VARIOUS SEGMENTS OF MUTUAL FUNDS IN INDIA
VARIOUS SEGMENTS OF MUTUAL Funds IN INDIA
INTRODUCTION-
Mutual fund in India is a kind of collective investment that is managed professionally. In Mutual fund in India, the money is collected from a large number of investors and then it is invested in bonds, stocks, and various other securities
The fund manager of Mutual fund in India collects the interest income which is then distributed among the individual investors on the basis of the number of units that they hold. Mutual fund's value of a share is calculated on a daily basis and is known as per share Net Asset Value (NAV).
Classification of Mutual Funds in India has been done on the basis of their investment objective and structure. Classification of Mutual Funds in India has be done into main types such as Income Funds, Sector- Specific Funds, Large Cap Funds, Fixed- Income Funds, Interval Funds, Closed- End Funds, and Tax Saving Funds. Income Funds in India are a kind of mutual fund whose aim is to provide to the investors with steady and regular income. They usually invest their principal in securities such as corporate debentures, bonds, and government securities.
Sector- Specific Funds in India are funds that make investments in specified sectors only. They give importance to one sector only such as pharmaceuticals, software, infrastructure, and health care. Large Cap Funds in India are a kind of mutual fund that makes investment in the shares of large blue chip companies. Fixed- Income Funds in India makes investment in debt securities that have been issued either by the banks, government, or companies. They are also known as income funds and debt funds.
Interval Funds in India are a combination of both the open and close ended funds. They offer the investors flexibility for they can be sold and repurchased at the period of time that has been predetermined. Closed- End Funds in India are a kind of mutual fund that has a maturity period that has been specified and which usually varies from three to fifteen years. Tax Saving Funds in India offer tax rebates to the investor under the Section 88, Income Tax Act. They are also known as equity- linked savings scheme.
INTERVAL FUNDS-
Interval Funds in India combine the characteristics of both the close ended funds and open ended funds. This means that Interval Funds in India can be repurchased and sold at the time that has been predetermined. Interval Funds in India are usually repurchased every six or twelve months or as has been unveiled in the annual report and prospectus of the fund. Interval Funds in India are sold and repurchased at the prices that are related to the Net Asset Value (NAV)
Mutual Fund companies that have launched Interval Funds in India are:
- Birla Sun Life Mutual Fund
- Prudential ICICI Mutual Fund
- ABN-AMRO Mutual Fund
TAX SAVINGS FUND-
Tax Saving Funds in India offer to the investors rebates in taxes under the Income Tax Act, Section 88 and they are also known as equity-linked savings schemes. Tax Saving Funds in India usually have a period of lock- which is generally of three years. As a result of this, the manager of the fund is not concerned about factors such as the pressures of redemption, performance of the fund during a short time, and thus does his job by keeping in view the long term goal. The fund manager of the Tax Saving Funds in India invests the money in instruments that are related to equity.
Tax Saving Funds in India are suitable for those investors who want to increase their investments and also want to benefit from the rebates in taxes. The advantage of Tax Saving Funds in India is that they grant the investors an opportunity to make investments in an avenue that is market- linked and at the same time claim benefits in taxes. The dividends that are earned in Tax Saving Funds in India are tax free.
Major Tax Saving Funds in India are:
- Franklin India Tax Shield
- HDFC Tax Saver
- Sundaram Tax Saver
- HDFC Long Term Advantage
- Prudential ICICI Tax Plan
- Birla Equity Plan
- UTI Equity Tax Savings
- Tata Tax Saving Fund
- Magnum Tax Gain
FIXED INCOME FUND-
Fixed- Income Funds in India are also known as debt funds or income funds. Fixed- Income Funds in India make investments in debt securities that have been issued either by the banks, government or companies. The debt securities in which Fixed- Income Funds in India makes investments are also known as commercial papers of deposit or treasury bills if the duration is less than one year and in case the duration is more than one year then the debt securities are known as bonds or debentures. The issuer of the debt securities has the obligation to pay the interest and principal on the time schedule that has been fixed.
Fixed- Income Funds in India have a face value and it is on this that the calculation of interest takes place. Investors who are investing in Fixed- Income Funds in India are mainly concerned with the time period, maturity value, rate of interest payment, rate of interest, and face value. Fixed- Income Funds in India are usually held till maturity.
- Sundaram BNP Paribas Mutual Fund
- Franklin Templeton India Mutual Fund
- Fidelity Fund Management
- Reliance Mutual Fund
OPEN ENDED FUND-
Open- End Funds in India is such that the investors can sell as well as buy all through out the year. The investors sell and buy units of Open- End Funds in India at the related prices of Net Asset Value (NAV) each day. An investor can buy Open- End Funds in India either from a brokerage house or through the mutual fund company. Open- End Funds in India have no fixed date of maturity. The main advantage of Open- End Funds in India is that it offers liquidity to the investors for they can sell the units whenever they need the money.
Major Open- End Funds in India are:
- UTI Gold Exchange Traded Fund
- Standard Chartered Premier Equity Fund
- Sahara Mid- Cap Fund
- Lotus India Tax Plan
- Reliance Tax Saver (ELSS) Fund
- Canara Robeco Equity Tax Saver- 93
- DSP Merrill Lynch Tax Saver Fund
- Tata Life Sciences and Technology Fund
- JM Arbitrage Advantage Fund
- Kotak Gold ETF
MID CAP FUNDS-
Mid-cap funds are a special type of mutual fund wherein, the corpus accumulated is invested in small or medium sized companies. In the absence of any standardized definition or definite classification of small or medium sized company, each mutual fund classifies small and medium sized companies according to its own policies. In general, companies with a market capitalization up to Rs 500 crores are regarded as small and companies with a market capitalization over Rs 500 crores but below Rs 1, 000 cores are defined as medium sized by the mutual fund industry. Mid-cap funds bear high risk factors and thus offer high returns in case of positive movements of the indexes.
Further, opportunity of investment in Mid-cap funds is high due to low identification factor in the market. Another important feature of these Mid-Cap Funds is that they tend to grow in size as more investors gets involved. The net effect is that, huge amount of money are invested against few stocks. Experts are of the opinion that investments in Mid-Cap Funds should follow investment patterns of sectoral funds and one should not focus only on these funds alone. Further, investment in Mid-Cap Funds should have long term perspective.
With the rise of large caps the heavy weight investors like the mutual funds and Foreign Institutional Investors are increasingly investing in mid cap funds. However investment in Mid-cap funds should be undertaken with caution since these tend to be volatile because of the high risk involved.
BALANCED FUND-
Balanced funds also known as the hybrid funds wherein, the corpus accumulated is invested in combination of common stock, preferred stock, bonds and short-term bonds. In other words, it is a combination of many stocks and bonds, which is structured to strike a balance of income and capital appreciation. This combination is essentially done to minimize the risk involved in such investments. Thus, the balanced funds provide the investors with an opportunity to invest in a single mutual fund that offers growth and income at the same time. The stocks meet the growth requirements and the bonds meet the income requirements. Further, this combination helps to negate any fall in the value of the stocks in the financial market.
NO LOAD FUND-
he mutual funds in India are broadly classified as Load funds and No load Fund. Out of the basic two types of mutual funds - the investment in No Load Funds does not attract any commission for such investments. In other words, No Load Funds can be bought without paying any commission. Another most significant feature of the No Load Funds is that it can be held for a longer term and the proceeds are generally reinvested further.
Furthermore, the profit accrued by investing in No Load Funds shows the exact profit earned on such investments. The Chapter III of the Income Tax Act, 1961 provides tax exemption on investment on No Load Funds. With the rise of the Indian mutual fund market, the popularity of no load funds has increased considerably much to the satisfaction of the fund managers.
VALUE FUND-
Amongst the wide variety of mutual funds are available in India, value funds is a type of mutual fund wherein the main focus is on the safety of the investment and not on the growth of the investment made on such funds. Value funds represent stocks of mature companies, whose growth has become stagnant. Further, these stocks of the value funds utilize their earnings to pay off dividends to the investors.
One of the typical characteristics of the value fund is that, they generate income from the dividends and they also offer long term growth from capital appreciation. The returns on Value funds are more conservative in nature. Another important feature of the value funds is that, they invest in stocks of companies that have lesser appeal to the mainstream investors and the stocks have lost its sheen. The value funds in India operate as per the guidelines of according to the guidelines laid down by the Association of Mutual Funds of India (AMFI) and Securities and Exchange Board of India (SEBI). The value funds offer tax exemption on value fund investments according to Chapter III of the Income Tax Act, 1961.
INTERNATIONAL MUTUAL FUND-
International mutual funds are a very special type of mutual fund, wherein investments are being made in the non-domestic securities markets across the world. The popularity of the International mutual funds has gone up in the recent years since it provides a high level of diversification of the portfolio. Further, the International mutual funds also help in capitalizing on some of the world's best opportunities. International mutual funds can offer its investors with high returns if chosen properly. One of the significant features of the International mutual funds are that it accrues profit when some markets are rising and others are falling in the international market. A strict vigil on the foreign currencies and world markets is needed while investing in the International mutual funds.
SECTOR FUNDS-
The Sector Funds are those types of mutual funds which accumulate stocks of particular sector.
In other words sector funds invest in a single type of industry, like Information Technology, Telecommunication, Pharmaceuticals, Infrastructure, etc.
The Sector Funds are structured in this particular manner in order to take advantage of growth of particular type of industry. The Sector Funds can offer tremendous profit to the investor if the funds are carefully chosen. The authorities to the Sector Funds in India are the Association of Mutual Funds of India (AMFI), which operates in accordance with the laid down guidelines of the Securities and Exchange Board of India (SEBI). Moreover, investments in Sector Funds offer tax exemptions to the investors (Chapter III of the Income Tax Act, 1961). With the growth of the Indian industries the financial markets have undergone tremendous transformation. The rise of different sectors has necessitated structuring of sector specific funds to attract substantial amount of money for the growth of a specific sector in India.
FUNDS OF FUNDS-
Amongst the wide variety of mutual funds are available in India, fund of funds is a type of mutual fund wherein, the corpus accumulated is invested in types of other mutual funds. Further, the most significant feature of fund of funds is that it holds shares of a variety of mutual funds. Furthermore, Funds of funds are structured in such a way so as to attain a more diversified approach than what the other types of mutual funds offer. Generally, the Fund of Funds costs higher than any other type of mutual fund. This is due to the fact that the cost of Fund of Funds involves part of the expense fees charged by the component funds.
INCOME FUNDS-
Income Funds in India usually invest their principal in companies that give high payouts of dividends and also in securities of fixed income such as corporate debentures, government securities, and bonds. The advantage of Income Funds in India is that it provides regular income to the investor either on a monthly or quarterly basis. Further the advantage of Income Funds in India is that it also provides stability of capital to the investor. Income Funds share prices are not fixed for they have a tendency to grow with the fall in interest rates and fall with the rise of the interest rates. The bonds that are there in Income Funds are usually of the investment grade. The other bonds are of such credit quality that they assure the protection of the capital.
Mutual fund companies that have launched Income Funds in India are:
- Prudential ICICI Mutual Fund
- HDFC Mutual Fund
- Reliance Mutual Fund
- Birla Sun Life Mutual Fund
- Franklin Templeton India Mutual Fund
- Tata Mutual Fund
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SECTOR SPECIFIC FUNDS-
Sector- Specific Funds in India are those funds that make investments only in those industries or sectors that have been specified in the prospectus of the funds. Sector- Specific Funds in India usually make investments in sectors such as power, pharmaceuticals, petroleum, and technology. The amount of returns that Sector- Specific Funds in India give depends totally on the performance of the industries or sectors in which investments have been made. Sector- Specific Funds in India give very high returns but at the same time they are also very risky in comparison to the funds that are diversified. This is the reason that the investors that have invested in Sector- Specific Funds in India need to carefully watch the operation of those industries or sectors and then at the correct time make an exit.
Main mutual fund companies that have launched Sector- Specific Funds in India are:
- Prudential ICICI Mutual Fund
- Birla Sun Life Mutual Fund
- Franklin Templeton India Mutual
CLOSE ENDED FUNDS-Closed- End Funds in India have a fixed period of maturity which can vary between three to fifteen years. Closed- End Funds in India can be subscribed to only during the period of time that has been specified. Investors can make investments in Closed- End Funds in India either during the period of public offer or buy the funds from the stock exchanges.
In Closed- End Funds in India, the number of shares that are sold in the public offer is fixed and after this the selling and buying of the units are possible only in the stock exchanges. Certain Closed- End Funds in India repurchase the units periodically at related prices of Net Asset Value (NAV) in order to provide the investors an exit route.
Major Closed- End Funds in India are:
- UTI Wealth Builder
- HDFC Long-Term Equity
- Standard Chartered Enterprise Equity
- Franklin India Smaller Companies
- Birla Long-Term Advantage
- Tata Capital Builder
- ING Vysya C.U.B.
- Prudential ICICI Fusion
- Tata Equity Management
LARGE CAPITAL FUNDS-
Large Cap Funds in India are a kind of mutual fund that looks for appreciation of capital by investing mainly in the shares of companies that are big blue chip. The big blue chip companies in which Large Cap Funds in India make their investments have above- average potential for growth in earnings. The large cap companies in which Large Cap Funds in India makes investments are usually companies that have a market capitalization that is more than Rs. 1000 crores. The main advantage of Large Cap Funds in India is that they are considered to be of low return and low risk category. This ensures that the investments of the investors are relatively safe.
Major Large Cap Funds in India are:
- Franklin India Blue Chip
- DSPML Top 100 Equity
- HDFC Top 200
EQUITY FUNDS-
Equity funds also known as stock mutual funds are a special type of mutual fund wherein, the corpus accumulated through this fund is invested in stocks of public companies. Holding of stocks or equity in a company means having part ownership or equity in that particular company. The main objective of holding stocks of a company is to reap profit on investment in such stocks after the company makes a profit in its business.
These stocks are generally classified as small, medium, and large sized stocks, which is further defined according to their individual market capitalization. The equity managers are trained professionals who format and pick stocks for investments. The formation of equity portfolios are generally made either by applying value-approach or by growth-approach. In the value-approach method the stocks with lesser value than its competitors are picked and in the growth-approach method the stocks with higher growth opportunity than its competitors or markets are picked for investments. In another type of approach, both the value and growth based stocks are picked for investments.
GROWTH FUNDS-
Growth Funds are special type of mutual funds, the objective of which is to achieve capital appreciation by investing in growth stocks. Generally, the corpus accumulated in the Growth Funds is invested in stocks of those companies, which are registering prominent earnings or revenue growth. In other words, the growth funds focus on the fastest-growing companies in the market. One of the significant features of the Growth fund is that it offers tremendous growth, when the financial market is bullish. Market trend shows that investments in these growth funds are generally made by aggressive investors.
EXCHANE TRADED FUNDS-
One of the striking features of the Exchange Traded Funds is that they are not volatile like other mutual funds and thus remain much more stable during bearish market. Further, Exchange Traded Funds cost less and are transparent. Furthermore, these funds can be traded and as well as diversified simultaneously.
MONEY MARKET FUNDS-
Money Market Funds is a special type of mutual fund that invests in the money market instruments only. The Money market instruments that are being used to structure the money market mutual funds are highly liquid debt instruments like the treasury bills. These Money market funds generally bear less risk and are regarded as the safest type of mutual funds. The main objective of investment in a money-market fund is to safeguard principal investment while earning a modest return on such investments. In other words, investments in a Money-market mutual fund are similar to a high-yield bank account with a decent risk factor. Caution should be exercised with respect to the interest rate that is being offered while investing in a money-market fund.
REGIONAL MUTUAL FUNDS-
The Regional Mutual Fund as the name suggests, is a special type of mutual fund, wherein the investment made in such funds are confined to the securities from a specified geography. In other words, the investments made in the Regional Mutual Fund are dependent on the geographical origin of the fund. The most important feature of this fund is that it invests in portfolio of companies operating in a particular geographical area. The main objective of investing in the Regional Mutual Funds is to take leverage of the geographical growth of that particular area. These funds are created on regions which are supposed to undergo tremendous modernization. The Regional Mutual Funds picks up securities that are not confined to geographical criteria.
INDEXED FUNDS-
The Index funds are those types of funds which accumulates stocks of each and every company that make up a particular index. The performance of the Index fund thus depends on the performance of that particular index. Investments in Index funds are cheaper and are regarded as passive form of investments. Another advantage of investing in the Index funds is that their values are so high that most of the other funds fail to supersede the value of the Index funds. The most popular type of Index funds is the Standard & Poor's 500. Investments in index funds are subject to income tax exemptions.
CONCLUSIONS:-
There are several types of mutual funds in India; investors are so many options to invest in the fund which are preferable to them.
Reference:
Mutual fund India .com
AMFI
chinmoy ghosh
lecturer accounting and finance.
Article Source: ArticlesBase.com
