What Are Mutual Funds?

A mutual fund is a managed group of owned securities of

several corporations. These corporations receive dividends on

the shares that they hold and realize capital gains or losses on

their securities traded. Investors purchase shares in the mutual

fund as if it was an individual security. After paying operating

costs, the earnings (dividends, capital gains or loses) of the

mutual fund are distributed to the investors, in proportion to the

amount of money invested. Investors hope that a loss on one

holding will be made up by a gain on another. Heeding the adage

"Don't put all your eggs in one basket" the holders of mutual

fund shares are able collectively to gain the advantage by

diversifying their investments, which might be beyond their

financial means individually.

A mutual fund may be either an open-end or a closed-end fund.

An open-end mutual fund does not have a set number of shares;

it may be considered as a fluid capital stock. The number of

shares changes as investors buys or sell their shares. Investors

are able to buy and sell their shares of the company at any time

for a market price. However the open-end market price is

influenced greatly by the fund managers. On the other hand,

closed-end mutual fund has a fixed number of shares and the

value of the shares fluctuates with the market. But with close-end

funds, the fund manager has less influence because the price of

the underlining owned securities has greater influence.

Advantages of Mutual FundsA Mutual Fund can be defined as a trust wherein the savings of the investors with the same financial goal are pooled in. The collected money then goes for investment in capital market instruments. These can include debentures, shares and other such securities. These investments in turn yield an income. The income and capital appreciation are distributed amongst its unit holders. The advantages of mutual funds are many. Some of the advantages of mutual funds in India are listed below:

Mutual Funds Advantages

There are several advantages of investing in a Mutual Fund and that is why more and more people are taking to it. Some of the major benefits of mutual funds in India are as follows:

Diversification: The top Indian mutual funds create their portfolio designs in such a manner that the interested individuals who invest in mutual funds react differently even under similar economic conditions. This can be explained with an example. An increase in the rates of interest may lead to the diminishing of the asset value of securities in the portfolios. Again, an increase in the value may result to the appreciation in value of the other set of portfolio securities. Over time, a balance is created in the portfolio which leads to an overall increase of the portfolio, even if some security values diminish. Professional Management: A majority of the mutual funds in India employ the leading professionals in their investments management. These managers make decisions on what securities, the buying and selling of the funds will take place.

Regulatory oversight: There are certain rules and regulations framed by the government which every Mutual fund are required to follow. This is to protect the investors from any fraudulent activities.

Liquidity: Getting your money out from the mutual fund is no difficult task. All you have to do is just write a check, make a telephone call and you are done.

Convenience: Mutual fund shares can be bought via phone, mail, or even over Internet.

Low cost: The expenses of the Mutual fund seldom cross the 1.5 % mark of the investment you make. The Index Funds expenses are usually lesser. Instead, the company stocks are bought by them which are found on the specific index.

Ease of process: Investing in a mutual fund is easy if you are a bank account holder and you posses a PAN card. All you will need to do is fill up the application form, attach the PAN card (for transactions over Rs 50,000), sign the cheque and your Mutual Fund investment is complete.

Well regulated: The SEBI (Securities Exchange Board of India) regulates the India mutual funds for the security and convenience of the investors. SEBI ensures that a transparency is maintained by keeping a strict vigilance on the mutual funds. This keeps the investor informed and helps him/her to make his/her choice. To keep a track whether the investment in Mutual Fund is in line with the objective or not, SEBI demands the disclosure of portfolios once in every six months.

Drawbacks of Mutual FundsMutual Funds, like every investment, have their own share of advantages and disadvantages. Before you venture out to make your investment in Mutual Funds, it is advisable that you do a thorough study of the pros and cons of Mutual Funds. Just like you can list a number of Mutual Funds advantages, you will find drawbacks of Mutual Funds as well if you do a market research. Some of the common drawbacks of Mutual Funds in India are listed below:

Disadvantages of Mutual Funds in India

There are several shortcomings of Mutual Funds in India. Some of these Mutual drawbacks are as follows:

No Guarantees: Every investment comes with some sort of risk. If the value of an entire stock market falls, it will directly affect the mutual fund shares as its values will also decline, irrespective of the portfolio balance. However, the risks involved in mutual funds are much lesser than buying and selling of stocks on your own. This is because when you are investing through a mutual fund you do not have this risk of money loss. Taxes: In a typical year, the mutual funds which are most efficiently managed have the capacity to sell anywhere from 20 - 70 % of their portfolio securities. If the money you invest in Mutual Fund earns a profit, you will be required to pay the taxes on the dividend received by you. You have to pay the taxes even if you make your money reinvest in Mutual Fund.

Fees and Commissions: An administrative fee is required by all kinds of funds to meet the expenses. There are many funds which even charge commission on sales or "loads" to pay financial consultants, brokers, financial institutions or financial planners. If you buy stocks or shares from Load Fund, you have to pay a commission on sales irrespective of the fact that you are consulting a financial advisor or a broker.

Risk Management: It depends on the right decision of the fund manager that you will get a satisfactory return or not. This is unlike Index Funds where there is no management risk involved because of the absence of managers.

Association of Mutual Funds in India

With the rise in mutual fund companies, a requirement for mutual fund association in India was experienced to operate as a non-profit organization. This led to the establishment of Association of Mutual Funds in India in 1995. Association of Mutual Funds in India is an important organ of all Asset Management Companies that are registered with Securities and Exchange Board of India. Till today, all the Asset Management Companies with Mutual Fund schemes are

the members of Association of Mutual Funds in India. AMFI operates under the superintendence of its Board of Directors.

Association of Mutual Funds India, also referred to as AMFI, has helped the Indian Mutual Fund Industry to enter into a healthy and professional market, maintaining the market ethics and standards. It attempts to promote the interests of both Mutual Funds and unit holders.

Aims of Association of Mutual Funds in India

The aims of Association of Mutual Funds in India are as follows:

Association of Mutual Funds endeavors to maintain high standards in all fields of operation within the industry. Association of Mutual Funds maintains an interaction with Securities and Exchange Board of India, and functions in accordance with the guidelines established by SEBI (Securities and Exchange Board of India).

Association of Mutual Funds in India takes up all India awareness program on behalf of the investors. This is done to facilitate proper comprehension of the concept and functioning of Mutual Funds.

At last but not the least association of mutual fund of India also circulate information related to Mutual Fund Industry.

Association of Mutual Funds in India: Sponsors

Some of the major sponsors of Association of Mutual Funds in India include:

SBI Fund Management Ltd. BenchMark Asset Management Company Pvt.

UTI Asset Management Co Pvt. Ltd.

JM Financial Mutual Fund

Canbank Investment Management Services Ltd.

Jeevan Bima Sahayog Asset Management Company Ltd.

Top Mutual funds in IndiaMutual Funds NAV - The Net Asset Value or NAV is the current market value of a fund's holdings that decrease the fund's liabilities which are usually expressed as a per share amount. For most funds, the NAV is determined on a daily basis after the closing of some trade on certain financial exchanges. Mutual funds NAVs are calculated after the trading day is over. If the NAV increases, it implies the value of the Shareholder's holdings increase. The Fund Company will then sell the shares at the particular price along with the sales fees. The open-ended mutual funds' NAV are published everyday while close -ended mutual funds' NAV are published weekly. To calculate the mutual fund's NAV, one must take the current market value of the fund's net assets. Divide this by the number of shares that are outstanding.

Best Mutual Funds - Some of the best mutual funds include:

Reliance Mutual Fund has reaped a lot and has regained the third position among fund houses after a change in fund management team. Reliance Vision Fund has returned 47.7% and 66% CAGR in the past three and five years respectively. This was against the category average of 43.6 and 45.!% CAGR. They have come out with the top two schemes and managed their risk elements well, outdone the Sensex and the category average too. Its strong focus is one equities and its knack for picking the winning stocks on the street.

SBI Magnum Contra Fund is a diversified equity scheme that adheres to the Contrarian strategy. SMCF is aims to invest in scrips and those sectors which are currently out-of-fashion and hold potential. These scrips and sectors are available at cheaper valuations and are appreciative when markets realize their potential. SMCF has outperformed the category average across all time periods and has returned a good 65.3 %in the past five years as against 45.1% by the category average and 34.1% by Sensex.

DSP Merill Lynch Opportunities Fund (DMOF) is a diversified equity fund that invests in scrips in various market caps. This company has been a fairly consistent player over time.

The DSP ML Tiger Fund has been one of the best schemes from the fund house and has performed better than DSPML Opportunities Fund. This is a more thematic fund and carries a high risk factor as compared to DMOF which is more diversified and better equipped for the next three years.

Franklin India Flexi Cap is all about multi cap funds that aim to invest in scrips across all market capitalization. When large-cap stocks start doing well, these schemes tilt towards large-cap stocks. When mid cap scrips do well, they invest more in mid-cap stocks. FIFCF in the past has returned 64.4% while the Sensex returned 64%. It had one of the lowest downside risk figures of all schemes. This scheme has grown by 66% in one and a half years. The fund size is of trivial importance as this fund house can manage 4 large schemes like Franklin India Blue chip Fund (Rs 2,546.01 crore) and Franklin India Prima Fund (Rs 1,790.39 crore).

HDFC Equity Fund has been in the top two quartiles owing to its superior risk adjusted return. HEF invests in large cap stocks that have a lower risk compared to mid-cap stocks. The large cap companies are well-established with a relatively sound, long term record. As compared to the small and medium companies, they are less volatile. HEF has limited its exposure to the mid-cap stocks segment to just 25% and has remained a large cap oriented equity fund. It has just 34% of the corpus in mid-caps and 54% in large caps.

Prudential ICICI Dynamic Fund has 34% of the corpus in mid-caps and 54% in large caps. PIDF follows the strategy of a bottom-up stock picking strategy and prefers investing in those companies that have the potential to compound cash flows over the several years. Considering the past two years, PIDP comes fifth on the list of 86 schemes. It has returned 6.5% against 50% by category average and 51% by Sensex.

SBI Mutual Fund is a fully owned subsidiary of the State Bank of India. It is India's premier bank with the largest banking operation in the country. SBI Mutual Fund incorporates certain working philosophy in their strategy while they put in investors' money in its stable in order to have a full control of the risks concentrating for growth at a reasonable price. It does locate certain competitive

advantage before investing. The strategy of top down and bottom up approaches are followed. While the former is for sector allocation, the latter is for stock selection.

While looking at investment opportunities and scenario, SBI Mutual Funds employ a multi stage filtering process that includes a first level look at liquidity, the second level is at management quality, the third level is for competitive position and the fourth is for the share price evaluation. It aims at the risk adjusted returns based on the investors' risk tolerance level in the debt sector. The following four steps are followed :

1. To Manage the schemes on the basis of a portfolio 2. An Active management of interest drawn rate risk.

3. A Credit risk management using the conservative approach

4. A Continuous and consistent monitoring.

Reliance Mutual Fund (RMF) - this was established under the Indian Trusts Act, 1882. The sponsor of Reliance Mutual Fund is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the trustee. RMF was formed for launching the various schemes under which units were distributed to the Public. This aims at the capital market and provides investors the opportunities to make innumerable investments in diversified securities.

How mutual funds earn money

A mutual fund is a means of investing that enables individuals to

share the risks of investing with other investors. All contributors

to the fund experience an equal share of gains and losses for

each dollar invested. A mutual fund owns the securities of

several corporations. A mutual fund pools money from hundreds

and thousands of investors to construct a portfolio of stocks,

bonds, real estate, or other securities, according to the kind of

investments the mutual fund trades. Investors purchase shares

in the mutual fund as if it was an individual security. Fund

managers hired by the mutual fund company are paid to invest

the money that the investors have placed in the fund. Heeding

the adage "Don't put all your eggs in one basket" the holders of

mutual fund shares are able to gain the advantage of

diversification which might be beyond their financial means

individually.

Performance of Mutual Funds

Mutual Funds are professionally run companies which collect money from various investors and invest or deploy those funds in diversified portfolios like stocks, shares, bonds and various other securities for returns. The portfolio administrator has the duty to invest underlying security of the fund, pulling in capital gains or losses and transposing proceeds to the investors. Unit Trust of India happens to be the first organization to introduce the idea of Mutual Fund in India. The performance of mutual funds began rising with the liberalization of India.

Performance of Mutual Funds: Unit Trust of India

Unit Trust of India Mutual Funds governed the Indian mutual fund market for about 50 years. It had no competitors till the year 1988. It is only in 1988 that few mutual fund companies were set up to compete the Unit Trust of India. Despite the emergence of various Mutual Fund companies in 1988, UTI Mutual Fund remained in he topmost position. UTI Mutual Funds consistently exhibited excellence in this field, and this contributed to the performance of Mutual Funds in India . Back in 1992, 24 million UTI Mutual Fund shareholders were promised high returns. UTI Mutual Funds schemes sold the thought of gaining profits by investing in mutual funds to Indian people. This happened to be an extremely helpful measure in drawing more and more investors. Moreover, there was no risk in investing in mutual funds.

Performance of Mutual Funds: Current Scenario

Different Indian mutual fund companies have plans of introducing pension schemes. They are also planning to introduce open-ended mutual funds. According to experts, if certain restrictions are removed, the system will become more beneficial and flexible.

Types of Mutual Funds in IndiaThese days, different types of Indian Mutual Fund Schemes have come up which cater to your various financial needs like financial position, return expectations, risk tolerance and others. Here is a list of the different types of Mutual Fund in India.

Indian Mutual Fund Schemes

Open-ended Mutual Fund Schemes in India - There is no fixed maturity for the open-ended mutual fund schemes. One has to deal directly with the Mutual Fund for his/her redemptions and investments. Liquidity is the key feature here. Buying and selling of the units becomes convenient at the related prices of the NAV (net asset value). Some of the open-ended fund schemes in India are ING OptiMix Active Debt Multi - Manager FoF Scheme, ICICI Prudential Very Cautious Plan and Birla Sun Life AAF - Aggressive Plan. Close-ended Mutual Fund Schemes in India - Close -ended schemes are those which have a specified maturity period (which generally ranges from 2 - 15 years). At the time of initial public issue one can make direct investment in the scheme and can also get the benefit of buying and selling of the units. Due to demand and supply in the market plus the policy holders' expectations and various other market factors, the market price may vary from NAV (Net Asset Value). Some of the close-ended fund schemes in India are ING Vysya Dynamic Asset Allocation Fund and Kotak Dynamic Asset Allocation Scheme.

Tax-saving Mutual fund Schemes in India - Individuals, companies, partnership firms, and body corporate are some of the investing parties in the various Mutual Funds available in the market primarily to enjoy the benefits of tax saving. The Indian Mutual Funds are guided by principles of general contract framed by SEBI. It provides certain tax benefits to the fund holders. It is mandatory that tax benefits should be declared in a column which reads "objects of the offering". SBI Mutual Funds, Prudential ICICI and Bajaj Capital are some of the tax saving Mutual fund companies in India.

Open-ended Mutual Fund Schemes

What are Open-ended Mutual Fund Schemes?

Open-ended Mutual Fund Schemes is one of the types of Mutual Funds in India. An Open-ended Mutual Fund does not restrict itself to a given set of number for the shares. In other words, the number of shares remains non-confined and thereby technically it serves as an open ended instrument. A majority of the Mutual Funds in India are open-ended. The Open-ended Mutual Fund Schemes in India are more common than the closed-ended Mutual Fund Schemes.

Features of Open-ended Mutual Fund

These are the following characteristics of the Indian open-ended Mutual Funds:

This type of fund permits the investors to purchase the shares or sell the shares directly, any time. Based on the current NAV (Net Asset Value), this type of fund issues fresh shares to the investors and redeem them once the investor makes a decision to sell the shares.

The open-ended Indian mutual fund schemes have high liquidity as the investors can put and take out their many as and when they require.

The total assets of the open-ended Mutual Fund fluctuate with the in and out flow of money.

The fund can issue limitless shares and individual share value remains unaffected by the shares outstanding.

The net asset value (NAV) of the fund determines the value of each share.

Benefits of Open-ended Mutual Fund Schemes in India

Open ended Mutual Funds provide a number of benefits which are as follows:

These funds maintain a lot of flexibility. This is to say that one can draw your money out any point of time. The funds can be diversified under the various kinds of investment opportunities. This way you can reap the fruits of different investment options.

Most of the open mutual funds do not charge any fees while transferring various funds within the same family.

Risks of Open-ended Mutual Fund

There are also some risks involved with the open-ended Mutual Fund, which are as follows:

The returns are affected when sudden redemptions result in a decline in the value of portfolio. The fund returns may also get affected by the various types of market forces.

Open ended Mutual Funds cannot be traded in the stock market.

Close-ended Mutual Fund SchemesThere are different types of mutual fund schemes that are available in India. These include open-ended mutual fund schemes, close-

ended mutual fund schemes and tax-saving mutual fund schemes. Opting for the close-ended mutual fund schemes in India will provide you with certain advantages that other types of mutual fund schemes would not. An increasing number of Indians are now opting to invest their money in close-ended mutual fund schemes.

What is a close-ended mutual fund scheme?

A close-ended mutual fund scheme clearly stipulates the maturity period, which could be anywhere between 2 to 15 years of time. You can make investments on a close-ended mutual fund scheme as soon as they are issued. Later on, you are free to buy or sell close-ended mutual fund scheme units when they are listed on the stock exchange.

Important details

Once the units are listed on the stock exchange, the market price of the close-ended mutual fund scheme units could vary depending on factors like:

The expectations of the unit holders Demand for and supply of scheme units

Generally, the units of the close-ended mutual fund schemes are traded on the stock exchange at a price less than its Net Asset Value or NAV. On nearing maturity, the difference between the scheme unit's trading price and NAV may narrow significantly.

How a close-ended mutual fund scheme benefits the fund manager?

Liquidity management Since a close-ended mutual fund scheme has a fixed tenure before it matures, the fund manager does not have to worry about the corpus at his disposal. In an open-ended scheme, the fund manager will have to deal with inflow and outflow of money on a continual basis, leaving the person with only a vague idea of how the corpus would look over a certain period of time. In other words, a close-ended mutual fund scheme benefits a fund manager in terms of efficient liquidity management.

Security from short-term market fluctuationsClose-ended mutual funds offer a certain security from short-term market fluctuations vis-a-vis the investments managed by the fund managers. The fixed tenure for maturity allows fund managers to work with investments on a long-term perspective.

Close-ended mutual fund schemes in India

Some of the companies offering close-ended mutual fund schemes in India has been listed below.

Kotak Mahindra Mutual Fund Tata Mutual Fund

Standard Chartered Mutual Fund

ICICI Prudential Mutual Fund

HDFC Mutual Fund

LIC Mutual Fund

Sundaram Mutual Fund

Tax-saving Mutual Fund SchemesInvestors in India opt for the tax-saving mutual fund schemes for the simple reason that it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes (ELSS) receive certain tax exemptions under Section 88 of the Income Tax Act. That is one of the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the important types of mutual funds in India that investors can opt for.

Why it's advisable not to be lured by tax benefits?

The tax benefit that an investor derives from the tax-saving mutual fund schemes, should be looked upon as an add on feature. Investing in equities is a risky proposition and benefits are susceptible to market fluctuations. Thus, an investment decision

solely based on tax-benefits could prove to be harmful in the long run. So it's advisable to investigate other benefits before you decide to put your money on any tax-saving mutual fund schemes.

What you should look for?

A person who is planning to invest in tax-saving mutual funds in India, should judge a proposition based on the following parameters:

Performance Investment Approach

Volatility

Expenses

Companies offering tax-saving mutual fund schemes

There are several companies in India that offer tax-saving mutual fund schemes in the country. Some of the famous organizations have been listed below.

State Bank of India Mutual Funds Prudential ICICI Mutual Funds

Franklin Templeton Mutual Fund India

Standard Chartered Mutual Fund India

Bajaj Capital

Popular tax-saving mutual fund schemes in India

Some of the popular tax-saving mutual fund schemes available in India have been listed below.

Franklin India Taxshield HDFC Long Term Advantage Fund

HDFC Taxsaver

Magnum Taxgain

Prudential ICICI Tax Plan

Types of mutual funds

Most funds have a particular strategy they focus on when investing.

For instance, some invest only in Blue Chip companies that are more

established and are relatively low risk. On the other hand, some focus

on high-risk start up companies that have the potential for double and

triple digit growth. Finding a mutual fund that fits your investment

criteria and style is important.

Types of mutual funds are:

Value stocks

Stocks from firms with relative low Price to Earning (P/E) Ratio,

usually pay good dividends. The investor is looking for income

rather than capital gains.

Growth stock

Stocks from firms with higher low Price to Earning (P/E) Ratio,

usually pay small dividends. The investor is looking for capital

gains rather than income.

Based on company size, large, mid, and small cap

Stocks from firms with various asset levels such as over $2

Billion for large; in between $2 and $1 Billion for mid and below

$1 Billion for small.

Income stock

The investor is looking for income which usually come from

dividends or interest. These stocks are from firms which pay

relative high dividends. This fund may include bonds which pay

high dividends. This fund is much like the value stock fund, but

accepts a little more risk and is not limited to stocks.

Index funds

The securities in this fund are the same as in an Index fund such

as the Dow Jones Average or Standard and Poor's. The number

and ratios or securities are maintained by the fund manager to

mimic the Index fund it is following.

Enhanced index

This is an index fund which has been modified by either adding

value or reducing volatility through selective stock-picking.

Stock market sector

The securities in this fund are chosen from a particular marked

sector such as Aerospace, retail, utilities, etc.

Defensive stock

The securities in this fund are chosen from a stock which usually

is not impacted by economic down turns.

International

Stocks from international firms.

Real estate

Stocks from firms involved in real estate such as builder,

supplier, architects and engineers, financial lenders, etc.

Socially responsible

This fund would invests according to non-economic guidelines.

Funds may make investments based on such issues as

environmental responsibility, human rights, or religious views.

For example, socially responsible funds may take a proactive

stance by selectively investing in environmentally-friendly

companies or firms with good employee relations. Therefore the

fund would avoid securities from firms who profit from alcohol,

tobacco, gambling, pornography etc.

Balanced funds

The investor may wish to balance his risk between various

sectors such as asset size, income or growth. Therefore the fund

is a balance between various attributes desired.

Tax efficient

Aims to minimize tax bills, such as keeping turnover levels low or

shying away from companies that provide dividends, which are

regular payouts in cash or stock that are taxable in the year that

they are received. These funds still shoot for solid returns; they

just want less of them showing up on the tax returns.

Convertible

Bonds or Preferred stock which may be converted into common

stock.

Junk bond

Bonds which pay higher that market interest, but carry higher risk

for failure and are rated below AAA.

Mutual funds of mutual funds

This funds that specializes in buying shares in other mutual

funds rather than individual securities.

Closed end

This fund has a fixed number of shares. The value of the shares

fluctuates with the market, but fund manager has less influence

because the price of the underlining owned securities has

greater influence.

Exchange traded funds (ETFs)

Baskets of securities (stocks or bonds) that track highly

recognized indexes. Similar to mutual funds, except that they

trade the same way that a stock trades, on a stock exchange.

Future of Mutual Funds in India

Future of Mutual Funds in India - An Overview

Financial experts believe that the future of Mutual Funds in India will be very bright. It has been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs 40,90,000 crore, taking into account the total assets of the Indian commercial banks. The estimation was based on the December 2004 asset value of Rs 1,50,537 crore. In the coming 10 years the annual composite growth rate is expected to go up by 13.4%. Since the last 5 years, the growth rate was recorded as 9% annually. Based on the current rate of growth, it can be forecasted that the mutual fund assets will be double by 2010.

Indian Mutual Funds Future - Growth Facts

In the past 6 years, Mutual Funds in India have recorded a growth of 100 %. In India, the rate of saving is 23 %.

In the future, there lies a big scope for the Indian Mutual Funds industry to expand.

Several asset management companies which are foreign based are now entering the Indian markets.

A number of commodity Mutual Funds will be introduced in the future. The SEBI (Securities Exchange Board of India) has granted the permission for the same.

More emphasis is put on the effective Mutual Funds governance.

There is also enough scope for the Indian Mutual funds to enter into the semi-urban and rural areas.

Financial planners will play a major role in the Mutual Funds market by providing people with proper financial planning.

Future of Indian Mutual Funds- Conclusion

Looking at the past developments and combining it with the current trends it can be concluded that the future of Mutual Funds in India has lot of positive things to offer to its investors.

Open Ended Funds

Open ended funds:Open ended funds also called open ended mutual funds, is the most common type of mutual fund available in the financial market.

Established by a mutual fund company, open ended funds are evaluated by the mutual fund company.

The open ended funds are also evaluated by external evaluating agents. The mutual fund company assures that the issuing fund, or the fund that will be refund will be in the form of fund unit value.

This implies that the investment of the funds are to be evaluated as per "fair market" price. "Fair market" price is the ultimate or the closing valuation in the market of the public listed securities.

Assets of open ended funds are kept aside as securities in the money market as well as short term investment. This step is taken in order to make available the open ended funds for repurchase.

Majority of the open ended funds are invested in the "liquid securities".

This denotes that open ended funds can generate cash by disposing off the securities almost equivalent to a value used for evaluations.

Documentation of open ended funds allows for the temporary removal of unit repurchases( redemption) under "extraordinary conditions" like major interventions in the financial market or the demand to redeem funds within a short period.

Illiquid investments face restriction by the government regulation body because illiquid investment are not active in the public markets and cannot be sold off within a short period .

One important factor with regard to open ended funds is the evaluation of investments which are illiquid and do not trade so frequently.

The mutual fund company evaluates the funds retentions end of the day and totals up.

The amount to be owed is deducted, whereas, the amount entitled to receive is added up. The net amount is then divided by the units number scheduled to be the value of the unit for the same day.

The purchase of units as well as the selling of units will take place according to the calculated rate or value.

Close Ended Funds

Closed Ended Funds:Close ended funds also called closed ended mutual funds are referred to as financial sureties. Close ended funds or close ended mutual funds are merchandised in the stock market.

Close ended funds makes available to the public fixed numbers of shares in the IPO also called initial public offering. These shares are traded on the stock exchange.

Prices of the shares are determined by the demand of the individuals investing. Share prices are not ascertained by NAV or Net asset value.

Mutual fund company also referred to as a sponsor by means of underwriting produces funds intended to be invested with a definite purpose.

A fund managing personnel is assigned the job of handling the close ended funds.

One cannot buy close ended funds by posting a check. The close ended funds are required to be bought from the open market similar to the stocks.

The best time to purchase close ended funds is promptly after the close ended funds are issued in the market.

Although, the NAVs (Net asset values)and prices are all mentioned on the stock exchange, one may find it difficult to provide liquidity to the same.

There are times when there is an abrupt fall of the prices of the share. It may as well dip below the NAV, it is during this time that the close ended funds get sold for discounts.

One may invest as much as $5000 but one should keep in mind that it is a commitment for a minimum period of 5 years.

Advantages of close ended funds:There are certain advantages of close ended funds as mentioned below:

one can avail of the facility of buying closed ended funds at a discount rate.

Discount on the closed ended funds is calculated by ascertaining the difference between NAV and close ended funds value.

The main advantage of close ended funds lies in the fact that an individual intending to own stocks, can avail of the close ended funds at a discounted rate and at th same time possess quality stocks.

Risks of close ended funds:There are certain risks associated with close ended funds.

Closed ended funds can change abruptly and drastically.

Closed ended funds are basically ever changing in nature.

Close ended funds should be invested in preferably by veteran investing individuals.

Shares of close ended funds can be discounted to such an extent due to which owner of the shares are unable to know the actual value of the shares.

ETF, ETFs, ETF’s, Exchange Traded Funds

ETF is an acronym for exchange traded fund. ETFs are investment vehicles that comprise of a number of securities or a basket of assets. They are traded just like stocks on a stock exchange. Most ETFs track an index such as the S&P 500 or the Dow Jones Industrial Average.

Features such as tax efficiency, low cost and stock-like characteristics make ETFs a highly attractive investment option. Exchange traded funds have been available in the US financial market since 1993 and in the European market since 1999.

Features of an ETF

The undivided interest that an ETF offers in a pool of securities makes it similar to the traditional mutual funds. However, unlike a mutual fund, shares in an exchange traded funds:

Can be traded, just like the stocks, through a broker on a securities exchange throughout the day. Are not sold or redeemed at their net asset value.

ETF shares are purchased and redeemed directly from the exchange traded fund by financial institutions. This is done only in large blocks, varying from 25,000 to 200,000 shares. These are called 'creation units'. The purchase or redemption of these creation units is generally in kind. Institutional investors contribute or receive a basket of securities of the same type and proportion

that is held by the concerned ETF. In some cases, the substitution by cash may be required or permitted for purchase or redemption.

The portfolios of existing ETFs are transparent. This facilitates institutional investors in deciding the portfolio assets they should assemble for purchasing a creation unit.

The Trading of an ETF

A share of an ETF can be obtained or redeemed directly from fund managers only by large institutional investors. Such institutional investors are also called authorized participants. They may either hold the ETF shares or act as market makers in the open market. Other individual investors use a retail brokerage for trading ETF shares in the secondary market created by these authorized participants.

ETFs: Benefits and Risks

An ETF gives the advantage of diversifying an index fund. It also provides the ability to buy on margin, to sell short and purchase as little as a single share. However, many ETFs use unknown and untested indexes. Also, ETFs depend upon the efficiency of the mechanism of the arbitrage.

Since ETFs can be bought and sold just like stocks, their net asset value (NAV) is not calculated once a day by fund managers, but on a continuous basis throughout the day by investors. Thus, unlike mutual funds, ETFs are open to price fluctuations during the entire trading period. Since ETFs are traded on the stock market through brokers, minimal interaction with fund houses is required. Fees associated with ETFs are also lower that the mutual fund fees.

Additionally, ETFs afford greater tax efficiency than mutual funds. While these benefits do exist, the one driving the popularity of ETFs is liquidity.

An ETF is an ideal asset allocation tool that significantly limits the investment risks associated with individual stocks. However, ETFs are not without shortcomings. As ETFs are a basket of funds from the same investment category, investors have high exposure to any downturn in that specific category. Moreover, too much flexibility to move in and out of an ETF could tempt investors to jump often between sectors, resulting in missed opportunities, wrong decisions and reduced potential returns. Additionally, buying and selling of ETFs involve brokerage commissions, which can erode the low-expense advantage of ETFs, particularly when the sum being invested is limited.

A History of Exchange Traded Funds

The bear market in the US in the first couple of years of the twenty-first century propelled investors towards Exchange Traded Funds, thanks to their combination of stability (similar to mutual funds) and ease of trading as stocks.

ETFs have been traded in the US since 1993 and in Europe since 1999. They owe their origin to a product called Index Participation Shares that was traded on the American Stock Exchange and the Philadelphia

Stock Exchange in 1989 as an S&P 500 proxy. This product had to be terminated on account of a lawsuit, but was soon followed by a similar product, namely the Toronto Index Participation Shares, trading on the Toronto Stock Exchange. This product, which tracked the TSE 35 and later the TSE 100 stocks, became highly popular. In the US, Standard & Poor's Depositary Receipts (SPDRs), or "Spiders," were the first ETF to hit the market. Since then, ETFs have flourished and form a significant portion of trading activity on US bourses. As of May 2008, there were 680 ETFs in the US, with $610 billion in assets, according to wikipedia.org.

Structured Funds

A Structured fund is a kind of Bond that has a combination of Fixed Income products and equity products to let the investors have the combination of both capital appreciation and capital protection together. All these funds generally use free income securities to provide the Structured Fund Capital protection by means of principal repayment alongside the interest payment added gain. The Secured Fund also takes the help of futures, options and various other derivatives that are also based upon indexes in the market that are there to allow vulnerability to capital appreciation.

The investors who look to have downside protection normally go for these kind of Structured Funds and also for those who generally look for certain amount of monetary gain from the market through the upside movements. The Guarantees and the exact products normally alter from time to time depending on the type of Secured Fund.

One also gets the chance to change the Secured Fund options with the changing way of life. Though this is a false notion for those who deal with fixed annuity program. For this one does not have the chance to change the payment type at any stage of one's life after the fund is on.

If we take an example of the S&P Structured Funds which saves nearly 80 percent of the principal of the Structured Fund. This would mean that the it would invest as many as 80 percent of the total Structured Funds and thus has very little chance of going below the total of the principal amount. The investor would gain money if the S&P 500 gains and loses money as the S&P 500 falls. But the Structured Fund would never go under the starting value of the Structured Fund.

Structured Funds are not considered convincing for each and everybody. One needs to check elaborately before making any kind of investments in it.

No Load Mutual Funds

No Load Mutual Fund is described as a kind of Mutual funds that does not need any kind of fees and commissions while buying or redeeming any kind of shares in the Mutual Funds. Load is actually the fee or commission that is paid by a person who invests money to a mutual fund during the time of his redeeming and buying of a particular mutual fund. As the commission or the fees is charged during the redeeming of the shares of a particular mutual fund it is termed as the back-end loan and when the fees or the commission is charged at the time of buying the shares of the mutual fund it is known as the front end loan. Those who go for No Load Mutual Funds normally receive a higher rate of return as they do not have to pay any kind of commissions and fees from the money he has earned.

One Can Have Various Advantages By Dealing Through No Load Mutual Funds

The Load Funds in spite of charging some amount of money does provide any special service to the investor as the money that is charged normally goes to the fund broker. This is not the case with No Load Mutual Funds as one gets the same kind of service by paying no amount of loads.

It has also been observed that not a great deal of difference in return amount between the load and No Load Mutual Funds which encourages the No Load Mutual Fund holders.

The No Load Mutual Fund actually lets one invest the whole amount of money and lets the investor to get return of that but for Load Mutual funds if one pays 10 percent as load and invests an amount of $1000, he is actually investing $900 as $100 is taken away as Load and thus the return decreases automatically.

So it is better for one to invest in No Load Mutual Funds as it is effective and provides a higher rate of return.

Funds Of Funds

Funds of Funds is a kind of investment fund which normally uses a particular strategy to hold a portfolio of several other investment funds instead of directly investing in various kinds of bonds, shares and different kind of other securities. The Fund of Funds is often termed in other words as multi-manager investment. One can find a great variety in Fund of Funds and all of these types have one thing in common and that is they are all investing in various types of collective investment scheme.

One can find that the Fund of Funds has various advantages and disadvantages in its parts. Some of the advantages and disadvantages are:

Advantages of Fund of Funds

Simplicity of the Fund of Funds: A person to achieve good results while can invest in one Fund of Funds rather than investing in several different funds. This helps the person to concentrate on only one thing and also helps the investor to take care of limited number of papers.

Cheap For the New Investors: One finds it very difficult to diversify initially as he has minimum number of accounts. For this problem the Fund of Funds become very popular for the new investors as this would help them to diversify among thousands of funds through this .

A mutual fund generally diversifies through a great number of stocks but a Fund of Funds goes through many different funds which provides the Fund of Funds double diversification.

One can also have the institutional advantages as one can make investments in various funds which are in other ways off-limit for the retail investors. One also gets the advantages of load funds and for that one does not have to pay the load.

Disadvantages of Fund of Funds: Expense Ratios: Nearly all Fund of Funds carry an expense ratio that are on the higher side. These

higher ratios can bring down the amount of returns one was scheduled to get.

One also has to pay some extra charges for keeping the Fund of Funds in force and this can also curtail the amount of income one expected to get.

Hedge Funds

Hedge Fund are the indexes that are becoming more and more popular with every passing day among the hedge fund companies. Many of the hedge fund companies are formulating their own Hedge Fund. This serves as a great form of tracking the health of the sophisticated financial sector known as the hedge fund industry. The Hedge Fund of the different companies are at competition to out perform one another. The institutional investors find this Hedge Fund as very helpful because it acts as benchmark for the hedge fund.

Construction of the Hedge Fund is done on the basis of a certain underlying. They differ from one another on the basis of choosing of the underlying fund and the method used in the construction of the hedge fund. Due to the variations involved in the methodology of constructing the Hedge Fund, the results of the different indexes differ from one another though the ingredients chosen are the same.

The Hedge Fund includes those securities that are traded in the popular exchanges. The investors interested in investing in the Hedge Fund do need to follow the terms and conditions that have been set by the hedge fund company that is constructing the index.

The Hedge Fund is constructed by a hedge fund company through the adoption of certain strategies and specialized instruments those act as reflector of the whole hedge fund. These funds are structured in such a way that the tracking of the specific fund is done with minimum possibility of error.

Another type of Hedge Fund is also available which is categorized under the section in which no investment can be materialized. These funds are only used for tracking a wide array of index fund through the utilization of certain quantitative apparatus like mean, median, etc.

Global Hedge Funds

Hedge Fund Manager

Hedge Fund Jobs

Starting hedge fund

Hedge Fund Accounting

Hedge Fund Strategy

Hedge Fund Investor

Hedge fund Research

Citadel Hedge Fund

Money Market Funds

Money market funds can be defined as an investment fund that carry the purpose of earning interest for shareholders. Some suppliers of money market funds are brokerage firms, mutual funds, banks, etc. Most of the money market funds are not nationally insured, they are normally covered by private insurance. It is observed that a major amount of funds invest only in government-backed securities. For this reason, shareholders can think themselves as safe. Features of money market funds comprise of short-term securities that provide monetary instruments, quality etc.

Money market funds allow the investors to attain the flexibility of switchig their money from one fund to the other. The other advantage is that it exerts no charge.

Money market funds can be treated as a type of mutual fund that invests in short-term money market legal documents like commercial paper, government securities, CDs(certificates of deposit) etc. Some of the money market funds purchase specifically the government securities like treasury bills, while the other general purpose funds normally invest on short-term paper. People prefer these money market funds for their high yielding capacity, and security.

Investment companies who are registered with the Securities and Exchange Commission, normally handle the money market funds.

FunctionsMoney market funds sell shares to the investors and they get interest payments on a regular basis. There are several factors which are responsible to acquire the interest amount. These are management fee, level of interest rates, commissions etc.

Factors and restrictions relating to money market fundsSome of the major factors responsible behind money market funds are maturity, quality and diversity. One restriction regarding money market funds investment is that money funds can invest up to 5% in any one issuer. Money market securities needs to maintain a stable value and higher liquidity.

Advice by economistsInvestors should cautiously observe the important information stated in the prospectus, which comprise risks, investment policies, expenses and charges before they decide to deal with money market funds.

For further information regarding Money Market Funds, one can go through the following links:

Vanguard Money Market Funds

Top Money Market Funds

High Yield Money Market Funds

Tax Free Money Market Funds

Fidelity Money Market Funds

Treasury Money Market Funds

Money Market Funds Rate

Bond Fund, Bond Funds

A bond fund collects money from several investors and has professional fund managers who invest this money in a range of debt instruments. This may include corporate bonds, municipal bonds, convertible bonds and a plethora of other financial instruments.

Yield on Bond Funds

A bond fund typically pays periodic dividends, including interest payments and capital appreciation. Usually bond funds pay higher dividends than CDs and money market accounts.

The calculation of yield depends on the selection of debt instruments. For example, corporate bonds may involve monthly payments, while in case of treasury bonds, strips and municipal bonds, returns are remitted on maturity, which could range from six months to 40 years.

The most commonly used measure is the 30-day annualized yield, which takes the yields of all the bonds in the bond fund and averages it over the past 30 days. However, this figure does not indicate the fund's future yield. It does help in comparing bond funds from different companies.

Benefits of Bond Funds

Bond funds offer certain benefits vis-à-vis individual bonds. These can be seen against the following parameters:

Professional Management

Time tested expertise and detailed security analysis by fund managers.

Relief from comparing maturity period, tax benefits and issuer creditworthiness.

Diversification Investment in a variety of bonds delivers better results.

Liquidity and Convenience Freedom to reinvest income dividends and undertake additional investments. The initial amount of investment is relatively low.

Exemption from tax burden via municipal bonds.

Secured returns by treasury securities.

Drawbacks of Bond Funds

While opting for bond funds, an investor must be careful of the following:

Volatile return: An increase in interest rates reduces bond prices. There may be monthly variations in returns. A longer maturity period leads to a higher element of risk.

Credit risk: This refers to the risk of default when the issuing authority is unable to generate income.

Fluctuations: The value of a fund share (also known as the share price or net asset value) may fluctuate on a daily basis.

Call risk: Corporate bond issuers often declare the redemption of bonds. In doing so, they are obliged to pay only the par value to an investor.

Equity Based Funds

Equity based funds can be referred to as the share an individual has in a particular corporate house. The shares of stock implies a portion of the corporate house.

Equity based funds can contain several selectively chosen stocks. An equity based funds manager takes care of the stocks.

The aim of the equity based funds manager is to choose those stocks which have the capability of achieving the equity based funds objectives.

The objectives of equity based funds can be of capital appreciation, return as a whole , growth for a long term.

There are times when a stock in conjunction with equity based funds may provide income along with growth.

Equity based funds can be considered as performers. The equity based funds have the disadvantage of being highly volatile as compared to cash and bonds.

The equity based funds are diverse and offers a variety of stocks. The equity based funds are volatile, the price of their shares fluctuating very frequently daily.

Equity based funds are also affected by factors like

Changes in the rates of interest. Changes in the economy

Changes in the functioning or working of a company.

Equity based funds provide rewards on a long term basis.

Rewards offered by equity based funds on a long term basis may include retirement solutions, purchasing a house or funding a child's education.

As equity based funds involve considerable amount of risk it is often suggested that equity based funds need to be clubbed with investments involving lower risks for availing long term benefits.

Types of equity based funds:Equity based funds can be categorized into:

Sector equity based funds and International equities Equity based funds under the category of sector equity based funds and international equities may include the undermentioned:

1. Technology equity based funds. 2. International Growth equity based Fund

Medium and Small Capitalization Equity based FundsThe medium and small capitalization equity based funds may include the following:

1. Small Cap Growth equity based Funds 2. Small Cap Value equity based Funds 3. Growth Opportunities equity based Funds 4. Small Cap Index equity based Funds 5. Mid Cap Growth equity based Funds

Large and Income Capitalization Equity based FundsThe equity based funds under the category of Large and Income Capitalization Equity based Funds may include the types of equity based funds given below:

1. Large Cap Value equity based Funds 2. Select Equity equity based Funds 3. Growth Equity equity based Funds 4. Income Equity equity based Funds 5. Stock Index equity based Funds

Opportunities of Mutual Funds

Opportunities of Mutual Funds are tremendous specially when investment is concerned. For any individual who intends to allocate his assets into proper forms of investment and want to diversify his Investment Portfolio as well as the risks, Mutual Funds can be proved as the biggest opportunity.

Investors gets a lot of advantages with the Mutual Fund Investment. Firstly, they are not required to carry on intensive research and detailed analysis on Stock Market and Bond Market. This work is done by the Fund Mangers of the Investment Management Company on behalf of the investors. In fact, the professional Fund Managers who handle the mutual funds of any particular company, are able to speculate the market trend more correctly than any common individual. Good Speculation about the trends of stock prices and bond prices leads to right allocation of funds in the right stocks and bonds resulting in good Rate of Returns.

Investors also get the advantage of high Liquidity of the mutual funds. This means the investors can enjoy easy access to the funds invested in the mutual funds whenever they require the money. When the investors invest in any mutual fund, they are given some equity position in that fund. The investors can any time sell their mutual fund shares to get back the money invested in mutual funds. The only thing is that the Rate of Return that they will get may not be favorable as the return depends on the present market condition.

The greatest opportunity that the mutual funds offer is the opportunity of diversifying their investments. Investment Diversification actually diversifies the Risk associated with investment. This is because, if at a time, if prices of some stocks are declining, deceasing the Value of Investment, prices of some other stocks and bonds may tend to rise and in this way the loss of the mutual fund is offset by the strength of the stocks whose prices are rising. As all the mutual funds diversify their investments in various common stocks, preferred stocks and different bonds, the risk to be borne by the investors are well diversified and in other terms lowered.

Mutual Funds Definition Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund, managed by an

investment company with the financial objective of generating high Rate of Returns. These asset management or investment management companies collects money from the investors and invests those money in different Stocks, Bonds and other financial securities in a diversified manner. Before investing they carry out thorough research and detailed analysis on the market conditions and market trends of stock and bond prices. These things help the fund mangers to speculate properly in the right direction.

The investors who invest their money in the Mutual fund of any Investment Management Company, receive an Equity Position in that particular mutual fund. When after certain period of time, whether long term or short term, the investors sell the Shares of the Mutual Fund, they receive the return according to the market conditions.

The investment companies

receive profit by allocating people's money in different stocks and bonds according to their Speculation about the Market Trend.

Other than some specific mutual funds which carry certain Maturity Term, Investors can generally sell the shares of their mutual funds at any time they want. But, the return will vary according to market value of the stocks and bonds in which that particular mutual fund made investment. But, generally the share holders of mutual fund sell their share when the prices are up and Capital Gain is sure to happen.

Challenges Facing Mutual Funds

There are many Challenges Facing Mutual Funds which is of prime concern to the people who have an investment spree.

People find mutual fund investment so much interesting because they think they can gain high rate of return by diversifying their investment and risk. But, in reality this scope of high rate of returns is just one side of the coin. On the other side, there is the harsh reality of highly Fluctuating Rate of Returns. Though there are other disadvantages also, this concern of fluctuating returns is most possibly the greatest challenge faced by the mutual fund.

The Issue of Fluctuating ReturnsIn spite of being a diversified investment solution, mutual funds investment in no way guarantees any return. If the market prices of major shares and bonds fall, then the value of mutual fund shares are sure to go down, no matter how diversified the mutual fund portfolio be. It can be said that mutual fund investment is somewhat lower risky than Direct Investment in stocks. But, every time a person invests in mutual fund, he unavoidably carries the risk of losing money.

The Other Challenges

Diworsification or Over Diversification- In order to diversify the investment, many times the mutual fund companies get involved in Over Diversification. The risk of holding a single financial security is removed by diversification. But, in case of over diversification, investors diversify so much that many time they end up with investing in funds that are highly related and thus the benefit of risk diversification is ruled out.

Taxes-Every year, most of the mutual funds sell substantial amount of their holdings. If they earn profit by this sell, then the investors receive the Profit Income

. For most of the mutual funds,the investors are bound to pay taxes on these incomes, even if they reinvest the income.

Costs- Most of the mutual funds charge Shareholder Fees and Fund Operating Fees from the investors. In the year, in which mutual fund fails to make profit and the investors get no return, these fees only blow up the losses.