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4 thngs avoid wen choosing mutual

funds:-

As the battle for financial reform continues into 2011, the battle lines are clearly drawn: It’s theprofessional financial services industry against its own customers.

While there are pockets of resistance, such as the Americans for Financial Reform, and the

Committee for the Fiduciary Standard, the mutual fund industry, led by their trade lobbyists at the

Investment Company Institute, has opposed any attempts at fee reform, increased transparency and

adopting a fiduciary standard. Any of these reforms would address the issues related to conflicts of 

interests between investment product sales professionals and their own customers.

While the conflict of interest problem was addressed in 1973 by the Employee Retirement Income

Security Act (ERISA), which covered pension plans and subsequently, 401(k) plan administrators and

service providers, it was never applied to the larger retail sales side of the business.

While the financial reform issues get complicated, individual investors should not get too depressed.

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That’s because you have all the power over your own financial decisions. You can hire and fire mutual

fund and money managers. Outside of your 401(k) plan, there are about 7,600 mutual funds and over 

800 ETFs to choose from. If anything, there are too many choices.

To help cut through the financial product clutter, here are three basic criteria to make your selections

easier.

1. Avoid investing in funds using sub-advised managers.

2. Avoid multi-manager funds

3. Avoid insurance company-sponsored mutual funds, unless they have a proven track record

and low expenses.

4. Avoid funds which have changed managers.

Here is more on each of these potential problems

1. Avoid investing in funds that use sub-advised managers. 

Many fund companies offer a wide variety of mutual funds to look competitive. But to get more fund

variety, fund companies can make arrangements with other firms to offer their funds under another 

fund company’s name. This is the equivalent of private labeling in the retail business, and while the

quality may be present in both products, the costs may be different. In the mutual fund business, it’s

best to buy directly from the fund company which employs the fund managers.

Many fund companies which also provide 401(k) plan services often offer mutual funds as part of their 

total plan administration package. The problem is that these companies are in the plan administration

business first, not the money management business. In one case, a large West Coast insurance

company has an entire family of funds which are 100% sub-advised.

2. Avoid multi-manager funds.

A multi-manager fund is one advised by a select group of managers. The idea is that a few great

investment minds are better than one. The fund allows managers to pursue different investment stylesin a single category, such as a large cap growth fund.

Problems arise due to fees, overlap among the managers, and the inevitable fact that the “best”

managers often do not remain at the top of their game for long.

Multi-manager funds were designed for large pension funds in the late-1970s as a way to comply with

ERISA’s distinct portfolio diversification mandates.

Funds were faced with choosing the most appropriate managers to meet their investment objectives,

so rather than justifying the choice of a single manager, an alert consulting-money management firm

originated the idea of selecting the “best” in a certain investment category. This allowed the pensionfund to meet its ERISA obligations, and put the burden of responsibility on the consulting firm to vouch

for the veracity of its “best” managers.

3. Avoid insurance company mutual funds, unless they have a proven track record and

noticeably low expenses. 

This may be more controversial, but insurance companies have huge overheads (primarily in sales,

marketing, and administration) to support before they can ever consider reducing total fund expenses.

While future fund performance is unknown, expenses are the most important known factor an investor 

can control before they ever buy a mutual fund. And going into the lower-return investment

environment in 2011, it is critically important to manage expenses.

The U.S. Department of Labour has identified 17 distinct fees charged to shareholders by investmentcompanies. While some costs are well-known (administrative fees for example), there are also hidden

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costs, such as trading expenses, which can easily double expenses, or add up to 50% to

shareholders’ costs.

Since most investors do not even know these expenses exist, they invisibly erode shareholder 

returns. Princeton University finance professor Burton Milkier estimates that fees of just 3% can

devour up to 50% of investment returns.

4. Avoid funds which have changed managers. 

Changing fund managers is one of the most traumatic events which can offer to a fund company.

While some fund companies use a team approach to fund management, others have used single

managers, some of whom have built up impressive, long-term track records. When a manager leaves

due to retirement or poor performance, it raises questions about whether the talent is leaving with the

fund manager or whether there is a process in place to replicate the successful fund performance in

the future.

Unfortunately, most investors do not know that answer. Unless the fund company goes to

extraordinary lengths to provide an explanation for their manager succession plans, move your 

money.

In many cases, fund companies have contracts with their outside managers which contain specific

language they must use when replacing an outside manager. For instance, they cannot say a

manager was “fired;” often a fund company will only issue an announcement saying a new manager 

was hired. The last sentence will say who they replaced. Nothing more.

Fund companies also have been criticized for not replacing a faltering fund manager quickly enough.

These delays not only hinder fund performance, but bureaucratic inertia keeps the under-performing

manager on the payroll.

Sec Mutual Fund Plan A Letdown For

Reformers

June 01, 1992|The New York Times

At the mutual fund industry`s annual get-together this month, the Securitiesand Exchange Commission presented its long-awaited package of proposals

To change the way funds are regulated. Intended to update a 50-year-old law,

The report thinkers with the regulatory structure, focuses on big topics such as the

Globalization of the securities markets and proposes new types of funds and

Negotiated sales charges.

But people who were looking for simpler fund investing will be disappointed. John C.

Bogle, chairman of the Vanguard Group, calls the SEC proposal ``too much

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marketing and not enough trusteeship.`` He wants more investor-friendly information,

especially in the area of fees, advertising and annual reports to shareholders.

Nowhere is investor confusion more evident than in the area of pricing. James S.

Riepe, chairman of the Investment Company Institute, the mutual fund trade group

that sponsored the conference, urged the membership to complete itsexperimentation with different pricing schemes

The report said the array of fees increased choices for investors but might also impede

competition because with so many different approaches a small investor shopping for funds

would find it hard to compare the various charges. But the SEC proposes adding yet another

choice: a ``unified fee investment company,`` with one fee that includes all but brokerage

commissions and extraordinary expenses

The major reforms undertaken includes :-

1.Establishment of SEBI: The Securities and Exchange Board of India (SEBI) was established in 1988. It got a legalstatus in 1992. SEBI was primarily set up to regulate the activities of the merchant banks, tocontrol the operations of mutual funds, to work as a promoter of the stock exchangeactivities and to act as a regulatory authority of new issue activities of companies. The SEBIwas set up with the fundamental objective, "to protect the interest of investors in securitiesmarket and for matters connected there with or incidental thereto.

"The Main Functions of SEBI are :-1. To regulate the business of the stock market and other securities market.

2. To promote and regulate the self regulatory organizations.3. To prohibit fraudulent and unfair trade practices in securities market.4. To promote awareness among investors and training of intermediaries about safety of market.5. To prohibit insider trading in securities market.6. To regulate huge acquisition of shares and takeover of companies

.2.Establishment of Creditors Rating Agencies:Three creditors rating agencies viz. The Credit Rating Information Services of India Limited(CRISIL - 1988), the Investment Information and Credit Rating Agency of India Limited(ICRA - 1991) and Credit Analysis and Research Limited (CARE) were set up in order toassess the financial health of different financial institutions and agencies related to the stock

market activities. It is a guide for the investors also in evaluating the risk of their investments.

3. Growing Merchant Banking Activities: Many Indian and foreign commercial banks haves set up their merchant banking divisionsin the last few years. These divisions provide financial services such as underwritingfacilities, issue organizing, consultancy services, etc. It has proved as a helping hand tofactors related to the capital market.

4. Candid Performance of Indian Economy :In the last few years, Indian economy is growing at a good speed. It has attracted a huge

inflow of Foreign Institutional Investments (FII). The massive entry of FIIs in the Indian

capital market has given good appreciation for the Indian investors in recent times. Similarly

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many new companies are emerging on the horizon of the Indian capital market to raisecapital for their expansions.

5. Growing of Electronic Transactions:Due to technological development in the last fewyears. The physical transaction with more

paper work is reduced. Now paperlesstransactions are increasing at a rapid rate. It savesmoney, time and energy of investors.Thus it has made investing safer and hassle freeencouraging more people to join thecapital market.

6. Growing Mutual Fund Industry::The growing of mutual funds in India has certainly helped the capital market to grow. Publicsector banks, foreign banks, financial institutions and joint mutual funds between the Indianand foreign firms have launched many new funds. A big diversification in terms of schemes,maturity, etc. has taken place in mutual funds in India. It has given a wide choice for thecommon investors to enter the capital market.

7. Growing Stock Exchanges : The numbers of Stock Exchanges in India are increasing. Initially the BSE was themain exchange, but now after the setting up of the NSE and the OTCEI, stockexchanges have spread across the country. Recently a new Inter-connectedStock Exchange of India has joined the existing stock exchanges.

8. Investor's Protection :Under the purview of the SEBI the Central Government of India has set up the

Investors Education and Protection Fund (IEPF) in 2001. It works in educating andguiding investors. It tries to protect the interest of the small investors fromfrauds and malpractices in the capital market.

9. Growth of Derivative Transactions :

Since June 2000, the NSE has introduced the derivatives trading in the equities.In November 2001 it also introduced the future and options transactions. Theseinnovative products have given variety for the investment leading to theexpansion of the capital market

10.Insurance Sector Reforms :

Indian insurance sector has also witnessed massive reforms in last few years. The Insurance Regulatory and Development Authority (IRDA) was setup in 2000.It paved the entry of the private insurance firms in India. As many insurancecompanies invest their money in the capital market, it has expanded.

Financial Sector Reforms: A Summary

Financial sector reforms are at the centre stage of the economic liberalization that wasinitiated in India in mid 1991. This is partly because the economic reform process itself took 

 place amidst two serious crises involving the financial sector:

• the balance of payments crisis that threatened the international credibility of the countryand pushed it to the brink of default; and

• the grave threat of insolvency confronting the banking system which had for yearsconcealed its problems with the help of defective accounting policies.Moreover, many of the deeper rooted problems of the Indian economy in the early nineties

were also strongly related to the financial sector:• the problem of financial repression in the sense of McKinnon-Shaw (McKinnon, 1973;

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The banks have also used a large part of their operating profits in recent years to make provisions for non performing assets (NPAs). Capital adequacy has been further shored up byrevaluation of real estate and by raising money from the capital markets in the form of equityand subordinated debt. With the possible exception of two or three weak banks, the publicsector banks have now put the threat of insolvency behind them.

The major reforms relating to the banking system were:• Capital base of the banks were strengthened by recapitalization, public equity issues andsubordinated debt.

• Prudential norms were introduced and progressively tightened for income recognition,classification of assets, provisioning of bad debts, marking to market of investments.

• Pre-emption of bank resources by the government was reduced sharply.

•  New private sector banks were licensed and branch licensing restrictions were relaxed.At the same time, several operational reforms were introduced in the realm of credit policy:

• Detailed regulations relating to Maximum Permissible Bank Finance were abolished

• Consortium regulations were relaxed substantially

• Credit delivery was shifted away from cash credit to loan methodThe government support to the banking system of Rs 100 billion amounts to only about 1.5%of GDP. By comparison, governments in developed countries like the United States haveexpended 3-4% of GDP to pull their banking systems out of crisis (International MonetaryFund, 1993) and governments in developing countries like Chile and Philippines haveexpended far more (Sunderarajan and Balino, 1991).However, it would be incorrect to jump to the conclusion that the banking system has beennursed back to health painlessly and at low cost. The working results of the banks for 1995-96which showed a marked deterioration in the profitability of the banking system was a stark reminder that banks still have to make large provisions to clean up their balance sheets

completely. Though bank profitability improved substantially in 1996-97, it will be severalmore years before the unhealthy legacy of the past (when directed credit forced banks to lendto uncreditworthy borrowers) is wiped out completely by tighter provisioning. It is pertinentto note that independent estimates of the percentage of bank loans which could be

 problematicare far higher than the reported figures on non performing assets worked out on the basis of the central bank’s accounting standards. For example, a recent report estimates potential(worst case) problem loans in the Indian banking sector at 35-60% of total bank credit(Standard and Poor, 1997). The higher end of this range probably reflects excessive

 pessimism, but the lower end of the range is perhaps a realistic assessment of the potential problem loans in the Indian banking system.

The even more daunting question is whether the banks' lending practices have improvedsufficiently to ensure that fresh lending (in the deregulated era) does not generate excessivenon performing assets (NPAs). That should be the true test of the success of the bankingreforms. There are really two questions here. First, whether the banks now possess sufficientmanagerial autonomy to resist the kind of political pressure that led to excessive NPAs in the

 past through lending to borrowers known to be poor credit risks. Second, whether the banks'ability to appraise credit risk and take prompt corrective action in the case of problemaccounts has improved sufficiently. It is difficult to give an affirmative answer to either of these questions (Varma 1996b).Turning to financial institutions, economic reforms deprived them of their access to cheapfunding via the statutory pre-emptions from the banking system. They have been forced toraise resources at market rates of interest. Concomitantly, the subsidized rates at which they

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used to lend to industry have given to market driven rates that reflect the institutions’ cost of funds as well as an appropriate credit spread. In the process, institutions have been exposed tocompetition from the banks who are able to mobilize deposits at lower cost because of their large retail branch network. Responding to these changes, financial institutions haveattempted

to restructure their businesses and move towards the universal banking model prevalent incontinental Europe. It is too early to judge the success of these attempts.

The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual

Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in

all areas with a view to protecting and promoting the interests of mutual funds and their unit

holders.

Know Your Distributor (KYD)

The ARN holders who have not completed the KYD process so far, are advised to complete thesame at the earliest. It has been decided to withhold the payment of commission/ incentive

payable to the distributors, who have not complied with KYD, with effect from April 1, 2011. The

commission so withheld, shall be released only after the compliance of KYD requirements by such

distributors. 

Mutual Fund Ratings And How We Benefit

Most people these days know the definition of a mutual fund, however many do not knowwhat mutual fund ratings are. Mutual fund ratings are the numerical scale that is placed onfunds to determine the history of their performance. Thus the best performing mutual fundswill have the best mutual fund ratings.

Although the rating is not indicative of the amount a fund will grow or will perform, it isclosely related. Judging by the history of the fund in which you are looking at you can oftentell whether this fund will do the same or better than another similar fund.

If a two funds are of similar style and similar ratings they will normally tend to follow thesame patterns. They will typically invest in the same types of assets and will usually perform

on the same scale. Meaning that if one is making positive interest the other one should be too.And also the flip side that if one is losing money the other will normally lose money as well.

The style referenced above is essentially a term that is utilized by people in the mutual fund business to determine the majority of the stocks in which they invest. There are manydifferent types of stock. There are mutual funds called large cap funds, small cap funds, realestate funds, cash funds, and emerging markets funds. These are just a few of the differentstyle.

The key here is that not all funds with high ratings will perform the same as other funds withhigh ratings. For instance there can be a high rating placed on a real estate mutual fund and a

high rating that is placed on a large cap fund. If the real estate market is declining then their 

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fund will decline likewise. Also the large cap fund may be increasing because the market isgood for those types of stock.

There is also the possibility that a large cap based mutual fund with the same rating of another large cap mutual fund will not perform in the same manner. For instance there are

two different types of cap funds. One is the growth fund and the other is called the valuefund. They are different in the fact that they focus on different types of stocks and thus theycan perform differently than each other.

India mutual fund schemes?

• ABN AMRO Mutual Fund 

• Birla Sun Life Mutual Fund 

• BOB Mutual Fund 

• Canara Robero Mutual Fund 

• DBS Chola Mutual Fund 

• Deutsche Mutual Fund 

• DSP BlackRock Mutual Fund 

• Escorts Mutual Fund 

• Fidelity Mutual Fund 

• Franklin Templeton Mutual Fund 

• Hdfc Mutual Fund 

• Hsbc Mutual Fund 

• ING Vysya Mutual Fund 

• JM Financial Mutual Fund 

• Kotak Mahindra Mutual Fund 

• LIC Mutual Fund 

• Principal Mutual Fund 

• ICICI Prudential Mutual Fund 

• Reliance Mutual Fund 

• Sahara Mutual Fund 

• SBI Mutual Fund 

• Standard Chartered Mutual Fund 

• Sundaram Mutual Fund 

• Tata Mutual Fund 

• Taurus Mutual Fund 

• UTI Mutual Fund 

• Fortis ( ABN ) Mutual Fund 

• Benchmark Mutual Fund 

• Bharti AXA Mutual Fund 

• BNP Paribas Mutual Fund 

o Imp of reforms in mf:

Before investing, whether it's in mutual funds or gold, the first thing you must do is 1.

research how the particular financial instrument is doing in the MARKET and what it'sfuture prospectus is. There are two main types of research. One simply consists of 

studying trends online and reading what the experts have to say. The other is moreinvolved and consists of more direct hands on research of the various sectors with which

your particular investment is involved. Most amateur traders will choose the first option.

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Mutual funds are conglomerations of stocks and bonds and therefore their prospectus

depends on how well the individual investments are doing. Fees can of course also make

a difference and all related charges associated with a mutual fund must also be

considered.

2 Fees for mutual funds are classified as end load, front load and no load . Through

proper research, you will become informed of what types of fees are involved and

whether or not they are worth what you can expect out of the investment.

At the very minim, when investing in a mutual fund you should

3 know the category of investments it focuses on, the asset value, the management

strategy, the risk level of the assets involved, and the funds relationship with the overall

stock market outlook. As long as you are well versed in these areas, the rest is just icing

on the cake as long as you have chosen a well managed fund.

Considerations for mutual fund categories include goals and objectives, classification of 

securities in the fund and likely return expected for each category. Of all the important

factors when choosing a mutual fund, category is likely the most important. Research

should be conducted using as long a history as is available. All financial instruments

fluctuate greatly from one day to another but the important thing is how they perform

over the long term. Try to couple this history with the time period you plan on investing

since trends seem to run ii n cycles. Just because a fund isn't currently in the top 10

percent of earners doesn't mean that it's not an extremely lucrative fund over the long

term. Don't forget to also check the individual histories of the stocks or other

instruments in which the fund is invested.

Like any investment, mutual funds require careful planning. Overall, the strategy is

pretty much the same regardless of what type of investment you are making, but due to

their nature mutual funds require a slightly different form of research.

Ratelines has been a valuable resources of investment information for nearly 6 years. For 

recommendations on great certificates of deposit or affordable insurance rates ,

Wht is d function of mf?

Mutual fund is a simplest form of investing. It is in the form of Trust. It is under

the control of the trustees. Fund is collected from investors and invested in

various companies which the fund manager (who has expertise in investing)

considers will give good returns. The profit is shared among the investors. There

several type of funds - sector specific, diversified equity funds, bond funds, ELSS,

FMPs, debt funds ect.,

NAV - net asset value is calculated on a daiy basis. Number of units in your

account x NAV is the fund value. Purchase price - sell price or vice versa reflectsthe P/L.

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MFs are comparatively low risk investments compared to share investments.4

Types of Mutual Fund 

Mutual fund schemes may be classified on the basis of its structure and its investment

objective.

By Structure:

Open-ended Funds

 An open-end fund is one that is available for subscription all through the year. These do not

have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV")

related prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds

 A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years.

The fund is open for subscription only during a specified period. Investors can invest in the

scheme at the time of the initial public issue and thereafter they can buy or sell the units of thescheme on the stock exchanges where they are listed. In order to provide an 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. SEBI Regulations stipulate that at least one of 

the two exit routes is provided to the investor.

Interval Funds

Interval funds combine the features of open-ended and close-ended schemes. They are open for

sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective:

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to long- term. Such

schemes normally invest a majority of their corpus in equities. It has been proven that returns

from stocks, have outperformed most other kind of investments held over the long term. Growthschemes are ideal for investors having a long-term outlook seeking growth over a period of time.

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Income Funds

The aim of  income funds is to provide regular and steady income to investors. Such schemes

generally invest in fixed income securities such as bonds, corporate debentures and Government

securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes

periodically distribute a part of their earning and invest both in equities and fixed income

securities in the proportion indicated in their offer documents. In a rising stock market, the NAV 

of these schemes may not normally keep pace, or fall equally when the market falls. These are

ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money  market funds is 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. Returns on

these schemes may fluctuate depending upon the interest rates prevailing in the market. These

are ideal for Corporate and individual investors as a means to park their surplus funds for short

periods.

Load Funds

 A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or

sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1%

to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds

  A No-Load Fund is one that does not charge a commission for entry or exit. That is, no

commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is

that the entire corpus is put to work.

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OTHER SCHEMES:

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian Income

Tax laws as the Government offers tax incentives for investment in specified avenues.

Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed

as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors

to save capital gains u/s 54EA and 54EB by investing in Mutual Funds.

 Mutual Fund Definition : or What is a Mutual Funds and How does these work?

Mutual Fund Definition: A mutual fund is made up of money that is pooled together by a largenumber of investors who give their money to a fund manager to invest in a large portfolio of stocksand / or bonds

Mutual fund is a kind of trust that manages the pool of money collected from variousinvestors and it is managed by a team of professional fund managers (usually called an AssetManagement Company) for a small fee. The investments by the Mutual Funds are made inequities, bonds, debentures, call money etc., depending on the terms of each scheme floated

 by the Fund. The current value of such investments is now a days is calculated almost ondaily basis and the same is reflected in the Net Asset Value (NAV) declared by the funds

from time to time. This NAV keeps on changing with the changes in the equity and bondmarket. Therefore, the investments in Mutual Funds is not risk free, but a good managedFund can give you regular and higher returns than when you can get from fixed deposits of a

 bank etc.

Why Should I Invest in a Mutual Fund when I can Invest Directly in the Same

Instruments :

We have already mentioned that like all other investments in equities and debts, theinvestments in Mutual funds also carry risk. However, investments through Mutual Funds isconsidered better due to the following reasons :-

• Your investments will be managed by professional finance managers who are in a better position to assess the risk profile of the investments; 

• Your small investment cannot be spread into equity shares of various good companiesdue to high price of such shares. Mutual Funds are in a much better position toeffectively spread your investments across various sectors and among several

 products available in the market. This is called risk diversification and can effectivelyshield the steep slide in the value of your investments.

Thus, we can say that Mutual funds are better options for investments as they offer regular investors achance to diversify their portfolios, which is something they may not be able to do if they decide to

make direct investments in stock market or bond market. For example, if you want to build adiversified portfolio of 20 scrips, you would probably need Rs 2,00,000 to get started (assuming that

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you make minumum investment of Rs 10000 per scrip). However, you can invest in some of thediversified Mutual Fund schemes for an low as Rs.10,000/-.

Mutual funds investing are great for long-term

investments strategies.

Investors who partake in mutual funds should understand the investment objectives,the risks, and the expenses of a fund very cautiously before investing in stock.Investors will usually buy shares in small quantities through a broker at a discount tothe net asset value or at a small premium. Investors who use a tax-advantaged accountcan avoid paying taxes on mutual fund distributions when investing in mutual funds.Investors like to see the rate of return on investment for a mutual fund, and know howthat fund compares to like funds.

When investing in mutual funds shares vary in value. They are also subject toinvestment risk, including possible loss of the principal amount invested. Shares of mutual funds are not guaranteed by financial institutions and are not insured by theFederal Reserve Board or by the Federal Deposit Insurance Corporation. Share andmutual fund investing will involve risk due to the fact that they include the possibleloss of the principal amount invested. Shares and mutual funds are bought and sold atthe fund's net asset value when mutual fund investing.

Money market funds hold 26% of mutual fund assets in the United States and theyhave somewhat of a low risk as compared to other types of mutual funds. Moneymarket funds are also known as principal stability funds and are a great investing

strategy to learn. Money market funds are included in strategies used for portfoliodiversification. Mutual Fund Investing is a great way to make money investing instock.

 

Various Types of Mutual Funds based on allocation of funds : These days asset managersgive very attractive names to some of their schemes, which may just another type of theabove referred schemes. Some of the most popular type of Mutual Funds these days are"Aggressive Growth Fund"; "Balanced Fund"; "Blend Fund"; "Capital Appreciation Fund";"Crossover fund"; "Global Fund"; "Growth and Income Fund"; Money Market Fund";"Liquid Fund"; "Prime Rate Fund"; "Hedge Fund"; "Index Fund"; "International Fund".

Association of Mutual Funds in India : It is popularly known as AMFI (www.amfindia.com).The site provides valuable information about mutual fund industry in India. For getting thedetails of the latest NAVs of various Mutual Fund schemes in India, you can click on link 

 provided at the top.

SOME OF THE TERMS USED IN MUTUAL FUNDS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per

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unit NAV is the net asset value of the scheme divided by the number of units outstanding on

the Valuation Date.

Sale Price : It is the price you pay when you invest in a scheme and is also called "Offer

Price". It may include a sales load.

Repurchase Price : - It is the price at which a Mutual Funds repurchases its units and it may

include a back-end load. This is also called Bid Price.

Redemption Price : It is the price at which open-ended schemes repurchase their units and

close-ended schemes redeem their units on maturity. Such prices are NAV related.

Sales Load / Front End Load : It is a charge collected by a scheme when it sells the units.

Also* called, ‘Front-end’ load. Schemes which do not charge a load at the time of entry are

called ‘No Load’ schemes.

Repurchase / ‘Back-end’ Load :

It is a charge collected by a Mufual Funds when it buys back / Repurchases the units from the

unit holders.

Conclusion:A mutual fund brings together a group of people and invests their money in stocks, bonds, and

other securities.

The advantages of mutuals are professional management, diversification, economies of scale, 

simplicity and liquidity.

The disadvantages of mutuals are high costs, over-diversification, possible tax consequences, and  

the inability of management to guarantee a superior return.

There are many, many types of mutual funds. You can classify funds based on asset class,  

investing strategy, region, etc.

Mutual funds have lots of costs.

Costs can be broken down into ongoing fees (represented by the expense ratio) and transaction

fees (loads).

The biggest problems with mutual funds are their costs and fees.

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Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or   

through a third party.

Mutual fund ads can be very deceiving.

Advantages 

What are the key advantages of mutual fund investing?

Diversification

Using mutual funds can help an investor diversify their portfolio with a minimum investment.When investing in a single fund, an investor is actually investing in numerous securities.Spreading your investment across a range of securities can help to reduce risk . A stock mutual fund, for example, invests in many stocks - hundreds or even thousands. This

minimizes the risk attributed to a concentrated position. If a few securities in the mutual fundlose value or become worthless, the loss maybe offset by other securities that appreciate invalue. Further diversification can be achieved by investing in multiple funds which invest indifferent sectors or categories. This helps to reduce the risk associated with a specificindustry or category. Diversification may help to reduce risk but will never completelyeliminate it. It is possible to lose all or part of your investment. Click here to see an exampleon constructing a diversified portfolio.

Professional Management:

Mutual funds are managed and supervised by investment professionals. As per the stated

objectives set forth in the prospectus, along with prevailing market conditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminatesthe investor of the difficult task of trying to time the market. Furthermore, mutual funds caneliminate the cost an investor would incur when proper due diligence is given to researchingsecurities. This cost of managing numerous securities is dispersed among all the investorsaccording to the amount of shares they own with a fraction of each dollar invested used tocover the expenses of the fund. What does this mean? Fund managers have more money toresearch more securities more in depth than the average investor.

Convenience:

With most mutual funds, buying and selling shares, changing distribution options, andobtaining information can be accomplished conveniently by telephone, by mail, or online.

Although a fund's shareholder is relieved of the day-to-day tasks involved in researching, buying, and selling securities, an investor will still need to evaluate a mutual fund based oninvestment goals and risk tolerance before making a purchase decision. Investors shouldalways read the prospectus carefully before investing in any mutual fund.

Liquidity:

Mutual fund shares are liquid and orders to buy or sell are placed during market hours.However, orders are not executed until the close of business when the NAV (Net Average

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Value) of the fund can be determined. Fees or commissions may or may not be applicable.Fees and commissions are determined by the specific fund and the institution that executesthe order.

Minimum Initial Investment:

Most funds have a minimum initial purchase of $2,500 but some are as low as $1,000. If you purchase a mutual fund in an IRA, the minimum initial purchase requirement tends to belower. You can buy some funds for as little as $50 per month if you agree to dollar-costaverage, or invest a certain dollar amount each month or quarter.

Disadvantages 

Risks and Costs:

Changing market conditions can create fluctuations in the value of a mutual fund investment.

There are fees and expenses associated with investing in mutual funds that do not usuallyoccur when purchasing individual securities directly.

As with any type of investment, there are drawbacks associated with mutual funds.

No Guarantees.

 The value of your mutual fund investment, unlike a bank deposit, could fall and be worthless than the principle initially invested. And, while a money market fund seeks a stable share

 price, its yield fluctuates, unlike a certificate of deposit. In addition, mutual funds are notinsured or guaranteed by an agency of the U.S. government. Bond funds, unlike purchasing a bond directly, will not re-pay the principle at a set point in time.

The Diversification "Penalty.

• " Diversification can help to reduce your risk of loss from holding a single security, but it limits your potential for a "home run" if a single security increases dramaticallyin value. Remember, too, that diversification does not protect you from an overalldecline in the market.

Always look at "net" returns when comparing fund performances. Net return isthe bottom line; an investment's true return after all costs are deducted. 

Prospectuses will not contain all the costs that affect the net return on your investment. Thisis why it is important to compare net returns whether or not the fund in a no-load or loadfund.

Expenses 

Because mutual funds are professionally managed investments, there are management feesand operating expenses associated with investing in a fund. These fees and expenses charged

 by the fund are passed onto shareholders and deducted from the fund's return.

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These expenses are typically expressed as the expense ratio - the percent of fund assets spent(annually) on day-to-day operations. Expense ratios can vary widely among funds. Expenseratios for mutual funds commonly range from 0.2% to 2.0%, depending on the fund. Consultthe fund's prospectus to determine the expense ratio for a specific fund.

Make yourself aware of all fees and expenses that impact the fund's return by reducing gainsand increasing losses.

Defining Mutual Fund costs

All mutual funds have costs, but some funds are more expensive to own than others. Beconscious of the effect of seemingly minor cost differences which can significantly affect thegrowth of your investment assets, especially over longer periods of time.

Mutual fund costs fall into two main categories: One-time fees and ongoing annual expenses.

 Not all funds charge one-time fees, but all funds charge ongoing annual fees of some sort.

One-Time Fees 

Loads 

Loads come in three forms:

• Front-End Load o Charged when you purchase fund shares-usually class A shares, effectively

reducing your purchase amount.o May be charged on reinvested distributions.o Can be as high as 8.5%.

• Back-End Load o Charged when you sell fund shares.

o Usually assessed based on the length of time you have held your shares, and

declines over time.o Maximum allowed is 8.5%, but this is rarely seen. According to Lipper Inc.,

 back-end loads can be as high as 6% if you sell shares within one year.• Level Load 

o Deducted annually from fund assets as marketing and distribution costs.

o Used to pay commissions to brokers and the fund's financial adviser, and isgenerally reported as part of a fund's operating expenses.

o Can be as high as 0.75% per year, according to Lipper Inc.

How to Reduce a front-end load on class A shares 

1. Rights of Accumulation (ROI): Your current aggregate investment determines theinitial sales load you pay. You may qualify for reduced sales charges when the currentmarket value of holdings (shares at current offering price), plus new purchases,reaches a specific break point determined by the individual fund.

2. Statement or Letter of Intention (SOI or LOI): You may obtain a reduced sales charge

 by means of a written SOI/LOI which expresses your non-binding commitment to

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invest an amount in the aggregate over a break point within a given period of timespecified by the fund.

3. Break Points : Sales charges are reduced when the amount of purchase exceeds aspecified dollar figure. The more money that is invested, the lower the sales chargewill be. Consult the individual fund's prospectus to determine a fund's break points.

Funds that have no sales charges are known as "no-load," while funds that charge loads of 1% to 3% are called "low-load." Keep in mind, funds that have lower loads or no-loads tendto have higher operating expenses. Again, read each fund's prospectus and compare "net"returns.

Ongoing Annual Expenses

• Management Fees• Distribution and Service Fees• Other Expenses• Underlying Fund Expenses

Other fees 

In addition to sales loads, fund companies and brokerages may charge other fees when you buy or sell fund shares.

A transaction fee is charged by some brokerage firms for purchasing or selling shares.Transaction fees are sometimes referred to as commissions but are extra costs not normally

 paid if you were to purchase your fund directly with the fund family.

Some fund companies and brokerages may charge a redemption fee if the fund is held for lessthan a certain period of time, generally between 90 and 180 days. These charges are intendedto discourage short-term trading that can raise a fund's administrative costs. To find out moreabout fees read the fund's prospectus and consult your broker.

 Not all funds assess these "extra" fees. In fact, funds and brokerages may not charge a salesload, transaction fees or redemption fees. When buying mutual funds, find out about all of thefees that might be involved and when they are charged.

Taxes and Fund Ownership

Since your goal as an investor is to keep as much as possible of what you earn from your mutual fund investments, you can't overlook the inescapable reality that taxes take a big biteout of bottom-line returns. One way to shelter yourself from taxes is to purchase your fundsin a retirement account. 

As a fund shareholder, you can be taxed on:

• Distributions (dividends & capital gains) maid by the fund while you own its shares.• Profits you make when you sell fund shares.

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Taxes on Fund Distributions

A fund passes on to shareholders all the income or profits it earns from its investments.Shareholders, in turn, are liable for any taxes due. The distributions made by a fund toshareholders take two forms:

• Income Dividends. The interest and dividends generated by a fund's investments.• Capital Gains. The profit a fund makes when it sells securities at a higher price than it

 paid for them. The fund subtracts its capital losses from its capital gains to determineits net capital gains, which it distributes to shareholders. (Net capital losses are not

 passed through to shareholders; the fund retains those to offset future capital gains.)

Generally, all income dividend and capital gains distributions are subject to federal incometax (and state and local taxes if applicable). Exceptions are:

• Distributions received in tax-deferred accounts, such as 401(k) and 403(b)(7) plans,individual retirement accounts, or variable annuities. Only withdrawals from suchaccounts are subject to tax. (Withdrawals from a Roth IRA are exempt from taxesunder certain conditions.)

• Income dividend distributions from municipal money market funds and municipal bond funds. These distributions are exempt from federal and, in some cases, statetaxes. (Capital gains distributions from municipal bond funds are taxable, however.)

Apart from the exceptions noted above, you must pay taxes on distributions whether youreceive them in cash or reinvest them in additional shares.

Distributions of income dividends and short-term capital gains (gains on securities held bythe fund for one year or less) are taxed as ordinary income at your marginal tax rate, whichcan range from 15% to 39.6% currently but can change. Distributions of long-term capitalgains (gains on securities held by the fund for more than one year) are taxed at a maximumrate of 20% (10% for taxpayers in the lowest tax bracket) currently but can change.

For higher-income taxpayers, effective marginal tax rates may be higher because of limits ontax deductions and a "phase out" of personal exemptions. State and local taxes also increaseeffective marginal tax rates.

Please remember that IRS tax rules can change. You should consult a tax adviser for 

guidance on your specific tax situation.

Taxes on Profits From Shares You Sell

When you sell fund shares, the tax rate on any capital gains is determined by how long youheld the shares. Short-term gains are taxed as ordinary income at your marginal tax rate,while long-term gains are taxed at a maximum rate of 20% (10% for taxpayers in the lowesttax bracket).

Keep in mind that:

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Many investors buy stock mutual funds because, historically, stocks have outperformed other types of investments over the long term. However, the value of the stocks in the fund's

 portfolio may go up or down as the market rises or declines. Remember, past performance isno guarantee of future results.

Bond funds 

Bond funds1 invest in various types of bonds - issued by corporations, municipalities, and theU.S. government. Bond mutual funds are designed mostly to provide investors with a steadystream of income2 versus capital gains.

Bond Funds: 

1. Invest in bonds, which are debt securities, or IOUs, issued by corporations or governments in exchange for money loaned to them. Generally, the issuer agrees torepay the loan by a specific date and to make regular interest payments to the lender until then.

2. Are a basket of bonds with different durations, yields, credit quality, and values.Because of this, bond funds never mature as would be the case with buying anindividual bond.

3. Share value and dividends will fluctuate as interest rates fluctuate and new bonds are purchased or others are sold or mature.

4. Produce profits that consist primarily of dividend distributions.5. May generate modest capital gains.6. Fluctuate in value, so it is possible to sell shares at a higher or lower price than you

 paid for them.

Bond Fund Types:

• Government : Primarily invest in bonds issued by the U.S. Department of Treasury aswell as various federal agencies. Government bonds are generally taxable.

• Municipal : Primarily invest in municipal bonds issued by state and localgovernments and their agencies to fund projects such as schools, streets, highways,hospitals, bridges, and airports. Municipal bonds can be insured or non-insuredsecurities. Income generated from municipal bonds may be tax free at both the federaland state level (consult the funds prospectus).

• Corporate : Primarily invest in bonds issued by corporations to help fund business

activities. Income from corporate bonds is taxable.

1 Bond fund shares are not guaranteed and will fluctuate with market conditions and interestrates and include a greater risk to principal than Certificates of Deposit. Shares, whenredeemed, may be worth more or less than their original cost.

2 Income may be subject to the Alternative Minimum Tax (AMT) and capital appreciationfrom discounted bonds may be subject to state and local taxes.

Money market funds 

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Money market funds invest in short-term securities such as Treasury bills. Most moneymarket funds offer a higher rate of interest than bank savings accounts, and some are free of federal or state taxes. But unlike bank savings accounts, money market funds are not FDICinsured.

Money market mutual funds are designed to be more stable than stock or bond funds. Moneymarket funds are designed to provide steady dividend income on the investment amount,although the yield may fluctuate daily.

Taxable: Invest in short-term obligations from corporations.

Tax-free: Invest in short-term obligations from government entities.

Balanced Funds: 

• Invest in stocks, bonds, and cash investments, in varying proportions.• Produce dividend and capital gain distributions and share price appreciation in

 proportion to their allocation among the three major asset classes.

Asset Allocation Funds: 

In an asset allocation fund, the manager will diversify the assets among each category: cash, bonds, and stocks and weight them according to the portfolio strategy. The manager willredistribute the weightings according to market conditions. Portfolio strategies generallydiffer according to risk tolerance:

• Aggressive Growth Strategy Portfolio• Growth Strategy Portfolio• Growth and Income Strategy Portfolio• Income Strategy Portfolio

Asset allocation funds are usually made up of a combination of other mutual funds within thesame fund family. As market conditions change, the manager has the discretion to reduceexposure in one fund and increase it in another. Just about all mutual fund families allow youto switch between funds in the same family and class (A, B, or C shares) without incurringany costs.

 Fund Management

Actively managed funds: 

Mutual Fund managers are professionals. They are considered professionals because of their knowledge and experience. Managers are hired to actively manage mutual fund portfolios.Instead of seeking to track market performance, active fund management tries to beat it. Todo this, fund managers "actively" buy and sell individual securities. For an actively managedfund, the corresponding index can be used as a performance benchmark.

Is an active fund a better investment because it is trying to outperform the market? Notnecessarily. While there is the potential for higher returns with active funds, they are moreunpredictable and more risky. From 1990 through 1999, on average, 76% of large cap

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actively managed stock funds actually under performed the S&P 500. (Source - Schwab

Centre for Investment Research)

Actively managed fund styles: 

Some active fund managers follow an investing "style" to try and maximize fund performance while meeting the investment objectives of the fund. Fund styles usually fallwith in the following three categories.

Fund Styles:

• Value: The manager invests in stocks believed to be currently undervalued by themarket.

• Growth: The manager selects stocks they believe have a strong potential for beatingthe market.

• Blend: The manager looks for a combination of both growth and value stocks.

To determine the style of a mutual fund, consult the prospectus as well as other sources thatreview mutual funds. Don't be surprised if the information conflicts. Although a prospectusmay state a specific fund style, the style may change. Value stocks held in the portfolio over a

 period of time may become growth stocks and vice versa. Other research may give a morecurrent and accurate account of the style of the fund.

You make money from your mutual fund investment when:

• The fund earns income on its investments, and distributes it to you in the form of 

dividends.• The fund produces capital gains by selling securities at a profit, and distributes those

gains to you.• You sell your shares of the fund at a higher price than you paid for them.

Section 6. Investment Company Act of 1940. 

The Public Utility Holding Company Act of 1935 required Congress to direct the SEC tostudy the activities of investment companies and investment advisers. The study results weresent to Congress in a series of reports filed in 1938,1939, and 1940, causing the creation of the Investment Advisers Act of 1940 and the Investment Company Act of 1940. The

legislation was supported by both the Commission and the industry.

Activities of companies engaged primarily in investing, reinvesting, and trading in securities,and whose own securities are offered to the investing public, are subject to certain statutory

 prohibitions and to Commission regulation under this act. Also, public offerings of investment company securities must be registered under the Securities Act of 1933.

Investors must understand, however, that the Commission does not supervise the investmentactivities of these companies and that regulation by the Commission does not imply safety of investment.

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In addition to the registration requirement for such companies, the law requires they disclosetheir financial condition and investment policies to provide investors complete informationabout their activities. This act also:

• Prohibits such companies from substantially changing the nature of their business or 

investment policies without stockholder approval;• Bars persons guilty of securities fraud from serving as officers and directors;• Prevents underwriters, investment bankers, or brokers from constituting more than a

minority of the directors of such companies;• Requires that management contracts (and any material changes) be submitted to

security holders for their approval;• Prohibits transactions between such companies and their directors, officers, or 

affiliated companies or persons, except when approved by the SEC;• Forbids such companies to issue senior securities except under specified conditions

and upon specified terms; and• Prohibits pyramiding of such companies and cross-ownership of their securities.

Other provisions of this act involve advisory fees, not conforming to an adviser's fiduciaryduty, sales and repurchases of securities issued by investment companies, exchange offers,and other activities of investment companies, including special provisions for periodic

 payment plans and face-amount certificate companies.

Regarding reorganization plans of investment companies, the Commission is authorized toinstitute court proceedings to prohibit plans that do not appear to be fair and equitable tosecurity holders. The Commission may also institute court action to remove managementofficials who have engaged in personal misconduct constitution a breach of fiduciary duty.

Definition of reformationThe Reformation, traditionally described has having been begun by Martin Luther

in 1517, was the movement which gave rise to Protestant churches and thedecline of the power of Roman Catholicism. The Reformation sought to "reform"

Christianity by returning it to original beliefs based solely on reference to theBible, eliminating later additions which accumulated in tradition.

The term "Reformation" is deceptive, but it is not one which can be dispensed with.There were reform movements and ideas long before Martin Luther appeared on the

scene, and the concepts of reform and renewal certainly existed as part of church beliefsand tradition. Indeed, Martin Luther was not aware that he had started anything which

should be labeled the Reformation or a new religious tradition.

The causes of the Reformation cannot be located in any one event or in any one aspectof medieval society. It wasn't just a matter of religion or politics or social discontent. Itwas, rather, a combination of all of these things - it was a problem which extended

through all aspects of society and how people lived. There was dissatisfaction, discontentand malaise everywhere.

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