1.1 Introduction \? )^^*/^ The Indian mutual fund industry has a five-decade history. This is one of the most attractive as well as a growing industry in India and still it is lagging behind as compared to the global market. There are very few numbers of researches done on the Indian mutual fimd industry as compared to the global market, especially on the asset- management companies. The Indian mutual fund industry has four different major milestones in its history. Since 1963, the UTI was established as a pert of joint effort by the Reserve Bank of India and Government of India. The concept of mutual fund has been shown in figure 1.1. Figure 1.1: Working flow of mutual funds Concept of Mi|tuii Fu||| I Many irtveslofs with common financial objectives pool their money Investors, on a proportionate basis, get mutual fund urtts for the sum contributed to the pool I The money collected from investors is invested into shares, debentures and other securities by the fund manager 4 The fund manager realizes gains or losses, sar^ collects dividend or inter^^t income Any capital gains or losses from such investments are passed on to the investors in proportion of the number of units held by them Source: Appuonline.com A mutual fund is simply a financial intennediary that allows a group of investors to pool their money together with a predetermined investment objective. An investor's ownership of the fund is the same proportion as the contribution made by investor bears to the total amount of the fund. Alike any other investments before investing in the mutual fund, the investors must be clear about investment goals and objectives. There is certain information that investors should know before investing in the mutual funds. The investors should understand some bcisic information about the mutual funds like past performance, fiand manager, mutual fiind's performance against the index, etc. This information will not give any guarantee of the future returns but certainly, it will help the investors in the decision-making process to opt comparatively better schemes from the available schemes in the market. The historical risk data of the schemes will facilitate in understanding the risk taken by the schemes to achieve the returns, and the returns achieved against the risk taken by the schemes. Primarily, the investor should make a financial plan before taking any investment decision. The financial planning is the milestone in the investment decision. The investor can take assistance or guidance of the financial planner or any wealth management organizations available in the market for the investment management. The financial planner or wealth management companies can provide assistance to establish investor's financial goals, to choose a fund, to decide the investor's risk appetite for investment, etc. The Mutual fund has a fund manager, who is responsible for investing the pooled money into specific securities (usually stocks or bonds)'. The investors actually buy shares or shares with the equal values of the price of the investment amount in a mutual fund that unit is called as Net asset Value (NAV). The investor becomes a shareholder of the fund by holding these units of mutual fiind. An investor can purchase the share of the company in terms of the units of the mutual fund, only when the company sells the units in the market. Mutual Fund Basic, (n.d.). In pticindia. Retrieved from http://www.pticindia.com/mutual-fund- investment.html The investor can purchase or sells the NAV of the closed-end fund if the company is listed on the stock exchange. A shareholder can sell the share to the company only when the company announces 'share buy back' or in another case, the investor can sell the stock to the other investor in the stock exchange. An open-ended mutual fund is different from this respect. The investor can purchase and sell the units of the mutual fiinds at any time from the market where a stock exchange will not appear. The investors are shareholders equal to the proportion of the NAV's to their investments in the profits or loss of the mutual funds. The mutual funds normally come out with a number of schemes with different investment objectives, which are launched from time to time. A mutual fund has to be registered with the Securities and Exchange Board of India (SEBI), which regulates securities markets before it can collect funds from the public. There is certain information provided by the mutual funds for the investor to invest in mutual fiinds. Mutual funds provide some documents to promote the funds like prospectus/offer document. Key Information Memorandum that provides the information about the fimds to the investors about the mutual funds objective, purpose, etc. in the interest of the investors. An offer document is an important document, which investor must read to obtain the fiind's prospect. It is a written statement of all relevant information about the company, such as its history, operations, financial conditions and key persormel. Mutual funds are required by law to provide offer document, as SEBI made mandatory to the funds to circulate the offer document before launching the schemes in the market. The offer document also includes a description of the general nature of the fund, a summary of the financial structure and operation, description of fund assets, the management structure, salaries of officers, the expenses of the offering, specific uses of the proceeds, and current lawsuits against the issuer. In addition to the offer document, the fund also provides some needfiil information on the request to the investor. The fund provides the additional information document, a statement of additional infomiation (SAI). This "SAI" is a detailed document that explains the financial workings of the fund and provides disclosure about the backgrounds and expertise of individuals and companies involved in managing and marketing the fund^. The investor should go through the offer document and still investor is looking for more information then they can request for more information in terms of statement of additional information (SAI). If investors still have questions, go over the proposed investment with the broker. 1.2 Investments in Mutual Fund Mutual Fimds over the years have gained immensely in their popularity. Apart from the many advantages, that investing in mutual funds provides as diversification, professional management, the ease of investment process has proved to be a major enabling factor. However, with the introduction of innovative products, the world of mutual funds now days have a lot to offer to its investors. With the introduction of diverse options, an investor needs to choose a mutual fund that meets investor's risk acceptance and risk appetite. The investor should check the parameters of the scheme like investment objectives, investment tenor, etc. which should match the investor's requirement. With the plethora of schemes available in the Indian markets, an investor needs to evaluate and consider various factors before making an investment decision. Since not everyone has the time or inclination to invest and do the self-analysis, the job is best left to a professional. Since Indian economy is no more a closed market, and has started integrating with the world markets, external factors, which are complex in nature, affect us too. Factors such as an increase in short-term US interest rates, the hike in crude prices, or any major happening in Asian market have a deep impact on the Indian stock market. Although it is impossible for an individual investor to understand Indian companies and invest in such an environment, the process can become fairly time consuming. Mutual funds (whose fund managers are paid to understand these issues and whose Asset Memagement Company invests in research) provide an option of investing without getting lost in the complexities. " Mutual Fund Beginner Guide: Investigate Before You Invest, (n.d.). In stason. Retrieved from http://stason.org/TULARC/investing/mutual-funds/Mutual-Fund-Beginner-Guide-Investigate-Before-You- Invest.html Most importantly, mutual funds provide risk diversification of a portfolio is amongst the primary tenets of portfolio structuring, and a necessary one to reduce the level of risk assumed by the portfolio holder. Mostly the investors are not necessarily well qualified to apply the theories of portfolio structuring to our holdings, hence would be better off leaving that to a professional. Mutual funds represent one such option. Lastly, past performances are evaluated and look for stability, though past performance does not give a guarantee of future performance. It is a useful way to assess how well or badly a fund has perfomied in comparison to its stated objectives and peer group. A good way to do this would be to identify the five best performing funds (within the investor's selected investment objectives) over various periods, say 3 months, 6 months, one year, two years and three years. Funds are shortlisted appear in the top five in each of these time horizons, as they would have thus demonstrated their ability to be not only good but also, consistent performers. An investor can choose the fund on various criteria according to his investment objective. To some of such criteria are as follows^: 1. Thorough analysis of ftind performance of schemes over the last few years managed by the fund house and its consistent return in the volatile market 2. The fund house should be professional, with efficient management and administration. 3. The corpus constituted by the scheme is spread over the period. 4. Proper adequacies of disclosures have to be seen and make a note of any hidden charges carried by them is made is considered.