1. Types of Mutual Funds Financial Markets

2. Major types of mutual funds There are two major types of mutual funds Money market mutual funds Stock funds and bond and income funds Further mutual funds can classified on the basis of risk and return 3. Types of mutual funds 1. Money market funds These funds invest in money market securities They are low risk and low return funds They provide the chance to earn the going rate in the money market with diversification advantage 4. 2. Bond Funds These fund specialize in fixed income sector Within bond funds, there exists many categories Funds may specialize in government bonds, or corporate bonds Or they specialize in bonds of different maturities 5. 3. Hybrid Funds (Balanced Funds) Includes both bonds and equity funds They are also called balanced funds The main objective is to preserve capital and earn a return Have a bit higher risk than the bond funds because of investment in equity 6. 4. Equity funds All investment is made in common stocks Within equity funds, there can be growth funds or income funds Growth funds have investment in stocks that have good growth potential (usually small firms) Income funds have investment in stocks that provide consistent flow of income(usually large firms) 7. 5. Sector funds Some industries perform well in one stage of business cycle and others perform well in the other stages of business cycle An investment company may have a mutual fund that specialize in any one sector For example, a mutual fund may invest only in oil stocks 8. 6. Index funds An index fund tries to match the performance of a broad market index The fund buys shares in securities in the proportion to the securitys representation in the index It is an unmanaged fund and hence a low cost Investors following passive strategy will invest in index fund 9. Mutual Funds returns Mutual funds returns are expressed in total returns i.e. dividends and capital gains as a percentage of initial investment A cumulative total return measures the actual performance over a stated period of time, 1 year, 3 years or 10 years For example, a fund gave returns: Past 1 year Past 5 Years Past 10 years -10% 8.5% 180.5% 10. Mutual Fund Regulations An Asset Management Company for every open-end & closed-end mutual fund shall appoint a trustee. A trustee shall be a schedule bank, a foreign bank, an Investment company having minimum A+ rating from credit rating agency registered with the commission. A central depository company approved by the commission can also be appointed as trustee. 11. The trustee should be independent of the AMC. The trustee should carry out the instructions of AMC in respect of investment unless they are in conflict with the any provision of the rules issued by the commission. Units or certificates of an open-end or closed- end mutual fund shall not be offered to the public unless the schemes approved by the commission. 12. Sale, purchase, issue and transfer of units certificates affected by the open-end or closed end schemes are carried out in accordance with the provisions of constitutive documents. Open-end or closed-end mutual fund schemes should meet the minimum investment criteria specified by the commission under regulation 44(3)(e). Should maintain proper books of accounts.