Types of Mutual Fund Scheme

Mutual fund schemes may be classified on the basis of its structure and its investment objective.

1. By Structure

• Open-end Funds
  

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

• Closed-end Funds
  

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

• Interval Funds
  

Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

2. By Investment Objective

• Growth Funds
  

The aim of growth funds is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of their corpus in equities. It has been proved that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long term outlook seeking growth over a period of time.

• Income Funds
  

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

• Balanced Funds
  

The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

• Money Market Funds
  

The aim of money market funds is 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. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods.

3. Other Schemes

• Tax Saving Schemes
  

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

• Special Scheme

1. Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like Infotech, FMCG, Pharmaceuticals etc.

2. Index Schemes
Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50

3. Sectoral Schemes
Sectoral Funds are those which invest exclusively in a specified sector. This could be an industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

Mutual Fund - An Introduction

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to 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 portfolio at a relatively low cost. The small savings of all the investors are put together to increase the buying power and hire a professional manager to invest and monitor the money. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

Regulation About Mutual Fund By SEBI

There was no uniform regulation of the mutual funds industry till a few years ago. The UTI was regulated by a special Act of Parliament while funds promoted by public sector banks were subject to RBI Guidelines of July 1989. The Securities & Exchange Board of India (SEBI) was formed in 1993 as a capital market regulator. One of its responsibilities was to regulate the mutual fund industry and it came up with comprehensive regulations for the industry in 1993. The rules for the formation, administration and management of mutual funds in India were clearly laid down. Regulations also prescribed disclosure requirements.
The regulations were thoroughly reviewed and re-notified in December 1996. The revised guidelines tighten the accounting and disclosure requirements in line with recommendations of The Expert Committee on Accounting Policies, Net Asset Values and Pricing of Mutual Funds. The SEBI (Mutual Funds) Regulations, 1996 have been further amended in 1997, 1998 and 1999. Today, all mutual funds are regulated by SEBI. Efforts have been made to bring UTI schemes under SEBI's ambit with the result that all schemes, with the exception of Unit 64, are now regulated by the capital market regulator.

History and Role of SEBI in mutual funds in India

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, 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 and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the 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 to the 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. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. It may be mentioned here that Unit Trust of India (UTI) is not registered with SEBI as a mutual fund (as on January 15, 2002).

MUTUAL FUNDS - A NEW WINDOW TO THE INVESTMENT WORLD

The mutual funds are becoming the most popular investment vehicle offering various kinds of schemes with different investment objectives. We believe that investments through mutual funds is one of the most safest, easiest and convenient way of successful investment making. The investments are in congruence to the laid down investment objectives securing the goals & objectives of the unit holders.
A plethora of mutual fund schemes with different features makes the right choice for an investor difficult.
We at NJ have a dedicated task force to analyse the different schemes of mutual funds across various parameters on an ongoing basis. An arduous process with strict disciplinary levels is followed before offering any product, scheme or recommendation as we believe that we are morally bound as trustees to our clients investments.

Mutual Funds - A Globally Proven Investment

All investments whether in shares, debentures or deposits involve risk. Share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally however, longer the term, lesser the risk. Companies may default in payment of interest and principal on their debentures/bonds/deposits. While risk cannot be eliminated, skillful management can minimize risk. Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimizes risk and maximizes returns.
Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, have almost overtaken bank deposits and total assets of insurance funds. As of date, in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3 trillion (Rs.l00 lakh cores). In India there are 38 Mutual Funds and over 300 schemes with total assets of approximately Rs. 100,000 cores. All mutual funds in India are regulated by the Securities and Exchange Board of India (SEBI)

How much money do I need to invest?

There is no statutory amount that an investor needs to invest in order to generate adequate returns from his savings. The amount that you invest will eventually depend on factors such as:
Your risk profile
Your Time horizon
Savings made
All the above three factors will be discussed in brief in the latter part of the course.

Why should you invest?

Simply put, you should invest so that your money grows and shields you against rising inflation. The rate of return on investments should be greater than the rate of inflation, leaving you with a nice surplus over a period of time. Whether your money is invested in stocks, bonds, mutual funds or certificates of deposit (CD), the end result is to create wealth for retirement, marriage, college fees, vacations, better standard of living or to just pass on the money to the next generation. Also, it's exciting to review your investment returns and to see how they are accumulating at a faster rate than your salary.

Knowledge is power

Knowledge is power. It is common knowledge that money has to be invested wisely. If you are a novice at investing, terms such as stocks, bonds, badla, undha badla, yield, P/E ratio may sound Greek and Latin. Relax. It takes years to understand the art of investing. You're not alone in the quest to crack the jargon. To start with, take your investment decisions with as many facts as you can assimilate. But, understand that you can never know everything. Learning to live with the anxiety of the unknown is part of investing. Being enthusiastic about getting started is the first step, though daunting at the first instance. That's why our investment course begins with a dose of encouragement: With enough time and a little discipline, you are all but guaranteed to make the right moves in the market. Patience and the willingness to pepper your savings across a portfolio of securities tailored to suit your age and risk profile will propel your revenues at the same time cushion you against any major losses. Investing is not about putting all your money into the "Next Infosys," hoping to make a killing. Investing isn't gambling or speculation; it's about taking reasonable risks to reap steady rewards. Investing is a method of purchasing assets in order to gain profit in the form of reasonably predictable income (dividends, interest, or rentals) and appreciation over the long term.

What is Mutual Fund

Mutual funds are investment vehicles, and you can use them to invest in asset classes such as equities or fixed income.
We go to a doctor when we need medical advice or a lawyer for legal guidance. Similarly, mutual funds are investment vehicles managed by professional fund managers. We recommend you use this option for investing. Mutual funds are like professional money managers, however a key factor in their favour is that they are more regulated and hence offer investors the ability to analyse and evaluate their track record.