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Mutual fund is a financial instrument which pools the money of different people and invests them in different financial securities like stocks, bonds etc. The Asset Management Company (AMC), i.e. the company which manages the mutual fund raises money from the public. The AMC then deploys the money by investing in different financial securities like stocks, bonds etc. The securities are selected keeping in mind the investment objective of the fund.

The Asset Management Company (AMC), i.e. the company which manages the mutual fund raises money from the public. The AMC then deploys the money by investing in different financial securities like stocks, bonds etc. The securities are selected keeping in mind the investment objective of the fund. For example, if the investment objective of the fund is capital appreciation, the fund will invest in shares of different companies. If the investment objective of the fund is to generate income, then the fund will invest in fixed income securities that pay interest. Each investor in a mutual fund owns units of the fund, which represents a portion of the holdings of the mutual fund. On an on-going basis, the fund managers will manage the fund to ensure that the investment objectives are met. For the services the AMCs provide to the investors, they incur expenses and charge a fee to the unit holders. These expenses are charged against proportionately against the assets of the fund and are adjusted in the price of the unit. Mutual funds are bought or sold on the basis of Net Asset Value (NAV). Unlike share prices which changes constantly depending on the activity in the share market, the NAV is determined on a daily basis, computed at the end of the day based on closing price of all the securities that the mutual fund holds in its portfolio.

A: Myn specializes in managing investments through mutual funds, combining equity and debt to balance growth and risk. Myn encourages systematic investment plans (SIP) that leverage the power of compounding by enabling clients to invest regularly over time. This disciplined approach helps clients benefit from market fluctuations while steadily building a diversified portfolio. Myn’s expertise ensures tailored strategies that align with individual financial goals, maximizing wealth creation through prudent investment management.

Open-ended mutual funds allow investors to buy and redeem shares directly from the fund at the net asset value (NAV) at any time, providing high liquidity and flexibility. In contrast, closed-ended mutual funds issue a fixed number of shares traded on stock exchanges, where prices fluctuate based on market demand, often differing from the NAV. At Myn, we guide investors in understanding these fundamental differences and assessing which fund structure aligns best with their investment objectives, liquidity needs, and risk tolerance. By leveraging our expertise, we help tailor portfolios that optimize diversification and growth potential through the appropriate mix of open-ended and closed-ended funds.

Growth and Dividend are essentially options of how investors want cash-flows. During the course of a year, a mutual fund scheme may make profits through dividends from shares ownership or interests from bonds owned by the scheme and also through portfolio churn (profit booking by buying and selling shares and bonds). In a growth option the profit is re-invested to generate more returns whereas in dividend option the profits are distributed to the investors on a regular basis (annual, semi-annual, quarterly, monthly etc). Dividends are declared on a per unit basis. Capital appreciation is much higher in growth option because investors benefit from compounding over a long investment horizon; NAV in growth options grows much more than dividend options where the NAVs get re-adjusted whenever the scheme declares dividends. However, some investors may need income during the tenure of the investment and dividend option is suitable for such investors. Dividend re-investment is another option available to investors. In this option the dividends instead of being distributed to investors, get re-invested to buy units of the scheme. A dividend re-investment option works very much like growth option. The major difference between growth and dividend re-investment option is that, in growth option investor gets capital appreciation through growth in NAV, whereas in dividend re-investment the investor gets capital appreciation through incremental units (the NAVs of dividend and dividend re-investment options are the same). Tax consequences of growth and dividend re-investment option are different (we will discuss in more details in a separate post).

Let us see some common terms associated with one of the most important aspects of mutual fund investments, i.e. returns and what it means to you. Absolute Return: Absolute return is the growth in your investment expressed in percentage terms. It can be understood with the help of a simple example. Suppose you invested Rs 1 Lakh in a mutual fund scheme. Three years later the value of your investment is Rs 1.4 Lakhs; you can know the value of your investment from the account statement sent to you by the AMC or the registrar (e.g. CAMS or Karvy). The total profit made by you is Rs 40,000. The absolute return earned by you in percentage terms is 40%. Absolute return ignores the time over which the growth was achieved; if your Rs 1 Lakh investment grew to Rs 1.4 Lakhs in 5 years (instead of 3), the absolute return will still be 40%. Annualized Return: Annualized return, as the name suggests, measures how much your investment grew in value on a yearly basis. An important thing to note in annualized returns is that, the effect of compounding is included. Compounding is, very simply, profits made on profits. If you invested Rs 1 Lakh in a mutual fund scheme and the value of your investment after 3 years is Rs 1.4 Lakhs, then annualized returns will be 11.9%. Notice that annualized return of 11.9% is less than the absolute return (40%) divided by the investment period (3 years); this is due to compounding effect. If you invested Rs 1 Lakh in a mutual fund scheme and the value of your investment after 5 years is Rs 1.4 Lakhs, then annualized returns will be 7%. Total Return: Total return is the actual rate of return earned from the investment and includes both capital gains and dividends. Let us assume that, you invested Rs 1 Lakh in a mutual fund scheme at a NAV of Rs 20. The number of units of the scheme purchased by you is 5,000 (1 Lakh divided by 20). The NAV of the scheme after 1 year is Rs 22. The value of your units after 1 year will, therefore, be Rs 1.1 Lakhs (22 X 5,000). The capital gains made by you will be Rs 10,000. Let us also assume that, during the year, the scheme declared Rs 2 per unit as dividend. Total dividend paid to you by the AMC would be Rs 10,000 (2 X 5,000). The total return earned by you will be Rs 10,000 capital gains + Rs 10,000 dividends = Rs 20,000. The total return in percentage terms will be 20%. Trailing Return: Trailing return is the annualized return over a certain trailing period ending today. Let us understand this with the help of an example. Suppose the NAV of a scheme today (March 10, 2017) is Rs 100. 3 years back (i.e. March 10, 2014), the NAV of the scheme was Rs 60. The 3 year trailing return of the fund is 18.6%. Suppose the NAV of the scheme 5 years back (i.e. March 10, 2012) was Rs 50. The 5 year trailing return of the fund is 14.9%. The trailing period can be 1 year, 2 years, 3 years, 5 years, 10 years etc; basically any period. Trailing return is the most popular mutual performance measure. The returns that you see on most mutual fund websites are actually trailing returns. If you go to our Mutual Fund Research section, Top Performing Funds, the returns that you see are, in fact, trailing returns. Investors should note that, trailing returns are biased by current market conditions relative to market conditions prevailing at the start of the trailing period. Trailing returns are high in bull markets and low in bear markets. Point to Point Return: As the name suggests, point to point returns measures annualized returns between two points of time. For example, if you are interested in how a mutual fund scheme performed during a particular period, say 2012 to 2014, you will look at point to point returns. To calculate point to point returns of a mutual fund scheme, you necessarily need to have a start date and end date. You will look up the NAVs of the scheme on start and end dates, and then calculate the annualized returns. In our Mutual Fund Research section, you find point to point returns of one or more schemes by using our Mutual Fund Point to Point Returns - Multiple Schemes & Periods tool. Annual Return: Annual return of a mutual fund scheme is the return given by the scheme from January 1 (or the earliest business day of the year) to December 31 (last business day of the year) of any calendar year. For example, if the NAVs of a scheme on January 1 and December 31 are Rs 100 and 110 respectively, the annual return for that year will be 10%. Most mutual fund research portals, including our portal, show annual returns of a scheme in the scheme details page. Annual returns are shown on the scheme details page in popular mutual fund websites. Mutual funds are market linked investments and the market conditions in a particular year will have a significant impact on annual returns. However, comparing annual returns across years relative to benchmark or fund category, can give you a sense of fund performance consistency. Rolling Returns: Rolling returns are the annualized returns of the scheme taken for a specified period (rolling returns period) on every day/week/month and taken till the last day of the duration compared to the scheme benchmark (e.g. Nifty, BSE 100, BSE 200, BSE 500, CNX 500, BSE Midcap, CNX Midcap etc) or fund category (e.g. large cap funds, diversified equity funds, midcap funds, balanced funds etc). Rolling returns are usually shown in a chart format. A rolling returns chart shows the annualized returns of the scheme over the rolling returns period on every day from the start date, compared to the benchmark or category. Rolling returns is not widely used in India, but is widely accepted globally as the best measure of a fund's performance. Trailing returns have a recency bias (as explained earlier) and point to point returns are specific to the period in consideration (and therefore, may not be relevant for the present time). Rolling returns, on the other hand, measures the fund's absolute and relative performance across all timescales, without any bias. Rolling return is also the best tool to understand, performance consistency and the fund manager performance. We, in NKJ Finserv, are proud that, we are among the very few mutual fund research portals which show rolling returns. You can see rolling returns of any mutual fund scheme relative to the benchmark, by using our tool Rolling Return vs Benchmark. You can see rolling returns of one or more mutual fund schemes relative to their fund category, by using our tool Rolling Return vs Category. In NKJFinserv.com , in addition to the chart format, we also show rolling returns in a tabular format. To see rolling returns in tabular format on our portal, you can click on the button, See Rolling Returns in Tabular Format, on the bottom right hand side in rolling return pages. Quartile Ranking: Which is more important, absolute return or relative return? It differs from individual to individual and we can debate this till the cows come home, but the reality is that, in this competitive age, there is emphasis on relative performance, both in our work-place and also for our kids in school. Quartile ranking is a measure of relative performance of mutual fund scheme. Investors should note that, quartile ranking is not a measure of returns, but is actually a rank versus against all other funds in its category. The rankings range from "Top Quartile" to "Bottom Quartile" for different time periods. Mutual funds with the highest percent returns in the chosen time period are assigned to "Top Quartile", whereas those with the lowest returns are assigned to "Bottom Quartile". Quartile rankings are compiled by sorting the funds based on trailing returns over a period chosen by the user. Funds in the top 25% are assigned the ranking of "Top Quartile", the next 25% are assigned a ranking of "Upper Middle Quartile", the next 25% after that are assigned a ranking of "Lower Middle Quartile" and the lowest 25% are assigned the ranking of "Bottom Quartile". While, the current quartile ranking of a mutual fund scheme is important, even more important is the consistency of quartile ranking across several quarters. You can see quartile ranks of different mutual fund schemes in a category in our research tool, Mutual Fund Quartile Ranking. SIP Returns / XIRR: All the returns measures that we have discussed thus far, relate to lump sum or one-time investments. Lump sum investment returns are relatively simpler to measure because, essentially you are measuring growth in investment value between two points of time (in the case of total returns, dividends, if any, also need to be factored). However, systematic investment plan (SIP) represents a series of cash-flows and so computing SIP returns is more complicated. The financial metric used to calculate the returns from a series of cash-flows (e.g. SIP, SWP, STP etc) is known as the Internal Rate of Return (IRR). The formula of IRR is outside the scope of this post. If cash-flows are not an exact regular time intervals, then a modification of IRR, known as XIRR (in excel), is used to measure SIP returns. You can see XIRR of SIPs of different mutual fund schemes across different time periods in our Mutual Fund Research section, Top Performing Systematic Investment Plan. If you want to see SIP returns over a specific time period, you can use our tool, Mutual Fund SIP Calculator. Some AMCs offer SIP products where you can increase the SIP instalments on an annual basis; these products are known as Step up SIP, SIP Top up etc.

There are various types of mutual fund schemes such as equity funds, debt funds and tax savings funds etc. Again within equity funds and debt funds there are various categories of schemes available for the investors to invest. We will now examine the various categories of funds within debt and equity. Different types of Equity Funds Funds that invest in equity shares are called equity funds. They carry the principal objective of capital appreciation of the investment over a medium to long-term investment horizon. Equity Funds are high risk funds and their returns are linked to the stock markets. They are best suited for investors who are seeking long term growth. There are different types of equity funds such as Diversified funds, Sector specific funds and Index based funds. Diversified equity mutual funds As per definition, diversified equity mutual funds are purely equity funds which invest in a large number of stocks across different sectors. The objective is to diversify unsystematic risks and generate highest risk adjusted returns. Company specific and sector specific risks are unsystematic risks. Some research houses (e.g. CRISIL) and publications employ a stricter definition for diversified equity funds. As per their definition diversified equity funds are equity funds, which invest in stocks across different sectors and market segments. In other words, as per this definition, diversified equity funds in addition to investing in stocks across different industry sectors (e.g. Banking, oil and gas, cement and construction, automobiles, technology, pharmaceuticals, capital goods, FMCG, power, infrastructure etc), also invest in stocks across different market segments in terms of market capitalization (i.e. large cap, midcap, small cap and micro cap companies). These funds are also known as flexicap or multicap funds. Large cap equity mutual funds Companies are categorized as large cap, mid cap and small cap, based on their relative market capitalizations. Market capitalization is simply the market value of the company, calculated by multiplying the share price of a company with the company' total number of shares outstanding. Bombay Stock Exchange (BSE) categorizes companies into market cap segments based on the 80-15-5 rule. In the 80-15-5 rule, companies listed on BSE are arranged in descending order of market cap (highest to lowest) and starting from the top (company with highest market cap), the largest market companies which cover 80% of the total market cap of all the companies listed on the BSE are categorized as large cap companies. Large cap companies are typically at Market Capitalization > INR 70k crore; Mid Caps are INR 25k - 70k crore; Small Caps are INR 10k - 25k Crore and Micro Caps are INR 3k - 10k Crores. Funds which invest amongst the large cap companies are known as Large Cap Equity Funds. Bluechip companies are the largest of large cap companies. There is no standard definition of bluechip companies; usually they are the very well-known leading companies in their industry sectors and have a strong track record of paying dividends regularly. Bluechip companies have a long history of strong financial performance and sought after by both domestic and foreign investors. Examples of some bluechip stocks are TCS, Reliance, ONGC, ITC, HDFC Bank etc. Mid cap equity mutual funds The next set of companies which cover 80 to 95% of the total market cap of all BSE listed companies are categorized as mid cap companies. The last set of companies covering 95 to 100% of total market cap of all BSE listed companies, are small cap companies. Mid cap companies are typically companies which have a market capitalization ranging from INR 25k - 70k crore. Mid cap companies tend to be less well known, less researched and are thought to be more risky than large cap companies. Mutual fund schemes which invest the majority portion of their portfolio in mid cap companies are called mid cap funds. Midcap funds tend to be more volatile than large cap funds. Midcap funds can also be less liquid than large cap funds in extreme market conditions. The funds which invest amongst these set of companies are called mid cap funds. Small cap equity mutual funds The market capitalizations of small cap companies are INR 10k - 25k Crore. These companies are smaller than midcap companies and thought to be riskier than even midcap companies. Mutual fund schemes which invest the majority portion of their portfolio in small cap companies are called small cap funds. Small cap funds tend to be more volatile and less liquid than mid cap funds. The funds which invest amongst these small companies are called small cap funds. Sectoral Funds Sector investing is an alternative approach that chooses investments according to a particular theme or sector. Sectoral funds are commonly known as where investment is done in a particular industry of the economy. Some of these industries are real estate, agriculture, FMCG, power and energy, pharmaceuticals, infrastructure, banking, technology, financial services, metal, etc. If an investor thinks that a particular industry will be growing in the near future, he can make his investments in the mutual fund of that particular sector instead of investing in different equity shares of that sector. Such sectoral portfolios are very volatile in nature and the gains and losses depend on how in or out of favour the sector is. Balanced Funds Balanced funds, as the name suggests, balance the risks and generates returns between a pure debt fund and a pure equity fund. These type of mutual funds buy a combination of equity stocks (minimum 65%) & long term and short-term bonds (remaining 35%) to provide both income and capital appreciation while avoiding excessive risk. Investing in a Balanced Fund certainly comes as a more judicious choice. It benefits from the tremendous return generating potential of equities and the risk reduction characteristic of fixed income investments. Balanced Funds not only provide Growth to the Invested Corpus but also render stability to the investments made due to holding of debt securities in its portfolio.

Fixed income or Debt mutual funds primarily invest in a variety fixed income securities like treasury bills, commercial papers, certificates of deposits, corporate bonds and government bonds, issued by different banks, companies and the Government. The fixed income securities are of a range of maturity profiles from short maturity period of 3 months to long maturity periods of 30 years or more. The primary investment objective of short term debt mutual funds (short term maturity profile) is to generate income while that of long term debt funds (long term maturity profile) is to generate both income and capital appreciation. Unlike bank deposits, debt funds are not risk free investments. There are three kinds of risk associated with debt funds:- Interest rate risk Credit risk Liquidity Risk Long term debt funds have higher sensitivity to interest rate risks, while short term debt funds have lower sensitivity to interest rate risks. Corporate bond funds are exposed to credit risks. However, for the vast majority of debt mutual funds credit risk is quite low. Even the corporate bond funds, which aim to generate few percentage points of additional yield by investing in slightly lower rated corporate bonds, majority of the bonds in the fund portfolios are rated AAA and AA.

Unit Linked Insurance Plans (ULIPs) are combined life insurance cum investment products. Unlike traditional insurance plans e.g. endowment, money back plans, pension plans etc, ULIPs are market-linked and have the potential to deliver higher returns compared to traditional plans. However, ULIPs, unlike traditional life insurance plans, do not offer capital safety. ULIPs provide investors with life insurance cover and at the same time investment in a fund of their choice. Mutual fund, on the other hand, is a purely market linked instrument, which pools the money of different people and invests them in different financial securities like stocks, bonds etc. Each investor in a mutual fund owns units of the fund, which represents a portion of the holdings of the mutual fund. One can think of ULIP as a mutual fund with a term life insurance plan attached to it. In terms of gross investment returns ULIPs have performed comparably with mutual funds over a 5 year period. However, net returns to investors are lower in ULIP because various costs are deducted from ULIP premiums before they are invested in the ULIP fund. A portion of the ULIP premium goes towards buying the life cover or sum assured. Another portion goes towards a variety of fees like, premium allocation fees, policy administration fees, fund management etc. The balance premium is then invested in the ULIP fund.

An Exchange Traded Fund is essentially a basket of stocks that reflects the composition of an Index, like the Sensex or the Nifty. The price of the ETF reflects the net asset value of the basket of stocks. Exchange Traded Funds (ETFs) are are listed and traded on exchanges like stocks. There are various categories of ETFs in India. They are:- Equity Gold World Indices Debt While an ETF is similar to a mutual fund in many ways, there are crucial differences between ETFs and mutual funds. Unlike a mutual fund, where NAV is calculated at the end of the day, the price of the ETF changes real time throughout the day, based on the actual share prices of the underlying stocks at any point of time during the day Mutual funds are actively managed, whereas ETFs are passively managed. Mutual funds aim to generate an alpha (or outperformance versus a market benchmark), whereas ETFs aim to track a particular index Mutual funds have specific investment objectives, like capital appreciation, income generation, large cap stock focus, midcap stock focus, sector focus etc. ETFs only aim to track the relevant index and reduce tracking errors Even though mutual funds aim to diversify unsystematic risks (or security specific risk), and they do diversify, to a large extent, there is likely to be still some residual unsystematic risk in mutual funds because mutual funds do not exactly reflect the market portfolio. ETFs, on the other hand, are only subject to systematic risk (or market risk), since they reflect the market portfolio. You need to have a demat account to invest in ETFs. On the other hand, you do not necessarily need to have a demat account to invest in mutual funds.