Its an simple basic article about mutual funds

1. Mutual fund Business in India
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Dr. R. Raj Kumar,
Director- PG Studies, VLBJ School of Management Studies.
Kovaipudur,Coimbatore-641042
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Introduction
Mutual Funds are for everyone. Around the world, millions of investors invest in
mutual funds, because of their safety, ease of investing and the many advantages they offer.
A mutual fund is a professionally managed type of collective investment scheme that pools
money form many investors and invest typically in investment securities. This paper
highlights the benefits of mutual fund and various types of mutual fund.
What is mutual fund?
Mutual fund is a trust that pools the savings of a number of investors who share a
common financial goal. Each scheme of a mutual fund can have different character and
objectives. Mutual Funds issue units to the investors, which represent an equitable right in the
assets of the mutual fund. Anybody with an investible surplus of a little as a few thousand
rupees can invest in mutual funds.
Mutual fund schemes are usually open end (perpetually open for investments and
redemptions) or closed end (with a fixed term). A mutual fund scheme issues units that are
normally priced at Rs. 10 during the initial offer. Thus, the number of units you own as
against the total number of units issued by the mutual fund scheme determines your share in
the profits or loss of a scheme.
In the case of open end schemes, units can be purchased from or sold back to the fund
at a Net Asset Value (NAV) based price on all business days.
The NAV is the actual value of a unit of the fund on a given day. Thus, when you
invest in a mutual fund scheme, you normally get an account statement mentioning the
number of units that have been allotted to you and the NAV based price at which the units
have been allotted. The account statement is similar to your bank passbook. When you buy
more units or redeem your units in part or full, you get an updated account statement,
reflecting your transaction.

2. How do mutual funds give you returns?
Mutual funds give returns in two ways – Capital appreciation or dividend distribution.
(a) Capital Appreciation
An increase in the value of the units of the fund is known as capital appreciation. As
the value of securities in the fund increases, the funds unit price also increases. An investor
can make a profit by selling the units at a price higher than the price at which he bought the
units.
(b) Dividend Distribution
The fund distributes the profits earned in the form of dividends. The dividend is
distributed either on a reinvestment basis or on a payout basis.
Where do mutual funds invest?
Broadly, mutual funds invest basically in three types of asset classes:
Stock: Stocks represent ownership or equity in a company, popularly known as shares.
Bonds: These represent debt from companies, financial institutions or government agencies.
Money market instruments: These include short – term debt instruments such as treasury
bills, certificate of deposits and inter-bank call money.
Types of Mutual funds
Closed-end funds: A closed-end mutual fund has a set number of shares issued to the public
through an initial public offering.
Open-end funds: Open end funds are operated by a mutual fund house which raises money
from shareholders and invests in a group of assets
Large cap funds: Large cap funds are those mutual funds, which seek capital appreciation
by investing primarily in stocks of large blue chip companies
Mid-cap funds: Mid cap funds are those mutual funds, which invest in small / medium sized
companies. As there is no standard definition classifying companies

3. Equity funds: Equity mutual funds are also known as stock mutual funds. Equity mutual
funds invest pooled amounts of money in the stocks of public companies.
Balanced funds: Balanced fund is also known as hybrid fund. It is a type of mutual fund that
buys a combination of common stock, preferred stock, bonds, and short-term bonds
Growth funds: Growth funds are those mutual funds that aim to achieve capital appreciation
by investing in growth stocks.
No load funds: Mutual funds can be classified into two types - Load mutual funds and No-
Load mutual funds.
Exchange traded funds: Exchange Traded Funds (ETFs) represent a basket of securities that
is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds
Value funds: Value funds are those mutual funds that tend to focus on safety rather than
growth, and often choose investments providing dividends as well as capital appreciation.
Money market funds: A money market fund is a mutual fund that invests solely in money
market instruments. Money market instruments are forms of debt that mature in less than one
year and are very liquid.
International mutual funds: International mutual funds are those funds that invest in non-
domestic securities markets throughout the world.
Regional mutual funds: Regional mutual fund is a mutual fund that confines itself to
investments in securities from a specified geographical area, usually, the fund's local region.
Sector funds: Sector mutual funds are those mutual funds that restrict their investments to a
particular segment or sector of the economy.
Index funds: An index fund is a a mutual fund or exchange-traded fund) that aims to
replicate the movements of an index of a specific financial market.
Fund of Funds: A fund of funds (FoF) is an investment fund that holds a portfolio of other
investment funds rather than investing directly in shares, bonds or other securities.

4. Investment Options in Mutual Funds
Growth Option: Dividend is not paid-out under a Growth Option and the investor realizes
only the capital appreciation on the investment (by an increase in NAV).
Dividend Payout Option: Dividends are paid-out to investors under the Dividend Payout
Option. However, the NAV of the mutual fund scheme falls to the extent of the dividend
payout.
Dividend Re-investment Option: Here the dividend accrued on mutual funds is
automatically re-invested in purchasing additional units in open-ended funds. In most cases
mutual funds offer the investor an option of collecting dividends or re-investing the same.
Retirement Pension Option: Some schemes are linked with retirement pension. Individuals
participate in these options for themselves, and corporates participate for their employees.
Insurance Option: Certain Mutual Funds offer schemes that provide insurance cover to
investors as an added benefit.
Systematic Investment Plan (SIP): Here the investor is given the option of preparing a pre-
determined number of post-dated cheques in favour of the fund. The investor is allotted units
on a predetermined date specified in the offer document at the applicable NAV.
Systematic Withdrawal Plan (SWP): As opposed to the Systematic Investment Plan, the
Systematic Withdrawal Plan allows the investor the facility to withdraw a pre-determined
amount / units from his fund at a pre-determined interval. The investor's units will be
redeemed at the applicable NAV as on that day.
Benefits of Investing Mutual Funds
1. Professional Management - The basic advantage of funds is that, they are professional
managed, by well qualified professional. Investors purchase funds because they do not have

5. the time or the expertise to manage their own portfolio. A mutual fund is considered to be
relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or
bonds, the investors risk is spread out and minimized up to certain extent. The idea behind
diversification is to invest in a large number of assets so that a loss in any particular
investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus
help to reducing transaction costs, and help to bring down the average cost of the unit for
their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate
their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other
available instruments in the market, and the minimum investment is small. Most AMC also
have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50
per month basis.
6. Tax Benefits – Some mutual schemes offer you tax benefits under Section 80C. In
addition, you returns from mutual funds are also eligible for favourable treatment.
Grievances and Redressal of Complaints
Investors would find the name of contact person in the offer document of the mutual
fund scheme that they may approach in case of any query, complaints or grievances. Trustees
of a mutual fund monitor the activities of the mutual fund. The names of the directors of
Asset Management Company and trustees are also given in the offer documents. Investors
should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund
with their complaints,
If the complaints remain unresolved, the investors may approach SEBI for facilitating
redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the
concerned mutual fund and follows up with it regularly.

6. Conclusion
Thus the task before the Indian mutual fund Industry seems to be cut out. Widening
the distribution network to smaller towns, improvement in service standards to bring them on
a par with global standard’s, innovative product offerings and research-based and
fundamental analysis led to equity selection to deliver top performance to retain investors are
some of the key issues that face the industry today.
References
Websites:
www.amfindia.com
www.mutualfundsindia.com
www.sebi.gov.in.
www.iif.edu/data/fi/journal/FI101/FI1
www.indiastudychannel.com/.
www.networkmagazineindia.com
www.wikipedia.com
Books:
Gordon and Natarajan, Banking Theory, Law & practice (2004), Himalaya Publishing House,
Mumbai.
N. M. Khan Financial services, Sultan sons publications.

7. Financing the unorganized sector – Micro Finance
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Dr. R. Raj Kumar, Head, Department of Commerce, CMS College of Science and
Commerce, Coimbatore – 641 006.
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Introduction
With the growth of commercialization and market economy, the need for finance and
credit has multiplied. Availability of credit is the basic requirement to any citizen, more so, to
a poor person. Credit should be timely and easily available. Formal institutions, including
nationalized banks are unable to meet the micro credit requirement of the poor people, as
normally credit for income generation has been institutionalized rather than micro credit for
various purposes. This has left poor persons with no options except to depend on money
lenders for credit. Various studies have proved that in rural India, a person taking credit from
money lenders had forever gone below the poverty line. This has given rise to a new credit
technique “Micro-credit” which targets mainly the low income people – the unorganized
sector.
According to the definition of international lab our organization (ILO 2002), the
unorganized sector comprises of
 The own account workers in survival type activities e.g Vendors of vegetables, fruits,
meats, fish etc, and of non perishable items like locks, clothes, vessels, garbage
collectors, rag and scrap pickers, head-loaders, construction and agricultural workers,
rickshaw and cart puller etc.,
 The paid domestic workers e.g. maids, gardeners, chauffeur etc.,
 The home based workers, e.g. garment makers, embroiderers , incense stick roller,
bidi - roller, paper bag makers, kite makers, food processors etc. and
 The self employed in micro enterprises e.g. road side mechanics, barbers, cobblers,
carpenters, tailors, book binders, owners of small stalls etc.,
Importance of the unorganized sector

8. The unorganized sector in our country employs around 37 crores workers of which
several crore are women and this sector is fast expanding as a result of liberalization
policies. The unorganized sector today comprises 92.5% of india’s work force. Experts
say though the sector accounts for 65% of national income (GDP),it is grossly neglected
and unprotected. According to the national sample survey’05 one-third of the informal
sector work force about (120mn) comprises of women. Collectively they accounted for
96% of the female work force in the country, and contribute to about 20%og GDP of
India. Surprisingly the unorganized sector constitutes the largest part of the economically
active work force in India. Hence these unorganized sectors must be allowed to access
timely, adequate and cheap credits, in order to provide social security alleviate poverty
and to increase the economic status of India as a whole.
Micro finance
Micro finance is a term used to refer to the activity of provision of financial services
to clients who are excluded from the traditional financial system on account of their lower
economic status. These financial services will most commonly take the form of loand and
micro savings, though some micro finance institution will offer others services such as
micro – insurance and payment services. Since the low income people are often
ineligible for traditional services, micro finance specifically targets the low income
groups.
Micro finance is based on certain truths
 The poor are bankable: Micro finance constitutes a statement that the borrowers are
not ‘weaker sections’ in need of charity, but can be treated as responsible people on
business for mutual profit.
 Almost all poor house holds need to save, have the inherent capacity to save small
amounts regularly and are willing to save provided they are motivated and facilitated
to do so.
 The easy access to credit is more important than cheap subsidized credit which
involves lengthy bureaucrat procedures.
 The peer pressure in groups helps in improving recoveries.
Micro Finance initiatives has the following objectives

9.  Offering cost effective approaches to formal institutions for wider coverage of
poor, thereby supplementing their efforts.
 Testing other micro finance delivery innovations as alternative channel and
depending upon the prospects and potential, synergise the tested alternative
channel with the formal system.
 Empowerment of poor.
 Focus on women.
Micro finance involves variety of things like poverty alleviation interventions, income
distribution amongst a wider section of population, purchasing power redistribution where a
large number of people do not have enough purchasing power to participate in a market
economy, savings in small amounts and small loans, the affordability, availability and
accessibility of small loans is flexible, sensitive and responsive manner. The availability of
timely, adequate and uninterrupted finance to those who cannot provide collateral security in
a non bureaucratic style, financial support to micro entrepreneurs etc are the reasons for the
development of the concept “ Micro Finance” and hence it has become popular among the
poverty stricken communities in third world countries.
Growth of Micro Finance in India
The factors that could catalyze the growth of micro finance in India are:
 There should be an expanded role for the private sector.
 Innovative models and delivery channels will be crucial to reach scale.
 A complete suite of financial products is required.
 Financing efforts need to be coupled with capacity-building efforts for MFIs.
 Finally, financing of clients needs to be coupled with efforts to build livelihoods.
Conclusion
In lower income countries with inadequate institutional infrastructure, micro finance
is an important development tool and also a good avenue for extending financial services to
the poor. Micro finance encompasses the provision of a broad range of services such as
deposits, loans, payment services, money transfers and insurance products to poor and low
income households and micro enterprises. Finally, it is necessary to recognize that Indian
Micro Finance have to focus on extending financial services to both rural and urban areas

10. with replacement of high cost debt from informal sources thereby increasing disposable
incomes, so that the financial inclusion of all segment of the population can be ensured.