Projct of Mf

8/6/2019 Projct of Mf

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NAME: ROLLNO:

SAHIL MARWAH 14

NEHA SUDI 26

MANDEEP SAINI 18

SIMPLE GILL -

RISHIKESH GUPTA 10

ASHISH JETHI 11

Class:- T.Y.B.B.I.

SUBJECT:-

TOPIC:- MUTUAL FUNDS.

PROF:- VANITA MAM.


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INDEX:-

Introduction

Meaning

10 Reasons to invest in Mutual Fund

Advantages and disadvantages of Mutual

FundTypes of Mutual Fund

Brief history and growth of asset management

Some of the terms used in Mutual Fund

Reason for investing in Mutual FundCategories of Mutual Fund

Regulations

Importance of reforms of Mutual Fund

Four things avoid while choosing Mutual Fund

Conclusion


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Mutual Fund Definition:-A mutual fund is made up of money that is pooledtogether by a large number of investors who givetheir money to a fund manager to invest in a largeportfolio of stocks and / or bonds

Mutual fund is a kind of trust that manages the poolof money collected from various investors and it ismanaged by a team of professional fund managers(usually called an Asset Management Company) for a small fee.

The investments by the Mutual Funds are made in

equities, bonds, debentures, call money etc.,depending on the terms of each scheme floated bythe Fund.

The current value of such investments is now adays is calculated almost on daily basis and thesame is reflected in the Net Asset Value (NAV)declared by the funds from time to time.

This NAV keeps on changing with the changes inthe equity and bond market. Therefore, theinvestments in Mutual Funds is not risk free, but agood managed Fund can give you regular andhigher returns than when you can get from fixeddeposits of a bank etc.


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Chart:-

10 REASONS TO INVEST IN MUTUAL FUNDS:-

1. Expert on your side: When you invest in a mutualfund, you buy into the experience and skills of afund manager and an army of professional analysts

2. Limited risk: Mutual funds are diversification inaction and hence do not rely on the performance of a single entity.

3.

More for less: For the price of one blue chip stockfor instance, you could get yourself a number of


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units across a number of companies and industrieswhen you invest in a fund!

4. Easy investing: You can invest in a mutual fundwith as little as Rs. 5,000. Salaried individuals alsohave the option of investing in a monthly savingsplan.

5. Convenience: You can invest directly with a fundhouse, or through your bank or financialadviser, or even over the internet.

6. Investor protection: A mutual fund in India isregistered with SEBI, which also monitors theoperations of the fund to protect your interests.

7. Quick access to your money: It's good to knowthat should you need your money at short notice,you can usually get it in four working days.

8. Transparency: As an investor, you get updateson the value of your units, information on specificinvestments made by the mutual fund and the fundmanager's strategy and outlook.

9. Low transaction costs: A mutual fund, by sheer scale of its investments is able to carry out cost-

effective brokerage transactions.10. Tax benefits: Over the years, tax policies onmutual funds have been favourable to investors andcontinue to be so.

Advantages :-

1. Diversification:


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Using mutual funds can help an investor diversify their portfolio with a minimum investment. When investing ina single fund, an investor is actually investing in

numerous securities. Spreading your investment acrossa range of securities can help to reduce risk. A stockmutual fund, for example, invests in many stocks -hundreds or even thousands. This minimizes the riskattributed to a concentrated position. If a few securitiesin the mutual fund lose value or become worthless, theloss maybe offset by other securities that appreciate in

value. Further diversification can be achieved byinvesting in multiple funds which invest in differentsectors or categories. This helps to reduce the riskassociated with a specific industry or category.Diversification may help to reduce risk but will never completely eliminate it. It is possible to lose all or part of your investment.

2.Professional Management:

Mutual funds are managed and supervised byinvestment professionals. As per the stated objectivesset forth in the prospectus, along with prevailing marketconditions and other factors, the mutual fund manager will decide when to buy or sell securities. This eliminates

the investor of the difficult task of trying to time themarket. Furthermore, mutual funds can eliminate thecost an investor would incur when proper due diligenceis given to researching securities. This cost of managingnumerous securities is dispersed among all theinvestors according to the amount of shares they ownwith a fraction of each dollar invested used to cover theexpenses of the fund. What does this m ean? Fund
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managers have more money to research more securitiesmore in depth than the average investor.

3.Convenience:

With most mutual funds, buying and selling shares,changing distribution options, and obtaining informationcan be accomplished conveniently by telephone, bymail, or online.

Although a fund's shareholder is relieved of the day-to-

day tasks involved in researching, buying, and sellingsecurities, an investor will still need to evaluate a mutualfund based on investment goals and risk tolerancebefore making a purchase decision. Investors shouldalways read the prospectus carefully before investing inany mutual fund.

4.Liquidity:

Mutual fund shares are liquid and orders to buy or sellare placed during market hours. However, orders arenot executed until the close of business when the NAV(Net Average 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 executes the order.5.Minimum Initial Investment:

Most funds have a minimum initial purchase of $2,500but some are as low as $1,000. If you purchase amutual fund in an IRA, the minimum initial purchaserequirement tends to be lower. You can buy some funds

for as little as $50 per month if you agree to dollar-cost
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average, or invest a certain dollar amount each month or quarter.

Disadvantages:-1. Risks and Costs:

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

There are fees and expenses associated with investingin mutual funds that do not usually occur whenpurchasing individual securities directly.

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

No Guarantees.

The value of your mutual fund investment, unlike a bankdeposit, could fall and be worth less than the principleinitially invested. And, while a money market fund seeksa stable share price, its yield fluctuates, unlike acertificate of deposit. In addition, mutual funds are notinsured or guaranteed by an agency of the U.S.government. Bond funds, unlike purchasing a bonddirectly, will not re-pay the principle at a set point in time.

The Diversification "Penalty.

" Diversification can help to reduce your risk of loss fromholding a single security, but it limits your potential for a"home run" if a single security increases dramatically in


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value. Remember, too, that diversification does notprotect you from an overall decline in the market.

Always look at "net" returns when comparing fundperformances. Net return is the bottom line; aninvestment's true return after all costs are deducted.

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

2. Expenses:

Because mutual funds are professionally managedinvestments, there are management fees and operatingexpenses associated with investing in a fund. Thesefees and expenses charged by the fund are passed ontoshareholders and deducted from the fund's return.

These expenses are typically expressed as the expenseratio - the percent of fund assets spent (annually) onday-to-day operations. Expense ratios can vary widelyamong funds. Expense ratios for mutual fundscommonly range from 0.2% to 2.0%, depending on thefund. Consult the fund's prospectus to determine the

expense ratio for a specific fund.Make yourself aware of all fees and expenses thatimpact the fund's return by reducing gains andincreasing losses.


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CHART WORKING OF A MUTUAL FUND:-

WMUTUAL FUND RISKS:-

Mutual funds face risks based on the investments theyhold. For example, a bond fund faces interest rate riskand income risk. Bond values are inversely related tointerest rates. If interest rates go up, bond values will godown and vice versa. Bond income is also affected bythe change in interest rates. Bond yields are directly


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related to interest rates falling as interest rates fall andrising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund.

Following is a glossary of some risks to consider wheninvesting in mutual funds.

1. Call Risk .

The possibility that falling interest rates will cause abond issuer to redeemor callits high-yielding bondbefore the bond's maturity date.

2. Country Risk .

The possibility that political events (a war, nationalelections), financial problems (rising inflation,

government default), or natural disasters (anearthquake, a poor harvest) will weaken a country'seconomy and cause investments in that country todecline.

3. Credit Risk .

The possibility that a bond issuer will fail to repay

interest and principal in a timely manner. Also calleddefault risk.

4. Currency Risk .

The possibility that returns could be reduced for Americans investing in foreign securities because of arise in the value of the U.S. dollar against foreign

currencies. Also called exchange-rate risk.


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5. Income Risk .

The possibility that a fixed-income fund's dividends willdecline as a result of falling overall interest rates.

6. Industry Risk .

The possibility that a group of stocks in a single industrywill decline in price due to developments in that industry.

7. Inflation Risk .

The possibility that increases in the cost of living willreduce or eliminate a fund's real inflation-adjustedreturns.

8. Interest Rate Risk .

The possibility that a bond fund will decline in valuebecause of an increase in interest rates.

9. Manager Risk .

The possibility that an actively managed mutual fund'sinvestment adviser will fail to execute the fund'sinvestment strategy effectively resulting in the failure of stated objectives.

10.Market Risk .

The possibility that stock fund or bond fund pricesoverall will decline over short or even extended periods.Stock and bond markets tend to move in cycles, withperiods when prices rise and other periods when pricesfall.


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11.Principal Risk .

The possibility that an investment will go down in value,or "lose money," from the original or invested amount.

TYPES OF MUTUAL FUNDS:-Mutual fund schemes may be classified on the basis of

its structure and its investment objective

T YPE

a)By Structure:

Open-ended Funds : An open-end fund is one that isavailable for subscription all through the year. These donot have a fixed maturity. Investors can convenientlybuy and sell units at Net Asset Value ("NAV") relatedprices. The key feature of open-end schemes isliquidity.Closed-ended Funds: A closed-end fund has a
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stipulated maturity period which generally ranging from 3to 15 years. The fund is open for subscription onlyduring a specified period. Investors can invest in the

scheme at the time of the initial public issue andthereafter they can buy or sell the units of the schemeon 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 tothe Mutual Fund through periodic repurchase at NAVrelated prices. SEBI Regulations stipulate that at least

one of the two exit routes is provided to the investor.


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Interval Funds: Interval funds combine the featuresof open-ended and close-ended schemes. They areopen 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 capitalappreciation over the medium to long- term.Such schemes normally invest a majority of their corpus in equities. It has been proven thatreturns from stocks, have outperformed mostother kind of investments held over the longterm. Growth schemes are ideal for investorshaving a long-term outlook seeking growth over a period of time.

Income Funds:The aim of income funds is to provide regular and

steady income to investors. Such schemesgenerally invest in fixed income securities suchas bonds, corporate debentures andGovernment securities. Income Funds are idealfor capital stability and regular income.

Balanced Funds:
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The aim of balanced funds is to provide both growthand regular income. Such schemes periodicallydistribute a part of their earning and invest both

in equities and fixed income securities in theproportion indicated in their offer documents . Ina rising stock market, the NAV of theseschemes may not normally keep pace, or fallequally when the market falls. These are idealfor investors looking for a combination of income and moderate growth.

Money Market Funds:

The aim of money market funds is to provide easyliquidity, preservation of capital and moderateincome. These schemes generally invest insafer short-term instruments such as treasurybills, certificates of deposit, commercial paper

and inter-bank call money. Returns on theseschemes may fluctuate depending upon theinterest rates prevailing in the market. These areideal for Corporate and individual investors as ameans to park their surplus funds for shortperiods.

Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sellunits in the fund, a commission will be payable.Typically entry and exit loads range from 1% to2%. It could be worth paying the load, if the fundhas a good performance history.

No-Load Funds:
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A No-Load Fund is one that does not charge acommission for entry or exit. That is, nocommission is payable on purchase or sale of

units in the fund. The advantage of a no loadfund is that the entire corpus is put to work.

C ) OTHER SCHEMES:

Tax Saving Schemes:

These schemes offer tax rebates to the investorsunder specific provisions of the Indian Income Taxlaws as the Government offers tax incentives for investment in specified avenues. Investments madein Equity Linked Savings Schemes (ELSS) andPension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also providesopportunities to investors to save capital gains u/s54EA and 54EB by investing in Mutual Funds.

HISTORY OF THE INDIA MUTUALFUND INDUSTRY:-

The mutual fund industry in India started in 1963 with theformation of Unit Trust of India, at the initiative of theGovernment of India and Reserve Bank of India. Thehistory of mutual funds in India can be broadly dividedinto four distinct phases

First Phase 1964-87:

Unit Trust of India (UTI) was established on 1963 by anAct of Parliament. It was set up by the Reserve Bank of


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India and functioned under the Regulatory andadministrative control of the Reserve Bank of India. In1978 UTI was de-linked from the RBI and the Industrial

Development Bank of India (IDBI) took over theregulatory and administrative control in place of RBI.The first scheme launched by UTI was Unit Scheme1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase 1987-1993 (Entry of Public Sector Funds):

1987 marked the entry of non- UTI, public sector mutualfunds set up by public sector banks and Life InsuranceCorporation of India (LIC) and General Insurance

Corporation of India (GIC). SBI Mutual Fund was the firstnon- UTI Mutual Fund established in June 1987 followedby Canbank Mutual Fund (Dec 87), Punjab NationalBank Mutual Fund (Aug 89), Indian Bank Mutual Fund(Nov 89), Bank of India (Jun 90), Bank of Baroda MutualFund (Oct 92). LIC established its mutual fund in June1989 while GIC had set up its mutual fund in December

1990.At the end of 1993, the mutual fund industry had assetsunder management of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector

Funds):


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With the entry of private sector funds in 1993, a new erastarted in the Indian mutual fund industry, giving the

Indian investors a wider choice of fund families. Also,1993 was the year in which the first Mutual FundRegulations came into being, under which all mutualfunds, except UTI were to be registered and governed.The erstwhile Kothari Pioneer (now merged with FranklinTempleton) was the first private sector mutual fundregistered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations weresubstituted by a more comprehensive and revisedMutual Fund Regulations in 1996. The industry nowfunctions under the SEBI (Mutual Fund) Regulations1996.

The number of mutual fund houses went on increasing,with many foreign mutual funds setting up funds in Indiaand also the industry has witnessed several mergersand acquisitions. As at the end of January 2003, therewere 33 mutual funds with total assets of Rs. 1,21,805crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other

mutual funds.

Fourth Phase since February 2003:

In February 2003, following the repeal of the Unit Trustof India Act 1963 UTI was bifurcated into two separate

entities. One is the Specified Undertaking of the Unit


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Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003,representing broadly, the assets of US 64 scheme,

assured return and certain other schemes. TheSpecified Undertaking of Unit Trust of India, functioningunder an administrator and under the rules framed byGovernment of India and does not come under thepurview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund, sponsored by SBI,

PNB, BOB and LIC. It is registered with SEBI andfunctions under the Mutual Fund Regulations. With thebifurcation of the erstwhile UTI which had in March 2000more than Rs.76,000 crores of assets under management and with the setting up of a UTI MutualFund, conforming to the SEBI Mutual Fund Regulations,and with recent mergers taking place among different

private sector funds, the mutual fund industry hasentered its current phase of consolidation and growth.

The graph indicates the growth of assets over the years.


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SOME OF THE TERMS USED IN MUTUALFUNDS:-

1. Net Asset Value (NAV) :

Net Asset Value is the market value of the assets of thescheme minus its liabilities. The per unit NAV is the netasset value of the scheme divided by the number of unitsoutstanding on the Valuation Date.

2. Sale Price :

It is the price you pay when you invest in a scheme and


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is also called "Offer Price". It may include a sales load.

3. Repurchase Price :It is the price at which a Mutual Funds repurchases itsunits and it may include a back-end load. This is alsocalled Bid Price.

4. Redemption Price :

It is the price at which open-ended schemesrepurchase their units and close-ended schemesredeem their units on maturity. Such prices are NAVrelated.

5. Sales Load / Front End Load :

It is a charge collected by a scheme when it sells theunits. Also* called, Front-end load. Schemes whichdo not charge a load at the time of entry are calledNo Load schemes.

6. Repurchase / Back-end Load :

It is a charge collected by a Mufual Funds when it buysback / Repurchases the units from the unit holders.


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CHART OF MUTUAL FUND OPEARATION:

Why Should I Invest in a Mutual Fund when I canInvest Directly in the Same Instruments :-

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

Your investments will be managed by professionalfinance managers who are in a better position toassess the risk profile of the investments;

Your small investment cannot be spread into equityshares of various good companies due to high priceof such shares. Mutual Funds are in a much better position to effectively spread your investments acrossvarious sectors and among several products availablein the market. This is called risk diversification andcan effectively shield the steep slide in the value of

your investments.


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1.The Association of Mutual Funds in India :

(AMFI) is dedicated to developing the Indian Mutual

Fund Industry on professional, healthy and ethical linesand to enhance and maintain standards in all areas witha view to protecting and promoting the interests of mutual funds and their unit holders.

1.

2.Know Your Distributor (KYD)

The ARN holders who have not completed the KYDprocess so far, are advised to complete the same at theearliest. It has been decided to withhold the payment of commission/ incentive payable to the distributors, whohave not complied with KYD, with effect from April 1,2011. The commission so withheld, shall be releasedonly after the compliance of KYD requirements by suchdistributors.

Mutual fund categories :-Mutual funds fall into the following categories: money

market funds, bonds funds, stocks funds, balancedfunds, and asset allocation funds.

Stock funds

As the name implies, stock mutual funds invest mainly incommon stocks. These stocks may be sold on the NewYork Stock Exchange, the NASDAQ or other

exchanges.


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The objective of a stock fund is long-term capitalappreciation versus generating income (dividends) morecommon with bond funds. However, stock funds may

generate modest dividends from the stocks in theportfolio and from short-term cash investments. Thesestock tend to be larger capitalized stocks versus smaller growth stocks.

Stock Fund Types-

1. Large Cap :

Primarily invests in "Blue-chip" companies - large,well-known industrials, utilities, technology, andfinancial services companies with large marketcapitalization. Large cap stocks are perceived to beless risky than smaller capitalized companies.

2. Mid Cap :

Primarily invests in companies whose marketcapitalization is smaller than large caps but larger than small caps. Mid caps are generally consideredmore risky than large cap stocks but have a higher return expectation.

3. Small Cap :

Primarily invests in emerging companies, thought tohave potential for future growth and profit. Small capsare generally considered the riskiest stocks comparedto larger capitalized firms but carry the expectation of higher returns. Small cap funds are subject to greater volatility than those in other asset categories.

4. International :


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Primarily invests in stocks traded on foreignexchanges but purchased in the United States by U.S.fund companies. International funds are subject to

additional risks such as currency fluctuation, politicalinstability and the potential for illiquid markets.

5. Sector :

Primarily invests in specific industry sectors such astechnology, financials, health, or energy. Since sector funds focus their investments on companies involvedin a specific industry sector, the funds may involve agreater degree of risk that an investment in other mutual funds with greater diversification.

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 downas the market rises or declines. Remember, pastperformance is no guarantee of future results.

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 to repay the loan by a specific date and tomake regular interest payments to the lender untilthen.

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 withbuying an individual bond.


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

4. Produce profits that consist primarily of dividenddistributions.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-

o Government : Primarily invest in bonds issued bythe U.S. Department of Treasury as well as variousfederal agencies. Government bonds are generallytaxable.

o Municipal : Primarily invest in municipal bondsissued by state and local governments 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 bondsmay be tax free at both the federal and state level(consult the funds prospectus).

o Corporate : Primarily invest in bonds issued bycorporations to help fund business activities.

Income from corporate bonds is taxable.Bond fund shares are not guaranteed and will fluctuate

with market conditions and interest rates and include agreater risk to principal than Certificates of Deposit.Shares, when redeemed, may be worth more or lessthan their original cost.


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Income may be subject to the Alternative Minimum Tax(AMT) and capital appreciation from discounted bondsmay be subject to state and local taxes.

Money market funds :

Money market funds invest in short-term securitiessuch as Treasury bills. Most money market funds offer a higher rate of interest than bank savings accounts,and some are free of federal or state taxes. But unlikebank savings accounts, money market funds are notFDIC insured.

Money market mutual funds are designed to be morestable than stock or bond funds. Money market fundsare designed to provide steady dividend income on theinvestment amount, although the yield may fluctuatedaily.

Taxable: Invest in short-term obligations fromcorporations.

Tax-free: Invest in short-term obligations fromgovernment entities.

Balanced Funds:

o Invest in stocks, bonds, and cash investments, invarying proportions.

o Produce dividend and capital gain distributions andshare price appreciation in proportion to their allocation among the three major asset classes.

Asset Allocation Funds:


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In an asset allocation fund, the manager will diversify theassets among each category: cash, bonds, and stocksand weight them according to the portfolio strategy. The

manager will redistribute the weightings according tomarket conditions. Portfolio strategies generally differ according to risk tolerance:

o Aggressive Growth Strategy Portfolioo Growth Strategy Portfolioo Growth and Income Strategy Portfolioo Income Strategy Portfolio

Asset allocation funds are usually made up of acombination of other mutual funds within the same fundfamily. As market conditions change, the manager hasthe discretion to reduce exposure in one fund andincrease it in another. Just about all mutual fund familiesallow you to switch between funds in the same family

and class ( A, B, or C shares ) without incurring anycosts.

INDIA MUTUAL FUND SCHEMES:-

Birla Sun Life Mutual Fund

Canara Robero Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

Kotak Mahindra Mutual Fund

LIC Mutual Fund

ICICI Prudential Mutual Fund
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Reliance Mutual Fund

Sahara Mutual Fund

SBI Mutual Fund Tata Mutual Fund

UTI Mutual Fund

IMPORTANCE OF REFORMS IN MUTUALFUND:-

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

1.R esearch how the particular financial instrument isdoing in the MARKET :

There are two main types of research. One simplyconsists of studying trends online and reading what theexperts have to say. The other is more involved andconsists of more direct hands on research of the varioussectors with which your particular investment is involved.Most amateur traders will choose the first option.

Mutual funds are conglomerations of stocks and bondsand therefore their prospectus depends on how well theindividual investments are doing. Fees can of coursealso make a difference and all related chargesassociated with a mutual fund must also be considered.

2 Fees for mutual funds are classified as end load, frontload and no load:
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Through proper research, you will become informed of what types of fees are involved and whether or not theyare worth what you can expect out of the investment.

At the very minim, when investing in a mutual fund youshould

3 know the category of investments it focuses on:

The asset value, the management strategy, the risklevel of the assets involved, and the funds relationship

with the overall stock market outlook. As long as you arewell versed in these areas, the rest is just icing on thecake as long as you have chosen a well managed fund.

Considerations for mutual fund categories include goalsand objectives, classification of securities in the fundand likely return expected for each category. Of all theimportant factors when choosing a mutual fund,category is likely the most important. Research shouldbe conducted using as long a history as is available. Allfinancial instruments fluctuate greatly from one day toanother but the important thing is how they perform over the long term. Try to couple this history with the timeperiod you plan on investing since trends seem to run iin cycles. Just because a fund isn't currently in the top 10percent of earners doesn't mean that it's not anextremely lucrative fund over the long term. Don't forgetto also check the individual histories of the stocks or other instruments in which the fund is invested.


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Mutual Fund Ratings And How WeBenefit :-

Most people these days know the definition of a mutualfund, however many do not know what mutual fundratings are. Mutual fund ratings are the numerical scalethat is placed on funds to determine the history of their performance. Thus the best performing mutual funds willhave the best mutual fund ratings.

Although the rating is not indicative of the amount a fundwill grow or will perform, it is closely related. Judging bythe history of the fund in which you are looking at youcan often tell whether this fund will do the same or better than another similar fund.

If a two funds are of similar style and similar ratings theywill normally tend to follow the same patterns. They will

typically invest in the same types of assets and willusually perform on the same scale. Meaning that if oneis making positive interest the other one should be too.And also the flip side that if one is losing money theother will normally lose money as well.

The style referenced above is essentially a term that isutilized by people in the mutual fund business todetermine the majority of the stocks in which they invest.There are many different types of stock. There aremutual funds called large cap funds, small cap funds,real estate funds, cash funds, and emerging marketsfunds. These are just a few of the different style.

The key here is that not all funds with high ratings will

perform the same as other funds with high ratings. For


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instance there can be a high rating placed on a realestate mutual fund and a high rating that is placed on alarge cap fund. If the real estate market is declining then

their fund will decline likewise. Also the large cap fundmay be increasing because the market is good for thosetypes of stock.There is also the possibility that a largecap based mutual fund with the same rating of another large cap mutual fund will not perform in the samemanner. For instance there are two different types of cap funds. One is the growth fund and the other is called

the value fund. They are different in the fact that theyfocus on different types of stocks and thus they canperform differently than each other.

Regulations:-


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FOUR THINGS AVOID WHEN CHOOSINGMUTUAL FUNDS:-

As the battle for financial reform continues into 2011, thebattle lines are clearly drawn: Its the professionalfinancial services industry against its own customers.

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

the Fiduciary Standard, the mutual fund industry, led bytheir trade lobbyists at the Investment CompanyInstitute, has opposed any attempts at fee reform,increased transparency and adopting a fiduciarystandard. Any of these reforms would address theissues related to conflicts of interests betweeninvestment product sales professionals and their owncustomers.

While the conflict of interest problem was addressed in1973 by the Employee Retirement Income Security Act(ERISA), which covered pension plans andsubsequently, 401(k) plan administrators and service

providers, it was never applied to the larger retail salesside of the business.

While the financial reform issues get complicated,individual investors should not get too depressed. Thatsbecause you have all the power over your own financial

decisions. You can hire and fire mutual fund and money


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managers. Outside of your 401(k) plan, there are about7,600 mutual funds and over 800 ETFs to choose from.If anything, there are too many choices.

To help cut through the financial product clutter, hereare three basic criteria to make your selections easier.

1. Avoid investing in funds that use sub-advisedmanagers.

Many fund companies offer a wide variety of mutualfunds to look competitive. But to get more fund variety,fund companies can make arrangements with other firms to offer their funds under another fund companysname. This is the equivalent of private labeling in theretail business, and while the quality may be present in

both products, the costs may be different. In the mutualfund business, its best to buy directly from the fundcompany which employs the fund managers.

Many fund companies which also provide 401(k) planservices often offer mutual funds as part of their totalplan administration package. The problem is that thesecompanies are in the plan administration business first,not the money management business. In one case, alarge West Coast insurance company has an entirefamily of funds which are 100% sub-advised.

2.Avoid multi-manager funds.


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A multi-manager fund is one advised by a select groupof managers. The idea is that a few great investmentminds are better than one. The fund allows managers topursue different investment styles in a single category,such as a large cap growth fund.

Problems arise due to fees, overlap among themanagers, and the inevitable fact that the bestmanagers often do not remain at the top of their game

for long.Multi-manager funds were designed for large pensionfunds in the late-1970s as a way to comply with ERISAsdistinct portfolio diversification mandates.Funds were faced with choosing the most appropriatemanagers to meet their investment objectives, so rather

than justifying the choice of a single manager, an alertconsulting-money management firm originated the ideaof selecting the best in a certain investment category.This allowed the pension fund to meet its ERISAobligations, and put the burden of responsibility on theconsulting firm to vouch for the veracity of its bestmanagers.

3.Avoid insurance company mutual funds, unlessthey have a proven track record and noticeably lowexpenses.

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

marketing, and administration) to support before they


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can ever consider reducing total fund expenses. Whilefuture fund performance is unknown, expenses are themost important known factor an investor can controlbefore they ever buy a mutual fund. And going into thelower-return investment environment in 2011, it iscritically important to manage expenses.The U.S. Department of Labour has identified 17 distinctfees charged to shareholders by investment companies.While some costs are well-known (administrative fees

for example), there are also hidden costs, such astrading expenses, which can easily double expenses, or add up to 50% to shareholders costs.Since most investors do not even know these expensesexist, they invisibly erode shareholder returns. PrincetonUniversity finance professor Burton Malkiel estimates

that fees of just 3% can devour up to 50% of investmentreturns.

4. Avoid funds which have changed managers.Changing fund managers is one of the most traumaticevents which can offer to a fund company. While somefund companies use a team approach to fund

management, others have used single managers, someof whom have built up impressive, long-term trackrecords. When a manager leaves due to retirement or poor performance, it raises questions about whether thetalent is leaving with the fund manager or whether thereis a process in place to replicate the successful fund

performance in the future.


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Unfortunately, most investors do not know that answer.Unless the fund company goes to extraordinary lengthsto provide an explanation for their manager successionplans, move your money.In many cases, fund companies have contracts withtheir outside managers which contain specific languagethey must use when replacing an outside manager. For instance, they cannot say a manager was fired; often afund company will only issue an announcement saying a

new manager was hired. The last sentence will say whothey replaced. Nothing more.Fund companies also have been criticized for notreplacing a faltering fund manager quickly enough.These delays not only hinder fund performance, butbureaucratic inertia keeps the under-performing

manager on the payroll.

CONCLUSION:-

Projct of Mf

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