WHAT IS A MUTUAL FUND?

A mutual fund is an investment vehicle that pools money from multiple

investors to purchase a diversified portfolio of stocks, bonds, or other
securities (according to the fund's stated strategy).

It allows individual investors to gain exposure to a professionally-

managed portfolio and potentially benefit from economies of scale, while
spreading risk across multiple investments.

SIGNIFICANCE OF MUTUAL FUND :

1. Diversification of Portfolio

Any investment professional will tell you that diversification is one of the
most crucial ways to lower the risk of your portfolio. To reduce potential
losses, it is advantageous to diversify your holdings rather than invest in
a single business, sector, or investment vehicle.

Investors can instantly diversify their holdings with Mutual Funds, which
is a great option. Unlike buying individual stocks, investing in one or
more Mutual Funds gives investors access to a wide range of investment
options because each fund may hold dozens of different securities.
Mutual Funds assist investors in hedging against unsystematic risk.

2. A Fund for Every Type of Investor is Available

Mutual Funds primarily invest in the Debt and Equity asset classes.
Some funds invest exclusively in Debt Fund, while others only in Equity
Funds, and, the remaining in Balanced or Hybrid Funds.

Gaining access to a wide range of shares or fixed-income tools is the

main advantage of investing in a Mutual Fund. The other securities in a
portfolio make up for underperforming securities. Mutual Funds
guarantee diversity in this way. You can choose Mutual Funds if you're a
fresh investor who doesn't want to devote a great deal of time
researching stocks to invest in.
3. Advantages of High Liquidity

The second most liquid investment vehicle after bank deposits is open-
ended mutual funds, which are also significantly more liquid than other
types of investments like life insurance, infrastructure bonds, post office
schemes, etc. In open-ended funds, investors have the benefit of
redeeming their units.

One of the key advantages of mutual funds over other investment

options, such as life insurance plans and government small savings
programs, is their outstanding liquidity.

4. Options for Lumpsum & SIP Investments

Mutual Funds also offer the option to invest the amount in one go or
place a specified number at regular intervals. The first choice is referred
to as a "Lumpsum" investment, and the second is referred to as a
"Systematic Investment Plan," or SIP.

Under Systematic Investment Plans (SIPs), the investor invests a specific

sum of money at regular intervals. This specific amount is directly
deducted from the investor's bank account. It disregards the timing of
the market.

On the other hand, Lumpsum Investments are options of investment that

allow the investor to purchase the number of units they want in one go.
This method is usually chosen to create extra wealth and liquidity. The
Lumpsum method makes use of the timing of the market strategy.

5. The Benefit of Transparency

Another benefit of Mutual Funds for investors is transparency. Investors

are always updated on the current market value of their Mutual Fund
units because Mutual Fund schemes make their Net Asset Values (NAVs)
public at the end of each business day.

Mutual Funds release Monthly Fund Factsheets every month that

includes information about the portfolio holdings for each and every
Mutual Fund scheme. Investors are informed of the monthly investments
made by the fund managers in these sheets.

6. Tax Benefit
One of the biggest advantages of investing in mutual funds over many
customary fixed-income investments is their tax advantages. Under
Section 80C of the Income Tax Act of 1961, investing in an ELSS
Fund entitles you to a reduction in your taxable income of up to Rs. 1.5
lakh.

Most traditional fixed-income investments have interest payments that

are taxed at the investor's individual income tax rates. When compared
to conventional fixed-income investments, mutual funds have significant
tax advantages for investors in higher tax brackets.

7. Competency of Cost

Mutual Fund investing is very cost-effective. Direct equity purchases

require you to pay fees like brokerage and the Securities Transaction
Tax (STT). Your costs will rise as the amount of transactions increases.
Overlaying investors can benefit from Mutual Funds' ability to take
advantage of economies of scale because they conduct transactions in
bulk.

8. Lower Transaction Cost

Another benefit of Mutual Funds is lower transaction costs as a result of

economies of scale, and, since Mutual Funds buy and sell securities in
large volumes, transaction costs per unit are much lower than those
incurred by retail investors when they buy or sell shares through stock
brokers.

9. Smaller Upfront Investment

The next important feature of Mutual Funds is that you can begin
investing in them with small amounts of money. To construct a
diversified collection of stocks, investors will need to invest a significant
amount of money. Mutual Funds, on the other hand, work on the basis of
money pooling, so Mutual Fund investors can benefit from ownership
interest of a diverse portfolio of stocks with a much relatively small
investment.

10. Professional Management & Expertise

Stock and bond investing require a great deal of knowledge and
experience. You must be knowledgeable about financial markets,
industry sectors, particular businesses, and research techniques.

The fact that Mutual Funds are managed by professionals who have the
necessary training, knowledge, and experience to choose the best stocks
or other financial instruments to obtain the best risk-adjusted returns is
a major benefit of Mutual Funds. The AMCs' research team provides
assistance to the fund managers.
1. Private Sector Mutual Funds

Private sector mutual funds are managed by private companies that

are not owned by the government. These funds typically have more
flexibility in their operations and tend to be more aggressive in
their investment strategies. They are established by private
financial institutions, banks, and corporations.

Key Characteristics of Private Sector Mutual Funds:

 Ownership: These funds are owned by private corporations or

entities.

 Management: Managed by private asset management

companies (AMCs).

 Types of Funds: Includes equity funds, debt funds, hybrid

funds, sectoral funds, and others.

 Investment Style: They may adopt a more aggressive or

innovative approach to maximize returns. Often, these AMCs
aim to grow quickly and capture larger market share.

 Examples: Some of the well-known private sector mutual fund

companies in India are:

o HDFC Asset Management Company

o ICICI Prudential Asset Management

o SBI Mutual Fund

o Aditya Birla Sun Life Mutual Fund

o Kotak Mahindra Mutual Fund

o Axis Mutual Fund

o Reliance Nippon Life Asset Management

Advantages:

 More diversified range of products and investment strategies.

  They often offer funds with better customer service and
marketing strategies.

Disadvantages:

 May have higher management fees due to more aggressive

strategies.

 Performance could be more volatile due to the focus on higher

returns.

2. Public Sector Mutual Funds

Public sector mutual funds are owned and managed by government-

owned institutions or public sector companies. These funds are
typically more conservative in their approach to investments, with a
focus on long-term stability and security.

Key Characteristics of Public Sector Mutual Funds:

 Ownership: These funds are owned by public sector

companies or government organizations.

 Management: Managed by government-backed asset

management companies.

 Types of Funds: Similar to private sector funds, public sector

funds include equity funds, debt funds, balanced funds, etc.

 Investment Style: Public sector AMCs generally adopt a more

cautious and risk-averse investment approach, focusing on
safe and stable investments like large-cap stocks and
government bonds.

Examples of Public Sector Mutual Funds:

 LIC Mutual Fund (Owned by Life Insurance Corporation of

India)
  UTI Mutual Fund (Initially set up by the government of India
and still has government ownership)

 SBI Mutual Fund (State Bank of India is a government-

owned bank, but the fund operates with a mix of private and
public sector management)

 BOI AXA Mutual Fund (A joint venture between Bank of

India and AXA Investment Managers)

Advantages:

 Lower risk due to conservative investment strategies.

 Investors may feel more secure knowing the fund is backed by

government-owned institutions.

Disadvantages:

 Limited flexibility in terms of product offerings.

 Historically, returns may be lower compared to private sector

funds due to less aggressive investment strategies.
 Private Sector Public Sector Mutual
Aspect
Mutual Funds Funds
Owned by private Owned by government-
Ownership corporations, banks, or backed institutions or
financial institutions. public sector banks.
HDFC Mutual Fund,
ICICI Prudential LIC Mutual Fund, UTI
Mutual Fund, Aditya Mutual Fund, SBI Mutual
Examples
Birla Sun Life, Kotak Fund, BOI AXA Mutual
Mutual Fund, Axis Fund.
Mutual Fund.
Managed by
Managed by private government-owned
Managemen
Asset Management institutions or in
t
Companies (AMCs). partnership with private
players.
More aggressive,
More conservative,
seeking higher returns
focusing on stable, long-
Investment with diverse and
term returns with less
Strategy dynamic strategies,
exposure to high-risk
including sectoral and
assets.
thematic funds.
Higher risk due to Lower risk due to focus
aggressive investment on large-cap stocks,
Risk Profile
in equities and high- government bonds, and
growth sectors. safer investments.
Potentially higher
More consistent and
returns due to riskier
Returns moderate returns with
investments and active
lower volatility.
management.
Wide variety of funds, Limited variety of
including sectoral, products, typically
Product
thematic, equity, offering equity, hybrid,
Variety
hybrid, debt, and debt, and balanced
international funds. funds.
Generally higher fees Generally lower fees, as
Managemen due to more active the funds are managed
t Fees management and conservatively and with
aggressive strategies. fewer transactions.
Customer Often better customer Customer service tends
Service service with modern to be more traditional,
 Private Sector Public Sector Mutual
Aspect
Mutual Funds Funds
with emphasis on in-
digital tools, apps, and
branch or direct
platforms.
interactions.
Highly innovative in
Less innovation in
launching new fund
product offerings; tends
Innovation categories, thematic
to follow traditional fund
funds, and flexible
structures.
strategies.
More stable and
Typically better short-
consistent performance,
term performance due
Performanc though usually lagging in
to aggressive
e terms of growth
strategies, but may be
potential compared to
more volatile.
private sector funds.
High risk and high
Low risk and moderate
Risk-Return return; suitable for
return; suitable for
Profile investors willing to
conservative investors.
take more risks.