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  • Published on: 14th September 2019
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The term investment is describe as the process of investing money in many alternatives like  shares debentures, fixed deposits, gold, real assets, mutual funds  and  money market instruments. By investing an investor commits the present funds to one or more assets to be held some time in expectation of some future return in terms of interest or capital gain. Individual investor considers a number of factors before deciding to invest their funds in various securities involving varying degrees and return. In the present economic scenario, the option available to investors is different and factor motivating the investors to invest is governed by their socio economic profile including expected return and risk tolerance.

Investment is a commitment of funds made in the expectation of some positive returns. If the investment properly undertaken, the return will be commensurate with the risk investor assumes Investment goals different from person to person and business to business. While some want security others prefer more weightage to returns alone. With objective defying any range, it is obvious that the products required will vary as well.

Investment generally involves the real assets. Real assets are tangible, material things such as building, automobiles, and gold etc. financial assets are of paper representing an indirect claim to real assets held by someone else

Mutual funds

A mutual fund is an investment vehicle that pools money from various investors, and the collected money will be invested in equity or debt market or both, depending upon the funds objectives. This means you can access the equity or the debt market, or both, without investing directly in equity or debt

How is a mutual fund set up?

A mutual fund is set up in the form of a trust that has a Sponsor, Trustees and Asset Management Company (AMC). The trust is established by a sponsor(s) who is like a promoter of a company and the Trust is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of the mutual fund hold its property for the benefit of unit holders. An Asset Management Company (AMC) approved by SEBI manages the fund by making investments in various types of securities.

The trustees are vested with the power of superintendence and direction over the asset management company. They monitor the performance and compliance of SEBI regulations by the mutual funds. The trustees are vested with the general power of superintendence and direction towards AMC. They manage the performance and compliance of SEBI Regulations by the mutual fund.

Investment in mutual funds

Diversification is a major advantage of investing in mutual funds as investors get the benefit of various instruments by investing in various avenues

 Mutual funds are managed by well qualified professionals

 These are flexible in options and choice of schemes to match individuals needs

 Transference in operations as well as investment pattern and philosophy by disclosers of portfolio and also add advantage of mutual funds.

Mutual funds also offer tax benefits by various ways. Dividend income received from investing in mutual funds is tax free for investors.

By investing in mutual funds various advantages can be availed those are

Benefits of mutual funds

 Professional Management

When you invest in a mutual fund, your money is managed by finance professionals. Investors who do not have the time or knowledge to manage their own portfolio can invest in mutual funds. By investing in mutual funds, you can gain the services of professional fund managers which would otherwise be costly for an individual investor.

 Diversification

Mutual funds provide the benefit of diversification across different sectors and companies in various fields. Mutual funds widen investments across various industries and asset classes. Thus, by investing in mutual funds you can gain from the benefits of diversification and asset allocation, without investing a large amount of money that would be required to build an individual portfolio.

 Liquidity

Mutual funds are usually very liquid nature. Unless they have a pre-specified lock-in period, your money is available to you anytime you want subject to exit load, if any. Normally funds take a couple of days for returning your money to you. Since they are well integrated with the banking system, most funds can transfer the money directly to the bank account.

 Flexibility

Investors can get benefit from the convenience and flexibility offered by mutual funds to invest in a wide range of schemes. The option of systematic investment and withdrawal is also offered to investors in most open-ended schemes. Depending on one's convenience one can invest or withdraw funds.

 Low transaction cost

Due to the economies of scale, mutual funds pay lower transaction costs. The benefits are passed on to mutual fund investors, which may not be enjoyed by an individual who enters the market directly.

 Transparency

Funds provide investors with updated information pertaining to the markets and schemes through factsheets; offer documents and annual reports etc.

 Well regulated

Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which ensures to protect the interests of investors. All funds are registered with SEBI and complete transparency is enforced. Mutual funds are required to provide investors with standard information about their investments, in addition to other disclosures like specific investments made by the scheme and the quantity of investment in each asset class.

How it works

A mutual fund company collects money from various investors and invests it in various options like stocks, bonds, etc. This fund is managed by professionals who understand the market well and try to accomplish growth by making strategies in investments. Investors get units of the mutual fund according to the amount they have invested. The Asset Management Company is responsible for managing the investments for the various schemes operated by the mutual fund. It also undertakes activities such as advisory services, financial consulting, and customer services, accounting, marketing and sales functions for the schemes of the mutual fund.

Types of mutual funds

There are various types of mutual fund schemes and are classified on the basis of its structure and its investment objective

Based on the structure

Open ended funds

Open ended funds are one that is available for subscription all through the year. These funds do not have fixed maturity period. Investors can conveniently buy and sell units at Net asset value (NAV) related prices. The key features of this scheme are liquidity.

Closed-ended funds

This fund is open for subscription only during a specific period. Investors can invest in the scheme at the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. The objective of the fund is to declare regular dividends.

Based on the investment objective

Growth funds

Aim of the growth fund is to provide capital appreciation over the medium to long term. Such schemes normally invest a majority of the stock exchanges where they are listed. The may declare the dividends but main objective is only capital appreciation.

Income funds

These are also known as debt funds since they invest in debt instruments issued by the government, private company's banks and financial institutions. These funds target low risk and stable to the investors. While return in these funds may be regular. Their scale may fluctuate depending on the prevailing interest rates and the quality of the debt securities.

Balanced funds

These funds, as the name suggests are mix of both equity and debt funds. They invest in both equities and income securities in line with pre-defined investment objectives. The aim at providing a balanced mix of capital appreciation through investments in equities coupled with investment in stable instrument like bonds.

Liquid funds

This is also known as money market funds as they invest in securities of short term in nature, typically securities of less than one year maturity like treasury bills issued by the government , certificate of deposits issued by various banks and commercial paper issued by companies as well as inter-bank call money market. These funds are considered to be at the lowest run in the hierarchy.

Gilt Funds

Gilt funds exclusively invest in government securities. Although these funds carry's no credit risk, they are associated with interest rate risk. These funds are safer as they invest in government securities.

Other Schemes

Tax-Saving (Equity linked Savings Schemes) Funds

Tax-saving schemes mainly offer tax rebates to investors under specific provisions of the Income Tax Act, 1961. These are growth-oriented schemes and invest primarily in equities. Like an equity scheme, they largely suit investors having a higher risk appetite and aim to generate capital appreciation over medium to long term.

Index Funds

Index schemes replicate the performance of a particular index such as the BSE, Sensex or the S&P CNX Nifty. The portfolio of these schemes consists of those stocks that represent the index and the weightage assigned to each stock is aligned to the stock's weightage in the index. Hence, the returns from these funds are more or less similar to those generated by the Index.

Sector-specific Funds

Sector-specific funds invest in the securities of only those sectors as specified in the Scheme Information Document. The returns in these funds are dependent on the performance of the respective sector or industries for example FMCG, Pharma, IT and many more. The funds enable investors to diversify holdings among many companies within an industry. Sector funds are riskier as their performance is dependent on particular sectors although this also results in higher returns generated by these funds.

What are the risks involved in investing in mutual funds

Mutual funds invest in different securities like stocks or fixed income securities, depending upon the fund's objectives. As a result, different schemes have different risks depending on the underlying portfolio. The value of an investment may decline over a period of time because of economic alterations affect the overall market. Also the government may come up with new regulations, which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.

Risk and Reward

 The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a one security.

Lack of control

 Investors cannot determine the exact composition of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys.

Chapter 2


Sikidar and Singh (1996) conducted a survey with an objective to understand the behavioural aspects of the various investors of the North Eastern Region towards equity and MF's. The survey revealed that the salaried and self-employed are major investors in MF primarily due to tax concessions.

H. Desigan et al (2006) conducted a study on women investor's attitude towards investment and found that women investor's basically are indecisive in investing in MF's due to various reasons like lack of knowledge about the mutual funds and their various investment procedures, market fluctuations, various risks associated with investment, assessment of investment and redressal of grievances regarding their various investment related problems.

B.B.S.Parihar, Rajeev Sharma and Deepika Singh Parihar (2009) conducted a study on analysing investors' attitude towards mutual funds as an investment and found that majority of investors have not formed any attitude towards mutual fund investments.

 The main reason behind this has been observed to be lack of awareness of investors about the concept and working of the mutual fund investment. They concluded that demographic variables like age, gender and income have been found influencing the attitude of investors towards mutual funds significantly. They also analysed that benefits delivered by the mutual funds are concerned; return potential and liquidity have been perceived to be the most attractive by the investors, followed by flexibility, affordability and transparency.

Singh and Jha (2009) conducted a study on awareness & acceptability of mutual funds and found that consumers mostly prefer mutual fund due to return potential, liquidity and safety and they were not aware about the systematic investment plan. The invertors' will also consider various factors before investing in mutual fund.

Walia and kiran (2009) conducted a study on investor's risk and returns perception towards mutual funds. The study says that investor's perception towards risk involved in mutual funds return from the mutual funds in in comparison to other financial avenues, transparency and discloser practices.

The study found that majority of individual investors doesn't consider mutual funds as highly risky investment. In fact on a ranking scale it is considered to be on higher side when compared with other financial avenues

Rekha Rathore, Shelly, and Jaya (2014) conducted a study on Attitude of Investor towards Mutual Funds in the year of 2014 and their study says that .The success of mutual fund is depending upon the knowledge of stock market. This study found that investors have positive attitude towards their investment made in mutual fund. Majority of investors prefer to invest in mutual fund to get maximum return with minimum risk, safety and many other factors.

Singh (2012) conducted an empirical study of Indian investors and observed that most of the respondents do not have much awareness about the various function of mutual funds and they are confused about investment in mutual funds. The study found that some demographic factors like gender, income and level of education have their significant impact over the attitude towards mutual funds. On the contrary age and occupation have not been found influencing the investor's attitude. The study reveals that return potential and liquidity have been perceived to be most lucrative benefits of investment in mutual funds and the same are followed by flexibility, transparency and affordability.

Dr. Ravi Vyas (July 2012) in his article “Mutual Fund Investor's Behaviour and Perception”, published in International Refereed Research Journal

 Concluded that, Mutual fund companies should come forward with full support for the investors in terms of advisory services, to ensure full disclosure of related information to investor, proper consultancy should be given by mutual fund companies to the investors in understanding terms mutual fund information should be published in investor friendly language and style, proper system to educate investors should be developed by mutual fund companies to analyse risk in investments made by them, etc.

Dr. Binod Kumar Singh (March 2012) in his article “Investors attitude towards Mutual Funds”, concluded that, most of the investors having lack of awareness about the various function of mutual funds. Moreover, as far as the demographic factors are concerned, gender, income and level of education have significantly influence the investors‟ attitude towards mutual funds. On the

Other hand the other two demographic factors like age and occupation have not been found influencing the attitude of investors‟ towards mutual funds

Dr. Shantanu Mehta (September 2012) in his research paper “Preference of Investors for Indian Mutual Funds and its Performance Evaluation”, published in Pacific Business Review International Vol. 5 concluded that, Mutual funds have opened new vistas to millions of small investors by virtually taking investment to their doorstep. In India, a small investors generally goes for such kind of information, which do not provide hedge against inflation and often have negative real returns. However Mutual funds have come, as a much needed help to these investors.

Mr. Sarish (2012) in his research paper “A Study of Opportunities and Challenges for Mutual Fund in India: concluded that, The Mutual funds are among the most preferred investment instruments. For middle income individuals, investing in mutual funds yields higher interest and comes with good principal amount at the end of the maturity period of the mutual fund investment. Another important fact which he concluded is that mutual funds are safe with close to zero risk, offering an optimized return on earnings and protecting the interest of investors.

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