MUTUAL FUND

A mutual fund is a professionally managed investment fund that pools money from many
investors to purchase securities. While there is no legal definition of the term "mutual
fund", it is most commonly applied to open-end investment companies, which are
collective investment vehicles that are regulated and sold to the general public on a daily
basis. They are sometimes referred to as "investment companies" or "registered
investment companies". Hedge funds are not mutual funds, primarily because they cannot
be sold to the general public. In the United States mutual funds must be registered with
the U.S. Securities and Exchange Commission, overseen by a board of directors or board
of trustees, and managed by a Registered Investment Advisor. Mutual funds are subject to
an extensive and detailed regulatory regime set forth in the Investment Company Act of
1940. Mutual funds are not taxed on their income and profits if they comply with certain
requirements under the U.S. Internal Revenue Code.

Mutual funds have both advantages and disadvantages compared to direct investing in
individual securities. Today they play an important role in household finances, most
notably in retirement planning.

There are three types of U.S. mutual funds: open-end funds, unit investment trusts,
and closed-end funds. The most common type, open-end funds, must be willing to buy
back shares from investors every business day. Exchange-traded funds (ETFs) are open-
end funds or unit investment trusts that trade on an exchange. Non-exchange-traded
open-end funds are most common, but ETFs have been gaining in popularity.

Mutual funds are generally classified by their principal investments. The four main
categories of funds are money market funds, bond or fixed income funds, stock or equity
funds, and hybrid funds. Funds may also be categorized as index (or passively managed)
or actively managed.

Investors in a mutual fund pay the funds expenses, which reduce the fund's returns and
performance. There is controversy about the level of these expenses.
 MUTUAL FUNDS IN INDIA

The first introduction of a mutual fund in India occurred in 1963, when the Government
of India launched Unit Trust of India (UTI).[1] UTI enjoyed a monopoly in the Indian
mutual fund market until 1987, when a host of other government-controlled Indian
financial companies established their own funds, including State Bank of India, Canara
Bank, and Punjab National Bank. This market was made open to private players in 1993,
as a result of the historic constitutional amendments brought forward by the then
Congress-led government under the existing regime
of Liberalization, Privatization and Globalization (LPG). The first private sector fund to
operate in India was Kothari Pioneer, which later merged with Franklin Templeton. In
1996, SEBI, the regulator of mutual funds in India, formulated the Mutual Fund
Regulation which is a comprehensive regulatory framework.

Mutual funds are an under tapped market in India

Deposit being available in the market less than 10% of Indian households have invested
in mutual funds. A recent report on Mutual Fund Investments in India published by
research and analytics firm, Boston Analytics, suggests investors are holding back from
putting their money into mutual funds due to their perceived high risk and a lack of
information on how mutual funds work.[4] There are 46 Mutual Funds as of June 2013.

The primary reason for not investing appears to be correlated with city size. Among
respondents with a high savings rate, close to 40% of those who live in metros and Tier I
cities considered such investments to be very risky, whereas 33% of those in Tier II cities
said they did not know how or where to invest in such assets.
Distribution

Mutual fund investments are sourced both from institutions

(companies) and individuals. Since January 2013, institutional investors
have moved to investing directly with the mutual funds since doing so
saves on the expense ratio incurred. Individual investors are, however,
served mostly by Investment advisor and banks. Since 2009, online
platforms for investing in Mutual funds have also evolved.

Servicing

Larger Indian Mutual Fund Industry has benefited from outsourcing the
activity of servicing their investors to two of the leading Registrar and
Transfer Agents (RTAs) in India namely CAMS and Karvy. While CAMS
commands close to 65% of the Assets servicing, rest is with
Karvy. Franklin Templeton Mutual Fund services its investors through its
own in-house RTA set up.

Both the RTAs have vibrant network of their local offices which enable the Mutual Fund
Investors to transact locally. These touch points (or) Customer Service Centers (CSCs),
provide a wide range of servicing including, financial transaction acceptance &
processing, non financial changes, KYC fulfillment formalities, nomination registration,
transmission of units apart from providing statement of accounts etc.

Average assets under management

Assets under management (AUM) is a financial term denoting the market value of all the
funds being managed by a financial institution (a mutual fund, hedge fund, private equity
firm, venture capital firm, or brokerage house) on behalf of its clients, investors, partners,
depositors, etc

Structure

In the United States, a mutual fund is registered with the Securities and Exchange
Commission (SEC). Open-end and closed-end funds are overseen by a board of
directors (if organized as a corporation) or board of trustees (if organized as a trust). The
Board is charged with ensuring that the fund is managed in the best interests of the fund's
investors and with hiring the fund manager and other service providers to the fund.

The sponsor or fund management company, often referred to as the fund

manager, trades (buys and sells) the fund's investments in accordance with the fund's
investment objective. A fund manager must be a registered investment adviser. Funds that
are managed by the same company under the same brand are known as a fund family or
fund complex.

Mutual funds are not taxed on their income and profits as long as they comply with
requirements established in the U.S. Internal Revenue Code. Specifically, they must
diversify their investments, limit ownership of voting securities, distribute most of their
income (dividends, interest, and capital gains net of losses) to their investors annually,
and earn most of the income by investing in securities and currencies.There is an
exception: net losses incurred by a mutual fund are not distributed or passed through to
fund investors but are retained by the fund to be able to offset future gains.

The characterization of a fund's income is unchanged when it is paid to shareholders. For

example, when a mutual fund distributes dividend income to its shareholders, fund
investors will report the distribution as dividend income on their tax return. As a result,
mutual funds are often called "pass-through" vehicles, because they simply pass on
income and related tax liabilities to their investors.

Mutual funds may invest in many kinds of securities. The types of securities that a
particular fund may invest in are set forth in the fund's prospectus, a legal document
which describes the fund's investment objective, investment approach and permitted
investments. The investment objective describes the type of income that the fund seeks.
For example, a capital appreciation fund generally looks to earn most of its returns from
increases in the prices of the securities it holds, rather than from dividend or interest
income. The investment approach describes the criteria that the fund manager uses to
select investments for the fund.

A mutual fund's investment portfolio is continually monitored by the fund's portfolio

manager or managers.

ADVANTAGES AND DISADVANTAGES

According to Pozen and Hamacher, mutual funds have advantages and disadvantages
over investing directly in individual securities, namely.

Advantages

Increased diversification: A fund normally holds many

securities; diversification decreases risk.

Daily liquidity: Shareholders of open-end funds and unit investment trusts may
sell their holdings back to the fund at the close of every trading day at a price equal to
the closing net asset value of the fund's holdings.

Professional investment management: Open-and closed-end funds hire portfolio

managers to supervise the fund's investments.

Ability to participate in investments that may be available only to larger investors.

For example, individual investors often find it difficult to invest directly in foreign
markets.

Service and convenience: Funds often provide services such as check writing.

Government oversight: Mutual funds are regulated by the SEC

 Ease of comparison: All mutual funds are required to report the same information
to investors, which makes them easy to compare.

Disadvantages:

Fees

Less control over timing of recognition of gains

Less predictable income

No opportunity to customize
History

The first mutual funds were established in Europe. One researcher credits
a Dutch merchant with creating the first mutual fund in 1774. Mutual funds were
introduced to the United States in the 1890s, and they became popular in the 1920s.

These early U.S. funds were generally closed-end funds with a fixed number of shares
that often traded at prices above the portfolio value. The first open-end mutual fund,
called the Massachusetts Investors Trust (now part of the MFS family of funds), with
redeemable shares was established on March 21, 1924. However, closed-end funds
remained more popular than open-end funds throughout the 1920s. In 1929, open-end
funds accounted for only 5% of the industry's $27 billion in total assets.

After the stock market crash of 1929, Congress passed a series of acts regulating the
securities markets in general and mutual funds in particular. The Securities Act of
1933 requires that all investments sold to the public, including mutual funds, be
registered with the SEC and that they provide prospective investors with a prospectus that
discloses essential facts about the investment. The Securities and Exchange Act of
1934 requires that issuers of securities, including mutual funds, report regularly to their
investors; this act also created the Securities and Exchange Commission, which is the
principal regulator of mutual funds. The Revenue Act of 1936 established guidelines for
the taxation of mutual funds, while the Investment Company Act of 1940 governs their
structure.

When confidence in the stock market returned in the 1950s, the mutual fund industry
began to grow again. By 1970, there were approximately 360 funds with $48 billion in
assets.[5] The introduction of money market funds in the high interest rate environment of
the late 1970s boosted industry growth dramatically. The first retail index fund, First
Index Investment Trust, was formed in 1976 by The Vanguard Group, headed by John
Bogle; it is now called the "Vanguard 500 Index Fund" and is one of the world's largest
mutual funds, with more than $220 billion in assets as of November 30, 2015.

Fund industry growth continued into the 1980s and 1990s. According to Pozen and
Hamacher, growth was the result of three factors: a bull market for both stocks and
bonds, new product introductions (including tax-exempt bond, sector, international
and target date funds) and wider distribution of fund shares. Among the new distribution
channels were retirement plans. Mutual funds are now the preferred investment option in
certain types of fast-growing retirement plans, specifically in 401(k) and other defined
contribution plans and in individual retirement accounts (IRAs), all of which surged in
popularity in the 1980s. Total mutual fund assets fell in 2008 as a result of the financial
crisis of 200708.

In 2003, the mutual fund industry was involved in a scandal involving unequal treatment
of fund shareholders. Some fund management companies allowed favored investors to
engage in late trading, which is illegal, or market timing, which is a practice prohibited
by fund policy. The scandal was initially discovered by former New York Attorney
GeneralEliot Spitzer and led to a significant increase in regulation.

At the end of 2015, there were over 15,000 mutual funds in the United States with
combined assets of $18.1 trillion, according to the Investment Company Institute (ICI),
a trade association of U.S. investment companies. The ICI reports that worldwide mutual
fund assets were $33.4 trillion on the same date.

Mutual funds play an important role in U.S. household finances; in mid-2015, 43% of
U.S. households held mutual fund. Their role in retirement planning is particularly
significant. Roughly half of the assets in individual retirement accounts and in 401(k) and
other similar retirement plans were invested in mutual funds. [8] Mutual funds now play a
large and decisive role in the valuation of tradeable assets such as stocks and bonds.[9]
Leading complexes

As of September 2015, the top ten open-end fund managers in North America were:

1. The Vanguard Group

2. Fidelity Investments

3. American Funds (Capital Group)

4. JPMorgan Chase

5. T. Rowe Price

6. BlackRock

7. Franklin Templeton Investments

8. PIMCO

9. Dimensional Fund Advisors

Types

There are three principal types of mutual funds in the United States: open-end funds, unit
investment trusts (UITs); and closed-end funds. Exchange-traded funds (ETFs) are open-
end funds or unit investment trusts that trade on an exchange; they have gained in
popularity recently. ETFs are one type of "exchange-traded product". While the term
"mutual fund" may refer to all three types of registered investment companies, it is more
commonly used to refer exclusively to the open-and closed-end funds.

Open-end funds

Open-end mutual funds must be willing to buy back their shares from their investors at
the end of every business day at the net asset value (NAV) computed that day. Most open-
end funds also sell shares to the public every day; these shares are also priced at NAV. A
professional investment manager oversees the portfolio, buying and selling securities as
appropriate. The total investment in the fund will vary based on share purchases, share
redemptions and fluctuation in market valuation. There is no legal limit on the number of
shares that can be issued.

Open-end funds are the most common type of mutual fund. At the end of 2015, there
were 8,116 open-end mutual funds in the United States with combined assets of $15.7
trillion.

Closed-end funds

Closed-end funds generally issue shares to the public only once, when they are created
through an initial public offering. Their shares are then listed for trading on a stock
exchange. Investors who no longer wish to invest in the fund cannot sell their shares back
to the fund (as they can with an open-end fund). Instead, they must sell their shares to
another investor in the market; the price they receive may be significantly different from
NAV. It may be at a "premium" to NAV (i.e., higher than NAV) or, more commonly, at a
"discount" to NAV (i.e., lower than NAV). A professional investment manager oversees
the portfolio, buying and selling securities as appropriate.

At the end of 2015, there were 558 closed-end funds in the United States with combined
assets of $261 billion.

Unit investment trusts

Unit investment trusts (UITs) can only issue to the public once, when they are created.
UITs generally have a limited life span, established at creation. Investors can redeem
shares directly with the fund at any time (similar to an open-end fund) or wait to redeem
them upon the trust's termination. Less commonly, they can sell their shares in the open
market. Unit investment trusts do not have a professional investment manager; their
portfolio of securities is established at the UIT's creation and does not change.

At the end of 2015, there were 5,188 UITs in the United States with combined assets of
$94 billion.

Exchange-traded funds

A relatively recent innovation, exchange-traded funds (ETFs) are structured as open-end

investment companies or UITs. ETFs are part of a larger category of investment vehicles
known as "exchange-traded products" (ETPs), which, other than ETFs, may be structured
as a partnership or grantor trust or may take the form of an exchange-traded note. Non-
ETF exchange-traded products may be used to provide exposure to currencies
and commodities.

ETFs combine characteristics of both closed-end funds and open-end funds. ETFs are
traded throughout the day on a stock exchange. An arbitrage mechanism is used to keep
the trading price close to net asset value of the ETF holdings.

Most ETFs are passively managed index funds, though actively managed ETFs are
becoming more common.
ETFs have been gaining in popularity. At the end of 2015, there were 1,594 ETFs in the
United States with combined assets of $2.1 trillion.

INVESTMENTS AND CLASSIFICATION

Mutual funds are normally classified by their principal investments, as described in the
prospectus and investment objective. The four main categories of funds are money
market funds, bond or fixed income funds, stock or equity funds, and hybrid funds.
Within these categories, funds may be subclassified by investment objective, investment
approach or specific focus.

The SEC requires that mutual fund names be consistent with a fund's investments. For
example, the "ABC New Jersey Tax-Exempt Bond Fund" would generally have to invest,
under normal circumstances, at least 80% of its assets in bonds that are exempt
from federal income tax, from the alternative minimum tax and from taxes in the state of
New Jersey.

Bond, stock, and hybrid funds may be classified as either index (passively managed)
funds or actively managed funds.

Money market funds

Money market funds invest in money market instruments, which are fixed income
securities with a very short time to maturity and high credit quality. Investors often use
money market funds as a substitute for bank savings accounts, though money market
funds are not insured by the government, unlike bank savings accounts.

Money market funds strive to maintain a $1.00 per share net asset value, meaning that
investors earn interest income from the fund but do not experience capital gains or losses.
If a fund fails to maintain that $1.00 per share because its securities have declined in
value, it is said to "break the buck". Only two money market funds have ever broken the
buckCommunity Banker's U.S. Government Money Market Fund in 1994 and
the Reserve Primary Fund in 2008.
In 2014, the SEC approved significant changes in money market fund regulation.
Beginning in October 2016, money market funds that are sold to institutional
investors and that invest in non-government securities will no longer be allowed to
maintain a stable $1.00 per share net asset value. Instead, these funds will be required to
have a floating net asset value.

At the end of 2015, money market funds accounted for 18% of open-end fund assets.

Bond funds

Bond funds invest in fixed income or debt securities. Bond funds can be sub-classified
according to the specific types of bonds owned (such as high-yield or junk bonds,
investment-grade corporate bonds, government bonds or municipal bonds) and by the
maturity of the bonds held (short-, intermediate- or long-term). Bond funds may invest in
primarily U.S. securities (domestic or U.S. funds), in both U.S. and foreign
securities (global or world funds), or primarily foreign securities (international funds).

At the end of 2015, bond funds accounted for 22% of open-end fund assets.

Stock funds
Stock, or equity, funds invest in common stocks which represent an ownership share (or
equity) in corporations. Stock funds may invest in primarily U.S. securities (domestic or
U.S. funds), in both U.S. and foreign securities (global or world funds), or primarily
foreign securities (international funds). They may focus on a specific industry or sector.

A stock fund may be subclassified along two dimensions: (1) market capitalization and
(2) investment style (i.e., growth vs. blend/core vs. value). The two dimensions are often
displayed in a grid known as a "style box".

Market capitalization ("cap") indicates the size of the companies in which a fund invests,
based on the value of the company's stock. Each company's market capitalization equals
the number of shares outstanding times the market price of the stock. Market
capitalizations are typically divided into the following categories, with approximate
market capitalizations in parentheses:

Micro cap (below $300 million, 30 crore)

Small cap (below $2 billion, 200 crore)

Mid cap

Large cap (at least $10 billion,1000 crore)

Funds can also be classified in these categories based on the market caps of the stocks
that it holds.

Stock funds are also subclassified according to their investment style: growth, value, or
blend (or core). Growth funds seek to invest in stocks of fast-growing companies. Value
funds seek to invest in stocks that appear cheaply priced. Blend funds are not biased
toward either growth or value.

At the end of 2015, stock funds accounted for 52% of the assets in all U.S. mutual funds.

Hybrid funds

Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds,
asset allocation funds, target date or target risk funds and lifecycle or lifestyle funds are
all types of hybrid funds.

Hybrid funds may be structured as funds of funds, meaning that they invest by buying
shares in other mutual funds that invest in securities. Many fund of funds invest in
affiliated funds (meaning mutual funds managed by the same fund sponsor), although
some invest in unaffiliated funds (i.e., managed by other fund sponsors) or some
combination of the two.

At the end of 2015, hybrid funds accounted for 9% of the assets in all U.S. mutual funds.
Index (passively managed) versus actively managed

An index fund or passively managed fund seeks to match the performance of a market
index, such as the S&P 500 index, while an actively managed fund seeks to outperform a
relevant index through superior security selection.

Expenses

Investors in a mutual fund pay the fund's expenses. These expenses fall into five
categories: distribution charges (sales loads and 12b-1 fees), the management fee,
securities transaction fees, shareholder transaction fees and fund services charges. Some
of these expenses reduce the value of an investor's account; others are paid by the fund
and reduce net asset value.

Recurring fees and expensesspecifically the 12b-1 fee, the management fee and other
fund expensesare included in a fund's total expense ratio (TER), often referred to
simply the "expense ratio". Because all funds must compute an expense ratio using the
same method, investors may compare costs across funds.

There is considerable controversy about the level of mutual fund expenses.

Management fee

The management fee is paid to the management company or sponsor that organizes the
fund, provides the portfolio management or investment advisory services and normally
lends its brand to the fund. The fund manager may also provide other administrative
services. The management fee often has breakpoints, which means that it declines as
assets (in either the specific fund or in the fund family as a whole) increase. The
management fee is paid by the fund and is included in the expense ratio.

The fund's board reviews the management fee annually. Fund shareholders must vote on
any proposed increase, but the fund manager or sponsor can agree to waive some or all of
the management fee in order to lower the fund's expense ratio.
Distribution charges

Distribution charges pay for marketing, distribution of the fund's shares as well as
services to investors. There are three types of distribution charges:

Front-end load or sales charge. A front-end load or sales charge is

a commission paid to a broker by a mutual fund when shares are purchased. It is
expressed as a percentage of the total amount invested or the "public offering price",
which equals the net asset value plus the front-end load per share. The front-end load
often declines as the amount invested increases, through breakpoints. The front-end
load is paid by the shareholder; it is deducted from the amount invested.

Back-end load. Some funds have a back-end load, which is paid by the investor
when shares are redeemed. If the back-end load declines the longer the investor holds
shares, it is called a contingent deferred sales charges (CDSC). Like the front-end
load, the back-end load is paid by the shareholder; it is deducted from the redemption
proceeds.

12b-1 fees. Some funds charge an annual fee to compensate the distributor of fund
shares for providing ongoing services to fund shareholders. This fee is called a 12b-1
fee, after the SEC rule authorizing it. The 12b-1 fee is paid by the fund and reduces
net asset value.

A no-load fund does not charge a front-end load or back-end load under any
circumstances and does not charge a 12b-1 fee greater than 0.25% of fund assets.

Securities transaction fees

A mutual fund pays expenses related to buying or selling the securities in its portfolio.
These expenses may include brokerage commissions. Securities transaction fees increase
the cost basis of investments purchased and reduce the proceeds from their sale. They do
not flow through a fund's income statement and are not included in its expense ratio.
Instead, purchases and sells of assets are recorded net of the transaction costs. There is no
easy way to identify a fund's total transaction costs from publicly available data.

That said, an investor can get some idea of the size of these fees in a fund in two ways.
First, the amount of securities transaction fees paid by a fund is normally positively
correlated with its trading volume or "turnover", which is required to be reported by the
SEC. The second way is to examine the size of the brokerage fees paid by the fund
sponsor by looking at SEC Form N-SAR.

Shareholder transaction fees

Shareholders may be required to pay fees for certain transactions. For example, a fund
may charge a flat fee for maintaining an individual retirement account for an investor.
Some funds charge redemption fees when an investor sells fund shares shortly after
buying them (usually defined as within 30, 60 or 90 days of purchase); redemption fees
are computed as a percentage of the sale amount. Shareholder transaction fees are not
part of the expense ratio.

Fund services charges

A mutual fund may pay for other services including:

Board of directors or trustees fees and expenses

Custody fee: paid to a custodian bank for holding the fund's portfolio in
safekeeping and collecting income owed on the securities

Fund administration fee: for overseeing all administrative affairs such as

preparing financial statements and shareholder reports, SEC filings, monitoring
compliance, computing total returns and other performance information,
preparing/filing tax returns and all expenses of maintaining compliance with
state blue sky laws
 Fund accounting fee: for performing investment or securities accounting services
and computing the net asset value (usually every day the New York Stock
Exchange is open)

Professional services fees: legal and auditing fees

Registration fees: paid to the SEC and state securities regulators

Shareholder communications expenses: printing and mailing required documents

to shareholders such as shareholder reports and prospectuses

Transfer agent service fees and expenses: for keeping shareholder records,
providing statements and tax forms to investors and providing telephone, internet and
or other investor support and servicing

Other/miscellaneous fees

The fund manager or sponsor may agree to subsidize some of these other expenses in
order to lower the fund's expense ratio (called a fee waiver).

Controversy

Critics of the fund industry argue that fund expenses are too high. They believe that the
market for mutual funds is not competitive and that there are many hidden fees, so that it
is difficult for investors to reduce the fees that they pay. They argue that the most
effective way for investors to raise the returns they earn from mutual funds is to invest in
funds with low expense ratios.

Fund managers counter that fees are determined by a highly competitive market and,
therefore, reflect the value that investors attribute to the service provided. They also note
that fees are clearly disclosed.

An additional critique of mutual funds is their potential role in herd behavior during asset
bubbles. Australian researchers Preston Teeter and Jorgen Sandberg argue that the
explosive growth of mutual funds during the 1990s resulted in a large number of rookie
mutual fund managers, many of whom were quick to follow industry trends as opposed to
carving out their own unique investment strategies. [9] As a result, funds started to closely
mimic one another, and stock prices, particularly of internet companies, quickly
surpassed fundamental valuations.

Share classes

A single mutual fund may give investors a choice of different combinations of front-end
loads, back-end loads and 12b-1 fees, by offering several different types of shares, known
as share classes. All of them invest in the same portfolio of securities, but each has
different expenses and, therefore, a different net asset value and different performance
results. Some of these share classes may be available only to certain types of investors.

Funds offering multiple classes often identify them with letters, though they may also use
names such as "Investor Class", "Service Class", "Institutional Class", etc., to identify the
type of investor for which the class is intended. The SEC does not regulate the names of
share classes, so that specifics of a share class with the same name may vary from fund
family to fund family.

Typical share classes for funds sold through brokers or other intermediaries are as
follows:

Class A shares usually charge a front-end sales load together with a small 12b-1
fee.

Class B shares usually do not have a front-end sales load; rather, they have a
high contingent deferred sales charge (CDSC) that gradually declines over several
years, combined with a high 12b-1 fee. Class B shares usually convert automatically
to Class A shares after they have been held for a certain period.
 Class C shares usually have a high 12b-1 fee and a modest contingent deferred
sales charge that is discontinued after one or two years. Class C shares usually do not
convert to another class. They are often called "level load" shares.

Class I are usually subject to very high minimum investment requirements and
are, therefore, known as "institutional" shares. They are no-load shares.

Class R are usually for use in retirement plans such as 401(k) plans. They
typically do not charge loads, but do charge a small 12b-1 fee.

No-load funds often have two classes of shares:

Class I shares do not charge a 12b-1 fee

Class N shares charge a 12b-1 fee of no more than 0.25% of fund assets

Neither class of shares typically charges a front-end or back-end load

Definitions of key terms.

Net asset value

A fund's net asset value (NAV) equals the current market value of a fund's holdings minus
the fund's liabilities (sometimes referred to as "net assets"). It is usually expressed as a
per-share amount, computed by dividing net assets by the number of fund shares
outstanding. Funds must compute their net asset value according to the rules set forth in
their prospectuses. Funds compute their NAV at the end of each day that the New York
Stock Exchange is open, though some funds compute NAVs more than once daily.

Valuing the securities held in a fund's portfolio is often the most difficult part of
calculating net asset value. The fund's board typically oversees security valuation.

Expense ratio
The expense ratio allows investors to compare expenses across funds. The expense ratio
equals the 12b-1 fee plus the management fee plus the other fund expenses divided by
average daily net assets. The expense ratio is sometimes referred to as the total expense
ratio (TER).

Average annual total return

The SEC requires that mutual funds report the average annual compounded rates of
return for one-, five-and ten year-periods using the following formula:[12]

P(1+T)n = ERV

Where:

P = a hypothetical initial payment of $1,000

T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-, five-, or
ten-year periods (or fractional portion)

Turnover

Turnover is a measure of the volume of a fund's securities trading. It is expressed as a

percentage of average market value of the portfolio's long-term securities. Turnover is the
lesser of a fund's purchases or sales during a given year divided by average long-term
securities market value for the same period. If the period is less than a year, turnover is
generally annualized.
 MUTUAL FUNDS ARE DIVERSIFIED

By investing in mutual funds, you could diversify your portfolio across a large number of
securities so as to minimise risk. By spreading your money over numerous securities,
which is what a mutual fund does, you need not worry about the fluctuation of the
individual securities in the fund's portfolio.

Mutual Fund Objectives

There are many different types of mutual funds, each with its own set of goals. The
investment objective is the goal that the fund manager sets for the mutual fund when
deciding which stocks and bonds should be in the fund's portfolio.

For example, an objective of a growth stock fund might be: This fund invests primarily in
the equity markets with the objective of providing long-term capital appreciation towards
meeting your long-term financial needs such as retirement or a child' s education.

Depending on investment objectives, funds can be broadly classified in the following 5

types:

Aggressive growth means that you will be buying into stocks which have a
chance for dramatic growth and may gain value rapidly. This type of investing
carries a high element of risk with it since stocks with dramatic price appreciation
potential often lose value quickly during downturns in the economy. It is a great
option for investors who do not need their money within the next five years, but
have a more long-term perspective

As with aggressive growth, growth seeks to achieve high returns; however, the
portfolios will consist of a mixture of large-, medium- and small-sized companies.
The fund portfolio chooses to invest in stable, well established, blue-chip companies
together with a small portion in small and new businesses. The fund manager will
 pick, growth stocks which will use their profits grow, rather than to pay out
dividends. It is a medium - long-term commitment, however, looking at past figures,
sticking to growth funds for the long-term will almost always benefit you. They will
be relatively volatile over the years so you need to be able to assume some risk and
be patient.

A combination of growth and income funds, also known as balanced funds, are
those that have a mix of goals. They seek to provide investors with current income
while still offering the potential for growth. Some funds buy stocks and bonds so
that the portfolio will generate income whilst still keeping ahead of inflation. They
are able to achieve multiple objectives which may be exactly what you are looking
for. Equities provide the growth potential, while the exposure to fixed income
securities provide stability to the portfolio during volatile times in the equity
markets. Growth and income funds have a low-to-moderate stability along with a
moderate potential for current income and growth.

That brings us to income funds. These funds will generally invest in a number of
fixed-income securities. This will provide you with regular income. Retired
investors could benefit from this type of fund because they would receive regular
dividends. The fund manager will choose to buy debentures, company fixed deposits
etc. in order to provide you with a steady income. Even though this is a stable
option, it does not go without some risk. As interest-rates go up or down, the prices
of income fund shares, particularly bonds, will move in the opposite direction. This
makes income funds interest rate sensitive. Some conservative bond funds may not
even be able to maintain your investments' buying power due to inflation.

The most cautious investor should opt for the money market mutual fund which
aims at maintaining capital preservation. The word preservation already indicates
that gains will not be an option even though the interest rates given on money
market mutual funds could be higher than that of bank deposits. These funds will
pose very little risk but will also not protect your initial investments' buying power.
Inflation will eat up the buying power over the years when your money is not
keeping up with inflation rates. They are, however, highly liquid so you would
always be able to alter your investment strategy.
 UNDERSTANDING MUTUAL FUND RETURNS

The return on any investment, measured over a given period of time, is simply the sum of
its capital appreciation and any income generated divided by the original amount of the
investment, which is expressed as a percentage. The term applied to this composite
calculation is total return.

However, there is a difference in this simple concept as applied to stocks and mutual
funds. Unfortunately, a great many mutual fund investors do not seem to have a clear
understanding of a fund's total return. The relationships between a fund's net asset
value (NAV), yield (income) and capital gains distributions can be confusing. For stock
investors, calculating and understanding their total return is relatively easy. By comparing
how total return is derived for both stocks and mutual funds, you'll be able to better
understand how this measure works for mutual funds.

Stock Total Return

We begin our illustration with a share of XYZ Company that is bought for $30 at the
beginning of the year. During the year, its price fluctuates, but it closes the year at $33,
which represents a nice percentage return on the investment of 10% ($3/$30).

But, things get even better because XYZ paid an annual dividend of $1 per share. This
dividend equals an additional 3.3% return ($1/$30). Adding together the capital
appreciation (price increase) of 10% and the income return (dividend) of 3.3% gives us a
one-year total return for XYZ Company stock of 13.3%. However, remember that unless
you sell XYZ stock, the price appreciation gain remains in the stock price, or
is unrealized. (For more on this concept, see What are unrealized gains and losses?)

Fund Total Return

With mutual funds, explaining total return is a bit more complicated. We begin with a
share of the ABC Fund, which is purchased at its net asset value (price) of $16 per share.
A fund's NAV is derived by dividing the value of its portfolio securities (the fund's
assets), less any accrued fees and expenses (the fund's liabilities), by the number of fund
shares outstanding.
Here's an illustration of the computation of net asset value for the ABC Fund:

The fund's cash and cash equivalents = $200,000

The fund's stock holdings at market prices:

10,000 shares of Company X @ $50 = $500,000

20,000 shares of Company Y @ $30 = $600,000

50,000 shares of Company Z @ $8 = $400,000

Total market value of stock holdings = $1,500,000

The fund's total assets = $1,700,000

Less the fund's liabilities = $100,000The fund's tolal net assets = $1,600,000
The fund's total shares outstanding: 100,000
The fund's NAV: $16 ($1,600,000/100,000)

Remember that mutual funds are priced once a day, at the end of the day. Unlike stocks,
where prices are moved by the supply and demand forces of the marketplace, fund prices
are determined by the value of the underlying securities in the fund.

In our example, ABC is a hybrid stock/bond fund with a growth-income orientation.

Apart from capital gains, its individual portfolio holdings will generate dividends and
interest. By law, mutual funds must distribute these to the fund's shareholders. ABC's
income distribution (its dividends to shareholders) for the year amounted to $1 per share.
In addition, the fund's trading activities (the buying and selling of securities) generated a
realized capital gain of $3 per share, which ABC also distributed to its shareholders.

The ABC Fund passed along all the earnings and capital appreciation it generated - $4
($1 in dividend distributions and $3 in a capital gains distribution) to its shareholders for
a total return of 25% ($4/$16). Here again, unlike a stock, by paying out all its capital
gains, the ABC Fund's price, or NAV, remains at or close to $16. In this scenario, if a fund
investor only focused on the movement in ABC's NAV, the results would not look very
good. It's even possible for a fund's NAV to decline, but still have good income/capital
gain distributions, which will be reflected in a positive total return.

Obviously, a fund's NAV does not tell the whole mutual fund performance story, but its
total return does. It captures a fund's changes in NAV, its income distribution and capital
gains distribution, which, as a whole, are the true test of fund's return on investment.
 HOW MUTUAL FUND DIVIDENDS ARE TAXED

Dividends

Dividends are payments to shareholders (investors) of stocks, bonds, or mutual funds.

These payments represent a company's profit that is divided among the shareholders.
Mutual fund investors will choose if they want dividends to be reinvested (to buy more
shares of the fund) or to be received as cash payment or deposited into another account.

Mutual Fund Dividends Taxation Period

It is important to note first that mutual fund shareholders can be taxed on a funds
dividends, even if these distributions are received in cash or reinvested in additional
shares of the fund. Also, for certain tax-deferred and tax-advantaged accounts, such as an
IRA, 401(k) or annuity, dividends are not taxable to the investor while held in the
account. Instead, the investor will pay income taxes on withdrawals during the taxable
year the distribution (withdrawal) is made.

Some mutual funds, such as Municipal Bond Funds may pay income to shareholders that
is exempt from federal taxation.

For taxable accounts, such as individual and joint brokerage accounts, mutual fund
dividends are generally taxed either as ordinary income (taxed at the individuals income
tax rate) or as qualified dividends (taxable up to a 15% maximum rate).

Ordinary and qualified dividends are reported to mutual fund investors on the tax Form
1099-DIV. For tax filing purposes, the mutual investor (taxpayer) will report dividends
on Form 1040, Schedule B, and Form 1040, lines 9a and 9b.

For tax year 2016, which taxpayers need to know for their tax filing due in April of 2017,
here are the tax rates for dividends:
 Income Thresholds: individuals and married taxpayers in the 10% and 15% tax
brackets will pay 0% on eligible dividends and most capital gains.

Qualified Dividends: income received will be taxed at the same rate as long-term
capital gains.

Tax Rate: individuals in the 25%, 28%, 33%, and 35% federal income tax
brackets will pay 15% on capital gains, while taxpayers in the 39.6% bracket will
pay 20%.

More Information on Mutual Fund Taxation

For more information mutual funds that pay dividends, you can refer to this article on
dividend mutual funds.

If you want to keep taxes to a minimum, read this article on how to reduce taxes on
mutual funds.
HOW TO AVOID THE DOUBLE TAXATION OF MUTUAL FUNDS

Simplicity is among the greatest advantages of mutual funds, with exception of taxation.
But if you know some of the tax rules and tactical tricks of investing in mutual funds, you
can fully enjoy the advantages and worry yourself less about the complexities.

Mutual Funds taxation

Mutual funds are not the same as other investment securities, such as stocks, because they
are single portfolios, called pooled investments, that hold dozens or hundreds of other
securities.

Therefore the taxable activity that takes place as part of the mutual fund management
passes along tax liability to you, the mutual fund investor. For example, if a stock holding
in your mutual fund pays dividends, then the fund manager later sells the stock at a
higher value than he or she paid for it, you'll owe tax on two levels: 1) A dividend tax,
which generally taxed as income, and 2) A capital gains tax, which will taxed at capital
gains rates.

And even if you've only held the mutual fund for a few months and have not sold any
shares, it is possible that you could receive a long-term capital gain distribution(assuming
the mutual fund held the stock for more than a year). Therefore the taxes distributed to
you are due to the activities within the mutual fund, not due to your own investing
activities
The All-Too-Common Mistake of Double-Paying Mutual
Fund Taxes

Now assume 5 years has passed and you sell your mutual fund.

And let's also assume that your original investment was $10,000 worth of shares in the
mutual fund and it had paid $400 in dividends per year for 5 years. To be a prudent long-
term investor, you elected to have all dividends reinvested in more shares of your mutual
fund. You did a pretty good job selecting your mutual fund and its share price
appreciation, including dividend reinvestment, gives you a final value of $15,000 when
you go to sell your mutual fund.

Since you bought the fund at $10,000 and you sold it at $15,000, you will pay tax on
$5,000 in capital gains, right? If you are like millions of other investors who make the
same mistake, yes you would pay tax on the $5,000 in "gains." But you would be wrong
and thus would pay too much in taxes!

Why is this, you ask? Remember, your original investment was $10,000 but you also
invested (or rather re-invested) $2,000 in dividends. Therefore your basis is $12,000 and
your taxable gain is $3,000 (not $5,000)!

Can you see how the common tax mistake can so easily occur? My example here is
simplified and does not account for compounding interest but the lesson remains the
same: Most investors think the amount they invested into the mutual fund out their own
pocket is their original investment amount or "basis" for tax reporting.But the IRS says
all reinvested dividend and capital gain distributions count as investments, too.

You can avoid making the same mistake by simply keeping all of your mutual-fund
statements and paying attention to all amounts invested and, more importantly, the
amounts "reinvested." You may also refer to IRS Publication 550.

Even better, keep your statements and pass them along to your tax professional while you
go about your life.
BEST STOCK SECTORS FOR RISING INTEREST RATES

Again, when interest rates are on the rise, the economy is typically nearing a peak (the
Federal Reserve raises rates when the economy appears to be growing too quickly and
thus inflation is a concern). Those who aim to time the market with sectors will have the
goal of capturing positive returns on the upside while preparing to protect against harder
declines when the market turns down (again, think 2007 to 2008).

Therefore traders and investors may consider sectors that tend to perform best (fall in
price the least) when the market and economy head downward. These can be considered
defensive investment types:

Consumer Staples (Non-cyclicals): People still need to buy their groceries and
buy products for daily living when recession begins to hit.

Health Care: Similar to staples, consumers still need to buy their medicine and go
to the doctor in both good times and bad.

Gold: When traders and investors anticipate an economic slowdown, they tend to
move into funds, such as gold funds and ETFs that invest in reliable asset types.
Gold is not a sector but it is an asset that can do well in uncertain times and falling
markets.

As always, I provide my caution that market timing is not a good idea for the vast
majority of investors.

However, you can still incorporate some of these ideas into your portfolio construction
for purposes of diversification.
DISTRIBUTIONS

Distributions from a mutual fund are simply earnings from the fund's operation. Unlike
individual company who can choose either to retain the profit or return it to shareholders
in the form of dividend or through share buyback, a mutual fund is required by law to
pass profits back to its investors, or shareholders.

Remember: a mutual fund is a security that allows investors to pool their capital into one
professionally managed investment portfolio.

There are many types of mutual funds with different objectives and guiding philosophies,
but each must pass profits back to the investors in the form of mutual fund distributions,
which can be in the form of any of these three distribution types:

1. Ordinary Dividends

2. Qualified Dividends

3. Capital Gains

The distinctions between these mutual fund distribution types is important, particularly
for tax purposes. Let's take a look at each of the distribution types.

1. Ordinary Dividends

Ordinary dividends represent the mutual fund income that is not from capital gains (see
number 3 below for more information on capital gains). For a mutual fund, ordinary
income is interest payment the fund received and distributed to investors as ordinary
dividends. Ordinary income and dividends do not qualify for the qualified dividend
definition and as such are taxed as the investor's ordinary income tax rate.

2. Qualified Dividends

According to the IRS definition, qualified dividends are:

"The ordinary dividends received in tax years beginning after 2002 that are subject to the
same 5% or 20% maximum tax rate that applies to net capital gain."

Simply put, qualified dividends are dividends that meet certain criteria of the United
States tax code and are therefore subject to a more favorable tax.

Rather than being taxed at the individual investor's income tax bracket rate, qualified
dividends are taxed at what is known as the capital gains tax rate which currently has a
maximum of 20%. For a comparison of the U.S. ordinary income tax rates versus capital
gains tax rates, see the following chart:

Investor's OrdinaryOrdinary Dividend TaxQualified Dividend Tax

Income Tax Rate Rate Rate
10% 10% 0%
15% 15% 0%
25% 25% 15%-18.8%*
28% 28% 15%-18.8%*
33% 33% 15%-18.8%*
35% 35% 15%-18.8%*
39.6% 39.6% 20%-23.8%*

*These qualified dividend tax rates show a range in order to include the possible Net
Investment Income tax of 3.8% that an investor may be subject to if their Modified
Adjusted Gross Income (MAGI) if over the defined threshold. This tax is also known as
the Medicare surtax.

For the dividend to be considered a qualified dividend rather than an ordinary dividend,
the dividends must be paid by a U.S. corporation or a qualified foreign corporation and
the mutual fund that holds the dividend-paying stock must have held the equity for more
than 60 days during the 121-day period that begins 60 days before the ex-dividend date
(the first date following the declaration of a dividend on which the buyer of a stock will
not receive the next dividend payment.
Instead, the seller will get the dividend). Otherwise, the dividend will be taxed at the
ordinary income tax rate.

3. Capital Gains

For a mutual fund, capital gain is the profit made from selling a security in its holdings.
This is the same profit an individual investor would make if they were to sell an
individual stock at a price higher than what was originally paid for the stock. If the
mutual fund (not the fund investor) has held the security for more than one year, the
profit from the sale is treated as long-term capital gain, which is subject to a maximum of
20% tax rate for mutual fund shareholders (and follows the same favorable tax rates as a
qualified dividend).

On the other hand, if a stock is held in the mutual fund portfolio for less than a year, the
profit realized by selling the stock will be treated as short-term capital gain and will be
taxed at the fund investor's ordinary income tax rate just as ordinary dividends are.

Distributions and Mutual Fund Buying Strategy

When it comes to buying mutual funds, the tax implications of fund distributions must be
taken into consideration. The most commonly made mistake in mutual fund investing is
the so-called "buying-the-dividend," that is, buying mutual fund shares right before its
dividend/capital gain distribution. When buying the dividend, the investor is responsible
for paying current tax for the distribution. If you plan a large lump-sum investment in a
mutual fund in your taxable account, you should check the fund's distribution
schedule and adjust your buying plan accordingly to avoid buying-the-dividend.

However, this avoidance strategy should be put in perspective. According to The Mutual
Fund Education Alliance:

"If the amount you're investing is fairly small, it's probably not worth waiting. And if you
make regular investments every month, don't let buying the dividend derail your
program. It's better to buy the dividend than to fail to invest."
Mutual Fund Capital Gains Distributions: Short Term vs Long Term

Mutual Fund Capital Gains Distributions

Mutual fund capital gains distributions are distributions of gains from the mutual fund to
the mutual fund shareholders.

The gains are a result of the mutual fund selling shares of holdings at prices higher than
the fund manager purchased them. Therefore a capital gain is produced. Mutual funds are
required to pass along at least 95% of their capital gains to shareholders.

While capital gains sound good, they're not so good when you hold mutual funds in a
taxable account and the distributions produce capital gains taxes!

Therefore, even if the mutual fund shareholder doesn't sell shares of the actual fund, the
mutual fund's trading activity can still produce taxable gains.

The Difference Between Short-Term and Long-Term Gains Distributions

The simple difference between short-term capital gains distributions and long-term gains
distributions is that the short-term gains are from sales of securities within 12 months of
their purchase and the long-term variety are those of 12 months or longer. Therefore this
distinction between the definition of short-term and long-term, as it pertains to taxable
gains, is the same as short-term capital gains and long-term capital gains on individual
securities.

The key points to remember are that capital gains distributions, whether they are short-
term or long-term, are results of the mutual fund's activities, not yours.

Also a key distinction is in regard to short-term capital gains distributions: They can't be
offset by short-term capital losses! If all this sounds confusing, one thing that can be easy
to remember is that a good way to minimize taxes is by investing in index funds.
LIMITATIONS OF A MUTUAL FUND

Mutual funds are not customized portfolios

Mutual funds are like pre-plated meals; there is no customized assembling of the meal by
the customer. Mutual funds are standard products, managed centrally, offering significant
advantages to investors who are not equipped to make complex investment choices.
Investors do not exercise any direct control on how the portfolio is managed, but
participate equity in it. Customized portfolio as Portfolio Management Services(PMS)

No direct control over costs

Investors is a mutual fund participate in the pool of the funds, according to the
proportion they have contributed. The costs for managing the fund are centrally incurred
and apportioned to every unit. Investors cannot directly determine what costs can be
incurred and how it would be apportioned. Sebi has however, imposed limits on the
amount and type of a cost a mutual fund can incur.

Mutual fund offer too many product variants

To the investor, making a choice among many funds becomes tough when so many
variants of the same product are available in the market. Mutual funds try to vary their
products, even if slightly, to provide a choice to customers. If these are similar in
objective and performance, investors may find it tough to differentiate the products and
make the right choice for their needs.
 PHASES OF MUTUAL FUND IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of
India, at the initiative of the Government of India and Reserve Bank of India. The history
of mutual funds in India can be broadly divided into four distinct phases

First Phase - 1964-1987

Unit Trust of India (UTI) was established in 1963 by an Act of Parliament. It was set up
by the Reserve Bank of India and functioned under the Regulatory and administrative
control of the Reserve Bank of India. 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. The first scheme launched by UTI was Unit Scheme 1964. At the
end of 1988 UTI had Rs. 6,700 crores of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non-UTI, 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 first non-UTI Mutual Fund established in June
1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund
(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda
Mutual Fund (Oct 92). 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 mutual fund industry had assets under management of Rs. 47,004
crores.

Third Phase - 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the
year in which the first Mutual Fund Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer
(now merged with Franklin Templeton) was the first private sector mutual fund registered
in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets
of Rs. 1,21,805 crores. The Unit Trust of India with Rs. 44,541 crores of assets under
management was way ahead of other mutual funds.

Fourth Phase - since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was
bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust
of India with assets under management of Rs. 29,835 crores as at the end of January
2003, representing broadly, the assets of US 64 scheme, assured return and certain other
schemes. The Specified Undertaking of Unit Trust of India, functioning under an
administrator and under the rules framed by Government of India and does not come
under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs. 76,000 crores of
assets under management and with the setting up of a UTI Mutual Fund, conforming to
the SEBI Mutual Fund Regulations, and with recent mergers taking place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth.
INDIAN MUTUAL FUND INDUSTRY TRENDS REPORT CARD
FOR MAY 2016

Institutions vs Individuals

Investments by Individuals account for a little over 45% of the total assets
while the remaining 55% is constituted by Institutions

Investments from Individuals stands at Rs. 6.57 lakh crore for the month of
May-16 compared to Rs. 5.63 lakh crore for the same month of previous year
while investments from Institutions stands at Rs. 7.88 lakh crore for the
month of May-16 compared to Rs. 6.62 lakh crore for the same month of
previous year. That is Individuals are at least a year behind in terms of
monetary investments in MF compared to Institutions.

Investment amount has increased every month except for Mar-16 in case of
Institutions which witnessed a Rs. 0.1 lakh crore drop while for Individuals it
was in the month of Feb-16 a drop of Rs. 0.15 lakh crore.
Scheme Wise Composition

While investments in liquid funds (Rs. 3.51 lakh crore assets) has only increased by 25%
in May-16 compared to Oct-14 levels, ETF has commanded the highest increase at
62%though it has only Rs. 0.26 lakh crore worth assets followed by Equities at 48% (Rs.
4.45 lakh crore assets) and Debt Funds at 32% (Rs. 6.23 lakh crore assets). The EPFO
investing through ETFs started last year would have made this change.

While Individual investors prefer equity over debt for investments, Institutions have
preferred Debt over liquid funds.

Debt + Liquid funds account for a little below 90% of the assets for Institutions while
for Individual Equity + Debt funds account for a little over 95% of the assets.

Here is how the investment decisions were spread across the different schemes between
Individuals and Institutions:

Here is the trend over the past 8 months:

B15/ T15 Mix

The top fifteen cities in India are marked as T15 for mutual fund investors so if youre
in these cities, your investment is a T15 investment. B15 is everything else.

Over 83% of the assets (Rs. 12.1 lakh crore) have come from Top 15
locations while the remaining 17% (Rs. 2.31 lakh crore) has come from non-
T15 locations.

T15 investors clearly love investing in Non-Equity funds when compared to

Equity Funds. Their average investment in Equity Funds has been 72% of the
assets (Rs. 8 lakh crore) while the non-T15 investors prefer a perfect
weightage between equities and non-equities. This can be explained by the
fact that most institutions and corporates are in T-15 locations (big cities).

The B15 location coverage is actually falling for both individuals and
institutions. Individual ownership in B15 has fallen about 0.5% in terms of
marketshare since last year.
Distributors vs Direct

39% of the assets of the mutual fund industry came directly. This has been
growing.

64% of liquid/ money market scheme assets where institutional investors

dominate were direct, whereas 43% of debt oriented scheme assets were
direct.

Proportion of direct investment in equity to the total assets held by individual

investors was about 5.6% in May 2016.
Individual-Investor Assets Composition

66% of the assets of Individual Investors are from T15 cities brought in by
distributors.

Direct investments amount to 14% of individual assets i.e. 3% from B15 and
11% from T15.
 THE ASSOCIATION OF MUTUAL FUNDS IN INDIA

The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian
Mutual Fund Industry on professional, healthy and ethical lines and to enhance and
maintain standards in all areas with a view to protecting and promoting the interests of
mutual funds and their unit holders.

AMFI, the association of SEBI registered mutual funds in India of all the registered Asset
Management Companies, was incorporated on August 22, 1995, as a non-profit
organisation. As of now, all the 42 Asset Management Companies that are registered with
SEBI, are its members.

Mr. Balkrishna Kini, Dy. Chief Executive

The Association of Mutual Funds in India (AMFI) is an industry standards organisation

in India in the mutual funds sector. It was formed in 1995. Most mutual funds firms in
India are its members. The organisation aims to develop the mutual funds market in
India, by improving ethical and professional standards. [1] AMFI was incorporated on 22
August 1995. As of April 2015, there are 44 members.

OBJECTIVES

To define and maintain high professional and ethical standards in all areas of
operation of mutual fund industry.
To recommend and promote best business practices and code of conduct to be
followed by members and others engaged in the activities of mutual fund and asset
 management including agencies connected or involved in the field of capital markets and
financial services.
To interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.
To represent to the Government, Reserve Bank of India and other bodies on all
matters relating to the Mutual Fund Industry.
To undertake nation wide investor awareness programme so as to promote proper
understanding of the concept and working of mutual funds.
To disseminate information on Mutual Fund Industry and to undertake studies and
research directly and/or in association with other bodies.
To take regulate conduct of distributors including disciplinary actions
(cancellation of ARN) for violations of Code of Conduct.
To protect the interest of investors/unit holders.

Board of directors

AMFI functions under the supervision and guidance of a Board of Directors

Mr. A. Balasubramanian - Chairman

Chief Executive Officer

Birla Sun Life Asset Management Co. Ltd.

Mr. G. Pradeepkumar Vice Chairman
Chief Executive Officer

Union Asset Mgmt. Co. Pvt. Ltd.

Mr. Milind Barve - Director

Managing Director

HDFC Asset Management Co. Ltd.

Mr. Sundeep Sikka - Director

Chief Executive Officer

Reliance Nippon Life Asset Management Limited.

Mr. Sundaresan Naganath Director

President & CIO

DSP BlackRock Investment Managers Ltd.

Mr. Nimesh Shah - Director
Managing Director & CEO

ICICI Prudential Asset Mgmt. Co. Ltd.

Mr. Saurabh Nanavati - Director

Chief Executive Officer

Invesco Asset Management (India) Private Limited.

Mr. Jimmy Patel - Director

Chief Executive Officer

Quantum Asset Mgmt. Co. Pvt. Ltd.

Mr. Aashish P. Somaiyaa - Director

Chief Executive Officer

Motilal Oswal Asset Mgmt. Co. Ltd.

Mr. Kailash Kulkarni Director
Chief Executive Officer

L&T Investment Management Ltd.

Mr. Nilesh Shah Director

Managing Director

Kotak Mahindra Asset Management Co. Ltd.

Mr. Anthony Heredia Director

Chief Executive Officer

Baroda Pioneer Asset Management Co. Ltd.

Mr. Harsha Viji Director

Managing Director

Sundaram Asset Management Co. Ltd.

Mr. Sanjay Sapre Director
President

Franklin Templeton Asset Management (India) Private Limited.

The activities of the Association are generally carried out by various committees

THE AMFI CODE OF ETHICS

THE AMFI CODE OF ETHICS One of the objects of the Association of Mutual Funds in
India (AMFI) is to promote the investors interest by defining and maintaining high
ethical and professional standards in the mutual fund industry. In pursuance of this
objective, AMFI had constituted a Committee under the Chairmanship of Shri A. P.
Pradhan with Shri S. V. Joshi, Shri C. G. Parekh and Shri M. Laxman Kumar as
members. This Committee, working in close co-operation with Price WaterhouseLLP
under the FIRE Project of USAID, has drafted the Code, which has been approved and
recommended by the Board of AMFI for implementation by its members. I take
opportunity to thank all of them for their efforts. The AMFI Code of Ethics, The ACE
for short, sets out the standards of good practices to be followed by the Asset
Management Companies in their operations and in their dealings with investors,
intermediaries and the public. SEBI (Mutual Funds) Regulation 1996 requires all Asset
Management Companies and Trustees to abide by the Code of conduct as specified in the
Fifth Schedule to the Regulation. The AMFI Code has been drawn up to supplement that
schedule, to encourage standards higher than those prescribed by the Regulations for the
benefit of investors in the mutual fund industry. This is the first edition of the Code and it
may be supplemented further as may be necessary. I hope members of AMFI would
implement the code and ensure that their employees are made fully aware of the Code.
INTEGRITY

Members and their key personnel, in the conduct of their business shall observe high
standards of integrity and fairness in all dealings with investors, issuers, market
intermediaries, other members and regulatory and other government authorities.

Mutual Fund Schemes shall be organized, operated, managed and their portfolios of
securities selected, in the interest of all classes of unit holders and not in the interest of

sponsors

directors of Members

members of Board of Trustees or directors of the Trustee company

brokers and other market intermediaries

associates of the Members

a special class selected from out of unitholders

DUE DILIGENCE

Members in the conduct of their Asset Management business shall at all times

render high standards of service.

exercise due diligence.

exercise independent professional judgement.

Members shall have and employ effectively adequate resources and procedures which are
needed for the conduct of Asset Management activities.

DISCLOSURES
Members shall ensure timely dissemination to all unitholders of adequate, accurate, and
explicit information presented in a simple language about the investment objectives,
investment policies, financial position and general affairs of the scheme.

Members shall disclose to unitholders investment pattern, portfolio details, ratios of

expenses to net assets and total income and portfolio turnover wherever applicable in
respect of schemes on annual basis.

Members shall in respect of transactions of purchase and sale of securities entered into
with any of their associates or any significant unitholder.

submit to the Board of Trustees details of such transactions, justifying its fairness to the
scheme.

disclose to the unitholders details of the transaction in brief through annual and half
yearly reports.

All transactions of purchase and sale of securities by key personnel who are directly
involved in investment operations shall be disclosed to the compliance officer of the
member at least on half yearly basis and subsequently reported to the Board of Trustees if
found having conflict of interest with the transactions of the fund.

PROFESSIONAL SELLING PRACTICES

Members shall not use any unethical means to sell, market or induce any investor to buy
their products and schemes

Members shall not make any exaggerated statement regarding performance of any
product or scheme.

Members shall endeavor to ensure that at all times

investors are provided with true and adequate information without any misleading or
exaggerated claims to investors about their capability to render certain services or their
achievements in regard to services rendered to other clients,
 investors are made aware of attendant risks in members schemes before any
investment decision is made by the investors,

copies of prospectus, memoranda and related literature is made available to investors

on request,

adequate steps are taken for fair allotment of mutual fund units and refund of
application moneys without delay and within the prescribed time limits and,

complaints from investors are fairly and expeditiously dealt with.

Members in all their communications to investors and selling agents shall

not present a mutual fund scheme as if it were a new share issue

not create unrealistic expectations

not guarantee returns except as stated in the Offer Document of the scheme approved
by SEBI, and in such case, the Members shall ensure that adequate resources will be
made available and maintained to meet the guaranteed returns

convey in clear terms the market risk and the investment risks of any scheme being
offered by the Members.

not induce investors by offering benefits which are extraneous to the scheme.

not misrepresent either by stating information in a manner calculated to mislead or by

omitting to state information which is material to making an informed investment
decision.

INVESTMENT PRACTICES

Members shall manage all the schemes in accordance with the fundamental investment
objectives and investment policies stated in the offer documents and take investment
decisions solely in the interest of the unitholders.

Members shall not knowingly buy or sell securities for any of their schemes from or to
 any director, officer, or employee of the member

any trustee or any director, officer, or employee of the Trustee Company

OPERATIONS

Members shall avoid conflicts of interest in managing the affairs of the schemes and shall
keep the interest of all unitholders paramount in all matters relating to the scheme.

Members or any of their directors, officers or employees shall not indulge in front
running (buying or selling of any securities ahead of transaction of the fund, with access
to information regarding the transaction which is not public and which is material to
making an investment decision, so as to derive unfair advantage).

Members or any of their directors, officers or employees shall not indulge in self dealing
(using their position to engage in transactions with the fund by which they benefit
unfairly at the expense of the fund and the unitholders).
Members shall not engage in any act, practice or course of business in connection with
the purchase or sale, directly or indirectly, of any security held or to be acquired by any
scheme managed by the Members, and in purchase, sale and redemption of units of
schemes managed by the Members, which is fraudulent, deceptive or manipulative.

Members shall not, in respect of any securities, be party to-

creating a false market,

price rigging or manipulation

passing of price sensitive information to brokers, Members of stock exchanges and

other players in the capital markets or take action which is unethical or unfair to
investors. 6.6 Employees, officers and directors of the Members shall not work as agents/
brokers for selling of the schemes of the Members, except in their capacity as employees
of the Member or the Trustee Company.

Members shall not make any change in the fundamental attributes of a scheme, without
the prior approval of unitholders except when such change is consequent on changes in
the regulations.

Members shall avoid excessive concentration of business with any broking firm, and
excessive holding of units in a scheme by few persons or entities.

REPORTING PRACTICES

Members shall follow comparable and standardized valuation policies in accordance with
the SEBI Mutual Fund Regulations.

Members shall follow uniform performance reporting on the basis of total return.

Members shall ensure schemewise segregation of cash and securities accounts.

UNFAIR COMPETITION

Members shall not make any statement or become privy to any act, practice or
competition, which is likely to be harmful to the interests of other Members or is likely to
place other

Members in a disadvantageous position in relation to a market player or investors, while

competing for investible funds.

OBSERVANCE OF STATUTES, RULES AND REGULATIONS

Members shall abide by the letter and spirit of the provisions of the Statutes, Rules and
Regulations which may be applicable and relevant to the activities carried on by the
Members.

ENFORCEMENT

Members shall: widely disseminate the AMFI Code to all persons and entities covered
by it

make observance of the Code a condition of employment

make violation of the provisions of the code, a ground for revocation of contractual
arrangement without redress and a cause for disciplinary action

require that each officer and employee of the Member sign a statement that he/ she has
received and read a copy of the Code

establish internal controls and compliance mechanisms, including assigning

supervisory responsibility.

designate one person with primary responsibility for excercising compliance with
power to fully investigate all possible violations and report to competent authority

file regular reports to the Trustees on a half yearly and annual basis regarding
observance of the Code and special reports as circumstances require
 maintain records of all activities and transactions for at least three years, which records
shall be subject to review by the Trustees

dedicate adequate resources to carrying out the provisions of the Code

DEFINITIONS

When used in this code, unless the context otherwise requires

(a) AMFI AMFI means the Association of Mutual Funds in India

(b) Associate Associate means and includes an associate as defined in regulation 2(c)
of SEBI (Mutual Fund) Regulations 1996.

(c) Fundamental investment policies The fundamental investment policies of a scheme

managed by a member means the investment objectives, policies, and terms of the
scheme, that are considered fundamental attributes of the scheme and on the basis of
which unitholders have invested in the scheme.

(d) Member A member means the member of the Association of Mutual Funds in India.

(e) SEBI SEBI means Securities and Exchange Board of India.

(f) Significant Unitholder A Significant Unitholder means any entity holding 5% or

more of the total corpus of any scheme managed by the member and includes all entities
directly or indirectly controlled by such a unitholder.

(g) Trustee A trustee means a member of the Board of Trustees or a director of the
Trustee Company.

(h) Trustee Company A Trustee Company is a company incorporated as a Trustee

Company and set up for the purpose of managing a mutual fund.
CONCLUSION

People save in Mutual Funds for different purposes i.e. children education, children
marriage, house construction, retirement planning and tax planning. It was found that
main purpose of savings in Mutual Fund by the respondents was for children education
(56.33%) followed by Retirement Planning (48.33%).Tax planning was given the third
priority by the respondents. People engaged in Business gave the first preference to
children education (68.7%) followed by professionals (58.8%) and then salaried class
(53.7%). Professionals gave the first preference to children marriage (50%), followed by
salaried class (41.3%) and retired people (45.5%). Salaried class gave the first preference
to house construction (44.6%) followed by Business people (36.1%) and professional
(29.4%). Retired people gave the first preference to tax planning (47.1%) followed by
salaried (43.8%) and Business people (42.2%). The relationship between educational
qualifications and purpose of savings revealed that the respondents gave priority to
childrens education (56.3%), retirement planning (48.3%) followed by tax planning
(40%). In case of the relationship between monthly income and purpose of savings, a
unique trend has emerged. As the income increases, priority is given to tax planning.
Majority of the respondents gave the first preference to children education followed by
retirement planning. If we look at the relationship between age and purpose of savings, it
can be seen that those belonging to the age group below 40 gave the first priority to
childrens education while both the age group 40 to 60 and above 60 gave priority to
retirement planning for investment in Mutual Funds.

Savings A/c, Mutual Funds and Insurance are the popular tools of investment by the
respondents of Surat, Ahmedabad and Vadodara cities of Gujarat state. Out of total
respondents 71% respondents gave preference to invest in Mutual Funds, 69%
respondents gave preference to invest in saving A/c, and 65.3% respondents gave the
preference to Insurance. In Surat city, the most popular sources of investment for the
respondents are Saving A/c, Insurance, Mutual Funds, bank/Recurring deposit and PPF
and GPF A/c. In Ahmedabad, the most popular sources of investment for the respondents
are saving A/c, Mutual Funds, Insurance, Bank/Recurring deposit and share market. In
Vadodara, the most popular sources of investment for the respondent are Insurance,
Saving A/c, Gold and Silver, Mutual Funds and PPF and GPF A/c. Respondents do not
prefer to invest in Real estate, Post office scheme, Government securities, Company
deposits, debentures, bonds. The factors influencing the selection of Mutual Fund scheme
in Surat are Net Asset Value, High Returns, Repurchase Facility, Reputation of Mutual
Fund, and Market Trends in their order of priority. The influencing factors for selection of
Mutual Fund scheme in Ahmedabad are High Returns, Net Asset Value, Market Trends,
Tax Policy, and Reputation of Mutual Fund in their order of priority. The influencing
factors for selection of Mutual Fund scheme in Vadodara are High Returns, Tax Policy,
Net Asset Value, Repurchase Facility, and Easy Transfer in their order of priority. The
popular sources through which respondents get information about mutual fund are
friends, Brokers, Professional Advisors, Media and Newspaper in Surat and Ahmedabad
city. In Vadodara the first five preferred sources of information are friends, media,
newspaper, colleagues, internet and Brokers. People of Surat and Ahmedabad get the
information regarding Mutual Fund from professionals advisors also while people of
Vadodara get the information from colleagues and internet.
 SUGGESTIONS

Suggestions can be divided into two parts

(a) For Mutual Fund Companies

(b) Mutual Fund Investors

Following suggestions can be incorporated by the Mutual Fund Companies. AMFI should
conduct adequate awareness programs about the usefulness of investment in mutual funds
and provide information to public regarding different new schemes. AMFI should
frequently conduct short term courses for investor education. Even college students
should be made aware of investment in mutual fund schemes. Mutual fund companies
should conduct courses at University and colleges and these courses should be a part of
the curriculum. Investor education is very important factor for investors. Research and
awareness programmers should be conducted for investors. Seminars, conferences and
training programs should be arranged for this purpose. Adequate publicity through
newspapers, magazines, T.V., radio, pamphlets and brochures should be done. Mutual
fund companies should dispatch their annual report in time to their investors so that the
investors are informed about the companys financial position. This will help the investor
to know the status of their investment.

97% of respondents were ready to invest in SIP (systematic investment plan). This shows
the popularity of SIP Scheme. The mutual fund companies should publicize SIP and
encourage investors to invest more in SIP as it will help in compulsory savings. It has
been observed that the unit certificates are not dispatched in time by mutual fund
companies. The mutual fund companies have to focus on good services to the investors.
The certificates could be expeditiously dispatched in time to the investors. Fear of frauds
was one of the factor discouraging Mutual fund investors. Government should see that
Mutual Fund companies follow corporate governance regulations. All mutual fund
investors want transparency. Strict regulations should be enforced by SEBI with regard to
Corporate Governance. SEBI should enforce strict regulations on mutual fund companies
where frauds are committed. There has been a conflict of personal interest of fund
managers in the past. SEBI should enforce, strict regulations, so that other mutual fund
companies will be deterred from committing frauds in future. Lack of professional
management of funds is one of the main factors discouraging investment in Mutual Fund.
Professionals with a good background and record should be appointed to manage mutual
fund. This will help to boost investors confidence, which in turn will encourage investors
to save in Mutual fund. Appropriate measures should be taken by the government, AMFI
and SEBI to weed out the discouraging factors and help to provide a conducive climate
for growth of mutual fund in the country. AMCs have to ensure more professional
outlook for better results. Mutual fund companies should launch new and innovative
schemes according to the varied needs of the investors. There is a lack of innovative
products in the market. People have the capacity to invest and this capacity has to be
explored by the mutual funds companies. With the increasing awareness among the retail
Investors about capital markets, the mutual Fund Companies should come with
innovative schemes to fulfill the requirement of the retail investors. Education also plays
a key role in mutual fund investment. Highly qualified persons use the internet for getting
the information. Their behavior of getting information is different from other
respondents. Mutual Fund companies should update their websites regularly. Female
respondents prefer to get information about mutual funds through professionals.
Therefore the Mutual Fund Companies should try to tap this particular segment in the
market. Besides relying on brokers, friends, media, newspapers, professional advisors,
mutual fund investors should be encouraged to use other sources of information such as
financial journals, internet and brochures of mutual funds. Mutual Fund Companies
should take this aspect into consideration. Pension Funds are popular in the western
countries. Today, it is the need of hour in India to popularize the pension funds which
have greater potential in the years to come. Mutual funds companies should introduce
new pension funds scheme for investors. It should be mandatory for mutual fund
companies to establish investor grievance cell. A separate ombudsman scheme should be
initiated for redressing the grievances of mutual fund investors effectively. Each mutual
fund should be required to establish its own investors grievance cell. This will help to
sort out investors grievance problems. Investors also were highly dissatisfied with the
Mutual Fund Companies not providing current information about mutual fund schemes.
Updates and current information about schemes and mutual funds should be regularly
dispatched to the investors at regular intervals. During the period of study, it was found
that the majority of the investors invest their money through the income scheme, Growth
schemes and SIP plan scheme. This indicates that more efforts have to be made by the
Mutual Funds

to create awareness among the investors regarding the earnings potential of other
schemes. In the developed countries like U.S. the percentage of net assets held by the
household investors is more than 80% of the total fund, but in India it is just around 40%.
This indicates that the mutual fund companies in India should try to motivate more
number of household investors to invest in Mutual funds. Thus mutual funds should build
investors confidence through schemes meeting the diversified needs of investors, speedy
disposal of information, improved transparency in operation, better customer service and
assured benefits of professionalism. 6.2.2 Suggestions for Mutual Funds Investors
Financial goals vary, based on Investors age, lifestyle, financial independence, family
commitment and level of Income and expenses among many other factors. Therefore, it is
necessary for Mutual Funds Companies to assess the consumers need. They should begin
by defining their investment objectives and needs which could be regular income, buying
a home or finance a wedding or education of children or a combination of all these needs,
the quantum of risk, they are willing to take and their cash flow requirements. Mutual
Investors should choose the right Mutual Fund Scheme which suits their requirements.
The offer document of the Mutual Fund Scheme should be thoroughly read and
scrutinized. Some factors to evaluate before choosing a particular Mutual Fund are the
track record of the performance of the fund over the last few years in relation to the
appropriate yard stick and similar funds in the same category. Other factors could be the
portfolio allocation, the dividend yield and the degree of transparency as reflected in the
frequency and quality of their communications. Investing in one Mutual Fund scheme
may not meet all the investment needs of an investor. They should consider investing in a
combination of schemes to achieve their specific goals. 148 It is suggested that the
investors should not consider only one or two factors for investing in mutual fund but
they should consider other factors such as higher return, degree of transparency, efficient
service, fund management and Reputation of mutual fund in selection of mutual funds.
The best approach for an investor is to invest a fixed amount at specific intervals, say
every month. By investing a fixed sum each month, they can buy fewer units when the
price is higher and more units when the price is low, thus bringing down the average cost
per unit. This is called rupee cost averaging. Systematic investment plan facility is one
such plan, incorporating these features. It is desirable to start investing early and stick to
a regular investment plan. The power of compounding lets one earn income on income
and also the money multiplies at a compounded rate of return. A Mutual fund investor
should be aware of his rights. The agents or financial advisors should make investors
aware of their rights as per the SEBI (Mutual Funds) Regulations & Regarding AMFI. A
unit holder in a Mutual Fund scheme governed by the SEBI (Mutual Funds) Regulations
is entitled to:

(a) Receive unit certificates of statements of accounts confirming the title within 6 weeks
from the date of closure of the subscription or within 6 weeks from the date of request for
a unit certificate is received by the Mutual Fund.

(b) Receive information about the investment policies, investment objectives, financial
position and general affairs of the scheme.

(c) Receive dividend within 42 days of their. declaration and receive the redemption or
repurchase proceeds within 10 days from the date of redemption or repurchase.

(d) Vote in accordance with the Regulations to: (i) Approve or disapprove any change in
the fundamental investment policies of the scheme, which are likely to modify the
scheme or affect the interest of the unit holder. The dissenting unit holder has a right to
redeem the investment. 149 (ii) Change the Asset Management Company. (iii) Wind up
the schemes.

(e) Inspect the documents of the Mutual Funds specified in the schemes offer document.