A mutual fund is pooled investment vehicle that commingles 
the monies of investors in a single, dynamic investment 
portfolio, which includes a diverse collection of stocks, 
bonds or other securities, and is managed by a professional 
investment company.  In Britain, mutual funds are called 
Unit Trusts.  

THe best fund to buy at this time is subject to the risk 
appetite for the investor regarding his ability to loose 
part of his principle , also subjext to the tenor of 
investments and many other things....

Simple pooling of money, collected from indivisual or 
corporate investors, by managers, who can construct the 
money well towards growth. The best fund to chose depends 
on the risk taking capacity of the investor combined with 
the tenure till which they are interested to invest.

Mutual fund is a fund which is managed by a Assets 
management Company (AMC), pools the monies of different 
investor and it invest it in diversified stock of various 
companies. Decison of about the choice of mutual is based 
on the investor risk assuming capabilities.

Investor who are risk averse likes to invest in Equity 
Oriented mutual fund as it fetches  higher returns with 
greater risk of loss , whereas investor who does not like 
to take risks may invest in debt fund as risk is low and 
return are small

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.
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Working of Mutual Fund 
 

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Regulatory Authorities
To protect the interest of the investors, SEBI formulates 
policies and regulates the mutual funds. It notified 
regulations in 1993 (fully revised in 1996) and issues 
guidelines from time to time. MF either promoted by public 
or by private sector entities including one promoted by 
foreign entities is governed by these Regulations. 

SEBI approved Asset Management Company (AMC) manages the 
funds by making investments in various types of securities. 
Custodian, registered with SEBI, holds the securities of 
various schemes of the fund in its custody.

According to SEBI Regulations, two thirds of the directors 
of Trustee Company or board of trustees must be independent.
The Association of Mutual Funds in India (AMFI) reassures 
the investors in units of mutual funds that the mutual 
funds function within the strict regulatory framework. Its 
objective is to increase public awareness of the mutual 
fund industry.
AMFI also is engaged in upgrading professional standards 
and in promoting best industry practices in diverse areas 
such as valuation, disclosure, transparency etc.
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What is a 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.
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Diversification
Diversification is nothing but spreading out your money 
across available or different types of investments. By 
choosing to diversify respective investment holdings 
reduces risk tremendously up to certain extent.  
The most basic level of diversification is to buy multiple 
stocks rather than just one stock. Mutual funds are set up 
to buy many stocks. Beyond that, you can diversify even 
more by purchasing different kinds of stocks, then adding 
bonds, then international, and so on. It could take you 
weeks to buy all these investments, but if you purchased a 
few mutual funds you could be done in a few hours because 
mutual funds automatically diversify in a predetermined 
category of investments (i.e. - growth companies, emerging 
or mid size companies, low-grade corporate bonds, etc). 
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Types of Mutual Funds Schemes in India
Wide variety of Mutual Fund Schemes exists to cater to the 
needs such as financial position, risk tolerance and return 
expectations etc. thus mutual funds has Variety of flavors, 
Being a collection of many stocks, an investors can go for 
picking a mutual fund might be easy. There are over 
hundreds of mutual funds scheme to choose from. It is 
easier to think of mutual funds in categories, mentioned 
below.
Overview of existing schemes existed in mutual fund 
category: BY STRUCTURE 
1. Open - Ended Schemes: 
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. 
2. Close - Ended Schemes:
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.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the 
features of open-ended and close-ended schemes. The units 
may be traded on the stock exchange or may be open for sale 
or redemption during pre-determined intervals at NAV 
related prices.
 

The risk return trade-off indicates that if investor is 
willing to take higher risk then correspondingly he can 
expect higher returns and vise versa if he pertains to 
lower risk instruments, which would be satisfied by lower 
returns.  For example, if an investors opt for bank FD, 
which provide moderate return with minimal risk. But as he 
moves ahead to invest in capital protected funds and the 
profit-bonds that give out more return which is slightly 
higher as compared to the bank deposits but the risk 
involved also increases in the same proportion.
Thus investors choose mutual funds as their primary means 
of investing, as Mutual funds provide professional 
management, diversification, convenience and liquidity. 
That doesn’t mean mutual fund investments risk free. This 
is because the money that is pooled in are not invested 
only in debts funds which are less riskier but are also 
invested in the stock markets which involves a higher risk 
but can expect higher returns. Hedge fund involves a very 
high risk since it is mostly traded in the derivatives 
market which is considered very volatile. 
Overview of existing schemes existed in mutual fund 
category: 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 manager’s 
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 
provides 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.
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Types of returns
There are three ways, where the total returns provided by 
mutual funds can be enjoyed by investors:
•	Income is earned from dividends on stocks and 
interest on bonds. A fund pays out nearly all income it 
receives over the year to fund owners in the form of a 
distribution. 
•	If the fund sells securities that have increased in 
price, the fund has a capital gain. Most funds also pass on 
these gains to investors in a distribution. 
•	If fund holdings increase in price but are not sold 
by the fund manager, the fund's shares increase in price. 
You can then sell your mutual fund shares for a profit. 
Funds will also usually give you a choice either to receive 
a check for distributions or to reinvest the earnings and 
get more shares.
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Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about 
the Pros and cons of investments in mutual fund.
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 doesn’t 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 him self, 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.

mutual funds means pooling of investments from small 
investors and investing un stock exchange is called mutual 
funds. 
 The best fund to buy at this is the funds which gves low 
risk and high return

auction occurs only the situvation of insolvent of an
organigation it being occurs because of havy debts