Mutual Funds an Introduction

A Mutual Fund is a vehicle to pool money from investors, with a promise that money would be invested in a particular manner, by professional managers who are expected to honour the promise.

Mutual funds in India are governed by regulations of Securities and Exchange Board of India (SEBI).

Organisations managing the investments are called Asset Management Company

A mutual fund scheme typically has an:
Investment Portfolio (Portfolio Statement)
Account of Income and Expenditure (Revenue Account)
Account of Assets and Liabilities (Balance Sheet)

Trustees are the people with mutual fund organization who are responsible for ensuring that investors interests in a scheme are properly taken care of, in return for their services they are paid trustee fees, normaly charges to the scheme.

Load : Is an expense bared by investor in different ways like Entry/Exit Load, Administrative load etc.

Open-Ended Schemes:
- Schemes that do not have a fixed maturity
- More liquidity with lesser loads
Closed-End Schemes:
- Have fixed maturity
- Lesser liquidity with more loads
Schemes by Asset Class:
-Securities
1. Equity Schemes
- Invests primarily in shares.
2. Debt or income schemes
a. GILT schemes
- Invests in government securities
- Most liquid
b. Bond Schemes
- Invests in bond securities issued primarily by government or any other issuer
c. Money Market and Liquid Schemes
- Invests in short term debt instruments
- Less volatile
3. Balanced Schemes
- Mix of Equity and Debt
4. Capital Protected Schemes
- Are Closed-End Schemes. Let us learn by eg:
eg: An investment in GILTs for 5 years gives 7% return, so a 5 year closed-end
scheme can collect Rs 100 from investor and invest it as follows:
Rs: 71.30 in guilt for 5 years maturity
Rs: 18.70 in shares.
At the end of 5 years Rs 71.30 will grow to Rs 100 equivalent to amount invested.
So even if investments in shares is wiped out(remote possibility) investors capital is still protected.

Mutual funds can also invest in physical assets like real estate, precious metals like Gold, Silver, Oil another commodities.

NAV: Net Asset Value is the total value of the fund's portfolio less liabilities.

Total mutual fund assets under management in India are above Rs 4 Lakh crore, which is approx. 12% of total deposits in the banking systems in India.

Future topics -- Schemes by Position like sector funds, Exchange traded funds, Hedge Funds. Also to follow Derivates, Futures, Options.