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What is Mutual Fund?

A mutual fund is a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. For an individual investor to have a diversified portfolio is difficult. But you can approach to mutual fund advisor and can invest into shares. Mutual funds have become very popular since they make individual investors invest in equity and debt securities easy.

When investors invest a particular amount of mutual funds, he becomes the unitholder of corresponding units. In turn, mutual funds invest unit holders money in stocks, bonds or other securities that earn interest or dividend. This money is distributed to unitholders.

If the fund gets money by selling some stocks at a higher price the unitholders also are liable to get capital gains. A mutual fund is quite simply a collection of stocks, bonds, or other securities owned by a group of investors and managed by a professional investment company. Thus the mutual funds are not the depositing instrument that has the guarantee of getting a certain amount but it is like any other securities where the investor can have capital gains or loss.

Why To Invest In Mutual Fund ?

Mutual Fund Sai Hai

Professionally managed

Mutual funds are professionally managed by fund managers, whose every day job is to track the markets and manage investments.


Mutual funds, on the other hand, broadly come with less, if not no, lock-in periods. Most funds do not have a lock-in period and give you the flexibility to redeem your money when you need it.


“Don’t put all your eggs in one basket”. This is the premise of diversification. It means spreading your investments across asset classes and stocks, to reduce your risk.


And finally, investing in mutual funds is now a piece of cake. The whole process is offered online by many players in the industry. Starting a SIP or making an investment can be done in a matter of few clicks.

Higher returns

Mutual funds provide the right avenue for investing in a variety of market-linked instruments, which have time and again delivered superior returns

Disciplined investing

Habits are hard to break. Which is why we are advised to inculcate good habits. And what better habit could there be, than investing for your secure future?

History of Mutual Fund

  • The origin of mutual fund industry in India is with the introduction of the concept of a mutual fund by UTI in the year 1963. Though the growth was slow, it accelerated from the year 1987 when non-UTI players entered the industry.
  • In the past decade, Indian mutual fund industry had seen a dramatic improvement, both quality wise as well as quantity wise. Before the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the height of 1,540 bn.
  • Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry.

Importance Of Asset Allocation.

First of all, we must know What Asset Allocation Is? It is an investment portfolio technique which helps in diversification by investing in different asset classes such as cash, bonds, stocks etc. thus ensuring to balance risk in case one asset class increases while other decreases.

Five things which are important in relation to Asset Allocation are as follow

1) Risk vs. Return
Every investor must take into aspect the concept of risk-return trade-off which basically means that potential return increases with an increase in risk. According to this risk-return trade-off principle, invested money can give higher profits, only if the investor is willing to accept that losses too can happen and they are a part of the market.

2) Don’t Rely Solely on Financial Software or Planner Sheets
Though the financial planning software and survey sheets designed by financial advisors can be beneficial, one must not rely solely on that as some of these worksheets are based on a set of simple questions that don’t match with every individual financial goal. Also, some of the surveys don’t take into account other important information such as whether or not you are a parent, retiree, spouse etc. So investors must be extra cautious and must do thorough research before relying on any such surveys and software.

3) Determine Your Long and Short Term Goals
An asset allocation plan must be prepared considering both the long term and short term goals of an investor in mind. It must thus be prepared according to the investors’ age, his/her risk-taking ability and thus every investor long and short-term goal plan will be different and must be taken into account.

4) Time is Your Best Friend
It is always said that investing early helps you take advantage of time value of money and compounding. Hence, it is advised by the financial planners to invest for long-term whether in mutual funds or direct in stock markets as in long run one will definitely higher returns.

5) Keep a Check on Your Portfolio
Once you have determined the right mix of stocks, bonds, and other investments, then it is the time to implement it. One needs to know what all is included in your current portfolio and you must keep a check on it and must remain in touch with your financial planner so that you can let him know what changes you need to make in your portfolio from time to time according to the conditions in the market.

How to Invest In Mutual Fund

First, let us understand What Exactly Mutual Funds Are. These are pools of funds which are collected from investors and managed by an asset management company on their behalf for investing in different instruments such as stocks, bonds, Govt. securities and other asset classes with a hope of providing better returns to investors by diversifying their risk by investing in different asset classes.

Who can invest in Mutual Funds?

Following are the people which can invest in mutual funds:-

  1. People living in India that is Indian residents.
  2. People not living in India that is Non-resident Indians (NRI)
  3. All people who are of Indian Origin (POI)
  4. ALL Indian public and private sector companies.
  5. For minors, their parents or guardians can invest on their behalf.
  6. Hindu Undivided Family(HUF)
  7. Sole Proprietorship Firms that are firms with a single owner.
  8. Cooperative societies
  9. Partnerships firms
  10. Charitable or Religious Trusts
  11. Trustee and Asset Management Company
  12. Registered Societies
  13. Air force, navy and army Institutions
  14. Scientific and/or industrial research organizations

Documents Required To Invest in Mutual Fund

First of all, every person needs to fill a Know your customer application form (KYC). Along with that following documents are required by different parties involved:-

1) For IndividualProof of Identity
The first and foremost thing for an individual investor is the proof of identity. Following things can be included in it:

  • Photo PAN Card
  • In case of Non-Photo PAN Card in addition to copy of PAN Card, any one of the following can be included
  • Passport copy/Driving License/ Voter ID /Bank Photo Pass Book.

Proof of Address (any one of the following):

  • Latest Telephone Bill, which could be Landline/Mobile and it, should not be more than 3 months prior to the date of application.
  • Latest Electricity Bill (not more than 3 months prior to the date of application).
  • Passport copy
  • Bank Account Statement (not more than 3 months prior to the date of application).
  • Latest Demat Account statement (not more than 3 months prior to the date of application).
  • Voter ID.
  • Driving License.
  • Ration Card.
  • Rent Agreement.

2) For Hindu Undivided Family (HUF)

  • Units can only be held in the name of Karta on behalf of the HUF
  • For proof of identity Copy of pan Card is a must.

Proof of address (HUF)

  • Latest Bank Passbook (not more than 3 months prior to the date of application).
  • Bank account statement (not more than 3 months prior to the date of application)…

3) Non-individuals (PAN Mandatory) Companies / Bodies Corporate (Certified copy of the following):

  • Certificate of incorporation.
  • Memorandum & Articles of Association that is MOA and AOA.
  • Approval of the Board of Directors (BOD) authorizing investment in mutual funds.
  • Power of Attorney(POA) granted to its managers, officers or employees to transact business on its behalf

4) Partnership firms (Certified copy of the following):

  • Certificates of Registration, in case of registered Partnership Firms.
  • Any other officially valid documents in respect of holding a power of attorney to transact.

5) Trusts, foundations, NGO’s Charitable Bodies, Clubs/Mutual Fund Schemes (Certified copy of the following):

  • Certificate of Registration, in case of registered Trusts.
  • Any other valid documents in respect of holding a power of attorney to transact
  • Offer Document of the Mutual Fund Scheme.
  • Certificate of Registration, in case of registered Trusts.
  • Any other valid documents in respect of holding a power of attorney to transact.
  • Offer Document of the Mutual Fund Scheme.

Types of Mutual Funds

Equity Mutual Fund

Debt Mutual Fund

Hybrid Mutual Fund

Goal Oriented

  • Multi Cap Fund

  • Large & Mid Cap Fund

  • Mid Cap Fund

  • Small cap Fund

  • Dividend Yield Fund

  • Value Fund*

  • Contra Fund*

  • Focused Fund

  • Sectorial/ Thematic

  • ELSS

  • Overnight Fund

  • Liquid Fund

  • Ultra Short Duration Fund

  • Low Duration Fund

  • Money Market Fund

  • Short Duration Fund

  • Medium Duration Fund

  • Medium to Long Duration Fund

  • Long Duration Fund

  • Dynamic Bond

  • Corporate Bond Fund

  • Credit Risk Fund

  • Banking and PSU Fund

  • Gilt Fund

  • Gilt Fund with 10 year constant duration

  • Floater Fund

  • Conservative Hybrid Fund

  • Balanced Hybrid Fund

  • Aggressive Hybrid Fund

  • Dynamic Asset Allocation

  • Multi Asset Allocation

  • Arbitrage Fund

  • Equity Savings

  • Retirement Fund

  • Children’s Fund

  •  Index Funds/ ETFs

  • FoFs (Overseas/ Domestic)

How to read Mutual Fund Documents ?

All the advertisements about Mutual Fund Investments give a disclaimer, in the end, saying “please read all scheme related documents carefully before investing “.

It is not rare that new investors or such investors who do not possess much knowledge about MFs end up.

These documents contain long pages with a lot of technical languages. Reading this is a very difficult &tedious taste for beginners, Therefore, bankers or financial agents & advisors are approached to help investors invest faithfully.

Mutual Fund Portfolio,WealthhunterIndia

Important things to read in an offer document.

1) Date of issue

To see that you have received an up to date & they should be updated on an annual basis.

2) Investment objectives

The goal of each fund should be clearly mentioned, all of its objectives should match with the personal objectives  of  the investors.

3) Investment Policies

All the securities or stocks the amount will be invested/ reinvested in should be mentioned in the OD.

4) Risk factors

 All the risks including with the investment & the contingencies should before with mentioned in the OD.

5) Past Performance Data

Any company can attract new& potential investors by showing them past performance & giving them an  assurance through actual data & growth potential.

6) Fees & Expenses

The entry fee, exit fee, interests, annual exports services costs, etc. Involved with the MF is in the OD.

7) Tax Benefits

All the subsidies, tax reliefs or returns & other benefits the MF carries is mentioned & should be read carefully.

How to pick mutual fund?

Some of the main points which need to be kept in mind are as follows: Identifying Goals and Risk Tolerance, Fund Type, Performance Ranking, Charges, and Fees, Evaluating Managers Past Performance.

1) Identifying Goals and Risk Tolerance

Before investing in any fund, the investor must be crystal clear what his long-term goal and short-term goals are and in how much time horizon he/she plans to achieve it. Also, the risk-taking ability of the particular investor must also be taken into account.

2) Fund Type

It basically depends on whether an investor wants to invest money for a long-term need and if he can handle a fair amount of risk and volatility too then he/she can go for an equity fund, but if he wants to invest for a short period, then debt funds would be better suited.

3) Performance Ranking

You must find out the quarterly ranking which will show how the fund has formed quarter on quarter basis among its peer group. So one may select the scheme which has remained in top quarterly most of the time and one can find these rankings from the fact sheets of various AMC’s and also on some mutual fund research websites.

4) Charges and Fees

The investor must take a note of all fees and charges being levied for by the fund managers for providing their service. One can look for management expense ratio. It is simply the total percentage of fund assets that are being charged to cover fund expenses. The higher the ratio, the lower would be the investors return and vice-versa.

5) Evaluating Managers Past Performance

Investors should research about funds past results and seek answers to questions such as:-
1) Did the fund manager deliver results which were consistent with general market returns?
2) Did the returns vary dramatically throughout the year?

It will help an investor in knowing how a fund manager performs under critical situations and what historically has been the trend in terms of turnover and return.

Mutual Fund Sahi Hai

Legal Structure of Mutual Fund

Who Regulates ?
Who is Sponser?
Registration of Trust

Who Regulates Mutual funds?

Mutual Funds are regulated by the Securities & Exchange Board of India in India. SEBI has formed “SEBI MF Regulations 1996” to regulate the functioning of Mutual Funds.

Under this regulation Mutual Funds are formed as Public Trust under “The Indian Trust Act, 1882”.

These regulations stipulate a three-tiered structure of entities – sponsor (creation), trustees, and Asset Management Company (fund management) – for carrying out different functions of a mutual fund, but place the primary responsibility on the trustees.

Who is Mutual Fund sponsor? & What are Roles & Responsibilities of Sponsor?

Mutual fund sponsor is basically promoter of the Mutual Fund Company. Sponsor either on his own or in association with another body corporate establishes a Mutual to earn money from fund management through its subsidiary company which acts as Investment Manager of the Fund.

Sponsors then,

  • Set up a Public Trust under “The Indian Trust Act, 1882”, and appoint trustees to manage the trust. Gets trust registered with SEBI and also takes all the necessary approvals from the SEBI.
  • Create an Asset Management Company under “The Companies Act, 1956”.
  • As sponsor is the main entity promoting a mutual fund company and mutual funds are going to manage public money, SEBI has kept very strict guidelines for the eligibility of the Sponsor.

Registration of Trust & Appointment of Trustees:

  1. Creation of Trust

Sponsors create trust through trust deed in the favor of trustees. Trustees manage the trust and they are primarily responsible to investors in Mutual Funds. They are primarily guardians of Unit Holder’s money.

  1. Appointment of Trustees

Sponsor with prior approval of SEBI appoints trustees. There should be at least four members of the board of trustees with at least 2/3rd independent. A trustee of one mutual fund cannot be the trustee of another mutual fund unless he is an independent trustee in both cases and has the approval of both the boards.

The trustees are appointed by executing and registering a trust deed under the provisions of “Indian Registration Act”. This trust deed is also registered with SEBI.

  1. Responsibilities of Trustees

Primary responsibility of Trustees is to see that all the due diligence is done properly and all the regulations are properly followed. All schemes floated by the AMC have to be approved by the trustees.

Trustees review and ensure that the net worth of the AMC is as per the regulatory norms. They have to furnish SEBI a report on the activities of AMC on half yearly basis.

  • Trustees also enter into an agreement with the Asset Management Company.
  • Trustees can obtain necessary information from the Asset Management Company. All the schemes have to be approved by Trustee before they are launched.
  • Trustees have to appoint all key personnel like Fund Managers, Auditors, Custodian, Registrar, Compliance Officer etc. and to inform the SEBI about same.

Registrar & Transfer Agent

Registrar and Transfer agent is a separate entity. Registrar & Transfer agent has a responsibility of performing many administrative jobs like processing of applications of investors, creating units when new investment is made, removing units when investors made redemptions, keeping the full record of investors, processing dividend payout. Mutual fund investors are spread across the country to small cities and towns so it is not possible to provide these services to investors at all these places by Asset Management Company. Registrar & Transfer Agents have their offices spread to these different locations and they work for many Mutual Funds to perform these jobs. So it becomes possible to provide services to unit holders at different locations in a very cost-effective manner.


Asset Management Companies are required to maintain separate books of accounts for all the schemes and prepare separate Annual reports for all schemes. An Auditor’s role is to examine books of accounts and annual report of all the schemes as an independent auditor. Asset Management Companies are also required to maintain their books of accounts and get the audit done under The Companies Act, 1956. As per rules, separate auditors are appointed for Asset Management Company and Schemes.

Asset Management Company

 Trust will appoint Asset Management Company as Investment Managers through an agreement called “Investment Management Agreement”.

  • Sponsor creates Asset Management Company and Asset Management Company manages funds of the Trust and against that it charges a small fee. The AMC structures various schemes, launches the scheme and mobilizes initial amount, manages the funds and give services to the investors.

Sponsor, Trust, and Asset Management Company are the Three Tir system which runs entire Mutual fund Business. Following are some other important entities involved in the functioning of a Mutual Fund.


In Mutual funds, Asset Management Company buys different securities in the forms of Shares, bonds, gold etc. in different schemes. These Securities are bought in the name of Trust but they are not kept in the Trust. The responsibility of safekeeping the securities is the custodian. Securities, which are in material form, are kept in safe custody of a custodian and securities, which are in “De-Materialized” form, are kept with a Depository participant, who acts on the advice of custodian. Custodian performs a very important back-office operation. They ensure that delivery has been taken of the securities, which are bought, and that they are transferred in the name of the mutual fund. They also ensure that funds are paid out when securities are bought. Custodian keeps the investment account of the mutual fund. They collect and account for the dividends and interest receivables on mutual fund investments. They also keep track of various corporate actions like bonus issue, rights issue, and stock split; buyback offers, open offer etc and act on these as per instructions of the Investment Manager.


Brokers are registered members of the stock exchange whose services are utilized by AMC to buy and sells securities on the stock exchanges. Many brokers also provide the Investment Manager (AMC) with research reports on the performance of various companies, sector, and market outlook, investment recommendations etc.


From above discussion, it is clear that mutual funds are well regulated by SEBI. SEBI has formed three tired structure between sponsor, Trustee and Asset Management Company to ensure the safety of investor’s money. Different agencies are involved in the functioning of the Mutual funds, like custodian is responsible for the safekeeping of securities, the transfer agent is responsible for the creation of units and other services, Auditors verify that accounting is done properly as per regulations. Brokers are members of stock exchanges who provide services of buying and selling of securities. Trustees are responsible to take care of unit holder’s interest and reporting to SEBI. So the entire functioning doesn’t remain with Asset Management Company or Sponsors.

Portfolio can also be classified as

Growth Fund

The Fund invests 85 % in stocks and 15% in Debts. The main objective is to provide long-term capital appreciation.

Income Fund

The fund invests 85 % in Debt & 15% in stocks. The Main objective is to Provide Regular Income.

Balanced Fund

The fund invest 50-60 % in stocks & 40-50% in debt instruments. The Main Objective is to Provide long-term growth of Capital & Regular Income.

Liquid Funds

The fund invests 100% in Government and Public sector bonds, Money market instruments & Corporate debt.

The main objective is to provide an attractive rate of return whole emphasizing Capital preservation and liquidity.

Gilt Fund

The fund invests 100% in State/Central Government securities. The main objective is to provide risk-free returns & liquidity.

Sector Fund

The fund invests 100% in individual sector stocks. The main objective is to provide growth of capital over a period of time.

Tax saving Schemes

The fund invests 100% in stocks. The main objective is to provide Capital Appreciation. Units at this scheme are subject to lock-in period of 3 years from the date of allotment and also rebate of 20% is allowed under section 88 of IT act.

Index Funds

Index schemes are a type of mutual fund in which the portfolio weight for each stock will be similar to the index, which they are mirroring, like BSE Sensex or the NSE 50.

The portfolio of these schemes will consist of only those stocks that constitute the index.

Index funds are expected to provide a rate of return over time that will approximate or match, but not exceed, that of the market, which they are mirroring

How to build Mutual Funds Portfolio

Building a portfolio of mutual funds is similar to building a house: There are many different kinds of strategies, designs, tools and building materials; but each structure shares some basic features.

To build the best portfolio of mutual funds you must go beyond the sage advice, “Don’t put all your eggs in one basket:” A structure that can stand the test of time requires a smart design, a strong foundation and a simple combination of mutual funds that work well for your needs.

  1. Use a Core and Satellite Portfolio Design

Before building begins, you will need a basic design—a blueprint—to follow. A common and time-tested portfolio design is called Core and Satellite. This structure is just as it sounds: You begin with the “core”—a large-cap stock fund—which represents the largest portion of your portfolio and builds around the core with the “satellite” funds, which will each represent smaller portions of your portfolio.

  1. Use Different Types of Fund Categories for the Structure

With a large-cap stock fund as your core, different types of funds—the “satellites”—will complete the structure of your mutual fund portfolio. These other funds can include mid-cap stock, small-cap stock, foreign stock, fixed income (bond), sector funds and money market funds.

  1. Know Your Risk Tolerance

Before choosing your funds, you need to have a good idea of how much risk you can tolerate. Your risk tolerance is a measure of how much fluctuation (a.k.a. volatility—ups and downs) or market risk you can handle.

  1. Determine Your Asset Allocation

Once you determine your level of risk tolerance, you can determine your asset allocation, which is the mix of investment assets—stocks, bonds, and cash—that comprises your portfolio.

The proper asset allocation will reflect your level of risk tolerance, which can be described as either aggressive (high tolerance for risk), moderate (medium risk tolerance) or conservative (low-risk tolerance). The higher your risk tolerance the more stocks you will have in relation to bonds and cash in your portfolio; and the lower your risk tolerance, the lower your percentage of stocks in relation to bonds and cash.

  1. Learn How to Choose the Best Funds

Now that you know your asset allocation, all that remains is choosing the best funds for you. If you have a broad choice of mutual funds you begin by using a fund screener or you may simply compare performance to a benchmark. You’ll also want to consider important qualities of mutual funds, such as fund fees and expenses and manager tenure.

The old way of asset allocation was “invest for your age,” where your age is a number of bonds in your portfolio. For example, if you are 40 years old, your asset allocation would be 40% bonds and 60% stocks. Today, people are living longer so this asset allocation strategy is not as valid as it once was.

For more on building a portfolio of mutual funds, see these sample portfolio designs: Aggressive Mutual Fund Portfolio Sample, Moderate Mutual Fund Portfolio Sample, and Conservative Mutual Fund Portfolio Sample.

Mutual Fund Companies In India

Why do you required mutual fund advisor?

  1. Educating the investor(s)

  2. Evaluating risk-taking capacity

  3. Analyzing investment options

  4. Devising the right investment strategy

  5. Helping investors diversify their portfolio

  6. Record-keeping