A mutual fund



Mutual Funds: An overview

A Mutual Fund is a trust that pools the savings of a number of investors, who share a common financial goal. The money thus collected is invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. Anybody with an investible surplus of as little as a few thousand rupees can invest in Mutual Funds. Each Mutual Fund scheme has a defined investment objective and strategy.

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A mutual fund represents a vehicle for collective investment. When anybody participate in the scheme of mutual fund, then he or she become part owner of investments held under the scheme.


The offer document is most important source of information for investors. Close-ended funds have to issue the OD at the time of IPO whereas open-ended funds have to update the OD at least once in two years. The Key Information Memorandum (KIM), which is an abridged version of OD, has to be compulsorily made along with the application for SEBI has prescribed the format and contents of the OD.The OD contains preliminary information on fund structure and construction, fundamental attributes of the scheme, details of the offer, investor rights and information on income and expenses of existing schemes. The fundamental attributes of a scheme include the scheme type, objectives, investment pattern, fees and expenses, liquidity conditions, accounting and valuation, and investment restrictions. The AMC prepares the OD and KIM and is responsible for the information contained in it and the trustees approve the contents of the OD and KIM .SEBI does not approve or certify the contents of the OD or KIM.


  1. A mutual fund actually belongs to the investors who have pooled their funds. The ownership of the mutual fund is in the hand of the investor
  2. A mutual fund is managed by investment professional and other service providers who earn a fee for their services from the fund
  3. The pool of funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day.
  4. The investor's share in the fund is denominated by "UNIT". The value of the unit changes with changes in the portfolio value every day the value of the unit of investment is called as the Net Assets Value or NAV.


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

By Structure:

Open-ended Funds

An open-end fund is one that is available for subscription all through the year and these do not have a fixed maturity. Investors can conveniently buy and sell units at current Net Asset Value ("NAV") prices. The key feature of open-end schemes is liquidity.

Closed-ended Funds

Closed-ended Funds are kept open only for a limited period usually one month to three months. It does not allow the investors to withdraw funds as and when they like. A close -ended scheme has a fixed maturity period. The close-ended schemes are listed on the secondary market.

Interval Funds

Interval funds are those which have the features of open-ended and close-ended schemes. They are open for sale or redemption ,during pre-determined intervals at NAV related prices.

By Investment Objective:-

Growth Funds

The growth funds provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their portion in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

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Income Funds

The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds

The aim of money market funds is to; provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing

Load Funds

A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds

A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

Other Schemes:-

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes

  • Industry Specific Schemes
  • Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

  • Index Scheme
  • An index scheme is an equity scheme that invests its corpus in a basket of equity stocks that comprise a given stock market index such as the S & P Nifty Index or the Sensex,with each stock being assigned a weight age equal to what it has in the index.

  • Sectoral Schemes
  • A sectoral scheme invests its corpus in the equity stocks of a given sector such as pharmaceuticals, information technology, telecommunications, and power and so on.

  • Commodities Funds

Commodities funds specialize are investing in different commodities directly or through commodities future contracts. Specialized funds may invest in a single commodity or a group of commodities such as edible oil or rains, while diversified commodity funds will spread their assets over many commodities

Mutual Fund Structure

The mutual fund structure consists of the following parties:

Sponsor: Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.

Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908.

Trustees: Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

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Asset Management Company: The Trustee as the Investment Manager of the Mutual Fund appoints The AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund

Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form, redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records.

Custodian: It is often an independent organization, and it takes custody of securities and other assets of a mutual fund. Among public sector mutual funds, the sponsor or the trustee generally also acts as an custodian.

The compounded annual total return on a mutual fund scheme represents the return to investors from a scheme, since the date of issue. It includes the reinvestment of dividends and makes adjustments for bonus and rights. It is calculated on NAV basis or price basis. On NAV basis, it reflects the return generated by fund manager on NAV. In this calculation, it is assumed that dividend is reinvested at the NAV prevailing on the day it is paid. On price basis, it reflects the return to investors by way of market or repurchase price. In this calculation, it is assumed that dividend is reinvested at the prevailing market or reissue price.


Mutual Funds and securities investments are subject to market risks and there is no guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not a sign of the future performance of the Scheme. The Sponsor is not responsible for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund. The NAV of the Scheme may be affected, due to changes in the market conditions, interest rates, trading volumes, settlement periods and transfer procedures. The Mutual Fund is not assuring that it will make periodical dividend distributions, though it has every intention of doing so. All dividend distributions are subject to the availability of distributable surplus in the Scheme. For details of scheme features and for scheme specific risk factors, please refer to the Scheme Information Document.


  • Reliance Mutual Fund (RMF) is one of the India's leading Mutual Funds and with Average Assets Under Management (AAUM) of Rs. 1,16,782 CRORES .Reliance Mutual Fund is part of the Reliance - Anil Dhirubhai Ambani Group, is one of the fastest growing mutual funds in the country.
  • RMF offers investors a well-managed portfolio of products to meet different investor needs and has presence in 118 cities across the country.
  • Reliance Mutual Fund constantly endeavours to launch innovative and new products and customer service initiatives to increase value to investors.
  • "Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up capital of RCAM and the balance paid up capital being held by minority shareholders."
  • Reliance Capital Ltd. is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services.


Equity/Growth Schemes:-The main motive of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major portion of their corpus in equities. Such funds have comparatively high risks as compared to other schemes. These schemes provide different options to the investors like dividend option, capital appreciation etc. and the investors may choose an option depending on their preferences or need. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook and those who seeking appreciation over a period of time.

Debt/Income Schemes:-The income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. These funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets as they mainly risk free mutual funds. But opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall the NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Sector Specific Schemes:-These are the funds or schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns and they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors or industries and must exit at an appropriate time. They may also seek advice of an expert in order to invest in these mutual funds.

Exchange Traded Funds (ETFs) :-Exchange Traded Funds (ETFs) are usually managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. These schemes are listed on the stock exchange and therefore have the flexibility of trading like a share on the stock exchange. It can also be looked as a security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes throughout the day as it is bought and sold.

Fixed Maturity Plans(FMPs):-Fixed Maturity Plans (FMPs) are basically debt oriented investment schemes with a pre-specified tenure offered by mutual funds. FMPs invest in a portfolio of debt instruments whose maturity coincides with the maturity of the concerned FMP. The primary objective of a FMP is to generate income while aiming to protect the capital by investing in a portfolio of debt and money market securities. Since FMPs are available with several maturity options, one can invest in the relevant plan depending upon his investment horizon and the requirement of cash flows.


Reliance Portfolio Management Services is a premium financial service, providing innovative & exclusive products through discretionary & advisory services. Its expertise has earned the trust of thousands of high net-worth individual/ institutional investors and created a family that is constantly growing. Reliance Portfolio Management Services can conduct investments with true finesse coupled with passion and innovation. Reliance Portfolio Management Services is a part of Reliance Capital Asset Management Ltd., a wholly owned subsidiary of Reliance Capital Ltd. Reliance Capital Ltd. is one of India's leading and fastest growing private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital Ltd. has interests in asset management, life and general insurance, private equity and proprietary investments, stock broking and other financial services.


Sponsor: Reliance Capital Limited

Trustee: Reliance Capital Trustee Co. Limited

Investment Manager: Reliance Capital Asset Management Limited

Custodian-The trustees has appointed Deutsche Bank,AG located at KODAK House,Ground Floor,222 Dr.D.N.Road,Mumbai-400001.As the custodian of the securities that bought and sold under the scheme.

Registrar-Reliance Capital Asset Management Limited has appointed Karvy Computershare Private Limited to act as the Registrar and Transfer Agent to the schemes of Reliance Mutual Fund.


The asset management company is a separate company appointed by the trustees to run mutual fund. In return for its services, the AMC is compensated in the form of investment management and advisory fees. Each scheme of the mutual fund pays the AMC an annual investment management and advisory fees which is linked to the size of the scheme. Currently this fee is subject to the following limits: 1.25 percent on the first Rs.100 crores of the weekly average net assets and 1.00 percent on the balance of assets. The head of AMC is generally referred to as the chief executive officer (CEO), next to him is the chief investment officer (CIO) who shapes the fund's investment philosophy and who is supported by fund managers responsible for managing various schemes. The fund managers are assisted by a team of analysis who track markets, sectors and companies.


Prudential ICICI Mutual Fund is the largest private sector mutual fund in India with assets of over Rs.34,119 crore under management as of Aug 2006. The asset management company, Prudential ICICI Asset Management Company Limited, is a joint venture between Prudential Plc, Europe's leading insurance company and ICICI Bank, India's premier financial institution. Prudential Plc holds 55 per cent of the asset management company and the balance by ICICI Bank. In a span of just over six years, Prudential ICICI Asset Management Company has emerged as one of the largest asset management companies in the country.

The Company manages a comprehensive range of schemes to meet the varying investment needs of its investors spread across 68 cities in the country.

ICICI Prudential Mutual Fund is the product of ICICI Prudential Asset Management Company .It is one of the largest in the world, ICICI Prudential Mutual Funds in India has gained a pre-eminent position of high returns and growth plans in the Indian investment markets. Starting operations in 1998 with just 2 funds, the product count from ICICI Prudential Mutual Fund.ICICI Prudential Asset Management Co Ltd offers a different range of solutions that enable the investors to create a portfolio of investment schemes according to the time period, return and risk they want. Fund manager at ICICI Prudential Mutual Funds help to select the most efficient fund that is managed to minimize liquidity, credit and interest rate risks. Investing in the various funds has ensured a fixed fund value, growth and thus high returns for our income. Some of the mutual funds from ICICI Prudential Asset Management Company :-

Equity Funds:

ICICI Prudential Mutual Funds have proven to be good investment opportunities with minimum risks and high returns as they indicated in the past investments with the company by the customers. Funds like ICICI Prudential Infrastructure Fund, Power Fund, Discovery Fund that is long-term diversified equity investment schemes have gained unexpected support from the investors.


The investment process consists of initially preparing a universe of stocks that are quoting at low valuations, and subsequently conducting in depth fundamental research with an aim of understanding the true worth of the business, reasons behind the current undervaluation and the potential drivers that could lead to a rerating of the stock. This is because there are also a large number of companies whose low valuations are justified by weak fundamentals.

The holding periods of individual stocks tend to be high as the necessary drivers for the expected re-rating could fall into place over a period of time. The performance of the Deep Value portfolio may thus not move in line with the overall markets, and could significantly under or outperform the markets at various points in time.


Shahzad is the Executive Director of ICICI Prudential AMC. He joined the ICICI Bank's Asset Management Business in August 1993, which subsequently partnered with Prudential Plc in the year 1998 to become ICICI Prudential AMC. Shahzad holds a Masters in Management Studies from Somaiya Institute of Management Studies and Research. He has more than 22 years of industry experience across the banking & financial services sector. At ICICI Prudential AMC his responsibilities include leading the PMS business with an aim towards ensuring further robust growth of the business. He is also responsible for overseeing International Business & Marketing & Brand building.

ICICI Prudential Asset Management has subscribed majority of the securities in an Rs 48 crore micro loan securitization transaction in Equitas Micro Finance. This is the first time a mutual fund industry is investing in micro finance in India. The transaction is backed by over 55,000 micro-loans originated by Equitas Micro Finance and was structured by IFMR Capital. Axis Bank, Dhanalakshmi Bank, and IFMR Capital also participated in the transaction.

On November 18, FC broke the news that a mutual fund and two banks are participating in the transaction.

The Company manages a comprehensive range of schemes to meet the varying investment needs of its investors


  1. There is medium to long-term investment of 3 years.
  2. Investment Abroad-exposures to overseas markets appeals to both sophisticated and unsophisticated investors.
  3. Retirement Income-Investment while employed-take income in retirement/use capital as a net safety.
  4. Achievement of long term goals i.e. housing and education.
  5. Investment for children-Parents and Grandparents set up investment account on the behalf of their children and grandchildren.


From the comparative study of Reliance and ICICI Mutual Fund, we come to know that:

  • Prudential ICICI is the best performing funds.
  • Among the existing infrastructure funds, ICICI Prudential Infrastructure fund has a good performance from August 2005.
  • The infrastructure fund is currently heavy with over Rs.3, 800 crore in assets.
  • It is a high beta fund and it outperforms its benchmark index Nifty , with good margins, over the one year to three year periods.