CH 6: Mutual Funds – AMFI

Mutual Funds

It is a trust that collects money from a number of investors who share a common investment objective. Then, it invests the money in equities, bonds, money market instruments and/or other securities. Each investor owns units, which represent a portion of the holdings of the fund. The income/gains generated from this collective investment is distributed proportionately amongst the investors after deducting certain expenses, by calculating a scheme’s Net Asset Value or NAV

Mutual Funds


  • Asset Management Company: A company formed and registered under the Companies Act 1956 and approved as such by the SEBI to manage the funds of a mutual fund.
  • Back-end load: A fee charged by a mutual fund from unit holders at the time of redemption of units.
  • Front end load : A sales fee charged at the time of purchase.
  • Close-ended scheme: A scheme where funds are raised for a fixed period. The scheme is wound up after that period and funds are returned with capital appreciation to unit holders. Normally, a close-ended scheme is listed on a stock exchange.
  • Discount/premium: The difference between the unit price and the net asset value expressed in percentage terms. If the price is high than the NAV, the units stand at a premium and if the price is lower than the NAV, the units are sold or purchased at a discount.
  • Expense ratio: The annual expenses of a fund, including the management fee, administrative costs, divided by net assets.
  • Net asset value: The price or value of one share of a fund. It is calculated by summing the quoted values of all the securities held by the fund, adding in cash and any accrued income and subtracting liabilities and dividing the result by the number of shares outstanding. Fund companies compute the NAV once a day based on closing market prices.

Types Of Mutual Funds:

Types of Mutual Funds
Type Investment Primary Objective
Equity/Growth Funds equities i.e. shares of companies wealth creation or
capital appreciation.
Debt Funds Fixed Income Securities, like Government Securities or bonds Low Risk and
capital protection
Income Funds Fixed Income Securities, like Government Securities or Bonds,
Commercial Papers and Debentures
safer investments
and for Income Generation.
Balanced Funds/Hybrid Funds  Invest in both Equities and Fixed Income Medium Risk
and wealth creation
Index Funds Invest in an index mimic the performance
of the index like
sensex, NIFT 50
Sector Funds particular industry or sector of the economy. Follow trend of a
booming sector
Tax Saving Funds/ELSS Equity Linked Saving Schemes to save taxes
under Section 80C


The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all areas with a view to protecting and promoting the interests of mutual funds and their unit holders.


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