OBJECTIVE OF THE STUDY

 To study the concept of Mutual Funds.

 To know the history of Mutual Funds.
 To study the Investment Strategies.
 To study the Risk v/s Returns Graph.
 To understand the advantages and disadvantages of Mutual
Funds.

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 INTRODUCTION
Mutual fund is a mechanism for pooling money by issuing units to the
investors and investing funds in securities in accordance with objectives as
disclosed in offer document.
Investments in securities are spread across a wide cross-section of
industries and sectors and thus the risk is diversified because all stocks may not
move in the same direction in the same proportion at the same time. Mutual
funds issue units to the investors in accordance with quantum of money invested
by them. Investors of mutual funds are known as unit holders.
The profits or losses are shared by investors in proportion to their
investments. Mutual funds normally come out with a number of schemes which
are launched from time to time with different investment objectives. A mutual
fund is required to be registered with Securities and Exchange Board of India
(SEBI) before it can collect funds from the public.

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 HISTORY OF MUTUAL FUNDS
Unit Trust of India was the first mutual fund set up in India in the year
1963. In late 1980s, Government allowed public sector banks and institutions to
set up mutual funds. In the year 1992, Securities and Exchange Board of India
(SEBI) Act was passed. The objectives of SEBI are – to protect the interest of
investors in securities and to promote the development of and to regulate the
securities market..
As far as mutual funds are concerned, SEBI formulates policies,
regulates and supervises mutual funds to protect the interest of the investors.
SEBI notified regulations for mutual funds in 1993. Thereafter, mutual funds
sponsored by private sector entities were allowed to enter the capital market.
The regulations were fully revised in 1996 and have been amended thereafter
from time to time. SEBI has also issued guidelines through circulars to mutual
funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector
entities including those promoted by foreign entities are governed by the same
set of Regulations. There is no distinction in regulatory requirements for these
mutual funds and all are subject to monitoring and inspections by SEBI.
In the last few years the MF Industry has grown significantly. The history of
Mutual Funds in India can be broadly divided into five distinct phases as
follows:
1. First Phase: 1964-1987

The Mutual Fund industry in India started in 1963 with formation of UTI
in 1963 by an Act of Parliament and functioned under the Regulatory and
administrative control of the Reserve Bank of India (RBI). In 1978, UTI
was de-linked from the RBI and the Industrial Development Bank of
India (IDBI) took over the regulatory and administrative control in place
of RBI. Unit Scheme 1964 (US ’64) was the first scheme launched by
UTI. At the end of 1988, UTI had ₹ 6,700 crores of Assets Under
Management (AUM).

2. Second Phase: 1987-1993: Entry of Public Sector Mutual Funds

The year 1987 marked the entry of public sector mutual funds set up by
Public Sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the

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 first ‘non-UTI’ mutual fund established in June 1987, followed by
Canbank Mutual Fund (Dec. 1987), Punjab National Bank Mutual Fund
(Aug. 1989), Indian Bank Mutual Fund (Nov 1989), Bank of India (Jun
1990), Bank of Baroda Mutual Fund (Oct. 1992). LIC established its
mutual fund in June 1989, while GIC had set up its mutual fund in
December 1990. At the end of 1993, the MF industry had assets under
management of ₹47,004 crores.

3. Third Phase: 1993-2003: Entry of Private Sector Mutual Funds

The Indian securities market gained greater importance with the
establishment of SEBI in April 1992 to protect the interests of the
investors in securities market and to promote the development of, and to
regulate, the securities market.
In the year 1993, the first set of SEBI Mutual Fund Regulations came
into being for all mutual funds, except UTI. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton MF) was the first private
sector MF registered in July 1993. With the entry of private sector funds
in 1993, a new era began in the Indian MF industry, giving the Indian
investors a wider choice of MF products. The initial SEBI MF
Regulations were revised and replaced in 1996 with a comprehensive set
of regulations, viz., SEBI (Mutual Fund) Regulations, 1996 which is
currently applicable.
The number of MFs increased over the years, with many foreign
sponsors setting up mutual funds in India. Also the MF industry
witnessed several mergers and acquisitions during this phase. As at the
end of January 2003, there were 33 MFs with total AUM of ₹1,21,805
crores, out of which UTI alone had AUM of ₹44,541 crores.

4. Fourth Phase: since February 2003 – April 2014

In February 2003, following the repeal of the Unit Trust of India Act
1963, UTI was bifurcated into two separate entities, viz., the Specified
Undertaking of the Unit Trust of India (SUUTI) and UTI Mutual Fund
which functions under the SEBI MF Regulations. With the bifurcation of
the erstwhile UTI and several mergers taking place among different
private sector funds, the MF industry entered its fourth phase of
consolidation.
Following the global melt-down in the year 2009, securities markets all
over the world had tanked and so was the case in India. Most investors
who had entered the capital market during the peak, had lost money and
their faith in MF products was shaken greatly. The abolition of Entry
Load by SEBI, coupled with the after-effects of the global financial

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 crisis, deepened the adverse impact on the Indian MF Industry, which
struggled to recover and remodel itself for over two years, in an attempt
to maintain its economic viability which is evident from the sluggish
growth in MF Industry AUM between 2010 to 2013.

5. Fifth(Current) Phase: Since May 2014

Taking cognisance of the lack of penetration of MFs, especially in tier II
and tier III cities, and the need for greater alignment of the interest of
various stakeholders, SEBI introduced several progressive measures in
September 2012 to "re-energize" the Indian Mutual Fund industry and
increase MFs’ penetration.
In due course, the measures did succeed in reversing the negative trend
that had set in after the global melt-down and improved significantly
after the new Government was formed at the Center.
Since May 2014, the Industry has witnessed steady inflows and increase
in the AUM as well as the number of investor folios (accounts).
The Industry’s AUM crossed the milestone of ₹10 Trillion (₹10 Lakh
Crore) for the first time as on 31st May 2014 and in a short span of two
years the AUM size has crossed ₹15 lakh crore in July 2016.
The overall size of the Indian MF Industry has grown from ₹ 3.26
trillion as on 31st March 2007 to ₹ 15.63 trillion as on 31st August
2016, the highest AUM ever and a five-fold increase in a span of less
than 10 years !!
In fact, the MF Industry has more doubled its AUM in the last 4 years
from ₹ 5.87 trillion as on 31st March, 2012 to ₹ 12.33 trillion as on
31st March, 2016 and further grown to ₹ 15.63 trillion as on 31st
August 2016.
The no. of investor folios has gone up from 3.95 crore folios as on 31-
03-2014 to 4.98 crore as on 31-08-2016.
On an average 3.38 lakh new folios are added every month in the last 2
years since Jun 2014.
The growth in the size of the Industry has been possible due to the twin
effects of the regulatory measures taken by SEBI in re-energising the MF
Industry in September 2012 and the support from mutual fund
distributors in expanding the retail base.
MF Distributors have been providing the much needed last mile connect
with investors, particularly in smaller towns and this is not limited to just
enabling investors to invest in appropriate schemes, but also in helping
investors stay on course through bouts of market volatility and thus
experience the benefit of investing in mutual funds.
In fact, even though FY 2015-16 was not a very good year for the Indian
securities market, the MF Industry witnessed steady positive net inflows

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month after month, even when the FIIs were pulling out in a big way.
This was largely because of the ‘hand-holding’ of the investors by the
MF distributors and convincing them to stay invested and/or invest at
lower NAVs when the market had fallen.
MF distributors have also had a major role in popularising Systematic
Investment Plans (SIP) over the years. In April 2016, the no. of SIP
accounts has crossed 1 crore mark and currently each month retail
investors contribute around ₹3,500 crore via SIPs.

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 CONCEPT OF MUTUAL FUND

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

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 INVESTMENT STRATEGIES

1. Systematic Investment Plan:

Under this a fixed sum is invested each month on a fixed date of a

month. Payment is made through post-dated cheques or direct debit
facilities. The investor gets fewer units when the NAV is high and more
units when the NAV is low. This is called as the benefit of Rupee Cost
Averaging (RCA).

2. Systematic Transfer Plan:

Under this an investor invest in debt oriented fund and give instructions
to transfer a fixed sum, at a fixed interval, to an equity scheme of the same
mutual fund.

3. Systematic Withdrawal Plan:

If someone wishes to withdraw from a mutual fund then he can withdraw
a fixed amount each month.

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RISK V/S RETURNS

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 PROCEDURE OF MUTUAL FUNDS
How to read a Mutual Fund Offer Document
Many people today find that they are deluged with information about
investing. News programs provide updates on the stock market several times a
day.
Through the Internet, individuals can check on the performance of their
investments at the click of a mouse. But one of the key sources of investment
information, and one that some investors may be tempted to overlook, is the
Mutual Fund Scheme Information Document and Statement of Additional
Information.
A mutual fund scheme information document and statement of additional
information is a legal document that must adhere to standards set forth by the
Securities Exchange Board of India (SEBI), the regulatory agency that oversees
the Indian Mutual Fund industry.
The information contained in the prospectus is intended to help you
understand what types of securities a fund invests in and the investment
philosophy that the Investment Manager uses in selecting individual securities
for the fund.
The scheme information document and statement of additional information
will also provide information on the fund's income and expenses, a review of
historical performance, and information about your ability to purchase or redeem
your units.
In addition, the scheme information document and statement of additional
information will also outline any loads/sales charges that may apply to your
investment transactions.
By law, mutual fund companies are required to provide you with a scheme
information document and statement of additional information before you make
an initial investment. Before investing, take the time to read this important
document.
Questions to ask before mutual fund investing:
A mutual fund scheme information document and statement of additional
information can help you answer the following questions:
i) In what does this scheme invest?
ii) Is the scheme seeking income or capital growth?
iii) What has been the rate of return?
iv) What are the options available in the scheme (Growth/ Dividend)?

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 v) Is the scheme an open ended / close ended scheme and if there is a
lock-in period applicable?

Key Elements of a Mutual Fund Scheme Information Document and

Statement of Additional Information

The information contained in a mutual fund scheme information

document and statement of additional information is presented in several
sections. As you read through these sections, you'll want to evaluate how well
the fund matches your investment objectives. Here's a look at key elements that
are contained in a Scheme Information Document and Statement of Additional
Information.

 Date of issue - A prospectus must be updated at least once in two years.

 Minimum investment - Mutual funds differ both in the minimum initial
investment required and the minimum for subsequent investments.
 Investment objective - This section states the investment goal of the
fund, from income to long-term capital appreciation, and may state the
types of investments that the scheme invests in, such as government
bonds or common stocks. Be sure the scheme's objective matches your
investment goal.
 Investment policies – A scheme information document and statement of
additional information will outline the general strategies the Investment
Manager will use in selecting individual securities. This section may
provide further information about the securities in which the scheme
invests, such as ratings of bonds or the types of companies considered
appropriate for a fund.
 Risk factors - Every investment involves some level of risk. The scheme
scheme information document and statement of additional information
will describe the risks associated with investments in the scheme.
 Fees and expenses - Sales and management fees associated with a
mutual fund must be clearly listed.

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  Tax information - An Scheme Information Document and Statement of
Additional Information will include information on the tax treatment of
dividend and capital gains, including information on deduction of tax at
source.
 Investor services – Unit holders may have access to certain services,
such as automatic reinvestment of dividends, systematic investment plan
(SIP), systematic withdrawal plans (SWP) and systematic investment
plan for corporate employees. This section of the prospectus, usually
near the back of the publication, will describe these services and how
you can take advantage of them.

A prospectus generally ranges from 20 to 30 pages and includes a table of

contents. The scheme information document and statement of additional
information may be amended from time to time and attaching an addendum
which highlights the changes e.g. change in load structure, introducing of a new
facility etc. usually reflects this. It is therefore important for investors to read the
scheme information document and statement of additional information in detail
to be able to understand the features of the scheme and get the best out of the
services offered by the Investment Manager.

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 CLASSIFICATION OF MUTUAL FUNDS
There are a wide variety of Mutual Fund schemes that cater to your needs,
whatever your age, financial position, risk tolerance and return expectations.
Whether as the foundation of your investment programme or as a supplement,
Mutual Fund schemes can help you meet your financial goals.

Fig classification of Mutual Funds

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Mutual funds are classified as follows
(A) Based on Structure:
Mutual fund schemes are of two broad types based on Structure, viz.,
(a) Closed-end
(b) Open-end

A closed-end fund has a fixed number of units outstanding, just like shares
of a company. Such units are listed on stock exchanges and traded in the market
at the prevailing market prices in the same way as shares of a company. The
liquidity of such units depends on how actively they are being traded. With just a
few exceptions, most closed-end funds are not actively traded but have a fixed
tenure. At the end of such tenure, the fund is liquidated and the money returned
to the unit holders.

An open-end mutual fund has arrangement both to issue further units and
also to repurchase existing units from the holders. The sale and repurchase
prices are both linked to the NAV. The SEBI has laid down rules for regulating
the maximum permissible spread between issue and repurchase prices of open-
end schemes.

(B) Based on Investment Objective:

Mutual fund schemes are of two broad types based on Investment Objective,
viz.,
1. Equity Funds
2. Balanced Funds
3. Debt Funds
Equity Funds: These funds invest in equities and equity related instruments.
With fluctuating share prices, such funds show volatile performance, even
losses. However, short term fluctuations in the market, generally smoothens out
in the long term, thereby offering higher returns at relatively lower volatility. At
the same time, such funds can yield great capital appreciation as, historically,
equities have outperformed all asset classes in the long term. Hence, investment
in equity funds should be considered for a period of at least 3-5 years. It can be
further classified as:

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 1. Index funds- In this case a key stock market index, like BSE Sensex or
Nifty is tracked. Their portfolio mirrors the benchmark index both in
terms of composition and individual stock weightages.

2. Equity diversified funds- 100% of the capital is invested in equities

spreading across different sectors and stocks.

3. Dividend yield funds- it is similar to the equity diversified funds except

that they invest in companies offering high dividend yields.
4. Thematic funds- Invest 100% of the assets in sectors which are related
through some theme.
e.g. -An infrastructure fund invests in power, construction, cements
sectors etc.

5. Sector funds- Invest 100% of the capital in a specific sector. e.g. - A

banking sector fund will invest in banking stocks.

6. ELSS- Equity Linked Saving Scheme provides tax benefit to the

investors.

Balanced fund: Their investment portfolio includes both debt and equity. As a
result, on the risk-return ladder, they fall between equity and debt funds.
Balanced funds are the ideal mutual funds vehicle for investors who prefer
spreading their risk across various instruments. Following are balanced funds
classes:
1. Debt-oriented funds -Investment below 65% in equities.

2. Equity-oriented funds -Invest at least 65% in equities, remaining in

debt.
Debt fund: They invest only in debt instruments, and are a good option for
investors averse to idea of taking risk associated with equities. Therefore, they
invest exclusively in fixed-income instruments like bonds, debentures,
Government of India securities; and money market instruments such as
certificates of deposit (CD), commercial paper (CP) and call money. Put your
money into any of these debt funds depending on your investment horizon and
needs.

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1. Liquid funds- These funds invest 100% in money market instruments, a
large portion being invested in call money market.

2. Gilt funds ST- They invest 100% of their portfolio in government

securities of and T-bills.

3. Floating rate funds - Invest in short-term debt papers. Floaters invest in

debt instruments which have variable coupon rate.

4. Arbitrage fund- They generate income through arbitrage opportunities

due to mispricing between cash market and derivatives market. Funds are
allocated to equities, derivatives and money markets. Higher proportion
(around 75%) is put in money markets, in the absence of arbitrage
opportunities.

5. Gilt funds LT- They invest 100% of their portfolio in long-term

government securities.

6. Income funds LT- Typically, such funds invest a major portion of the
portfolio in long-term debt papers.
7. MIPs- Monthly Income Plans have an exposure of 70%-90% to debt and
an exposure of 10%-30% to equities.

8. FMPs- fixed monthly plans invest in debt papers whose maturity is in

line with that of the fund.

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ADVANTAGES OF INVESTING IN A MUTUAL FUNDS
1. Small investments :
Mutual funds help you to reap the benefit of returns by a portfolio
spread across a wide spectrum of companies with small investments.
Such a spread would not have been possible without their assistance.

2. Professional Fund Management:

Professionals having considerable expertise, experience and

resources manage the pool of money collected by a mutual fund. They
thoroughly analyse the markets and economy to pick good investment
opportunities.

3. Spreading Risk :

An investor with a limited amount of fund might be able to to

invest in only one or two stocks / bonds, thus increasing his or her risk.
However, a mutual fund will spread its risk by investing a number of
sound stocks or bonds. A fund normally invests in companies across a
wide range of industries, so the risk is diversified at the same time taking
advantage of the position it holds. Also in cases of liquidity crisis where
stocks are sold at a distress, mutual funds have the advantage of the
redemption option at the NAVs.

4. Transparency and interactivity :

Mutual Funds regularly provide investors with information on the

value of their investments. Mutual Funds also provide complete portfolio
disclosure of the investments made by various schemes and also the
proportion invested in each asset type. Mutual Funds clearly layout their
investment strategy to the investor.

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5. Liquidity :

Closed ended funds have their units listed at the stock exchange,
thus they can be bought and sold at their market value. Over and above
this the units can be directly redeemed to the Mutual Fund as and when
they announce the repurchase.

6. Choice :

The large amount of Mutual Funds offer the investor a wide

variety to choose from. An investor can pick up a scheme depending
upon his risk / return profile.

7. Regulations :

All the mutual funds are registered with SEBI and they function
within the provisions of strict regulation designed to protect the interests
of the investor.

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 DISADVANTAGES OF INVESTING IN A MUTUAL FUNDS
1. Fluctuating Returns:
Mutual funds are like many other investments without a
guaranteed return. There is always the possibility that the value of your
mutual fund will depreciate. Unlike fixed-income products, such as
bonds and Treasury bills, mutual funds experience price fluctuations
along with the stocks that make up the fund. When deciding on a
particular fund to buy, you need to research the risks involved - just
because a professional manager is looking after the fund, that doesn't
mean the performance will be stellar. Another important thing to know is
that mutual funds are not guaranteed by the U.S. government, so in the
case of dissolution, you won't get anything back. This is especially
important for investors in money market funds. Unlike a bank deposit, a
mutual fund will not be FDIC insured.

2. Diversification:

Although diversification is one of the keys to successful

investing, many mutual fund investors tend to overdiversify. The idea of
diversification is to reduce the risks associated with holding a single
security; overdiversification (also known as diworsification) occurs when
investors acquire many funds that are highly related and so don't get the
risk reducing benefits of diversification. At the other extreme, just
because you own mutual funds doesn't mean you are automatically
diversified.

For example, a fund that invests only in a particular industry or region is

still relatively risky.

3. Cash, Cash and More Cash:

As we know that mutual funds pool money from thousands of

investors, so everyday investors are putting money into the fund as well
as withdrawing investments. To maintain liquidity and the capacity to
accommodate withdrawals, funds typically have to keep a large portion
of their portfolio as cash. Having ample cash is great for liquidity, but
money sitting around as cash is not working for you and thus is not very
advantageous

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 .

4. Costs:

Mutual funds provide investors with professional management;

however, it comes at a cost. Funds will typically have a range of different
fees that reduce the overall payout. In mutual funds the fees are classified
into two categories: shareholder fees and annual fund-operating fees.

The shareholder fees, in the forms of loads and redemption fees,

are paid directly by shareholders purchasing or selling the funds. The
annual fund operating fees are charged as an annual percentage - usually
ranging from 1-3%. These fees are assessed to mutual fund investors
regardless of the performance of the fund. As you can imagine, in years
when the fund doesn't make money these fees only magnify losses.

5. Misleading Advertisements:

The misleading advertisements of different funds can guide

investors down the wrong path. Some funds may be incorrectly labeled
as growth funds, while others are classified as small-cap or income. The
SEC requires funds to have at least 80% of assets in the particular type of
investment implied in their names. The remaining assets are under the
discretion solely of the fund manager.

The different categories that qualify for the required 80% of the
assets, however, may be vague and wide-ranging. A fund can therefore
manipulate prospective investors by using names that are attractive and
misleading. Instead of labeling itself a small cap, a fund may be sold
under the heading growth fund. Or, the "Congo High-Tech Fund" could
be sold with the title "International High-Tech Fund".

6. Evaluating Funds:

Another disadvantage of mutual funds is the difficulty they pose

for investors interested in researching and evaluating the different funds.
Unlike stocks, mutual funds do not offer investors the opportunity to

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compare the P/E ratio, sales growth, earnings per share, etc. A mutual
fund's net asset value gives investors the total value of the fund's
portfolio less liabilities, but how do you know if one fund is better than
another?

Furthermore, advertisements, rankings and ratings issued by fund

companies only describe past performance. Always note that mutual fund
descriptions/advertisements always include the tagline "past results are
not indicative of future returns". Be sure not to pick funds only because
they have performed well in the past - yesterday's big winners may be
today's big losers.

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 MYTHS AND FACTS ABOUT MUTUAL FUNDS
Myth: Mutual Funds are for experts
Fact: In fact, Mutual funds are meant for of common investors who may lack
the knowledge or skill set to invest in securities market. Mutual Funds are
professionally managed by expert Fund Managers after extensive market
research for the benefit of investors. A mutual fund is an inexpensive way for
investors to get a full-time professional fund manager to manage their money.

Myth: Mutual Fund Investments are only for Long term

Fact: Mutual funds can be for the short term or for longer term based on one’s
investment horizon and objective.
There are different types of mutual fund schemes – which invest in
different types of securities – in equity as well as debt securities that are suitable
for different investor needs.
In fact, there are various short-term schemes where you can invest for a
few days to a few weeks to a few years e.g., Liquid Funds are low duration
funds, with portfolio maturity of less than 91 days, while Ultra short-Term Bond
Funds are low duration funds, with portfolio maturity of less than a year. There
are Short-Term Bond Funds which are medium duration funds where the
underlying portfolio maturity ranges from one year – three years. Then, there are
Long-Term Income Funds which are medium to long duration funds with
portfolio maturity between 3 and 10 years.
While Equity Schemes are most suitable for a longer term, debt mutual
funds are suitable for investors with short term (less than 5 years) investment
horizon.

Myth: Investing in Mutual Funds is the same as investing in Stock Market/

Mutual Fund is an Equity Product
Fact: Mutual Funds invest in stock market (i.e., equities), bond market
(corporate bonds as well as govt. bonds) and Money Market instruments such as
Treasury Bills, Commercial Papers, Certificate of Deposit, Collateral Borrowing
& Lending Obligation (CBLO) etc. Many of these instruments are not available
to retail investors due to large ticket size of minimum order quantity (such as G-
Secs) and hence, retail investors could participate in such investments through
mutual fund schemes

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Myth : Mutual fund scheme with a NAV is ₹10 per unit better than mutual fund
scheme whose NAV is ₹25 per unit (or a mutual fund scheme with lower NAV is
better or investing in NFOS are preferable than investing in existing schemes).
Fact: This is a common misconception. A mutual fund's NAV represents the
market value of all its underlying investments. NAV of a fund is irrelevant,
because it represents the market value of the fund’s investments and not the
market price. Any capital appreciation will depend on the price movement of
its underlying securities. Let us understand this through an illustration.
Suppose, you invest ₹10,000 each in scheme A whose NAV is ₹20 and
scheme B (whose NAV is say, ₹100. You will be allotted 500 units of scheme A
and 100 units of scheme B. Assuming that both schemes have invested their
entire corpus in exactly same stocks and in the same proportions, if the
underlying stocks collectively appreciate by 10%, the NAV of the two schemes
should also rise by 10%, to ₹22 and ₹110, respectively. Thus, in both the
scenarios, the value of your investment increases to ₹ 11,000.
Thus, the current NAV of a fund does not have any impact on the returns.

Myth: One needs a large amount of money to invest in Mutual Funds

Fact: Absolutely incorrect. One could start investing mutual funds with just
₹5000 for a lump-sum / one-time investment with no upper limit and ₹1000
towards subsequent / additional subscription in most of the mutual fund
schemes. And for Equity linked Savings Schemes (ELSS), the minimum amount
is as low as ₹ 500.
In fact, one could invest via Systematic Investment Plan (SIP) with as
little as ₹500 per month for as long as one wishes to.

Myth: One needs to have a DEMAT account to invest in Mutual Funds

Fact: Holding mutual fund Units in DEMAT mode is absolutely optional, except
in respect of Exchange Traded Funds. For all other schemes, including the close-
ended listed schemes like Fixed Maturity Plans (FMPs), it is entirely up to the
investor whether to hold the units in a Demat mode or in conventional physical
accountant statement mode.

Myth: A scheme with a higher NAV has reached its peak!

Fact: This is a very common misconception because of the general association
of Mutual Funds with shares. One needs to keep in mind that the NAV of a

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scheme is nothing but a reflection of the market value of the underlying shares
held by the fund on any day. Mutual Funds invest in shares, which may be
bought or sold whenever deemed appropriate by the Fund Manager depending
on the scheme’s investment strategy (Buy-Hold-Sell). If the Fund Manager feels
that a particular stock has peaked, he can choose to sell it.
A high NAV does not mean the fund is expensive. In fact, high NAV
indicates a good performance of the scheme over the years.

Myth: Buying a top rated mutual fund scheme ensures better returns
Fact: Mutual fund ratings are dynamic and based on performance of the scheme
over time – which in itself is subject to market fluctuations. So, a Mutual fund
scheme that may be on top of the rating chart currently, may not necessarily
maintain the same rating month after month or at a later date. However, a top
rated fund is a good first step to short list a scheme to invest in (although past
performance does not necessarily guarantee better returns in future). Investment
in a mutual fund scheme needs to be tracked with respect to the scheme’s
benchmark to evaluate its performance periodically to decide whether to stay
invested or to exit.

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 REFERENCES
 www.amfiindia.com
 www.wikipedia.com
 www.moneysimplified.com
 www.policybazaar.com

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