Gandhi Equity Savings Scheme. high risk. (BROWN) *Investors should consult their financial advisers if in doubt about whether the product is suitable for them. Note: Risk is represented as: (BLUE) investors understand that their principal will be at low risk (YELLOW)) investors understand that their principal will be at medium risk (BROWN) investors understand that their principal will be at high risk

Investment Objective To generate long term capital appreciation from a portfolio of Eligible Securities as specified in Rajiv Gandhi Equity Savings Scheme. There is no assurance that the investment objective of the Scheme will be realized. Basic Scheme Information A Close Ended Equity Scheme investing in Eligible Securities as per Rajiv Gandhi Equity Savings Scheme, 2012 Click here to view FAQs February 18, 2013 March 14, 2013 The Scheme offers 4 series having a term/duration of 3 years from the date of allotment of Units. The respective Series under the Scheme offer Regular Plan and Direct Plan. Regular Plan is for investors who wish to route their investment through any distributor. Direct Plan is for investors who wish to invest directly with the Fund without routing the investment through any distributor.

Nature of Scheme New Fund Offer of Series 1 February 2013 Opens On New Fund Offer of Series 1 February 2013 Closes On Term/Duration of the Series under the Scheme

Plan/Option

Both Regular Plan and Direct Plan offer Growth Option and Dividend Payout Option. Not Applicable. Pursuant to SEBI circular no. SEBI/IMD/ CIR No.4/ Entry Load (as a % of the Applicable NAV) 168230/09 dated June 30, 2009, no entry load will be charged by the Scheme to the investor.

Upfront commission shall be paid directly by the investor to the ARN Holder (AMFI registered Distributor) based on the investors' assessment of various factors including the service rendered by the ARN Holder. Not Applicable. Exit Load (as a % of the Applicable NAV) The Units under the respective Series cannot be directly redeemed with the Fund before the Maturity/ Final Redemption date as the Units are listed on the stock exchange(s). The Minimum amount for application (Purchase / Switch-in) Minimum Application Amount during the NFO period of the respective Series is Rs. 500 and in multiple of Rs. 10 thereafter. Units held under the Scheme by the Unit holders and as declared/designated for availing tax benefits shall be subject to lock-in-periods viz. fixed lock-in and flexible lock-in as specified under the notified Rajiv Gandhi Equity Savings Scheme, 2012. The fixed lock-in-period shall commence from the date of purchase of such Units in the relevant financial year and end one year from the date of purchase of the last set of Units of the Scheme (in the same financial year) on which Lock-In-Period deduction is claimed under the RGESS. The flexible lock-in period will be of two years beginning immediately after the end of the fixed lock-in period. The Depositories will be required to ensure the enforcement of the lock-in on Units under the Scheme. Every Business Day. The Units of the Scheme are proposed to be listed on Capital Market Segment of the National Stock Exchange of India Limited (NSE) and BSE Limited (BSE). An investor can subscribe (buy) / redeem (sell) Units on a continuous basis on the stock exchange(s) on which the Units are listed during the trading hours on all the trading days. Please refer to NSE and BSE Disclaimer clauses mentioned in the Scheme Information Document. BSE 100 Index As per Section 80CCG of the Income-tax Act, 1961, investments made by New Retail Investor in this Scheme will qualify for a 50% deduction of the actual amount invested from the taxable income of the financial year. The maximum investment permissible for claiming deduction in a financial year is Rs. 50,000. The Unit holders who wish to avail tax deduction under HRGESS shall be required to purchase/subscribe as well as hold the units under demat mode only.

NAV Disclosure

Listing

Benchmark

Tax Benefit under Section 80CCG

Click here to read the Notification received from Ministry of Finance Click here to read the SEBI Circular.
On the first 100 crores daily net assets 2.50% On the next 300 crores daily net assets 2.25% On the next 300 crores daily net assets 2.00% On the balance of the net assets 1.75% In addition to the above a charge of 20 bps on the daily net assets plus a proportionate charge in respect sales beyond T-15 cities subject to maximum of 30 bps on daily net assets.

Current Expense Ratio (#) (Effective Date 22nd March 2013)

Characteristics of Mutual Funds 1. Shares of a mutual fund are bought from the fund itself (or through a broker for the fund); they cant be bought on a secondary market like NYSE or Nasdaq. 2. On purchase, investors pay an amount equal to 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).

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3. Redemption is a feature which allows shares of a mutual fund to be sold back by the investor to the fund at their approximate per share NAV, minus any fees the fund imposes at that time (such as deferred sales loads or redemption fees). 4. Being open-ended allows mutual funds to 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. 5. The investment portfolios of mutual funds typically are managed by separate entities known as "investment advisers" that are registered with the SEC. Why Invest in a Mutual Fund? Mutual funds make saving and investing simple, accessible, and affordable. Mutual fund offers certain advantages to individual, amateur investors who trade in small denominations. Professional management: Theoretically, professional money managers research, select and monitor the performance of the securities the fund purchases. The mutual fund will have a fund manager that trades the pooled money on a regular basis. Thus investors who dont have the time or expertise to manage their portfolios find MFs convenient as it is a relatively inexpensive way of getting a full-time manager to make and monitor investments for them.

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Diversification: Mutual funds typically own several different stocks in many different industries, sometimes going up to a hundred different stocks in large sized mutual funds. It enables diversification and spreading of risk by investing in a portfolio

of securities belonging to industries having inversely correlated income streams.

Economies of Scale: Since mutual funds buy and sell a large amount of securities at a time, its transaction costs are lower than what an individual investor would pay for trading in securities. Also, because of the pooling of funds, individual investors can make investments in small denominations in the securities market which is not possible if they invest on their own.

Liquidity: Just like an individual stock, a mutual fund allows its investors to readily redeem their shares at the current NAV plus any fees and charges assessed on redemption at any time. The price per share at which the investors can redeem shares is known as the funds net asset value (NAV). NAV is the current market value of all the funds assets, minus liabilities, divided by the total number of outstanding shares.

Convenience: An investor can purchase or sell fund shares directly from a fund or through a broker, financial planner, bank or insurance agent, by mail, over the telephone, and increasingly by personal computer. He can also arrange for automatic reinvestment or periodic distribution of the dividends and capital gains paid by the fund. Funds may offer a wide variety of other services, including monthly or quarterly account statements, tax information, and 24-hour phone and computer access to fund and account information.

Protecting Investors: Not only are mutual funds subject to compliance with their selfimposed restrictions and limitations, they are also highly regulated by the federal government through the U.S. Securities and Exchange Commission (SEC). As part of this government regulation, all funds must meet certain operating standards, observe strict antifraud rules, and disclose complete information to current and potential investors. These laws are strictly enforced and designed to protect investors from fraud and abuse.

How to read a Mutual Fund Table

Columns 1 & 2: 52 Week Hi and Low These show the highest and lowest prices the mutual fund has experienced over the previous 52-weeks (one year). This typically does not include the previous day's price. Column 3: Fund Name This column lists the name of the mutual fund. The company that manages the fund is written above in bold type. Column 4: Fund Specifics Different letters and symbols have various meanings. For example, "N" means no load, "F" is front end load, and "B" means the fund has both front and back-end fees. Column 5: Dollar Change This states the dollar change in the price of the mutual fund from the previous day's trading. Page 18 of 25

Column 6: % Change This states the percentage change in the price of the mutual fund from the previous day's trading. Column 7: Week High This is the highest price the fund traded at during the past week. Column 8: Week Low This is the lowest price the fund traded at during the past week. Column 9: Close The last price at which the fund was traded is shown in

this column. Column 10: Week's Dollar Change This represents the dollar change in the price of the mutual fund from the previous week.