Conclusion:

Mutual funds are funds that pool the money of several investors to invest in equity
or debt markets. Mutual Funds could be Equity funds, Debt funds or balanced funds.

Fund are selected on quantitative parameters like volatility, FAMA Model, risk
adjusted returns, and rolling return coupled with a qualitative analysis of fund
performance and investment styles through regular interactions / due diligence processes
with fund managers.

Mutual funds are a method for investors to diversify risk and to benefit from
professional money management. The prospectus identifies key information about the
fund including its operating boundaries and its costs. The fund manager operates within
those boundaries and is a critical to achieving strong results within those boundaries.

The mutual fund industry in India has prospered due to transparency and
disclosures. Most fund houses come out with a fund fact sheet for each scheme every
month. They provide information about the investment particulars of the corpus
(company and sector-wise), credit ratings, market value of investments, NAVs, returns,
repurchase and sale price of the schemes.

A fund house normally comes out with various publications, which contain the
schemes objectives, fund managers commentary on the portfolio, market outlook, etc.
The aim is to help an investor take an informed decision to invest, stay invested or
redeem out of the fund. It is upto the investor i.e. you, to make the best use of it.
Findings:

62 percent of respondents invest in mutual funds

Of those who do not invest in mutual funds, 12 percent are interested in doing so
Of those who do invest in mutual funds, nearly half (48 percent) feel there are too
many to choose from
When asked their primary method of learning about mutual funds
1. 67 percent use online research
2. 13 percent follow analyst ratings and reports
3. 10 percent consult a financial advisor
When asked what criteria they use to select mutual funds
1. 74 percent of respondents said they choose funds that meet their
investment objectives
2. 37 percent said they choose funds based on past performance
3. 19 percent said they choose funds that provide the most income
4. 10 percent said they choose funds that support their interests, such as
global awareness
17 percent of respondents indicated they are very disciplined when it comes to
portfolio rebalancing and asset allocation
28 percent of respondents wish they knew more about mutual funds so they could
make more educated choices
12 percent of respondents prefer a professional chooses mutual funds for them
50 percent of respondents value the stability of fund management
64 percent appreciate it when the style of a fund remains consistent with the
primary objective of the fund
64 percent have mutual funds in accounts at other firms
Of those who have mutual funds in accounts at other firms, 75 percent are not
interested in consolidating them
1. When asked why, 59 percent said they are comfortable with where
they are and 30 percent said they dont like to have all their eggs in
one basket
2. When asked the biggest disadvantage if mutual funds
3. 29 percent said complex fee structure
4. 20 percent said the cost to buy and sell them
5. 51 percent said they currently invest to generate income
6. Of those who invest for income
45 percent use the income to supplement retirement income
44 percent use it to allow for a more comfortable lifestyle
20 percent use the income to cover monthly bills
13 percent use the income to pay down debt
Suggestions:

Suggestions for selecting best mutual funds;

1. Draw down your investment objective. There are various schemes suitable for
different needs. For example retirement plan, capital growth etc. Also get clear
about your time frame for investment and returns. Equity funds are not advisable
for short term because of their long-term nature. You can consider money market
and floating rate funds for short-term gains. This equals asking - What kind of
mutual fund is right for me?
2. Once you have decided on a plan or a couple of them, collect as much information
as possible on them from different sources offering them. Funds' prospectus and
advisors may help you in this.
3. Pick out companies consistently performing above average. Mutual funds industry
indices are helpful in comparing different funds as well as different plans offered
by them. Some of the industry standard fund indices are Nasdaq 100, Russel
2000, S&P fund index and DSI index with the latter rating the Socially
Responsible Funds only. Also best mutual funds draw good results despite market
volatility.
4. Get a clear picture of fees & associated cost, taxes (for non-tax free funds) for all
your short listed funds and how they affect your returns. Best mutual funds have
lower cost out go.
5. Best mutual funds maximize returns and minimize risks. A number called as
Sharpe Ratio explains whether a fund is risk free based on its expected returns
compared against a risk free money market fund.
6. Some funds have the advantage of low minimum initial investments. You can start
investing even with $250 a month. This is advisable for building asset bases over
a long period with small regular investments.
Tips for investing in mutual funds:

1. NEVER invest in a mutual fund that charges a load:

These funds are for suckers. Whoever is trying to convince you to buy them
likely gets a kickback from the fund, which is why they are trying to pressure you
into investing in the fund.

2. NEVER take stock advice from someone trying to convince you buy a mutual
fund with a load:

This person clearly does not have your interests in mind. He is most likely
just trying to line his pockets with kickbacks.

3. Understand the fund's asset allocation:

Don't invest in a "mixed" fund (one that invests in both stocks and bonds) if
you only want to invest in stocks. If you want international exposure, allocate some
money towards international mutual funds.

4. Keep fees to a minimum:

Obviously, you should avoid a load and 12 b-1 fees, but you also don't want
to be paying management fees either. A fund with an expense ratio under 1% is
particularly lovely in today's environment.

5. Don't invest in too many mutual funds:

A mutual fund gives you instant diversification. Most funds invest in

hundreds of stocks. The only reason to invest in multiple mutual funds is if you want
to target various types of stocks (such as domestic and international).

6. Consider an index fund:

Most mutual funds under perform the market. You can essentially buy the
market with an index fund, which generally has maintenance fees of .25% or less.

7. Keep track of the mutual fund's benchmark:

Most compare mutual funds to the performance of the S&P 500, but the S&P
tracks the 500 largest US stocks. If, for example, you choose to invest in foreign
small caps, then you will need to use a totally different benchmark.
8. Do not chase funds that have just had good performance:

The fund itself may have just gotten lucky or may just be targeted to an asset
group that did well in the past year (for example, a health care fund when health care
companies had a record year).

Also, funds that have had good performance might sometimes get a huge
influx of funds and not know how to invest all of these extra funds effectively,
thereby detracting from future performance.

9. If possible, invest in a smaller mutual fund:

Large, ten billion dollar funds have a difficult time investing in stocks. Just
5% of a ten billion dollar fund can buy many US small cap stocks.

If this fund found a $500 million company it thought was great, it could only
invest a small amount of its total assets in the company without greatly affecting the
price. I prefer to invest in mutual funds that have $2 billion in assets or less,
especially if the fund is focused on small caps.

10. Never pay a load:

Consider an index fund.

Bibliography:

Websites:

www.indiainfoline.com
www.nseindia.com
www.bseindia.com
www.hseindia.org
www.sebiindia.gov.in
www.amfiindia.com

Books:

Guide to Indian capital market - Sanjiv Agarwal

Compendium on SEBI Capital Issues & Listings Bharat
Financial Management Prasanna Chandra