MUTUAL FUNDS

Definition: A mutual fund is a common pool of money into which investors place their contributions that are to be invested in different types of securities such as stocks, bonds, money market instruments and similar assets in accordance with the stated objective. FLOW CHART OF MUTUAL FUNDS

Types of Mutual Funds

Classification based on structure Open-ended Fund/ Scheme: An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Close-ended Fund/ Scheme: A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Interval Schemes : Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes.

Classification based on Investment objectives 1) Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. 2) Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. 3) Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50). 4) Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.

Classification based on other schemes Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) and pension scheme are eligible for rebate. Special schemes are classified into industry specific schemes, index schemes and sectoral schemes Index schemes This schemes invest in the securities in the same weightage comprising of an index. This schemes would rise or fall in accordance with the rise or fall in the index such as the BSE Sensex or the CNX S&P Nifty. Sectoral schemes Such fund invest in specific sectors of the economy. The specialized sectors may include real estate infrastructure, oil and gas etc, offshore investments, commodities like gold and silver. Industry Specific schemes Sector funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc.

Various Mutual funds in India State Bank of India mutual fund ICICI prudential mutual fund TATA mutual fund HDFC mutual fund Birla sun life mutual fund Reliance mutual fund Kotak Mahindra mutual fund etc.. Advantages of Mutual Funds Liquidity: Investors may be unable to sell shares directly, easily and quickly. When they invest in mutual funds, they can cash their investment any time by selling the units to the fund if it is open-ended. Convenience and Flexibility: Investors can easily transfer their holdings from one scheme to other, get updated market information and so on. Funds also offer additional benefits like regular investment and regular withdrawal options.

Transparency: Fund gives regular information to its investors on the value of the investments in addition to disclosure of portfolio held by their scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook Portfolio diversification: It enables him to hold a diversified investment portfolio even with a small amount of investment like Rs. 2000/-. Professional management: The investment management skills, along with the needed research into available investment options, ensure a much better return as compared to what an investor can manage on his own. Reduction/Diversification of Risks: The potential losses are also shared with other investors. Reduction of transaction costs: The investor has the benefit of economies of scale; the funds pay lesser costs because of larger volumes and it is passed on to the investors. Wide Choice to suit risk-return profile: Investors can chose the fund based on their risk tolerance and expected returns.

Disadvantages of Mutual funds No guarantees: No investment is risk free. If entire declines in the value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. Fees and commissions: all funds charge administrative fees to cover their day to day expenses. Taxes: If the fund makes a profit then investor has to pay taxes on the profit, even if investor reinvests the money trade. Management risk: when the investor invests in mutual fund, then investor has to depend on the fund’s manager to make the right decision regarding the fund’s portfolio. Fluctuating returns: Mutual funds are like many other investments without a guaranteed return; there is always the possibility that the value of your mutual fund will depreciate.

6. Misleading advertisements: The misleading advertisements of different funds can guide investors down the wrong path. 7. Diversification: the diversification is dangerous to the investors when the diversifying is relatively same.

NABARD: NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT. It is the apex banking institution to provide finance for Agriculture and rural development.  National Bank for Agriculture and Rural Development (NABARD) was established on July 12, 1982 with the paid up capital of Rs. 100 cr, by 50: 50 contribution of government of India and Reserve bank of India. It is an apex institution in rural credit structure for providing credit for promotion of agriculture, small scale industries, cottage and village industries, handicrafts etc. Objectives of NABARD: NABARD provides refinance assistance for agriculture, promoting rural development activities. It also provides all necessary finance and assistance to small scale industries. It improves small and minor irrigation by way of promoting agricultural activities.

It maintains a research and development fund to promote research in agriculture and rural development. NABARD promotes various organizations involved in agricultural production by contributing to their capital. It co-ordinates all agricultural and rural development activities with the objective of tying them up with planned development activities in the rural sector. NABARD is responsible for regulating and supervising the functions of Co-operative banks and RRBs. FUNCTIONS: NABARD provides refinancing facilities to Commercial banks, State co-operative banks, Central Co-operative banks, Regional rural banks and Land Development banks. It provides refinancing to agriculture, small scale industries and other village and cottage industries by lending to commercial banks.

The bills of commercial and co-operative banks are discounted to enable them to finance for agricultural operations. During natural calamities, such as droughts, crop failure and floods, the bank helps by refinancing commercial and cooperative banks so that the farmers tide over their difficult period. Provide financial support for the training institutes of cooperative banks, commercial banks and Regional Rural Banks. Provide financial assistance to cooperative banks for building improved management information system, computerization of operations and development of human resources. It also runs programs for agriculture and rural development. It also supports  Vikas volunteer Vahini programs which offer credit and development activities to poor farmers. It provides long-term assistance (not exceeding 20 years) to State Governments.