Study and Analysis of Mutual Fund

Introduction

A mutual fund is an investment vehicle which allows investors with similar (one could

say mutual) investment objectives, to pool their resources and thereby achieve

economies of scale and diversification in their investing.

A mutual fund is a financial intermediary that pools the savings of investors for collective

investment in a diversified portfolio of securities. A fund is “mutual” as all of its returns,

minus its expenses, are shared by the fund’s investors. The Securities and Exchange

Board of India (Mutual Funds) Regulations, 1996 defines a mutual fund as a ‘a fund

established in the form of a trust to raise money through the sale of units to the public or

a section of the public under one or more schemes for investing in securities, including

money market instruments’.

According to the above definition, a mutual fund in India can raise resources through

sale of units to the public. It can be set up in the form of a Trust under the Indian Trust

Act. The definition has been further extended by allowing mutual funds to diversify their

activities in the following areas:

 Portfolio management services

 Management of offshore funds

 Providing advice to offshore funds

  Management of pension or provident funds

 Management of venture capital funds

 Management of money market funds

 Management of real estate funds

A mutual fund serves as a link between the investor and the securities market by

mobilizing savings from the investors and investing them in the securities market to

generate returns. Thus, a mutual fund is akin to portfolio management services (PMS).

Although, both are conceptually same, they are different from each other. Portfolio

management services are offered to high net worth individuals; taking into account their

risk profile, their investments are managed separately. In the case of mutual funds,

savings of small investors are pooled under a scheme and the returns are distributed in

the same proportion in which the investments are made by the investors/unit-holders.

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CONCEPT OF MUTUAL FUNDS

Benefits of Mutual Funds

1. Professional management: An average investor lacks the knowledge of capital

market operations and does not have large resources to reap the benefits of

investment. So they make possible an organized investment strategy, which is hardly

possible for an individual investor.

2. Portfolio diversification: An investor undertakes risk if he invests all his funds in a

single scrip. Mutual funds invest in a number of companies across various industries

and sectors. This diversification reduces the riskiness of the investments.

3. Reduction in transaction costs: Compared to direct investing in the capital market,

investing through the funds is relatively less expensive as the benefit of economies of
scale is passed on to the investors.

4. Liquidity: Often, investors cannot sell the securities held easily, while in case of

mutual funds, they can easily en cash their investment by selling their units to the fund if

it is an

open ended scheme or selling them on a stock exchange if it is a close-ended scheme.

5. Convenience: Investing in mutual fund reduces paperwork, saves time and makes

investment easy.

6. Flexibility: Mutual funds offer a family of schemes, and investors have the option of

transferring their holdings from one scheme to the other.

7. Tax benefits Mutual fund investors now enjoy income-tax benefits: Dividends

received from mutual funds’ debt schemes are tax exempt to the overall limit of Rs

9,000 allowed under section 80L of the Income Tax Act.

8. Transparency: Mutual funds transparently declare their portfolio every month. Thus

an investor knows where his/her money is being deployed and in case they are not

happy with the portfolio they can withdraw at a short notice.

9. Stability to the stock market: Mutual funds have a large amount of funds which

provide economies of scale by which they can absorb any losses in the stock market

and continue investing in the stock market. In addition, mutual funds increase liquidity in

the money and capital market.

Types of Mutual Fund Schemes

The objectives of mutual funds are to provide continuous liquidity and higher yields with

high degree of safety to investors. Based on these objectives, different types of mutual

fund schemes have evolved.

Functional :- Portfolio :- Geographical :- Other :-

Open-Ended Event Income Funds Domestic Sectoral Specific

Close-Ended Growth Funds Off-Shore Tax Saving

Scheme Balanced Funds ELSS

Interval Scheme Money Market Special

Mutual Fund Gilt Funds

Load Funds

Index Funds
 ETFs

PIE Ratio Fund

Functional Classification of Mutual Funds:-

1. Open-ended schemes: In case of open-ended schemes, the mutual fund

continuously offers to sell and repurchase its units at net asset value (NAV) or NAV-

related prices. Unlike close-ended schemes, open-ended ones do not have to be listed

on the stock exchange and can also offer repurchase soon after allotment. Investors

can enter and exit the scheme any time during the life of the fund. Open-ended

schemes do not have a fixed corpus. The corpus of fund increases or decreases,

depending on the purchase or redemption of units by investors.

There is no fixed redemption period in open-ended schemes, which can be terminated

whenever the need arises. The fund offers a redemption price at which the holder can

sell units to the fund and exit. Besides, an investor can enter the fund again by buying

units from the fund at its offer price. Such funds announce sale and repurchase prices

from time-to-time. UTI’s US-64 scheme is an example of such a fund. The key feature of

open-ended funds is liquidity. They increase liquidity of the investors as the units can be

continuously bought and sold. The investors can develop their income or saving plan

due to free entry and exit frame of funds. Open-ended schemes usually come as a
family of schemes which enable the investors to switch over from one scheme to

another of same family.

2. Close-ended schemes: Close-ended schemes have a fixed corpus and a stipulated

maturity period ranging between 2 to 5 years. Investors can invest in the scheme when

it is launched. The scheme remains open for a period not exceeding 45 days. Investors

in close-ended schemes can buy units only from the market, once initial subscriptions

are over and thereafter the units are listed on the stock exchanges where they dm be

bought and sold. The fund has no interaction with investors till redemption except for

paying dividend/bonus. In order to provide an alternate 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. If an investor sells units directly to the fund,

he cannot enter the fund again, as units bought back by the fund cannot be reissued.

The close-ended scheme can be converted into an open-ended one. The units can be

rolled over by the passing of a resolution by a majority of the

Portfolio Classification:-

Here, classification is on the basis of nature and types of securities and objective of

investment.

1. Income funds: The aim of income funds is to provide safety of investments and

regular income to investors. Such schemes invest predominantly in income-bearing

instruments like bonds, debentures, government securities, and commercial paper. The

return as well as the risk are lower in income funds as compared to growth funds.
2. Growth funds: The main objective of growth funds is capital appreciation over the

medium-to-long- term. They invest most of the corpus in equity shares with significant

growth potential and they offer higher return to investors in the long-term. They assume

the risks associated with equity investments. There is no guarantee or assurance of

returns. These schemes are usually close-ended and listed on stock exchanges.

3. Balanced funds: The aim of balanced scheme is to provide both capital appreciation

and regular income. They divide their investment between equity shares and fixed nice

bearing instruments in such a proportion that, the portfolio is balanced. The portfolio of

such funds usually comprises of companies with good profit and dividend track records.

Their exposure to risk is moderate and they offer a reasonable rate of return.

4. Money market mutual funds: They specialize in investing in short-term money

market instruments like treasury bills, and certificate of deposits. The objective of such

funds is high liquidity with low rate of return.

Geographical Classification:-

1. Domestic funds: Funds which mobilise resources from a particular geographical

locality like a country or region are domestic funds. The market is limited and confined

to the boundaries of a nation in which the fund operates. They can invest only in the

securities which are issued and traded in the domestic financial markets.

2. Offshore funds: Offshore funds attract foreign capital for investment in ‘the country

of the issuing company. They facilitate cross-border fund flow which leads to an

increase in foreign currency and foreign exchange reserves. Such mutual funds can

invest in securities of foreign companies. They open domestic capital market to

international investors. Many mutual funds in India have launched a number of offshore

funds, either independently or jointly with foreign investment management companies.

The first offshore fund, the India Fund, was launched by Unit Trust of India in July 1986

in collaboration with the US fund manager, Merril Lynch.

Others :-

1. Sectorial: These funds invest in specific core sectors like energy,

telecommunications, IT, construction, transportation, and financial services. Some of

these newly opened-up sectors offer good investment potential.

2. Tax saving schemes: Tax-saving schemes are designed on the basis of tax policy

with special tax incentives to investors. Mutual funds have introduced a number of tax

saving schemes. These are close--ended schemes and investments are made for ten

years, although investors can avail of encashment facilities after 3 years. These

schemes Contains various options like income, growth or capital application. The latest

scheme offered is the Systematic Withdrawal Plan (SWP) which enables investors to

reduce their tax incidence on dividends from as high as 30% to as low as 3 to 4%.

3. Equity-linked savings scheme (ELSS): In order to encourage investors to invest in

equity market, the government has given tax-concessions through special schemes.

Investment in these schemes entitles the investor to claim an income tax rebate, but

these schemes carry a lock-in period before the end of which funds cannot be

withdrawn.

4. Special schemes: Mutual funds have launched special schemes to cater to the

special needs of investors. UTI has launched special schemes such as Children’s Gift

Growth Fund, 1986, Housing Unit Scheme, 1992, and Venture Capital Funds.
5. Gilt funds: Mutual funds which deal exclusively in gilts are called gilt funds. With a

view to creating a wider investor base for government securities, the Reserve Bank of

India encouraged setting up of gilt funds. These funds are provided liquidity support by

the Reserve Bank.

6. Load funds: Mutual funds incur certain expenses such as brokerage, marketing

expenses, and communication expenses. These expenses are known as ‘load’ and are

recovered by the fund when it sells the units to investors or repurchases the units from

withholders.

Loads can be of two types-

1) Front-end-load and

2) back-end load.

Front-end-load, or sale load, is a charge collected at the time when an investor enters

into the scheme. Back-end, or repurchase, load is a charge collected when the investor

gets out of the scheme. Schemes that do not charge a load are called ‘No load’

schemes. In other words, if the asset management company (AMC) bears the load

during the initial launch of the scheme, then these schemes are known as no-load

schemes. However, these no-load schemes can have an exit load when the unit holder

gets out of the scheme before a I stipulated period mentioned in the initial offer. This is

done to prevent short-term investments and redemptions. Some funds may also charge

different amount of loads to investors depending upon the time period the investor has

stayed with the funds. The longer the investor stays with the fund, less is the amount of

exit load charged. This is known as contingent deferred sales’ charge (CDSL). It is a
back-end (exit load) fee imposed by certain funds on shares redeemed with a specific

period following their purchase and is usually assessed on a sliding scale.

7. Index funds: An index fund is a mutual fund which invests in securities in the index

on which it is based BSE Sensex or S&P CNX Nifty. It invests only in those shares

which

comprise the market index and in exactly the same proportion as the companies/weight

age in the index so that the value of such index funds varies with the market index. An

index fund follows a passive investment strategy as no effort is made by the fund

manager to identify stocks for investment/dis-investment. The fund manager has to

merely track the index on which it is based. His portfolio will need an adjustment in case

there is a revision in the underlying index. In other words, the fund manager has to buy

stocks which are added to the index and sell stocks which are deleted from the index.

Internationally, index funds are very popular. Around onethird of professionally run

portfolios in the US are index funds. Empirical evidence points out that active fund

managers have not been able to perform well. Only 20-25% of actively managed equity

mutual funds out-perform benchmark indices in the long-term. These active fund

managers park 80% of their money in an index and do active management on the

remaining 20%. Moreover, risk investors like provident funds and pension funds prefer

investment in passively managed funds like index funds.

8. PIE ratio fund: PIE ratio fund is another mutual fund variant that is offered by

Pioneer IT! Mutual Fund. The PIE (Price-Earnings) ratio is the ratio of the price of the

stock of a company to its earnings per share (EPS). The PIE ratio of the index is the

weighted average price-earnings ratio of all its constituent stocks.

The PIE ratio fund invests in equities and debt instruments wherein the proportion of the

investment is determined by the ongoing price-earnings multiple of the market. Broadly,

around 90% of the investible funds will be invested in equity if the Nifty Index PIE ratio is

12 or below. If this ratio exceeds 28, the investment will be in debt/money markets.

Between the two ends of 12 and 28 PIE ratio of the Nifty, the fund will allocate varying

proportions of its investible funds to equity and debt. The objective of this scheme is to

provide superior risk-adjusted returns through a balanced portfolio of equity and debt

instruments.

9. Exchange traded funds: Exchange Traded Funds (ETFs) are a hybrid of open-

ended mutual funds and listed individual stocks. They are listed on stock exchanges

and trade like individual stocks on the stock exchange. However, trading at the stock

exchanges does not affect their portfolio. ETFs do not sell their shares directly to

investors for cash. The shares are offered to investors over the stock exchange. ETFs

are basically passively managed funds that track a particular index such as S&P CNX

Nifty. Since they are listed on stock exchanges, it is possible to buy and sell them

throughout the day and their price is determined by the demand-supply forces in the

market. In practice, they trade in a small range around the value of the assets (NAV)

held by them.

ETFs offer several distinct advantages:

 ETFs bring the trading and real time pricing advantages of individual stocks to

mutual funds. The ability to trade intraday at prices that are usually close to the

actual intra-day NAV of the scheme makes it almost real-time trading.

  ETFs are simpler to understand and hence they can attract small investors who

are deterred to trade in index futures due to requirement of minimum contract

size. Small investors can buy minimum one unit of ETF, can place limit orders

and trade intra-day. This, in turn, would increase liquidity of the cash market.

 ETFs can be used to arbitrate effectively between index futures and spot index.

 ETFs provide the benefits of diversified index funds. The investor can benefit

from the flexibility of stocks as well as the diversification.

 ETFs being passively managed, have somewhat higher NAV against an index

fund of the same portfolio. The operating expenses of ETFs are lower than even

those of similar index funds as they do not have to service investors who deal in

shares through stock exchanges.

Net Asset Value: The net asset value of a fund is the market value of the assets minus

the liabilities on the day of valuation. In other words, it is the amount which the

shareholders will collectively get if the fund is dissolved or liquidated. The net asset

value of a unit is the net asset value of fund divided by the number of outstanding units.

Thus NAV = Market Price of Securities + Other Assets – Total Liabilities + Units

Outstanding as at the NAV date. NAV = Net Assets of the Scheme + Number of units

outstanding, that is, Market value of investments + Receivables + Other Accrued

Income + Other Assets - Accrued Expenses - Other Payables - Other Liabilities + No. of

units outstanding as at the NAV date. A fund’s NAV is affected by four sets of factors:

purchase and sale of investment securities, valuation of all investment securities held,

other assets and liabilities, and units sold or redeemed. SEBI has issued guidelines on

valuation of traded securities, thinly traded securities and non-traded securities. These
guidelines were issued to streamline the procedure of calculation of NAV of the

schemes of mutual funds. The aggregate value of illiquid securities as defined in the

guidelines shall not exceed 15% of the total assets of the scheme and any illiquid

securities held above 15% of the total assets shall be valued in the manner as specified

in the guidelines issued by the SEBI. Where income receivables on investments has

accrued but has not been received for the period specified in the guidelines issued by

SEBI, provision shall be made by debiting to the revenue account the income so

accrued in the manner specified.By guidelines issued by SEBI. Mutual funds are

required to declare their NAV s and seller purchase prices of all schemes updated daily

on regular basis on the AMFI website by 8.00 p.m. and declare NAVs of their Close-

ended schemes on every Wednesday.

According to SEBI (Mutual Funds) (Second Amendment) Regulations, 2000, a mutual

fund can now invest up to 5% of its NAV in the unlisted equity shares or equity related

instruments in case of open-ended schemes; while in case of close-ended schemes, the

mutual fund can now invest up to 10% of its NAY.

Mutual Fund Investors

Mutual funds in India are open to investment by

o Residents including:-

 Resident Indian Individuals, including high net worth individuals and the retail or

small investors. Indian Companies

 Indian Trusts/Charitable Institutions

 Banks
 Non-Banking Finance Companies

 Insurance Companies

 Provident Funds

o Non-Residents, including

 Non-Resident Indians

 Other Corporate Bodies (OCBs)

LARGE CAP EQUITY MUTUAL FUNDS

Crisil Rating of Mutual Funds

 Crisil Rank 
5 5
4 4 4 4
3 3 3 3
2 2

Fund Size of Large Cap Equity Funds

Fund Size in Cr 

30000
25000
24,365.05
20000 22,604.35
15000 18,385.69 17,802.58
16,763.73
10000
5000 6,475.26
0 1,653.38
701.72 843.97602.80386.05 551.61
GRAPH OF 5 YEAR PERFORMANCE OF EQUITY MUTUAL FUNDS
 5Year Performance 
7% 11%
7%

11%
8%

7% 8%

8%
11%

8%
8%
6%

Canara Robeco Bluechip Equity Fund - Regular Plan - GrowthLarge Cap Fund
Axis Bluechip Fund - GrowthLarge Cap Fund
Kotak Bluechip Fund - GrowthLarge Cap Fund
BNP Paribas Large Cap Fund - GrowthLarge Cap Fund
HSBC Large Cap Equity Fund - GrowthLarge Cap Fund
LIC MF Large Cap Fund - GrowthLarge Cap Fund
UTI Mastershare Unit Scheme - GrowthLarge Cap Fund
Mirae Asset Large Cap Fund - Regular - GrowthLarge Cap Fund
L&T India Large Cap Fund - GrowthLarge Cap Fund
ICICI Prudential Bluechip Fund - GrowthLarge Cap Fund
SBI Blue Chip Fund - GrowthLarge Cap Fund
Aditya Birla Sun Life Frontline Equity Fund - Regular Plan - GrowthLarge Cap Fund

GRAPH OF 10 YEAR PERFORMANCE OF EQUITY MUTUAL FUNDS

 10Ye ar Performance  
12.00%
8.00%
4.00%
0.00%

Portfolio Turnover Ratio

120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%

Conclusion
The study has investigated the performance of equity based mutual fund schemes in

India .The last decade has seen a tremendous growth in the mutual fund industry.

Assets Under Management (AUM) of Indian Mutual Fund Industry as on August 31,

2020 stood at ₹27,49,389 crore. The AUM of the  Indian MF Industry has grown from ₹

7.10 trillion as on August 31, 2010 to ₹27.49 trillion as on August 31, 2020 about 4 fold

increase in a span of 10 years. Today the Indian market is flooded with more than a

thousand mutual fund schemes, promising better returns than others. However for a

common man, it becomes a challenge to select the best portfolio to invest. By this study

we know that large cap equity mutual fund shows return of around 9% in 10year.