SBI Mutual Fund Is India

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious
investments and consistent wealth creation.
The fund traces its lineage to SBI - India’s largest banking enterprise. The institution has grown immensely sin
inception and today it is India's largest bank, patronised by over 80% of the top corporate houses of the coun
SBI Mutual Fund is a joint venture between the State Bank of India and Société Générale Asset Management,
the world’s leading fund management companies that manages over US$ 500 Billion worldwide.
Exploiting expertise, compounding growth
In twenty years of operation, the fund has launched 38 schemes and successfully redeemed fifteen of them. In
process it has rewarded it’s investors handsomely with consistent returns.
A total of over 5.8 million investors have reposed their faith in the wealth generation expertise of the Mutual F
Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the prefe
investment for millions of investors and HNI’s.
Today, the fund manages over Rs. 38,782 crores of assets and has a diverse profile of investors actively parki
investments across 38 active schemes.
The fund serves this vast family of investors by reaching out to them through network of over 130 points of ac
28 investor service centers, 46 investor service desks and 56 district organisers.
SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund.
Growth through innovation and stable investment policies is the SBI MF credo.
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This article is about mutual funds in the United States and Canada. For other forms of
mutual investment, see Collective investment scheme.
A mutual fund is a professionally managed type of collective investment scheme that

pools money from many investors and invests typically in investment securities (stocks,
bonds, short-term money market instruments, other mutual funds, other securities, and/or
commodities such as precious metals).[1] The mutual fund will have a fund manager that
trades (buys and sells) the fund's investments in accordance with the fund's investment
objective. In the U.S., a fund registered with the Securities and Exchange Commission
(SEC) under both SEC and Internal Revenue Service (IRS) rules must distribute nearly
all of its net income and net realized gains from the sale of securities (if any) to its
investors at least annually. Most funds are overseen by a board of directors or trustees (if
the U.S. fund is organized as a trust as they commonly are) which is charged with
ensuring the fund is managed appropriately by its investment adviser and other service
organizations and vendors, all in the best interests of the fund's investors.
Since 1940 in the U.S., with the passage of the Investment Company Act of 1940 (the '40
Act) and the Investment Advisers Act of 1940, there have been three basic types of
registered investment companies: open-end funds (or mutual funds), unit investment
trusts (UITs); and closed-end funds. Other types of funds that have gained in popularity
are exchange traded funds (ETFs) and hedge funds, discussed below. Similar types of
funds also operate in Canada, however, in the rest of the world, mutual fund is used as a
generic term for various types of collective investment vehicles, such as unit trusts, open-
ended investment companies (OEICs), unitized insurance funds, undertakings for
collective investments in transferable securities (UCITS, pronounced "YOU-sits") and
SICAVs (pronounced "SEE-cavs").
Contents
[hide]
• 1 History
• 2 Usage, investment objectives
• 3 Net asset value
• 4 Average annual return
• 5 Turnover
• 6 Expenses and expense ratios
o 6.1 Management fees
o 6.2 Non-management expenses
o 6.3 12b-1/Non-12b-1 service fees
o 6.4 Investor fees and expenses
o 6.5 Brokerage commissions
• 7 Types of mutual funds
o 7.1 Open-end fund, forms of organization, other funds
o 7.2 Exchange-traded funds
o 7.3 Equity funds
 7.3.1 Market Cap(italization)
 7.3.2 Growth vs. value
 7.3.3 Index funds versus active management
o 7.4 Bond funds
o 7.5 Money market funds
o 7.6 Funds of funds
o 7.7 Hedge funds
• 8 Mutual funds vs. other investments
o 8.1 Share classes
o 8.2 Load and expenses
• 9 See also
• 10 References
• 11 Further reading
[edit] History
Massachusetts Investors Trust (now MFS Investment Management) was founded on
March 21, 1924, and, after one year, it had 200 shareholders and $392,000 in assets. The
entire industry, which included a few closed-end funds, represented less than $10 million
in 1924.
The stock market crash of 1929 hindered the growth of mutual funds. In response to the
stock market crash, Congress passed the Securities Act of 1933 and the Securities
Exchange Act of 1934. These laws require that a fund be registered with the U.S.
Securities and Exchange Commission (SEC) and provide prospective investors with a
prospectus that contains required disclosures about the fund, the securities themselves,
and fund manager. The Investment Company Act of 1940 sets forth the guidelines with
which all SEC-registered funds must comply.
With renewed confidence in the stock market, mutual funds began to blossom. By the end
of the 1960s, there were approximately 270 funds with $48 billion in assets. The first
retail index fund, First Index Investment Trust, was formed in 1976 and headed by John
Bogle, who conceptualized many of the key tenets of the industry in his 1951 senior
thesis at Princeton University.[2] It is now called the Vanguard 500 Index Fund and is one
of the world's largest mutual funds, with more than $100 billion in assets.
A key factor in mutual-fund growth was the 1975 change in the Internal Revenue Code
allowing individuals to open individual retirement accounts (IRAs). Even people already
enrolled in corporate pension plans could contribute a limited amount (at the time, up to
$2,000 a year). Mutual funds are now popular in employer-sponsored "defined-
contribution" retirement plans such as (401(k)s) and 403(b)s as well as IRAs including
Roth IRAs.
As of October 2007, there are 8,015 mutual funds that belong to the Investment Company
Institute (ICI), a national trade association of investment companies in the United States,
with combined assets of $12.356 trillion.[3] In early 2008, the worldwide value of all
mutual funds totaled more than $26 trillion.[4]
[edit] Usage, investment objectives

Since the Investment Company Act of 1940, a mutual fund is one of three basic types of
investment companies available in the United States.[5]
Mutual funds may invest in many kinds of securities (subject to its investment objective
as set forth in the fund's prospectus, which is the legal document under SEC laws which
offers the funds for sale and contains a wealth of information about the fund). The most
common securities purchased are "cash" or money market instruments, stocks, bonds,
other mutual fund shares and more exotic instruments such as derivatives like forwards,
futures, options and swaps. Some funds' investment objectives (and or its name) define
the type of investments in which the fund invests. For example, the fund's objective
might state "...the fund will seek capital appreciation by investing primarily in listed
equity securities (stocks) of U.S. companies with any market capitalization range." This
would be "stock" fund or a "domestic/US stock" fund since it stated U.S. companies. A
fund may invest primarily in the shares of a particular industry or market sector, such as
technology, utilities or financial services. These are known as specialty or sector funds.
Bond funds can vary according to risk (e.g., high-yield junk bonds or investment-grade
corporate bonds), type of issuers (e.g., government agencies, corporations, or
municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds
can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities
(global funds), or primarily foreign securities (international funds). Since fund names in
the past may not have provided a prospective investor a good indication of the type of
fund it was, the SEC issued a rule under the '40 Act which aims to better align fund
names with the primary types of investments in which the fund invests, commonly called
the "name rule". Thus, under this rule, a fund must invest under normal circumstances in
at least 80% of the securities referenced in its name. for example, the "ABC New Jersey
Tax Free Bond Fund" would generally have to invest, under normal circumstances, at
least 80% of its assets in tax-exempt bonds issued by the state of New Jersey and its
political subdivisions. Some fund names are not associated with specific securities so the
name rule has less relevance in those situations. For example, the "ABC Freedom Fund"
is such that its name does not imply a specific investment style or objective. Lastly, an
index fund strives to match the performance of a particular market index, such as the
S&P 500 Index. In such a fund, the fund would invest in securities and likely specific
derivates such as S&P 500 stock index futures in order to most closely match the
performance of that index.
Most mutual funds' investment portfolios are continually monitored by one or more
employees within the sponsoring investment adviser or management company, typically
called a portfolio manager and their assistants, who invest the funds assets in accordance
with its investment objective and trade securities in relation to any net inflows or
outflows of investor capital (if applicable), as well as the ongoing performance of
investments appropriate for the fund. A mutual fund is advised by the investment adviser
under an advisory contract which generally is subject to renewal annually.
Mutual funds are subject to a special set of regulatory, accounting, and tax rules. In the
U.S., unlike most other types of business entities, they are not taxed on their income as
long as they distribute 90% of it to their shareholders and the funds meet certain
diversification requirements in the Internal Revenue Code. Also, the type of income they
earn is often unchanged as it passes through to the shareholders. Mutual fund
distributions of tax-free municipal bond income are tax-free to the shareholder. Taxable
distributions can be either ordinary income or capital gains, depending on how the fund
earned those distributions. Net losses are not distributed or passed through to fund
investors.
[edit] Net asset value

Main article: Net asset value
The net asset value, or NAV, is the current market value of a fund's holdings, minus the
fund's liabilities, that is usually expressed as a per-share amount. For most funds, the
NAV is determined daily, after the close of trading on some specified financial exchange,
but some funds update their NAV multiple times during the trading day. The public
offering price, or POP, is the NAV plus a sales charge. Open-end funds sell shares at the
POP and redeem shares at the NAV, and so process orders only after the NAV is
determined. Closed-end funds (the shares of which are traded by investors) may trade at a
higher or lower price than their NAV; this is known as a premium or discount,
respectively. If a fund is divided into multiple classes of shares, each class will typically
have its own NAV, reflecting differences in fees and expenses paid by the different
classes.
Some mutual funds own securities which are not regularly traded on any formal
exchange. These may be shares in very small or bankrupt companies; they may be
derivatives; or they may be private investments in unregistered financial instruments
(such as stock in a non-public company). In the absence of a public market for these
securities, it is the responsibility of the fund manager to form an estimate of their value
when computing the NAV. How much of a fund's assets may be invested in such
securities is stated in the fund's prospectus.
The price per share, or NAV (net asset value), is calculated by dividing the fund's assets
minus liabilities by the number of shares outstanding. This is usually calculated at the end
of every trading day.
[edit] Average annual return

US mutual funds use SEC form N-1A to report the average annual compounded rates of
return for 1-year, 5-year and 10-year periods as the "average annual total return" for each
fund. The following formula is used:[6]
P(1+T)n = ERV
Where:
P = a hypothetical initial payment of $1,000.

T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning
of the 1-, 5-, or 10-year periods at the end of the 1-, 5-, or 10-year periods (or fractional
portion).
[edit] Turnover
Turnover is a measure of the fund's securities transactions, usually calculated over a
year's time, and usually expressed as a percentage of net asset value.
This value is usually calculated as the value of all transactions (buying, selling) divided
by 2 divided by the fund's total holdings; i.e., the fund counts one security sold and
another one bought as one "turnover". Thus turnover measures the replacement of
holdings.
In Canada, under NI 81-106 (required disclosure for investment funds) turnover ratio is
calculated based on the lesser of purchases or sales divided by the average size of the
portfolio (including cash).
[edit] Expenses and expense ratios

Mutual funds bear expenses similar to other companies. The fee structure of a mutual
fund can be divided into two or three main components: management fee, non-
management expense, and 12b-1/non-12b-1 fees. All expenses are expressed as a
percentage of the average daily net assets of the fund.
[edit] Management fees
The management fee for the fund is usually synonymous with the contractual investment
advisory fee charged for the management of a fund's investments. However, as many
fund companies include administrative fees in the advisory fee component, when
attempting to compare the total management expenses of different funds, it is helpful to
define management fee as equal to the contractual advisory fee plus the contractual
administrator fee. This "levels the playing field" when comparing management fee
components across multiple funds.
Contractual advisory fees may be structured as "flat-rate" fees, i.e., a single fee charged
to the fund, regardless of the asset size of the fund. However, many funds have
contractual fees which include breakpoints so that as the value of a fund's assets
increases, the advisory fee paid decreases. Another way in which the advisory fees
remain competitive is by structuring the fee so that it is based on the value of all of the
assets of a group or a complex of funds rather than those of a single fund.
[edit] Non-management expenses
Apart from the management fee, there are certain non-management expenses which most
funds must pay. Some of the more significant (in terms of amount) non-management
expenses are: transfer agent expenses (this is usually the person you get on the other end
of the phone line when you want to buy/sell shares of a fund), custodian expense (the
fund's assets are kept in custody by a bank which charges a custody fee), legal/audit
expense, fund accounting expense, registration expense (the SEC charges a registration
fee when funds file registration statements with it), board of directors/trustees expense
(the members of the board who oversee the fund are usually paid a fee for their time
spent at meetings), and printing and postage expense (incurred when printing and
delivering shareholder reports).
[edit] 12b-1/Non-12b-1 service fees
In the United States, 12b-1 service fees/shareholder servicing fees are contractual fees
which a fund may charge to cover the marketing expenses of the fund. Non-12b-1 service
fees are marketing/shareholder servicing fees which do not fall under SEC rule 12b-1.
While funds do not have to charge the full contractual 12b-1 fee, they often do. When
investing in a front-end load or no-load fund, the 12b-1 fees for the fund are usually .
250% (or 25 basis points). The 12b-1 fees for back-end and level-load share classes are
usually between 50 and 75 basis points but may be as much as 100 basis points. While
funds are often marketed as "no-load" funds, this does not mean they do not charge a
distribution expense through a different mechanism. It is expected that a fund listed on an
online brokerage site will be paying for the "shelf-space" in a different manner even if not
directly through a 12b-1 fee.
[edit] Investor fees and expenses
Fees and expenses borne by the investor vary based on the arrangement made with the
investor's broker. Sales loads (or contingent deferred sales loads (CDSL)) are included in
the fund's total expense ratio (TER) because they pass through the statement of
operations for the fund. Additionally, funds may charge early redemption fees to
discourage investors from swapping money into and out of the fund quickly, which may
force the fund to make bad trades to obtain the necessary liquidity. For example, Fidelity
Diversified International Fund (FDIVX) charges a 10 percent fee on money removed
from the fund in less than 30 days.
[edit] Brokerage commissions
An additional expense which does not pass through the fund's income statement
(statement of operations) and cannot be controlled by the investor is brokerage
commissions. Brokerage commissions are incorporated into the price of securities bought
and sold and, thus, are a component of the gain or loss on investments. They are a true,
real cost of investing though. The amount of commissions incurred by the fund and are
reported usually 4 months after the fund's fiscal year end in the "statement of additional
information" which is legally part of the prospectus, but is usually available only upon
request or by going to the SEC's or fund's website. Brokerage commissions, usually
charged when securities are bought and again when sold, are directly related to portfolio
turnover which is a measure of trading volume/velocity (portfolio turnover refers to the
number of times the fund's assets are bought and sold over the course of a year). Usually,
higher rate of portfolio turnover (trading) generates higher brokerage commissions. The
advisors of mutual fund companies are required to achieve "best execution" through
brokerage arrangements so that the commissions charged to the fund will not be
excessive as well as also attaining the best possible price upon buying or selling.
[edit] Types of mutual funds

[edit] Open-end fund, forms of organization, other funds
The term mutual fund is the common name for what is classified as an open-end
investment company by the SEC. Being open-ended means that, at the end of every day,
the fund continually issues new shares to investors buying into the fund and must stand
ready to buy back shares from investors redeeming their shares at the then current net
asset value per share.
Mutual funds must be structured as corporations or trusts, such as business trusts, and any
corporation or trust will be classified by the SEC as an investment company if it issues
securities and primarily invests in non-government securities. An investment company
will be classified by the SEC as an open-end investment company if they do not issue
undivided interests in specified securities (the defining characteristic of unit investment
trusts or UITs) and if they issue redeemable securities. Registered investment companies
that are not UITs or open-end investment companies are closed-end funds. Closed-end
funds are like open end except they are more like a company which sells its shares a
single time to the public under an initial public offering or "IPO". Subsequently, the
fund's shares trade with buyers and sellers of shares in the secondary market at a market-
determined price (which is likely not equal to net asset value) such as on the New York
or American Stock Exchange. Except for some special transactions, the fund cannot
continue to grow in size by attracting more investor capital like an open-end fund may.
[edit] Exchange-traded funds
Main article: Exchange-traded fund
A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an

open-end investment company. ETFs combine characteristics of both mutual funds and
closed-end funds. ETFs are traded throughout the day on a stock exchange, just like
closed-end funds, but at prices generally approximating the ETF's net asset value. Most
ETFs are index funds and track stock market indexes. Shares are issued or redeemed by
institutional investors in large blocks (typically of 50,000). Most investors buy and sell
shares through brokers in market transactions. Because the institutional investors
normally purchase and redeem in in kind transactions, ETFs are more efficient than
traditional mutual funds (which are continuously issuing and redeeming securities and, to
effect such transactions, continually buying and selling securities and maintaining
liquidity positions) and therefore tend to have lower expenses.
Exchange-traded funds are also valuable for foreign investors who are often able to buy
and sell securities traded on a stock market, but who, for regulatory reasons, are limited
in their ability to participate in traditional U.S. mutual funds.
[edit] Equity funds
Equity funds, which consist mainly of stock investments, are the most common type of
mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the
United States.[7] Often equity funds focus investments on particular strategies and certain
types of issuers.
[edit] Market Cap(italization)
Fund managers and other investment professionals have varying definitions of mid-cap,
and large-cap ranges. The following ranges are used by Russell Indexes:[8]
• Russell Microcap Index – micro-cap ($54.8 – 539.5 million)

• Russell 2000 Index – small-cap ($182.6 million – 1.8 billion)
• Russell Midcap Index – mid-cap ($1.8 – 13.7 billion)
• Russell 1000 Index – large-cap ($1.8 – 386.9 billion)
[edit] Growth vs. value
Another distinction is made between growth funds, which invest in stocks of companies
that have the potential for large capital gains, and value funds, which concentrate on
stocks that are undervalued. Value stocks have historically produced higher returns;
however, financial theory states this is compensation for their greater risk. Growth funds
tend not to pay regular dividends. Income funds tend to be more conservative
investments, with a focus on stocks that pay dividends. A balanced fund may use a
combination of strategies, typically including some level of investment in bonds, to stay
more conservative when it comes to risk, yet aim for some growth.[citation needed]
[edit] Index funds versus active management
Main articles: Index fund and active management
An index fund maintains investments in companies that are part of major stock (or bond)
indexes, such as the S&P 500, while an actively managed fund attempts to outperform a
relevant index through superior stock-picking techniques. The assets of an index fund are
managed to closely approximate the performance of a particular published index. Since
the composition of an index changes infrequently, an index fund manager makes fewer
trades, on average, than does an active fund manager. For this reason, index funds
generally have lower trading expenses than actively managed funds, and typically incur
fewer short-term capital gains which must be passed on to shareholders. Additionally,
index funds do not incur expenses to pay for selection of individual stocks (proprietary
selection techniques, research, etc.) and deciding when to buy, hold or sell individual
holdings. Instead, a fairly simple computer model can identify whatever changes are
needed to bring the fund back into agreement with its target index.
Certain empirical evidence seems to illustrate that mutual funds do not beat the market
and actively managed mutual funds under-perform other broad-based portfolios with
similar characteristics. One study found that nearly 1,500 U.S. mutual funds under-
performed the market in approximately half of the years between 1962 and 1992.[9]
Moreover, funds that performed well in the past are not able to beat the market again in
the future (shown by Jensen, 1968; Grinblatt and Sheridan Titman, 1989).[10]
[edit] Bond funds
Bond funds account for 18% of mutual fund assets.[7] Types of bond funds include term
funds, which have a fixed set of time (short-, medium-, or long-term) before they mature.
Municipal bond funds generally have lower returns, but have tax advantages and lower
risk. High-yield bond funds invest in corporate bonds, including high-yield or junk
bonds. With the potential for high yield, these bonds also come with greater risk.
[edit] Money market funds
Money market funds hold 26% of mutual fund assets in the United States.[11] Money
market funds generally entail the least risk, as well as lower rates of return. Unlike
certificates of deposit (CDs), open-end money fund shares are generally liquid and
redeemable at "any time" (that is, normal business hours during which redemption
requests are taken - generally not after 4 PM ET). Money funds in the US are required to
advise investors that a money fund is not a bank deposit, not insured and may lose value.
Most money fund strive to maintain an NAV of $1.00 per share though that is not
guaranteed; if a fund "breaks the buck", its shares could be redeemed for less than $1.00
per share. While this is rare, it has happened in the U.S., due in part to the mortgage crisis
affecting related securities.
[edit] Funds of funds
Funds of funds (FoF) are mutual funds which invest in other mutual funds (i.e., they are
funds composed of other funds). The funds at the underlying level are often funds which
an investor can invest in individually, though they may be 'institutional' class shares that
may not be within reach of an individual shareholder). A fund of funds will typically
charge a much lower management fee than that of a fund investing in direct securities
because it is considered a fee charged for asset allocation services which is presumably
less demanding than active direct securities research and management. The fees charged
at the underlying fund level are a real cost or drag on performance but do not pass
through the FoF's income statement (statement of operations), but are usually disclosed in
the fund's annual report, prospectus, or statement of additional information. FoF's will
often have a higher overall/combined expense ratio than that of a regular fund. The FoF
should be evaluated on the combination of the fund-level expenses and underlying fund
expenses, as these both reduce the return to the investor.
Most FoFs invest in affiliated funds (i.e., mutual funds managed by the same advisor),
although some invest in unaffilated funds (those managed by other advisors) or both. The
cost associated with investing in an unaffiliated underlying fund may be higher than
investing in an affiliated underlying because of the investment management research
involved in investing in fund advised by a different advisor. Recently, FoFs have been
classified into those that are actively managed (in which the investment advisor
reallocates frequently among the underlying funds in order to adjust to changing market
conditions) and those that are passively managed (the investment advisor allocates assets
on the basis of on an allocation model which is rebalanced on a regular basis).
The design of FoFs is structured in such a way as to provide a ready mix of mutual funds
for investors who are unable to or unwilling to determine their own asset allocation
model. Fund companies such as TIAA-CREF, American Century Investments, Vanguard,
and Fidelity have also entered this market to provide investors with these options and
take the "guess work" out of selecting funds. The allocation mixes usually vary by the
time the investor would like to retire: 2020, 2030, 2050, etc. The more distant the target
retirement date, the more aggressive the asset mix.
[edit] Hedge funds
Main article: Hedge fund
Hedge funds in the United States are pooled investment funds with loose, if any, SEC
regulation, unlike mutual funds. Some hedge fund managers are required to register with
SEC as investment advisers under the Investment Advisers Act of 1940.[12] The Act does
not require an adviser to follow or avoid any particular investment strategies, nor does it
require or prohibit specific investments. Hedge funds typically charge a management fee
of 1% or more, plus a “performance fee” of 20% of the hedge fund's profit. There may be
a "lock-up" period, during which an investor cannot cash in shares. A variation of the
hedge strategy is the 130-30 fund for individual investors.
[edit] Mutual funds vs. other investments

Mutual funds offer several advantages over investing in individual stocks. For example,
the transaction costs are divided among all the mutual fund shareholders, which allows
for cost-effective diversification. Investors may also benefit by having a third party
(professional fund managers) apply expertise and dedicate time to manage and research
investment options, although there is dispute over whether professional fund managers
can, on average, outperform simple index funds that mimic public indexes. Yet, the Wall
Street Journal reported that separately managed accounts (SMA or SMAs) performed
better than mutual funds in 22 of 25 categories from 2006 to 2008. This included beating
mutual funds performance in 2008, a tough year in which the global stock market lost
US$21 trillion in value.[13][14] In the story, Morningstar, Inc said SMAs outperformed
mutual funds in 25 of 36 stock and bond market categories. Whether actively managed or
passively indexed, mutual funds are not immune to risks. They share the same risks
associated with the investments made. If the fund invests primarily in stocks, it is usually
subject to the same ups and downs and risks as the stock market.
[edit] Share classes
Many mutual funds offer more than one class of shares. For example, you may have seen
a fund that offers "Class A" and "Class B" shares. Each class will invest in the same pool
(or investment portfolio) of securities and will have the same investment objectives and
policies. But each class will have different shareholder services and/or distribution
arrangements with different fees and expenses. These differences are supposed to reflect
different costs involved in servicing investors in various classes; for example, one class
may be sold through brokers with a front-end load, and another class may be sold direct
to the public with no load but a "12b-1 fee" included in the class's expenses (sometimes
referred to as "Class C" shares). Still a third class might have a minimum investment of
$10,000,000 and be available only to financial institutions (a so-called "institutional"
share class). In some cases, by aggregating regular investments made by many
individuals, a retirement plan (such as a 401(k) plan) may qualify to purchase
"institutional" shares (and gain the benefit of their typically lower expense ratios) even
though no members of the plan would qualify individually.[15] As a result, each class will
likely have different performance results.[16]
A multi-class structure offers investors the ability to select a fee and expense structure
that is most appropriate for their investment goals (including the length of time that they
expect to remain invested in the fund).[16]
[edit] Load and expenses
Main article: Mutual fund fees and expenses

A front-end load or sales charge is a commission paid to a broker by a mutual fund when
shares are purchased, taken as a percentage of funds invested. The value of the
investment is reduced by the amount of the load. Some funds have a deferred sales charge
or back-end load. In this type of fund an investor pays no sales charge when purchasing
shares, but will pay a commission out of the proceeds when shares are redeemed
depending on how long they are held. Another derivative structure is a level-load fund, in
which no sales charge is paid when buying the fund, but a back-end load may be charged
if the shares purchased are sold within a year.
Load funds are sold through financial intermediaries such as brokers, financial planners,
and other types of registered representatives who charge a commission for their services.
Shares of front-end load funds are frequently eligible for breakpoints (i.e., a reduction in
the commission paid) based on a number of variables. These include other accounts in the
same fund family held by the investor or various family members, or committing to buy
more of the fund within a set period of time in return for a lower commission "today".
It is possible to buy many mutual funds without paying a sales charge. These are called
no-load funds. In addition to being available from the fund company itself, no-load funds
may be sold by some discount brokers for a flat transaction fee or even no fee at all. (This
does not necessarily mean that the broker is not compensated for the transaction; in such
cases, the fund may pay brokers' commissions out of "distribution and marketing"
expenses rather than a specific sales charge. The buyer is therefore paying the fee
indirectly through the fund's expenses deducted from profits.)
No-load funds include both index funds and actively managed funds. The largest mutual
fund families selling no-load index funds are Vanguard and Fidelity, though there are a
number of smaller mutual fund families with no-load funds as well. Expense ratios in
some no-load index funds are less than 0.2% per year versus the typical actively managed
fund's expense ratio of about 1.5% per year. Load funds usually have even higher
expense ratios when the load is considered. The expense ratio is the anticipated annual
cost to the investor of holding shares of the fund. For example, on a $100,000 investment,
an expense ratio of 0.2% means $200 of annual expense, while a 1.5% expense ratio
would result in $1,500 of annual expense. These expenses are before any sales
commissions paid to purchase the mutual fund.
Many fee-only financial advisors strongly suggest no-load funds such as index funds. If
the advisor is not of the fee-only type but is instead compensated by commissions, the
advisor may have a conflict of interest in selling high-commission load funds.
[edit] See also

• Active management
• Closed-end fund
• Exchange-traded fund
• Fund derivative
• Global assets under management
• Index fund
• Institutional investor
• Investment Company Institute
• Investment management
• List of mutual fund companies in Canada
• List of mutual-fund families in the United States
• List of US Mutual Funds By Assets Under Management
• Mutual funds in India
• Money fund
• Mutual-fund scandal (2003)
• Open-end fund
• Pension
• Retirement plans in the United States
• Separately managed account or SMAs
• Socially responsible investing
• Superannuation fund
• Unit trust
• Value investing
• Venture capital
[edit] References
1. ^ "US SEC answers on Mutual Funds". U.S. Securities and Exchange
Commission (SEC). http://www.sec.gov/answers/mutfund.htm. Retrieved 2006-
04-11.
2. ^ "Princeton Alumni Weekly article on pioneering work of John Bogle '51".
http://www.princeton.edu/~paw/web_exclusives/features/features_19.html.
3. ^ "About ICI". Investment Company Institute (ICI).
http://www.ici.org/stats/mf/trends_10_07.html. Retrieved 2007-12-01.
4. ^ Worldwide Mutual Fund Assets and Flows, Fourth Quarter 2007
5. ^ "Investment Companies". U.S. Securities and Exchange Commission (SEC).
http://www.sec.gov/answers/mfinvco.htm. Retrieved 2006-04-11.
6. ^ "Final Rule: Registration Form Used by Open-End Management Investment
Companies: Sample Form and instructions". U.S. Securities and Exchange
Commission (SEC). http://www.sec.gov/rules/final/33-7512f.htm#E12E2.
Retrieved 2008-09-25.
7. ^ a b "Frequently Asked Questions About Bond Mutual Funds". Investment
Company Institute. http://www.ici.org/funds/abt/faqs_bond_funds.html. Retrieved
2006-04-11.
8. ^ "U.S. Indexes: Construction & Methodology".
http://www.russell.com/US/Indexes/US/methodology.asp. Retrieved 2006-04-23.
9. ^ Mark Carhart (March 1997). "On Persistence in Mutual Fund Performance".
Journal of Finance 52 (1): 56–82.
10. ^ M. Grimblatt and S. Titman (1989). "Mutual Fund Performance: an Analysis of
Quarterly Portfolio Holdings". Journal of Business 62: 393–416.
doi:10.1086/296468.
11. ^ "Frequently Asked Questions About Money Market Mutual Funds". Investment
Company Institute. http://www.ici.org/funds/abt/faqs_money_funds.html.
12. ^ "Hedging Your Bets: A Heads Up on Hedge Funds and Funds of Hedge Funds".
U.S. Securities and Exchange Commission (SEC).
http://www.sec.gov/answers/hedge.htm. Retrieved 2006-04-11.
13. ^ "SMAs beat funds in 2008". The Wall Street Times.
http://online.wsj.com/article/SB123679669243098151.html.
14. ^ Thompson, Susan (2009-02-11). "Global stock market losses total $21 trillion".
Times Online (London).
http://business.timesonline.co.uk/tol/business/markets/article5705526.ece.
15. ^ Christine Benz. "Which Is the Right Fund Share Class for You?". Morningstar
(registration required). http://news.morningstar.com/article/article.asp?id=142323.
16. ^ a b Sources of Information "Invest Wisely: An Introduction to Mutual Funds".
U.S. Securities and Exchange Commission (SEC).
http://www.sec.gov/investor/pubs/inwsmf.htm Sources of Information. Retrieved
2006-04-11.
[edit] Further reading

• Tamar Frankel & Lawrence A. Cunningham, The Mysterious Ways of Mutual Funds:
Market Timing, Annual Review of Financial and Banking Law (2007)
[hide]
v•d•e
Investment management
Common contractual fund · Fond

commun de placement · Investment trust ·
Unit trust · Mutual fund · ICVC ·
Collective investment scheme structures
SICAV · Unit Investment Trust ·
Exchange-traded fund · Offshore fund ·
Unitised insurance fund
Active or Passive management · Value or

Growth investing · Hedge fund · Socially
Investment Styles
responsible investing · Fund of funds ·
Manager of managers · Index fund
Efficient-market hypothesis · Net asset

Theory & Terminology
value · Open-end fund · Closed-end fund
List of asset management firms ·

Related Topics
Umbrella fund · UCITS
Retrieved from "http://en.wikipedia.org/wiki/Mutual_fund"
Categories: Financial services | Funds | Investment | Institutional investors | Collective
investment schemes
Hidden categories: All articles with unsourced statements | Articles with unsourced
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• This page was last modified on 2 July 2010 at 22:54.

Mutual funds are one investment option, but are these funds still a good investment
option or should they be avoided? Mutual funds are simply a fund where money from a
number of investors is pooled, and these funds are managed by a professional to benefit
all of the shareholders in the mutual fund. When you invest in mutual funds, you become
a shareholder in the fund invested in. As a shareholder, you will have a share in any
performance of the fund, whether it is an increase or a decrease in value. The money that
is pooled in a mutual fund is invested by the money manager, and there are many
investment options and strategies that can be used. A mutual fund can invest in any asset
classes, but they usually stick with bonds, stocks, and cash.
Mutual funds have many advantages, and this is normally one of the reasons that these
funds make a good investment option. A mutual fund can offer your portfolio diversity,
because your investment capital is spread over more than one class and type. Because
mutual funds are usually diversified in their investments, this will lower the risks of large
losses and less market volatility. This happens because even if some of the investments
chosen by the fund manager are doing poorly because of market conditions, other
investments may be doing phenomenal, and this offsets the poor performing investments.
This is why diversity is important.
Mutual funds also allow you to have access to a professional fund manager, who has
extensive knowledge and experience in these markets. This means your investments are
closely watched and managed, with no effort on your part. Having a professional
manager means that your investment funds are invested for the best returns you can
possibly get. Mutual funds also offer the advantage of substantial sums of money at work.
When you invest in these funds, your money is pooled together with the investment funds
from all the other investors. This allows the fund manager to collectively buy larger
amounts, and also increases the possible returns for you.
Mutual funds also offer liquidity. This will allow you to access your money by simply
selling your fund shares, and this can normally be done quickly and conveniently. Make
sure you understand the restrictions on any mutual fund you invest in though, because
some of these funds may only allow trading at a specific time each day for a price that is
set. This is quite different from stocks and bonds.
Mutual fund shares can be purchased in one of two ways. These methods are called load
or no load funds. Load funds are mutual funds that charge you a commission or fee for
any share purchases. These fees and commissions may be charged either when the shares
are purchased or sold, depending on the specific mutual fund. No Load mutual funds do
not usually charge a commission or fee, and if they do these amounts are very small.
With No Load funds, you must do all the required paperwork on your own, while Load
funds are normally offered through banks and brokers, and many times the paperwork
required will be done for you.
Mutual funds are still a good investment option, but make sure to do your research to find
the right funds which fit perfectly with your needs and preferences. Mutual funds allow
you to invest in two ways, either with a lump sum investment or a method called
automatic investment. With lump sum investing, you will invest a lump sum into the
mutual fund. With automatic investing you will invest a specific amount for every certain
length of time, such as fifty dollars a week or four hundred dollars once a month.
How to Select a Good Mutual Fund
Contributor
By an eHow Contributing Writer
Article Rating: (25 Ratings)
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Sometimes it seems there are as many mutual funds as there are people, but
it's important to take the time to choose the ones that further your investment
goals.
Difficulty: Moderate
Instructions
Things You'll Need:
• Personal Financial Software

• Wall Street Journal
• Paper And Pencils
• Financial Calculator
• Brokerage Accounts
1. Step 1
Decide what percentage of your money you will allocate to mutual funds. If
you'll be investing less than $15,000 to $20,000 overall, many investors
advise that all of your investments should be in mutual funds.
2. Step 2
Determine how many mutual funds you will invest in. Three to five funds is
generally considered an adequate amount of diversification.
3. Step 3
Decide whether you'll deal directly with the fund manager or use a broker.
4. Step 4
Diversify the funds you buy in terms of the size of the companies in their
portfolios and the businesses that those companies are in.
5. Step 5
Choose high-performance funds by using Internet resources and newspapers

to pick those funds that have had the best performance over at least the last
three years.
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Tips & Warnings
• Using a discount broker who sells no-load funds without taking a

commission makes it easy to switch from one fund to another.
• A large group of mutual funds does not necessarily provide diversification
because the companies whose stocks they hold will overlap.
• If you don't buy no-load funds whenever you can, you could lose a good
deal of your returns - or even your principal - to commissions.
Need to do this project? Then let us help!

I want to do this! What's This?
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Comments
Post a Comment | View All 12 Comments
sahill said
Flag This Comment
on 6/19/2008 Sort of skimpy on information here. How about explaining how to

do things for the novice investor?
MichaelWeiss said
Flag This Comment
on 9/8/2007 When selecting a mutual fund, you should evaluate several factors
such as performance, expenses as well as the background and experience its
investment management team.
Michael Weiss
http://www.mutualfundinvestor.net/
MichaelWeiss said
Flag This Comment
Michael Weiss
MichaelWeiss said
Flag This Comment

Michael Weiss
wyliecoyote said
Flag This Comment
on 6/5/2007 I am about to go into a 401(k) and do not know what funds or stock
to pick. Iam 40yrs old and I don't make a lot of money and the way social security
is going i would like to retire with some money stashed away
Read more: How to Select a Good Mutual Fund | eHow.com

http://www.ehow.com/how_2799_select-mutual-fund.html#ixzz0vYGaxIui
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ratings, mutual fund list and mutual fund review
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Mutual Fund Investment in India

Potential of Indian Mutual Funds Industry
The Indian mutual funds industry has been experiencing a rapid growth due to
infrastructural development, personal financial assets getting augmented and increased
foreign participation. The risk appetite of the middle class investors has been increasing,
income has been going up, investors being made aware of the potential of the mutual
fund industry – all these have been making India a preferred Mutual Fund investment
destination when compared to other investment vehicles like Fixed Deposits (FDs) and
postal savings. The diversified portfolio is another reason for the investors to get allured
by the Mutual Fund Investment India.
Growth of Indian MF Industry
1. The Indian mutual funds retail market, which at present is growing at a CAGR of
around 30%, is estimated to reach US$ 300 Billion by 2015.
2. Income and growth MF schemes made up for the bulk Assets under Management
(AUM) in India.
3. Private sector Asset Management Companies (AMCs) account for majority of
mutual fund sales in India (around 84% on March 31, 2008).
The growth path of Mutual Fund Investment India is attributed to the high
saving pattern in India. This is a healthy status of the MF industry in India when
compared to Japan, France and China. The Mutual fund sector in India though has huge
potential, yet the limited participation of the rural sector will always act as a deterrent
factor. The other hurdles in this regard are lack of awareness, inferior distribution channel
and limited banking services in the rural regions. The best instrument of investing money
nowadays is the mutual fund. Investing in a stock market has become risky these days
due to the high volatility in the market.
Phases of Indian Mutual Funds investment
The foundation of the mutual funds industry in India dates back to the time when mutual
fund was introduced by UTI in 1963. The growth path has been staggering but it saw a
surge from 1987 when there other players also entered the market. Mutual Fund
Investment India have witnessed an outstanding development both quality and quantity
wise. Thus it is recommended to follow up with the potential of the mutual fund
investment India for a better growth prospect.
4 phases in the Indian Mutual Funds investment India
• First Phase - 1964-87

• Second Phase - 1987-1993 (Entry of Public Sector Funds)
• Third Phase - 1993-2003 (Entry of Private Sector Funds)
• Fourth Phase - since February 2003
Types of Mutual fund investment in India
1. Closed-end funds: A closed-end mutual fund bears a number of shares which are
issued to the public by an initial public offering (IPO).
2. Open-end funds: Open end funds are managed by mutual fund houses for raising
money from shareholders and they invest in a group of assets.
3. Large cap funds: Large cap funds are those mutual funds, which look for capital
appreciation by way of investing in blue chip stocks.
4. Mid-cap funds: Mid cap funds invest in small/medium sized companies, but with
no proper definition of classifying a company.
5. Equity funds: Equity mutual funds, also known as stock mutual funds invest
pooled amounts of money in public company stocks.
6. Balanced funds: Balanced funds are also known as hybrid fund, buying a
combination of common stock, preferred stock, bonds, and short-term bonds.
7. Growth funds: Growth funds are mutual funds that target at capital appreciation
by investing in growth stocks.
8. Exchange traded funds: Exchange Traded Funds (ETFs) are a basket of securities
being traded on an exchange, just similar to that of a stock. They are not like the
conventional mutual funds.
9. Sector funds: These funds are funds that restrict the investments to a specific
segment or sector.
10. Index funds: An index fund aims to replicate the actions of an index of a specific
financial market.
List of top Indian mutual funds
• ABN-AMRO
• Baroda Pioneer Mutual Fund
• Benchmark
• Birla Sunlife
• Canbank
• DBS Chola
• Deutsche
• DSP Merrill Lynch
• Escorts
• Fidelity
• Franklin Templeton
• HDFC
• HSBC
• ING Vysya
• JM
• Kotak Mahindra
• LIC
• Morgan Stanley
• Principal
• Prudential ICICI
• Reliance
• Sahara
• SBI
• Standard Chartered
• Sundaram BNP Paribas
• Tata
• UTI
Mutual Fund Information
Mutual funds enable hundreds, and in some cases even millions, of investors to pool their
money together in order to make investments. Investors in mutual funds entrust their
investment decisions to a professional money manager and his/her staff. Most mutual
funds have clearly defined investment practices and objectives for their investments.
With nearly 10,000 different funds now available, there is most likely a fund that will
cater to just about any investment objective you might have.
Mutual funds can be broken down into two basic categories: equity and bond funds.
Equity funds invest primarily in common stocks, while bond funds invest mainly in
various debt instruments. Within each of these sectors, investors have a myriad of choices
to consider, including: international or domestic, active or indexed, and value or growth,
just to name a few. We will cover these topics shortly. First, however, we're going to
focus our attention on the “nuts and bolts” of how mutual funds operate.
The first thing to be aware of are the various fees associated with any given mutual fund.
There are three major fees to look for:
Management Fees -- It costs money to hire a group of professional money managers.

However, you should be very mindful of the management fees charged by any fund
you're considering making an investment in, as some fund's fees can be downright
exorbitant. The typical fee charged by most equity funds averages somewhere in the
neighborhood of 1-1 ½% per year. Meanwhile, most bond funds charge about half that
amount.
Front or Back-end Loads -- These are fees that fund companies charge investors when
they purchase or sell a fund. You can pay a maximum 8.5% fee upfront (called a front-
end load) or when you sell (called a back-end load). It's important to note that these fees
are in addition to any trading commissions and yearly management fees you may be
charged. In general, we look for “no-load” funds--those that do not charge fees for
purchases or sales.
12(b)-1 fee -- Funds are allowed to charge a maximum of 1% per year to cover “sales and
marketing” costs. This fee can include some items that most investors would consider
questionable, so be on the lookout for funds that have a high 12(b)-1 charge.
When looking at different funds, you'll also notice a term called NAV, which stands for
Net Asset Value. This is the price that it will cost to purchase a share of the fund. It is
determined by the amount of assets under management divided by the number of shares
outstanding. If a fund has $1 million under management and has 100,000 shares
outstanding, then its NAV would be $10 ($1,000,000 / 100,000 = $10).
Another important item to note is that each mutual fund share represents an equal
percentage of the fund's overall value. However, most funds hold a variety of different
stocks/bonds, and these holdings are almost never weighted equally as a percentage of the
fund's assets. For instance, assume the fund above consists of only three holdings;
$500,000 of GE, $300,000 of IBM, and $200,000 of Cisco. (In reality, of course, most
mutual funds usually invest in a diversified basket of 30 to several hundred different
holdings.) The total value of this fund is equal to $1 million, while each share of the fund
is equal to $10. Each share, however, consists of 50% GE ($1M / $500,000), 30% IBM,
and 20% Cisco Systems. So, by purchasing one share of this particular mutual fund for
$10, you're essentially gaining an interest in $5 of GE, $3 of IBM and $2 of Cisco
Systems. This is the primary benefit of mutual funds--they enable investors to gain
exposure to a basket of stocks with one single transaction.
Why are Mutual Funds so Popular?
Mutual funds provide an easy way for small investors to make long-term, diversified,
professionally managed investments at a reasonable cost. If an investor only has a small
amount of money with which to invest, then he/she will most likely not be able to afford
a professional money manager, a diversified basket of stocks, or have access to low
trading fees. With a mutual fund, however, a large group of investors can pool their
resources together and make these benefits available to the entire group. There are no
“perks” for the largest investor and no penalties to the smallest--all mutual fund holders
pay the same fees and receive the same benefits.
Mutual funds are also popular because they provide an excellent way for anyone to direct
a portion of their income towards a particular investment objective. Whether you're
looking for a broad-based fund or a narrow industry-focused niche fund, you're almost
certain to find a fund that meets your needs. Although the various style and category
types are virtually endless, here's a quick summary of some of the various choices
available to equity investors:
Broad-Based Funds -- Investors can use mutual funds to gain exposure to the broad U.S.
stock market. A number of funds track such well-known indices as the S&P 500 and Dow
Jones Industrials, as well as even broader indices like the Wilshire 5000.
Market Cap Oriented Funds -- Some funds invest exclusively in stocks of a particular
size, such as large-caps (generally defined as companies with market caps of at least $10
billion), mid-caps ($1-$10 billion), small-caps ($300 million to $1 billion) or micro-caps
($50-$300 million).
Investment Style/Objective Funds -- Some funds invest primarily in value-oriented

stocks. Meanwhile, others are much more aggressive, investing exclusively in growth
companies. Still others invest in income-oriented issues. The different investment styles
and objectives to choose from are virtually endless.
Industry/Sector/Niche Funds -- Certain funds specialize in one particular industry. For

example, some funds invest in Biotech stocks, while others invest only in gold & silver
companies, etc. Meanwhile, other funds focus exclusively on niche markets, such as
companies that are going through mergers or IPOs (initial public offerings).
Country/Region Specific Funds -- Investors can use mutual funds to gain exposure to
equities based in a particular country (Brazil, China, etc) or region (Europe, North
America, etc), as well as broad exposure to stocks all over the world.
Actively Managed vs. Index Funds -- Some funds are actively managed by professional
money managers. Meanwhile, others are passively-managed funds that track a particular
index or hold a fixed basket of stocks.
Another advantage of mutual funds is that they usually make it very easy to invest small
sums of money on a regular basis. In fact, many funds allow investors to make automatic
deductions right from their bank accounts or paychecks.
And finally, another reason for the popularity of mutual funds is that many investors
simply cannot afford to properly diversify and manage their portfolio throughout the
year. To achieve the best results from diversification, a portfolio needs to contain at least
30 holdings. Instead of going out and purchasing 30 different stocks and managing them
all year, an investor can just buy shares in a mutual fund and let the manager take care of
all of the day-to-day decisions.
What are some drawbacks to Mutual Funds?

As mentioned above, fees can be a serious impediment to mutual funds. In fact, some of
the costliest funds may charge 4-5% per year in fees. Any fund that charges high fees will
undoubtedly claim that it does so in an effort to provide superior management. While this
may occasionally be true, it is rarely the case. Studies have shown that in the long run,
most mutual funds underperform the overall market by exactly the same amount they
charge in fees. With this in mind, we suggest finding funds with low expense ratios and
no front- or back-end loads. A fund that charges 2% per year will cost you $200 for every
$10,000 that you have invested. Unless the fund can outperform the market by 2%, you
will have unwisely paid the manager extra money when you could have put that same
money into your own portfolio. Index funds generally provide the overall lowest costs
because they do not actively manage their holdings (this lowers managerial and
transaction costs). These are often referred to as “passively-managed” funds because they
simply track a predetermined index such as the S&P 500, Dow Jones Industrials, or the
Nasdaq Composite.
Where Can I Learn More?

Below you'll find a host of additional resources that you should find useful in the course
of your mutual fund research:
Morningstar -- From the undisputed leader in mutual fund information, this site serves up
descriptions, return analysis and proprietary ratings on over 2,000 different funds.
Yahoo Mutual Fund Center -- Features current fund news, fund screeners, return
calculators and an invaluable educational section.
Sector Updates Mutual Fund Center -- This site includes a plethora of links to mutual
fund screening tools, fund company contact information, educational materials and
current mutual fund news.
Fidelity -- Fidelity is one of the world's largest fund managers. You'll find plenty of
information here on both 401(k) plans and individual mutual funds.
Vanguard -- This firm has made its reputation as the low-cost fund leader. Before
investing in index funds, every investor should learn more about Vanguard’s founder,
John Bogle, and his philosophy on mutual funds.
Mutual Fund Education Alliance -- This is a good all-around mutual fund investment site
that covers many different topics.
IndexFunds.com -- This quality educational site clearly demonstrates that the risk/reward
ratio favors investing in index funds.
Valuable Links from StreetAuthority.com...

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SECURITIES AND EXCHANGE BOARD OF INDIA
SEBI INVESTOR EDUCATION PROGRAMME
(INVESTMENTS IN MUTUAL FUNDS)

Introduction
Different investment avenues are available to investors. Mutual funds also offer good
investment opportunities to the investors. Like all investments, they also carry certain
risks. The investors should compare the risks and expected yields after adjustment
of tax on various instruments while taking investment decisions. The investors may
seek advice from experts and consultants including agents and distributors of mutual
funds schemes while making investment decisions.
With an objective to make the investors aware of functioning of mutual funds, an

attempt has been made to provide information in question-answer format which may
help the investors in taking investment decisions.
What is a Mutual Fund?
Mutual fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as disclosed
in offer document.
Investments in securities are spread across a wide cross-section of industries and

sectors and thus the risk is reduced. Diversification reduces the risk because all
stocks may not move in the same direction in the same proportion at the same time.
Mutual fund issues units to the investors in accordance with quantum of money
invested by them. Investors of mutual funds are known as unitholders.
The profits or losses are shared by the investors in proportion to their investments.
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 is
required to be registered with Securities and Exchange Board of India (SEBI) which
regulates securities markets before it can collect funds from the public.
What is the history of Mutual Funds in India and role of SEBI in mutual funds
industry?
Unit Trust of India was the first mutual fund set up in India in the year 1963. In early
1990s, Government allowed public sector banks and institutions to set up mutual
funds.
In the year 1992, Securities and exchange Board of India (SEBI) Act was passed.
The objectives of SEBI are – to protect the interest of investors in securities and to
promote the development of and to regulate the securities market.
As far as mutual funds are concerned, SEBI formulates policies and regulates the
mutual funds to protect the interest of the investors. SEBI notified regulations for the
mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities
were allowed to enter the capital market. The regulations were fully revised in 1996
and have been amended thereafter from time to time. SEBI has also issued
guidelines to the mutual funds from time to time to protect the interests of investors.
All mutual funds whether promoted by public sector or private sector entities
including those promoted by foreign entities are governed by the same set of
Regulations. There is no distinction in regulatory requirements for these mutual
funds and all are subject to monitoring and inspections by SEBI. The risks
associated with the schemes launched by the mutual funds sponsored by these
entities are of similar type.
How is a mutual fund set up?
A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset
management company (AMC) and custodian. The trust is established by a sponsor
or more than one sponsor who is like promoter of a company. The trustees of the
mutual fund hold its property for the benefit of the unitholders. Asset Management
Company (AMC) approved by SEBI manages the funds by making investments in
various types of securities. Custodian, who is registered with SEBI, holds the
securities of various schemes of the fund in its custody. The trustees are vested with
the general power of superintendence and direction over AMC. They monitor the
performance and compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee company
or board of trustees must be independent i.e. they should not be associated with the
sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds
are required to be registered with SEBI before they launch any scheme.
What is Net Asset Value (NAV) of a scheme?
The performance of a particular scheme of a mutual fund is denoted by Net Asset

Value (NAV).
Mutual funds invest the money collected from the investors in securities markets. In
simple words, Net Asset Value is the market value of the securities held by the
scheme. Since market value of securities changes every day, NAV of a scheme also
varies on day to day basis. The NAV per unit is the market value of securities of a
scheme divided by the total number of units of the scheme on any particular date.
For example, if the market value of securities of a mutual fund scheme is Rs 200
lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each to the investors,
then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed by the
mutual funds on a regular basis - daily or weekly - depending on the type of scheme.
What are the different types of mutual fund schemes?
Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended
scheme depending on its maturity period.
Open-ended Fund/ Scheme
An open-ended fund or scheme is one that is available for subscription and

repurchase on a continuous basis. These schemes do not have a fixed maturity
period. Investors can conveniently buy and sell units at Net Asset Value (NAV)
related prices which are declared on a daily basis. The key feature of open-end
schemes is liquidity.
Close-ended Fund/ Scheme
A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The
fund is open for subscription only during a specified period at the time of launch of
the scheme. Investors can invest in the scheme at the time of the initial public issue
and thereafter they can buy or sell the units of the scheme on the stock exchanges
where the units are listed. In order to provide an exit route to the investors, some
close-ended funds give an option of selling back the units to the mutual fund through
periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least
one of the two exit routes is provided to the investor i.e. either repurchase facility or
through listing on stock exchanges. These mutual funds schemes disclose NAV
generally on weekly basis.
Schemes according to Investment Objective:
A scheme can also be classified as growth scheme, income scheme, or balanced

scheme considering its investment objective. Such schemes may be open-ended or
close-ended schemes as described earlier. Such schemes may be classified mainly
as follows:
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to long-
term. Such schemes normally invest a major part of their corpus in equities. Such
funds have comparatively high risks. These schemes provide different options to the
investors like dividend option, capital appreciation, etc. and the investors may
choose an option depending on their preferences. The investors must indicate the
option in the application form. The mutual funds also allow the investors to change
the options at a later date. Growth schemes are good for investors having a long-
term outlook seeking appreciation over a period of time.
Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors. Such
schemes generally invest in fixed income securities such as bonds, corporate
debentures, Government securities and money market instruments. Such funds are
less risky compared to equity schemes. These funds are not affected because of
fluctuations in equity markets. However, opportunities of capital appreciation are also
limited in such funds. The NAVs of such funds are affected because of change in
interest rates in the country. If the interest rates fall, NAVs of such funds are likely to
increase in the short run and vice versa. However, long term investors may not
bother about these fluctuations.
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion
indicated in their offer documents. These are appropriate for investors looking for
moderate growth. They generally invest 40-60% in equity and debt instruments.
These funds are also affected because of fluctuations in share prices in the stock
markets. However, NAVs of such funds are likely to be less volatile compared to
pure equity funds.
Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income. These schemes invest exclusively in
safer short-term instruments such as treasury bills, certificates of deposit,
commercial paper and inter-bank call money, government securities, etc. Returns on
these schemes fluctuate much less compared to other funds. These funds are
appropriate for corporate and individual investors as a means to park their surplus
funds for short periods.
Gilt Fund
These funds invest exclusively in government securities. Government securities

have no default risk. NAVs of these schemes also fluctuate due to change in interest
rates and other economic factors as is the case with income or debt oriented
schemes.
Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive
index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the
same weightage comprising of an index. NAVs of such schemes would rise or fall in
accordance with the rise or fall in the index, though not exactly by the same
percentage due to some factors known as "tracking error" in technical terms.
Necessary disclosures in this regard are made in the offer document of the mutual
fund scheme.
There are also exchange traded index funds launched by the mutual funds which are
traded on the stock exchanges.
What are sector specific funds/schemes?
These are the funds/schemes which invest in the securities of only those sectors or
industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast
Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds
are dependent on the performance of the respective sectors/industries. While these
funds may give higher returns, they are more risky compared to diversified funds.
Investors need to keep a watch on the performance of those sectors/industries and
must exit at an appropriate time. They may also seek advice of an expert.
What are Tax Saving Schemes?
These schemes offer tax rebates to the investors under specific provisions of the
Income Tax Act, 1961 as the Government offers tax incentives for investment in
specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes
launched by the mutual funds also offer tax benefits. These schemes are growth
oriented and invest pre-dominantly in equities. Their growth opportunities and risks
associated are like any equity-oriented scheme.
What is a Fund of Funds (FoF) scheme?
A scheme that invests primarily in other schemes of the same mutual fund or other
mutual funds is known as a FoF scheme. An FoF scheme enables the investors to
achieve greater diversification through one scheme. It spreads risks across a greater
universe.
What is a Load or no-load Fund?
A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each
time one buys or sells units in the fund, a charge will be payable. This charge is used
by the mutual fund for marketing and distribution expenses. Suppose the NAV per
unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who
buy would be required to pay Rs.10.10 and those who offer their units for repurchase
to the mutual fund will get only Rs.9.90 per unit. The investors should take the loads
into consideration while making investment as these affect their yields/returns.
However, the investors should also consider the performance track record and
service standards of the mutual fund which are more important. Efficient funds may
give higher returns in spite of loads.
A no-load fund is one that does not charge for entry or exit. It means the investors
can enter the fund/scheme at NAV and no additional charges are payable on
purchase or sale of units.
Can a mutual fund impose fresh load or increase the load beyond the level
mentioned in the offer documents?
Mutual funds cannot increase the load beyond the level mentioned in the offer
document. Any change in the load will be applicable only to prospective investments
and not to the original investments. In case of imposition of fresh loads or increase in
existing loads, the mutual funds are required to amend their offer documents so that
the new investors are aware of loads at the time of investments.
What is a sales or repurchase/redemption price?
The price or NAV a unitholder is charged while investing in an open-ended scheme

is called sales price. It may include sales load, if applicable.
Repurchase or redemption price is the price or NAV at which an open-ended

scheme purchases or redeems its units from the unitholders. It may include exit load,
if applicable.
What is an assured return scheme?
Assured return schemes are those schemes that assure a specific return to the
unitholders irrespective of performance of the scheme.
A scheme cannot promise returns unless such returns are fully guaranteed by the
sponsor or AMC and this is required to be disclosed in the offer document.
Investors should carefully read the offer document whether return is assured for the
entire period of the scheme or only for a certain period. Some schemes assure
returns one year at a time and they review and change it at the beginning of the next
year.
Can a mutual fund change the asset allocation while deploying funds of
investors?
Considering the market trends, any prudent fund managers can change the asset
allocation i.e. he can invest higher or lower percentage of the fund in equity or debt
instruments compared to what is disclosed in the offer document. It can be done on
a short term basis on defensive considerations i.e. to protect the NAV. Hence the
fund managers are allowed certain flexibility in altering the asset allocation
considering the interest of the investors. In case the mutual fund wants to change the
asset allocation on a permanent basis, they are required to inform the unitholders
and giving them option to exit the scheme at prevailing NAV without any load.
How to invest in a scheme of a mutual fund?
Mutual funds normally come out with an advertisement in newspapers publishing the
date of launch of the new schemes. Investors can also contact the agents and
distributors of mutual funds who are spread all over the country for necessary
information and application forms. Forms can be deposited with mutual funds
through the agents and distributors who provide such services. Now a days, the post
offices and banks also distribute the units of mutual funds. However, the investors
may please note that the mutual funds schemes being marketed by banks and post
offices should not be taken as their own schemes and no assurance of returns is
given by them. The only role of banks and post offices is to help in distribution of
mutual funds schemes to the investors.
Investors should not be carried away by commission/gifts given by

agents/distributors for investing in a particular scheme. On the other hand they must
consider the track record of the mutual fund and should take objective decisions.
Can non-resident Indians (NRIs) invest in mutual funds?
Yes, non-resident Indians can also invest in mutual funds. Necessary details in this
respect are given in the offer documents of the schemes.
How much should one invest in debt or equity oriented schemes?
An investor should take into account his risk taking capacity, age factor, financial
position, etc. As already mentioned, the schemes invest in different type of securities
as disclosed in the offer documents and offer different returns and risks. Investors
may also consult financial experts before taking decisions. Agents and distributors
may also help in this regard.
How to fill up the application form of a mutual fund scheme?
An investor must mention clearly his name, address, number of units applied for and
such other information as required in the application form. He must give his bank
account number so as to avoid any fraudulent encashment of any cheque/draft
issued by the mutual fund at a later date for the purpose of dividend or repurchase.
Any changes in the address, bank account number, etc at a later date should be
informed to the mutual fund immediately.
What should an investor look into an offer document?
An abridged offer document, which contains very useful information, is required to be

given to the prospective investor by the mutual fund. The application form for
subscription to a scheme is an integral part of the offer document. SEBI has
prescribed minimum disclosures in the offer document. An investor, before investing
in a scheme, should carefully read the offer document. Due care must be given to
portions relating to main features of the scheme, risk factors, initial issue expenses
and recurring expenses to be charged to the scheme, entry or exit loads, sponsor’s
track record, educational qualification and work experience of key personnel
including fund managers, performance of other schemes launched by the mutual
fund in the past, pending litigations and penalties imposed, etc.
When will the investor get certificate or statement of account after investing in
a mutual fund?
Mutual funds are required to despatch certificates or statements of accounts within
six weeks from the date of closure of the initial subscription of the scheme. In case of
close-ended schemes, the investors would get either a demat account statement or
unit certificates as these are traded in the stock exchanges. In case of open-ended
schemes, a statement of account is issued by the mutual fund within 30 days from
the date of closure of initial public offer of the scheme. The procedure of repurchase
is mentioned in the offer document.
How long will it take for transfer of units after purchase from stock markets in
case of close-ended schemes?
According to SEBI Regulations, transfer of units is required to be done within thirty

days from the date of lodgment of certificates with the mutual fund.
As a unitholder, how much time will it take to receive dividends/repurchase

proceeds?
A mutual fund is required to despatch to the unitholders the dividend warrants within
30 days of the declaration of the dividend and the redemption or repurchase
proceeds within 10 working days from the date of redemption or repurchase request
made by the unitholder.
In case of failures to despatch the redemption/repurchase proceeds within the

stipulated time period, Asset Management Company is liable to pay interest as
specified by SEBI from time to time (15% at present).
Can a mutual fund change the nature of the scheme from the one specified in
the offer document?
Yes. However, no change in the nature or terms of the scheme, known as

fundamental attributes of the scheme e.g.structure, investment pattern, etc. can be
carried out unless a written communication is sent to each unitholder and an
advertisement is given in one English daily having nationwide circulation and in a
newspaper published in the language of the region where the head office of the
mutual fund is situated. The unitholders have the right to exit the scheme at the
prevailing NAV without any exit load if they do not want to continue with the scheme.
The mutual funds are also required to follow similar procedure while converting the
scheme form close-ended to open-ended scheme and in case of change in sponsor.
How will an investor come to know about the changes, if any, which may occur
in the mutual fund?
There may be changes from time to time in a mutual fund. The mutual funds are
required to inform any material changes to their unitholders. Apart from it, many
mutual funds send quarterly newsletters to their investors.
At present, offer documents are required to be revised and updated at least once in
two years. In the meantime, new investors are informed about the material changes
by way of addendum to the offer document till the time offer document is revised and
reprinted.
How to know the performance of a mutual fund scheme?
The performance of a scheme is reflected in its net asset value (NAV) which is
disclosed on daily basis in case of open-ended schemes and on weekly basis in
case of close-ended schemes. The NAVs of mutual funds are required to be
published in newspapers. The NAVs are also available on the web sites of mutual
funds. All mutual funds are also required to put their NAVs on the web site of
Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the
investors can access NAVs of all mutual funds at one place
The mutual funds are also required to publish their performance in the form of half-
yearly results which also include their returns/yields over a period of time i.e. last six
months, 1 year, 3 years, 5 years and since inception of schemes. Investors can also
look into other details like percentage of expenses of total assets as these have an
affect on the yield and other useful information in the same half-yearly format.
The mutual funds are also required to send annual report or abridged annual report
to the unitholders at the end of the year.
Various studies on mutual fund schemes including yields of different schemes are
being published by the financial newspapers on a weekly basis. Apart from these,
many research agencies also publish research reports on performance of mutual
funds including the ranking of various schemes in terms of their performance.
Investors should study these reports and keep themselves informed about the
performance of various schemes of different mutual funds.
Investors can compare the performance of their schemes with those of other mutual
funds under the same category. They can also compare the performance of equity
oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty,
etc.
On the basis of performance of the mutual funds, the investors should decide when
to enter or exit from a mutual fund scheme.
How to know where the mutual fund scheme has invested money mobilised
from the investors?
The mutual funds are required to disclose full portfolios of all of their schemes on
half-yearly basis which are published in the newspapers. Some mutual funds send
the portfolios to their unitholders.
The scheme portfolio shows investment made in each security i.e. equity,
debentures, money market instruments, government securities, etc. and their
quantity, market value and % to NAV. These portfolio statements also required to
disclose illiquid securities in the portfolio, investment made in rated and unrated debt
securities, non-performing assets (NPAs), etc.
Some of the mutual funds send newsletters to the unitholders on quarterly basis
which also contain portfolios of the schemes.
Is there any difference between investing in a mutual fund and in an initial

public offering (IPO) of a company?
Yes, there is a difference. IPOs of companies may open at lower or higher price than
the issue price depending on market sentiment and perception of investors.
However, in the case of mutual funds, the par value of the units may not rise or fall
immediately after allotment. A mutual fund scheme takes some time to make
investment in securities. NAV of the scheme depends on the value of securities in
which the funds have been deployed.
If schemes in the same category of different mutual funds are available, should
one choose a scheme with lower NAV?
Some of the investors have the tendency to prefer a scheme that is available at
lower NAV compared to the one available at higher NAV. Sometimes, they prefer a
new scheme which is issuing units at Rs. 10 whereas the existing schemes in the
same category are available at much higher NAVs. Investors may please note that in
case of mutual funds schemes, lower or higher NAVs of similar type schemes of
different mutual funds have no relevance. On the other hand, investors should
choose a scheme based on its merit considering performance track record of the
mutual fund, service standards, professional management, etc. This is explained in
an example given below.
Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90.

Both schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in
each of the two schemes. He would get 600 units (9000/15) in scheme A and 100
units (9000/90) in scheme B. Assuming that the markets go up by 10 per cent and
both the schemes perform equally good and it is reflected in their NAVs. NAV of
scheme A would go up to Rs. 16.50 and that of scheme B to Rs. 99. Thus, the
market value of investments would be Rs. 9,900 (600* 16.50) in scheme A and it
would be the same amount of Rs. 9900 in scheme B (100*99). The investor would
get the same return of 10% on his investment in each of the schemes. Thus, lower or
higher NAV of the schemes and allotment of higher or lower number of units within
the amount an investor is willing to invest, should not be the factors for making
investment decision. Likewise, if a new equity oriented scheme is being offered at
Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for
decision making by the investor. Similar is the case with income or debt-oriented
schemes.
On the other hand, it is likely that the better managed scheme with higher NAV may
give higher returns compared to a scheme which is available at lower NAV but is not
managed efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme
at higher NAV may not fall as much as inefficiently managed scheme with lower
NAV. Therefore, the investor should give more weightage to the professional
management of a scheme instead of lower NAV of any scheme. He may get much
higher number of units at lower NAV, but the scheme may not give higher returns if it
is not managed efficiently.
How to choose a scheme for investment from a number of schemes available?
As already mentioned, the investors must read the offer document of the mutual fund
scheme very carefully. They may also look into the past track record of performance
of the scheme or other schemes of the same mutual fund. They may also compare
the performance with other schemes having similar investment objectives. Though
past performance of a scheme is not an indicator of its future performance and good
performance in the past may or may not be sustained in the future, this is one of the
important factors for making investment decision. In case of debt oriented schemes,
apart from looking into past returns, the investors should also see the quality of debt
instruments which is reflected in their rating. A scheme with lower rate of return but
having investments in better rated instruments may be safer. Similarly, in equities
schemes also, investors may look for quality of portfolio. They may also seek advice
of experts.
Are the companies having names like mutual benefit the same as mutual funds
schemes?
Investors should not assume some companies having the name "mutual benefit" as
mutual funds. These companies do not come under the purview of SEBI. On the
other hand, mutual funds can mobilise funds from the investors by launching
schemes only after getting registered with SEBI as mutual funds.
Is the higher net worth of the sponsor a guarantee for better returns?
In the offer document of any mutual fund scheme, financial performance including
the net worth of the sponsor for a period of three years is required to be given. The
only purpose is that the investors should know the track record of the company
which has sponsored the mutual fund. However, higher net worth of the sponsor
does not mean that the scheme would give better returns or the sponsor would
compensate in case the NAV falls.
Where can an investor look out for information on mutual funds?
Almost all the mutual funds have their own web sites. Investors can also access the
NAVs, half-yearly results and portfolios of all mutual funds at the web site of
Association of mutual funds in India (AMFI) www.amfiindia.com. AMFI has also
published useful literature for the investors.
Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds"
section for information on SEBI regulations and guidelines, data on mutual funds,
draft offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in
the annual reports of SEBI available on the web site, a lot of information on mutual
funds is given.
There are a number of other web sites which give a lot of information of various
schemes of mutual funds including yields over a period of time. Many newspapers
also publish useful information on mutual funds on daily and weekly basis. Investors
may approach their agents and distributors to guide them in this regard.
Can an investor appoint a nominee for his investment in units of a mutual

fund?
Yes. The nomination can be made by individuals applying for / holding units on their
own behalf singly or jointly. Non-individuals including society, trust, body corporate,
partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney
cannot nominate.
If mutual fund scheme is wound up, what happens to money invested?
In case of winding up of a scheme, the mutual funds pay a sum based on prevailing
NAV after adjustment of expenses. Unitholders are entitled to receive a report on
winding up from the mutual funds which gives all necessary details.
How can the investors redress their complaints?
Investors would find the name of contact person in the offer document of the mutual
fund scheme whom they may approach in case of any query, complaints or
grievances. Trustees of a mutual fund monitor the activities of the mutual fund. The
names of the directors of asset management company and trustees are also given in
the offer documents. Investors should approach the concerned Mutual Fund /
Investor Service Centre of the Mutual Fund with their complaints,
If the complaints remain unresolved, the investors may approach SEBI for facilitating
redressal of their complaints. On receipt of complaints, SEBI takes up the matter with
the concerned mutual fund and follows up with it regularly. Investors may send their
complaints to:
Securities and Exchange Board of India
Office of Investor Assistance and Education (OIAE)
Plot No.C4-A , “G” Block, 1st Floor,

Bandra-Kurla Complex,
Bandra (E), Mumbai – 400 051.
Phone: 26449199-88-77
What is the procedure for registering a mutual fund with SEBI ?
An applicant proposing to sponsor a mutual fund in India must submit an application

in Form A along with a fee of Rs.25,000. The application is examined and once the
sponsor satisfies certain conditions such as being in the financial services business
and possessing positive net worth for the last five years, having net profit in three out
of the last five years and possessing the general reputation of fairness and integrity
in all business transactions, it is required to complete the remaining formalities for
setting up a mutual fund. These include inter alia, executing the trust deed and
investment management agreement, setting up a trustee company/board of trustees
comprising two- thirds independent trustees, incorporating the asset management
company (AMC), contributing to at least 40% of the net worth of the AMC and
appointing a custodian. Upon satisfying these conditions, the registration certificate
is issued subject to the payment of registration fees of Rs.25.00 lacs For details, see
the SEBI (Mutual Funds) Regulations, 1996.
*****
While equity funds are best for long-term returns, you should also plan your exit as your goals come
nearer and reinvest in debt funds.
What funds must I invest in for retirement planning? What funds are ideal for my children's
education planning?
Mutual funds are the ideal investment option for funding retirement and children's education. However, they
must form only a part of such portfolios. Here's why. Capital protection is one of the foremost requirements
of a retirement or education fund. And there is not a single mutual fund that carries a capital guarantee on
your principal amount. For this reason, you cannot afford to ignore instruments such as the Public Provident
Fund (PPF), National Savings Certificate (NSC) and the likes. While these instruments offer a decent risk-
free return on investment, they may not suffice for your post retirement or children's education planning
needs.
For this reason you could look at equity-oriented mutual funds to boost returns. But when considering equity
instruments, take cognizance of one's time horizon of investment. The longer you can stay invested, the
more equity allocation you can afford. Hence, if you are 27 years old and plan to retire at 60, you can invest
the bulk of your portfolio in equity oriented schemes. This is true for planning children's education as well. If
your child is 16 years old and you need the money in two years, you should completely avoid equity funds.
As you near your goal, you ought to start redeeming your equity investments and re-invest these in safer
debt-oriented instruments. Hence when you are about 56-58 years old, you can institute a systematic
withdrawal plan and reinvest the money in safer instruments.
The category of balanced funds is especially useful for such life stage planning. These funds invest at least
65 per cent of the corpus in equity and the rest is in debt instruments. When the equity segment of the fund
does exceedingly well, the fund rebalances the portfolio, booking profits in equity and transferring to debt.
This way, your risk exposure is kept in check.
I want to make an additional investment. Which are the new and good funds that I ought to invest in?
This one is really tricky, especially when we have no clue about the investor's portfolio. When making such a
decision, take a good look at where you stand. As a first step you can use the portfolio tool on our website.
The first investment decision must be based on your asset allocation i.e how much of your money is
invested in equity and debt instruments. Then you ought to look at the allocation and weightage to various
funds and fund houses. In case you are overweight on a particular fund or fund house, avoid these funds. In
case you are underweight on a well-performing fund, then channelise your investments to such a fund.
Assess your exposure to large-cap and mid-cap stocks. Accordingly pick a fund that will equate any such
deficiency. Though these are basic steps, more often than not such a short exercise will help you plan your
additional investments.
Before you consider adding more funds to your portfolio, look at current holdings and try to work with them.
One is advised to look at the offer document before investing. To me, all offer documents look
similar. What should I look out for?
The offer document is an essential read before investing. In fact, all mutual fund distributors and financial
planners are required to give their clients a copy of the same before the investor signs the application form.
Since these documents tend to be exceedingly lengthy and almost identical, you should at least go through
the Key Information Memorandum (KIM) of the fund.
Here are some key factors that you need to keep an eye out for.
Investment Objective: This will explain the mandate and scope of investment. Whether the fund is equity or
debt oriented, whether the fund will be multi-, large, mid- or small-cap specific, the level of diversification, the
option to the fund manager to invest overseas and other such issues.
Type of fund: Is the fund open- or close-ended? In case of a close-end fund, look at the lock-in period,
liquidity window and repurchase options.
Costs: Fees, expenses and loads are other big items to look out for.
Investment: Minimum initial investment, methods of purchasing, redeeming and making additional
investments, the time taken for redemption, so forth and so on.
Fund Manager: Number of fund managers managing the fund and information on each. This information is
useful to those who would like to check the antecedents of the manager. Most of this information is available
in the KIM as well, but if you can spare the time, give a good look to the offer document as well.
How must I decide whether to hold on or to exit a fund?
If we had a rupee for every time we came across such a question! But this one has an easy solution. Ask
yourself why you want to redeem your investment. If you need the money, go ahead. Are you apprehensive
of the fund's performance? In that case, check out how the fund has done over the past three years.
Look at the year-to-date performance of the fund vis-à-vis its peer group. If we are only a quarter or so into
the year then look at the one-year return as against the category. Also look at the performance over the past
four quarters. This will clearly specify whether the fund has been a consistent performer over the past year
or just has an odd good quarter.
Apart from this you could also look at how the fund fits in with the rest of your holdings. In case it is a theme-
based fund, see if the theme still has any steam left in it. If you have other funds with a similar investment
objective, pick the better performer.
BS Reporter in Mumbai
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what are Mutual Fund Objectives?

Asked in Personal Finance & Tax at 5:00 AM on August 31, 2008
Tags: mutual, fund, objectives
! This question is closed
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shyam singh
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• Latest Answers(3)
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mutual fund has an investment objective — a goal or financial result it wants to realize. And each fund manager has an
investment style, which is the approach he or she follows in making investments to achieve the fund's goal.
Most fund objectives fit into one of several broad categories, such as growth in value, current income, or a combination
of growth and income. For example, a growth fund selects investments that seem likely to increase in value over time.
An income fund, on the other hand, targets investments that it expects to generate revenue, such as stock dividends.
Styles are harder to classify than objectives, since many factors contribute to the way a manager makes investment
decisions. But there are several well-recognized approaches, including styles that stress growth, those that stress value,
and those that stress capital preservation.
When a stock mutual fund defines its investment objective, it is identifying a specific type of stock — though not
individual stocks — that will be the core of its portfolio.
Sometimes the objective is quite broad. For example, the manager of a fund whose objective is long-term growth may
look for a range of companies whose current market capitalization is small — less than $2.3 billion — because he or
she believes they have the potential to increase significantly in value over several years.
Other times, the objective may be quite focused and reflect social, political, or religious interests. For example, some
socially conscious funds buy stock in companies whose products and services are acceptable to investors who want to
avoid tobacco, firearms, gambling, or a range of other activities. Others, called green funds, buy only the stocks of
environmentally friendly companies.
Answered by Om Prakash , an ibibo Master, at 3:05 PM on September 02, 2008

Report Abuse | Rate this : 00
Om Prakash
Profile | Q&A
Each mutual fund has an investment objective — a goal or financial result it wants to realize. And each fund manager
has an investment style, which is the approach he or she follows in making investments to achieve the fund's goal.
Answered by Arvind Pal , an ibibo Master, at 8:38 AM on September 02, 2008

Arvind Pal
Profile | Q&A
Each mutual fund has an investment objective — a goal or financial result it wants to realize. And each fund manager
has an investment style, which is the approach he or she follows in making investments to achieve the fund's goal.
Answered by Nagendra , an ibibo Master, at 11:51 AM on August 31, 2008

Nagendra
Profile | Q&A
Everything You Need to Know to be
Successful at Investing in Mutual Funds
For a quick overview of the content of this site, try the Bullet Tour.
Looking for something specific about investing in mutual funds?

Try Site Search, or use Site Map as a table of contents.
Then come back here and see what else we have to offer.
Mutual Funds are for Everyone
Investing in mutual funds provides a total solution for your investing needs, whether
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managed investments, even with a small initial investment.
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A well-designed portfolio is one that is right for you. It will provide the maximum
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with. Here you'll learn how to construct your portfolio by selecting high-performing
mutual funds that work well together and how to allocate your money to the mutual
funds in your portfolio. And it's presented in plain English, so you can concentrate on
absorbing that knowledge rather than interpreting it and be ready to begin investing
in mutual funds sooner.
You can be a Successful Mutual Fund Investor
To be a successful mutual fund investor you must do much better than the average
mutual fund investor. The fact that the average rate of return earned by mutual fund
investors is way below the average rate of return of all mutual funds indicates that
an awful lot of mutual fund investors are very unsuccessful. You'll learn on this site
how to be a successful mutual fund investor.
Here's what you'll find on this site:
• Introduction to Mutual Funds. - The benefits of investing in mutual funds,

what they are, how they work, how they're bought and sold, and more.
• Types of Mutual Funds - A description of the various types of mutual funds
and an explanation of how they're classified.
• Investing Basics - This section presents, in plain English, the fundamental
concepts that you need to know to be an informed investor and to get the
most from the rest of the content on this site.
• Key Statistics for Evaluating Mutual Funds - Mutual fund selection criteria.
• Your Mutual Fund Portfolio - Here you'll learn how to select the best mutual
funds, assemble a portfolio that's right for you and maintain your portfolio to
ensure that it continues to perform well and meet your needs.
• Glossary - Terminology specific to investing in mutual funds.
• Site Map - Use this to navigate if you get lost or don't see what you're looking
for on the menu.
• Site Search by Google - Find everything on this site relevant to a particular
topic of interest.
If you are investing in mutual funds through a 401k or other employer-sponsored

retirement plan, you'll find the information on this site very helpful in making the
decisions necessary to manage that account effectively. Also, 401k rollovers into
IRAs present an excellent opportunity to select mutual funds from a much larger pool
than that which was available through your employer-sponsored plan. The
information on this site will help you make your selection.
The information on this site is intended for use by investors who embrace a buy and
hold strategy. I do not advocate chasing the current hot mutual funds, buying and
selling mutual funds in response to moves in the market, day trading or any other
short-term strategy, or holding a portfolio of mutual funds that is not well-
diversified. There's a lot of evidence that indicates these are all excellent ways to
ensure that you either lose money or achieve very poor performance.
On the flip side, there's even more evidence that indicates that buying and holding a
diversified portfolio of mutual funds with good long-term performance records is a
strategy that is nearly guaranteed to reward you with handsome returns in the long
run.
Although this site advocates the use of no-load mutual funds to achieve your
investing goals, nearly all of the information on this site is relevant to mutual fund
investing in general and there's a lot of good information that's relevant to investing
in individual securities, too.
The structure of this site is such that the information is presented in a logical order,
with each section building off the prior sections. You can jump around as you wish,
but if you're new to investing, you'll get the most from this site by working
through it from start to finish.
Mutual Fund Investing Overview

A bulletized summary of mutual fund investing.
Learn About Mutual Funds - An Introduction

Learn all about mutual funds; what they are, how they work, the benefits
they offer and why they are the best option for individual investors.
Types of Mutual Funds

The various types of mutual funds are defined by asset class, investing
style and geographical area. The variety includes all the assets needed to
construct a complete investment portfolio.
Investing Basics
Having a good understanding of the investing basics, including how the
securities in a portfolio function as a group, is crucial to one's long-term
success as an investor.
Compare Mutual Funds - Key Statistics

It's easy to compare mutual funds by studying the key statistics that are
readily available from many sources. But there's still need for due
diligence on the likely candidates.
Your Mutual Fund Portfolio

The seven step process of constructing and maintaining a mutual fund
portfolio. Follow these seven steps to investing success.
Mutual Funds Glossary

A mutual funds glossary - Terminology specific to investing in mutual
funds.
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Use this site map to find what you're looking for.
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Search this site.
Contact Us at Investing in Mutual Funds

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offer your ideas and comments.
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Features of costing
Cost accounting
From Wikipedia, the free encyclopedia
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challenged and removed. (June 2007)
Accountancy
Key concepts
Accountant · Bookkeeping · Trial balance · General ledger ·

Debits and credits · Double-entry system · Historical cost
accounting · Constant Item Purchasing Power Accounting ·
Fair value accounting · Cash and accrual basis · GAAP /
International Financial Reporting Standards · Cost of goods
sold · FIFO & LIFO · Revenue recognition · Matching
principle
Fields of accounting
Cost · Financial · Forensic · Fund · Management · Tax
Financial statements
Statement of financial position · Statement of comprehensive

income · Statement of cash flows · Statement of changes in
equity · Notes
Auditing
Financial audit · GAAS / ISA · Internal audit · Auditor's
report · Sarbanes–Oxley Act
Professional Accountants
CPA · CA · CGA · CMA · ACCA
This box: view • talk • edit
In management accounting, cost accounting establishes budget and actual cost of

operations, processes, departments or product and the analysis of variances, profitability
or social use of funds. Managers use cost accounting to support decision-making to cut a
company's costs and improve profitability. As a form of management accounting, cost
accounting need not to follow standards such as GAAP, because its primary use is for
internal managers, rather than outside users, and what to compute is instead decided
pragmatically.
Costs are measured in units of nominal currency by convention. Cost accounting can be
viewed as translating the supply chain (the series of events in the production process that,
in concert, result in a product) into financial values.
There are various managerial accounting approaches:
• standardized or standard cost accounting

• lean accounting
• activity-based costing
• resource consumption accounting
• throughput accounting
• marginal costing/cost-volume-profit analysis
Classical cost elements are:
1. raw materials
2. labor
3. indirect expenses/overhead
Contents
[hide]
• 1 Origins
• 2 Elements of cost
• 3 Classification of costs
• 4 Standard cost accounting
o 4.1 The development of throughput accounting
• 5 Activity-based costing
• 6 Lean accounting
• 7 Marginal costing
• 8 References
• 9 See also
[edit] Origins
Cost accounting has long been used to help managers understand the costs of running a
business. Modern cost accounting originated during the industrial revolution, when the
complexities of running a large scale business led to the development of systems for
recording and tracking costs to help business owners and managers make decisions.
In the early industrial age, most of the costs incurred by a business were what modern
accountants call "variable costs" because they varied directly with the amount of
production. Money was spent on labor, raw materials, power to run a factory, etc. in
direct proportion to production. Managers could simply total the variable costs for a
product and use this as a rough guide for decision-making processes.
Some costs tend to remain the same even during busy periods, unlike variable costs,
which rise and fall with volume of work. Over time, the importance of these "fixed costs"
has become more important to managers. Examples of fixed costs include the
depreciation of plant and equipment, and the cost of departments such as maintenance,
tooling, production control, purchasing, quality control, storage and handling, plant
supervision and engineering. In the early twentieth century, these costs were of little
importance to most businesses. However, in the twenty-first century, these costs are often
more important than the variable cost of a product, and allocating them to a broad range
of products can lead to bad decision making. Managers must understand fixed costs in
order to make decisions about products and pricing.
For example: A company produced railway coaches and had only one product. To make
each coach, the company needed to purchase $60 of raw materials and components, and
pay 6 laborers $40 each. Therefore, total variable cost for each coach was $300. Knowing
that making a coach required spending $300, managers knew they couldn't sell below that
price without losing money on each coach. Any price above $300 became a contribution
to the fixed costs of the company. If the fixed costs were, say, $1000 per month for rent,
insurance and owner's salary, the company could therefore sell 5 coaches per month for a
total of $3000 (priced at $600 each), or 10 coaches for a total of $4500 (priced at $450
each), and make a profit of $500 in both cases.
[edit] Elements of cost

• 1. Material(Material is a very important part of business)
o A. Direct material
o B. Indirect material
• 2. Labor
o A. Direct labor
o B. Indirect labor
• 3. Overhead
o A. Indirect material
o B. Indirect labor
(In some companies, machine cost is segregated form overhead and reported as a separate
element)
They are grouped further based on their functions as,
• 1. Production or works overheads

• 2. Administration overheads
• 3. Selling overheads
• 4. Distribution overheads
[edit] Classification of costs

Classification of cost means, the grouping of costs according to their common
characteristics. The important ways of classification of costs are:
• By nature or element: materials, labor, expenses

• By functions: production, selling, distribution, administration, R&D,
development,
• As direct and indirect
• By variability: fixed, variable, semi-variable
• By controllability: controllable, uncontrollable
• By normality: normal, abnormal
[edit] Standard cost accounting

In modern cost accounting, the concept of recording historical costs was taken further, by
allocating the company's fixed costs over a given period of time to the items produced
during that period, and recording the result as the total cost of production. This allowed
the full cost of products that were not sold in the period they were produced to be
recorded in inventory using a variety of complex accounting methods, which was
consistent with the principles of GAAP (Generally Accepted Accounting Principles). It
also essentially enabled managers to ignore the fixed costs, and look at the results of each
period in relation to the "standard cost" for any given product.
For example: if the railway coach company normally produced 40 coaches per
month, and the fixed costs were still $1000/month, then each coach could be said
to incur an overhead of $25 ($1000 / 40). Adding this to the variable costs of $300
per coach produced a full cost of $325 per coach.
This method tended to slightly distort the resulting unit cost, but in mass-production
industries that made one product line, and where the fixed costs were relatively low, the
distortion was very minor.
For example: if the railway coach company made 100 coaches one month, then
the unit cost would become $310 per coach ($300 + ($1000 / 100)). If the next
month the company made 50 coaches, then the unit cost = $320 per coach ($300 +
($1000 / 50)), a relatively minor difference.
An important part of standard cost accounting is a variance analysis, which breaks down
the variation between actual cost and standard costs into various components (volume
variation, material cost variation, labor cost variation, etc.) so managers can understand
why costs were different from what was planned and take appropriate action to correct the
situation.
[edit] The development of throughput accounting
Main article: Throughput accounting
As business became more complex and began producing a greater variety of products, the
use of cost accounting to make decisions to maximize profitability came under question.
Management circles became increasingly aware of the Theory of Constraints in the
1980s, and began to understand that "every production process has a limiting factor"
somewhere in the chain of production. As business management learned to identify the
constraints, they increasingly adopted throughput accounting to manage them and
"maximize the throughput dollars" (or other currency) from each unit of constrained
resource.
For example: The railway coach company was offered a contract to make 15
open-topped streetcars each month, using a design that included ornate brass
foundry work, but very little of the metalwork needed to produce a covered rail
coach. The buyer offered to pay $280 per streetcar. The company had a firm order
for 40 rail coaches each month for $350 per unit.
The company accountant determined that the cost of operating the foundry vs. the
metalwork shop each month was as follows:
Overhead Cost by Department Total Cost Hours Available per month Cost per hour
Foundry $ 7,300.00 160 $45.63
Metal shop $ 3,300.00 160 $20.63
Total $10,600.00 320 $33.13
The company was at full capacity making 40 rail coaches each month. And since
the foundry was expensive to operate, and purchasing brass as a raw material for
the streetcars was expensive, the accountant determined that the company would
lose money on any streetcars it built. He showed an analysis of the estimated
product costs based on standard cost accounting and recommended that the
company decline to build any streetcars.
Standard Cost Accounting Analysis Streetcars Rail coach
Monthly Demand 15 40
Price $280 $350
Foundry Time (hrs) 3.0 2.0
Metalwork Time (hrs) 1.5 4.0
Total Time 4.5 6.0
Foundry Cost $136.88 $ 91.25
Metalwork Cost $ 30.94 $ 82.50
Raw Material Cost $120.00 $ 60.00
Total Cost $287.81 $233.75
Profit per Unit $ (7.81) $116.25
However, the company's operations manager knew that recent investment in
automated foundry equipment had created idle time for workers in that
department. The constraint on production of the railcoaches was the metalwork
shop. She made an analysis of profit and loss if the company took the contract
using throughput accounting to determine the profitability of products by
calculating "throughput" (revenue less variable cost) in the metal shop.
Throughput Cost Accounting Analysis Decline Contract Take Contract
Coaches Produced 40 34
Streetcars Produced 0 15
Foundry Hours 80 113
Metal shop Hours 160 159
Coach Revenue $14,000 $11,900
Streetcar Revenue $0 $ 4,200
Coach Raw Material Cost $(2,400) $(2,040)
Streetcar Raw Material Cost $0 $(1,800)
Throughput Value $11,600 $12,260
Overhead Expense $(10,600) $(10,600)
Profit $1,000 $1,660
After the presentations from the company accountant and the operations manager,
the president understood that the metal shop capacity was limiting the company's
profitability. The company could make only 40 rail coaches per month. But by
taking the contract for the streetcars, the company could make nearly all the
railway coaches ordered, and also meet all the demand for streetcars. The result
would increase throughput in the metal shop from $6.25 to $10.38 per hour of
available time, and increase profitability by 66 percent.
[edit] Activity-based costing

Main article: Activity-based costing
Activity-based costing (ABC) is a system for assigning costs to products based on the
activities they require. In this case, activities are those regular actions performed inside a
company. "Talking with customer regarding invoice questions" is an example of an
activity inside most companies.
Accountants assign 100% of each employee's time to the different activities performed
inside a company (many will use surveys to have the workers themselves assign their
time to the different activities). The accountant then can determine the total cost spent on
each activity by summing up the percentage of each worker's salary spent on that activity.
A company can use the resulting activity cost data to determine where to focus their
operational improvements. For example, a job-based manufacturer may find that a high
percentage of its workers are spending their time trying to figure out a hastily written
customer order. Via ABC, the accountants now have a currency amount pegged to the
activity of "Researching Customer Work Order Specifications". Senior management can
now decide how much focus or money to budget for resolving this process deficiency.
Activity-based management includes (but is not restricted to) the use of activity-based
costing to manage a business.
While ABC may be able to pinpoint the cost of each activity and resources into the
ultimate product, the process could be tedious, costly and subject to errors.
As it is a tool for a more accurate way of allocating fixed costs into product, these fixed
costs do not vary according to each month's production volume. For example, an
elimination of one product would not eliminate the overhead or even direct labor cost
assigned to it. ABC better identifies product costing in the long run, but may not be too
helpful in day-to-day decision-making.
[edit] Lean accounting

Main article: Lean accounting
Lean accounting[1] has developed in recent years to provide the accounting, control, and
measurement methods supporting lean manufacturing and other applications of lean
thinking such as healthcare, construction, insurance, banking, education, government, and
other industries.
There are two main thrusts for Lean Accounting. The first is the application of lean
methods to the company's accounting, control, and measurement processes. This is not
different from applying lean methods to any other processes. The objective is to eliminate
waste, free up capacity, speed up the process, eliminate errors & defects, and make the
process clear and understandable. The second (and more important) thrust of Lean
Accounting is to fundamentally change the accounting, control, and measurement
processes so they motivate lean change & improvement, provide information that is
suitable for control and decision-making, provide an understanding of customer value,
correctly assess the financial impact of lean improvement, and are themselves simple,
visual, and low-waste. Lean Accounting does not require the traditional management
accounting methods like standard costing, activity-based costing, variance reporting,
cost-plus pricing, complex transactional control systems, and untimely & confusing
financial reports. These are replaced by:
• lean-focused performance measurements

• simple summary direct costing of the value streams
• decision-making and reporting using a box score
• financial reports that are timely and presented in "plain English" that everyone
can understand
• radical simplification and elimination of transactional control systems by
eliminating the need for them
• driving lean changes from a deep understanding of the value created for the
customers
• eliminating traditional budgeting through monthly sales, operations, and financial
planning processes (SOFP)
• value-based pricing
• correct understanding of the financial impact of lean change
As an organization becomes more mature with lean thinking and methods, they recognize
that the combined methods of lean accounting in fact creates a lean management system
(LMS) designed to provide the planning, the operational and financial reporting, and the
motivation for change required to prosper the company's on-going lean transformation.
[edit] Marginal costing

See also: Cost-Volume-Profit Analysis
See also: Marginal cost
This method is used particularly for short-term decision-making. Its principal tenets are:
• Revenue (per product) − variable costs (per product) = contribution (per product)
• Total contribution − total fixed costs = (total profit or total loss)
Thus, it does not attempt to allocate fixed costs in an arbitrary manner to different
products. The short-term objective is to maximize contribution per unit. If constraints
exist on resources, then Managerial Accounting dictates that marginal cost analysis be
employed to maximize contribution per unit of the constrained resource (see
Development of throughput accounting, above).
This article may be confusing or unclear to readers. Please help clarify the article;
suggestions may be found on the talk page. (August 2007)
[edit] References
1. ^ Maskell & Baggaley (December 19, 2003). "Practical Lean Accounting". Productivity
Press, New York, NY.
• Consortium for Advanced Manufacturing-International

• Kaplan, Robert S. and Bruns, W. Accounting and Management: A Field Study
Perspective (Harvard Business School Press, 1987) ISBN 0-87584-186-4
• Sapp, Richard, David Crawford and Steven Rebishcke "Article title?" Journal of
Bank Cost and Management Accounting (Volume 3, Number 2), 1990.
• Author(s)? "Article title?" Journal of Bank Cost and Management Accounting
(Volume 4, Number 1), 1991.
[edit] See also

• accountancy
• cost overrun
• fixed asset turnover
• management accounting
• lean accounting
Retrieved from "http://en.wikipedia.org/wiki/Cost_accounting"

Categories: Costs | Management accounting
Hidden categories: Articles lacking sources from June 2007 | All articles lacking sources |
Wikipedia articles needing clarification from August 2007 | All Wikipedia articles
needing clarification
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In management accounting, cost accounting establishes budget and actual cost of
operations, processes, departments or product and the analysis of variances, profitability
or social use of funds. Managers use cost accounting to support decision-making to cut a
company's costs and improve profitability. As a form of management accounting, cost
accounting need not to follow standards such as GAAP, because its primary use is for
internal managers, rather than outside users, and what to compute is instead decided
pragmatically.
Costs are measured in units of nominal currency by convention. Cost accounting can be
viewed as translating the supply chain (the series of events in the production process that,
in concert, result in a product) into financial values.
There are various managerial accounting approaches:
• standardized or standard cost accounting

• lean accounting
• activity-based costing
• resource consumption accounting
• throughput accounting
• marginal costing/cost-volume-profit analysis
Classical cost elements are:
1. raw materials
2. labor
3. indirect expenses/overhead
Contents
[hide]
• 1 Origins
• 2 Elements of cost
• 3 Classification of costs
• 4 Standard cost accounting
o 4.1 The development of throughput accounting
• 5 Activity-based costing
• 6 Lean accounting
• 7 Marginal costing
• 8 References
• 9 See also
[edit] Origins
Cost accounting has long been used to help managers understand the costs of running a
business. Modern cost accounting originated during the industrial revolution, when the
complexities of running a large scale business led to the development of systems for
recording and tracking costs to help business owners and managers make decisions.
In the early industrial age, most of the costs incurred by a business were what modern
accountants call "variable costs" because they varied directly with the amount of
production. Money was spent on labor, raw materials, power to run a factory, etc. in
direct proportion to production. Managers could simply total the variable costs for a
product and use this as a rough guide for decision-making processes.
Some costs tend to remain the same even during busy periods, unlike variable costs,
which rise and fall with volume of work. Over time, the importance of these "fixed costs"
has become more important to managers. Examples of fixed costs include the
depreciation of plant and equipment, and the cost of departments such as maintenance,
tooling, production control, purchasing, quality control, storage and handling, plant
supervision and engineering. In the early twentieth century, these costs were of little
importance to most businesses. However, in the twenty-first century, these costs are often
more important than the variable cost of a product, and allocating them to a broad range
of products can lead to bad decision making. Managers must understand fixed costs in
order to make decisions about products and pricing.
For example: A company produced railway coaches and had only one product. To make
each coach, the company needed to purchase $60 of raw materials and components, and
pay 6 laborers $40 each. Therefore, total variable cost for each coach was $300. Knowing
that making a coach required spending $300, managers knew they couldn't sell below that
price without losing money on each coach. Any price above $300 became a contribution
to the fixed costs of the company. If the fixed costs were, say, $1000 per month for rent,
insurance and owner's salary, the company could therefore sell 5 coaches per month for a
total of $3000 (priced at $600 each), or 10 coaches for a total of $4500 (priced at $450
each), and make a profit of $500 in both cases.
[edit] Elements of cost

• 1. Material(Material is a very important part of business)
o A. Direct material
o B. Indirect material
• 2. Labor
o A. Direct labor
o B. Indirect labor
• 3. Overhead
o A. Indirect material
o B. Indirect labor
(In some companies, machine cost is segregated form overhead and reported as a separate
element)
They are grouped further based on their functions as,
• 1. Production or works overheads

• 2. Administration overheads
• 3. Selling overheads
• 4. Distribution overheads
[edit] Classification of costs
Classification of cost means, the grouping of costs according to their common
characteristics. The important ways of classification of costs are:
• By nature or element: materials, labor, expenses

• By functions: production, selling, distribution, administration, R&D,
development,
• As direct and indirect
• By variability: fixed, variable, semi-variable
• By controllability: controllable, uncontrollable
• By normality: normal, abnormal
[edit] Standard cost accounting

In modern cost accounting, the concept of recording historical costs was taken further, by
allocating the company's fixed costs over a given period of time to the items produced
during that period, and recording the result as the total cost of production. This allowed
the full cost of products that were not sold in the period they were produced to be
recorded in inventory using a variety of complex accounting methods, which was
consistent with the principles of GAAP (Generally Accepted Accounting Principles). It
also essentially enabled managers to ignore the fixed costs, and look at the results of each
period in relation to the "standard cost" for any given product.
For example: if the railway coach company normally produced 40 coaches per
month, and the fixed costs were still $1000/month, then each coach could be said
to incur an overhead of $25 ($1000 / 40). Adding this to the variable costs of $300
per coach produced a full cost of $325 per coach.
This method tended to slightly distort the resulting unit cost, but in mass-production
industries that made one product line, and where the fixed costs were relatively low, the
distortion was very minor.
For example: if the railway coach company made 100 coaches one month, then
the unit cost would become $310 per coach ($300 + ($1000 / 100)). If the next
month the company made 50 coaches, then the unit cost = $320 per coach ($300 +
($1000 / 50)), a relatively minor difference.
An important part of standard cost accounting is a variance analysis, which breaks down
the variation between actual cost and standard costs into various components (volume
variation, material cost variation, labor cost variation, etc.) so managers can understand
why costs were different from what was planned and take appropriate action to correct the
situation.
[edit] The development of throughput accounting

Main article: Throughput accounting
As business became more complex and began producing a greater variety of products, the
use of cost accounting to make decisions to maximize profitability came under question.
Management circles became increasingly aware of the Theory of Constraints in the
1980s, and began to understand that "every production process has a limiting factor"
somewhere in the chain of production. As business management learned to identify the
constraints, they increasingly adopted throughput accounting to manage them and
"maximize the throughput dollars" (or other currency) from each unit of constrained
resource.
For example: The railway coach company was offered a contract to make 15
open-topped streetcars each month, using a design that included ornate brass
foundry work, but very little of the metalwork needed to produce a covered rail
coach. The buyer offered to pay $280 per streetcar. The company had a firm order
for 40 rail coaches each month for $350 per unit.
The company accountant determined that the cost of operating the foundry vs. the
metalwork shop each month was as follows:
Overhead Cost by Department Total Cost Hours Available per month Cost per hour
Foundry $ 7,300.00 160 $45.63
Metal shop $ 3,300.00 160 $20.63
Total $10,600.00 320 $33.13
The company was at full capacity making 40 rail coaches each month. And since
the foundry was expensive to operate, and purchasing brass as a raw material for
the streetcars was expensive, the accountant determined that the company would
lose money on any streetcars it built. He showed an analysis of the estimated
product costs based on standard cost accounting and recommended that the
company decline to build any streetcars.
Standard Cost Accounting Analysis Streetcars Rail coach
Monthly Demand 15 40
Price $280 $350
Foundry Time (hrs) 3.0 2.0
Metalwork Time (hrs) 1.5 4.0
Total Time 4.5 6.0
Foundry Cost $136.88 $ 91.25
Metalwork Cost $ 30.94 $ 82.50
Raw Material Cost $120.00 $ 60.00
Total Cost $287.81 $233.75
Profit per Unit $ (7.81) $116.25
However, the company's operations manager knew that recent investment in
automated foundry equipment had created idle time for workers in that
department. The constraint on production of the railcoaches was the metalwork
shop. She made an analysis of profit and loss if the company took the contract
using throughput accounting to determine the profitability of products by
calculating "throughput" (revenue less variable cost) in the metal shop.
Throughput Cost Accounting Analysis Decline Contract Take Contract
Coaches Produced 40 34
Streetcars Produced 0 15
Foundry Hours 80 113
Metal shop Hours 160 159
Coach Revenue $14,000 $11,900
Streetcar Revenue $0 $ 4,200
Coach Raw Material Cost $(2,400) $(2,040)
Streetcar Raw Material Cost $0 $(1,800)
Throughput Value $11,600 $12,260
Overhead Expense $(10,600) $(10,600)
Profit $1,000 $1,660
After the presentations from the company accountant and the operations manager,
the president understood that the metal shop capacity was limiting the company's
profitability. The company could make only 40 rail coaches per month. But by
taking the contract for the streetcars, the company could make nearly all the
railway coaches ordered, and also meet all the demand for streetcars. The result
would increase throughput in the metal shop from $6.25 to $10.38 per hour of
available time, and increase profitability by 66 percent.
[edit] Activity-based costing

Main article: Activity-based costing
Activity-based costing (ABC) is a system for assigning costs to products based on the
activities they require. In this case, activities are those regular actions performed inside a
company. "Talking with customer regarding invoice questions" is an example of an
activity inside most companies.
Accountants assign 100% of each employee's time to the different activities performed
inside a company (many will use surveys to have the workers themselves assign their
time to the different activities). The accountant then can determine the total cost spent on
each activity by summing up the percentage of each worker's salary spent on that activity.
A company can use the resulting activity cost data to determine where to focus their
operational improvements. For example, a job-based manufacturer may find that a high
percentage of its workers are spending their time trying to figure out a hastily written
customer order. Via ABC, the accountants now have a currency amount pegged to the
activity of "Researching Customer Work Order Specifications". Senior management can
now decide how much focus or money to budget for resolving this process deficiency.
Activity-based management includes (but is not restricted to) the use of activity-based
costing to manage a business.
While ABC may be able to pinpoint the cost of each activity and resources into the
ultimate product, the process could be tedious, costly and subject to errors.
As it is a tool for a more accurate way of allocating fixed costs into product, these fixed
costs do not vary according to each month's production volume. For example, an
elimination of one product would not eliminate the overhead or even direct labor cost
assigned to it. ABC better identifies product costing in the long run, but may not be too
helpful in day-to-day decision-making.
[edit] Lean accounting

Main article: Lean accounting
Lean accounting[1] has developed in recent years to provide the accounting, control, and
measurement methods supporting lean manufacturing and other applications of lean
thinking such as healthcare, construction, insurance, banking, education, government, and
other industries.
There are two main thrusts for Lean Accounting. The first is the application of lean
methods to the company's accounting, control, and measurement processes. This is not
different from applying lean methods to any other processes. The objective is to eliminate
waste, free up capacity, speed up the process, eliminate errors & defects, and make the
process clear and understandable. The second (and more important) thrust of Lean
Accounting is to fundamentally change the accounting, control, and measurement
processes so they motivate lean change & improvement, provide information that is
suitable for control and decision-making, provide an understanding of customer value,
correctly assess the financial impact of lean improvement, and are themselves simple,
visual, and low-waste. Lean Accounting does not require the traditional management
accounting methods like standard costing, activity-based costing, variance reporting,
cost-plus pricing, complex transactional control systems, and untimely & confusing
financial reports. These are replaced by:
• lean-focused performance measurements

• simple summary direct costing of the value streams
• decision-making and reporting using a box score
• financial reports that are timely and presented in "plain English" that everyone
can understand
• radical simplification and elimination of transactional control systems by
eliminating the need for them
• driving lean changes from a deep understanding of the value created for the
customers
• eliminating traditional budgeting through monthly sales, operations, and financial
planning processes (SOFP)
• value-based pricing
• correct understanding of the financial impact of lean change
As an organization becomes more mature with lean thinking and methods, they recognize
that the combined methods of lean accounting in fact creates a lean management system
(LMS) designed to provide the planning, the operational and financial reporting, and the
motivation for change required to prosper the company's on-going lean transformation.
[edit] Marginal costing

See also: Cost-Volume-Profit Analysis
See also: Marginal cost
This method is used particularly for short-term decision-making. Its principal tenets are:
• Revenue (per product) − variable costs (per product) = contribution (per product)
• Total contribution − total fixed costs = (total profit or total loss)
Thus, it does not attempt to allocate fixed costs in an arbitrary manner to different
products. The short-term objective is to maximize contribution per unit. If constraints
exist on resources, then Managerial Accounting dictates that marginal cost analysis be
employed to maximize contribution per unit of the constrained resource (see
Development of throughput accounting, above).
This article may be confusing or unclear to readers. Please help clarify the article;
suggestions may be found on the talk page. (August 2007)
[edit] References
1. ^ Maskell & Baggaley (December 19, 2003). "Practical Lean Accounting". Productivity
Press, New York, NY.
• Consortium for Advanced Manufacturing-International

• Kaplan, Robert S. and Bruns, W. Accounting and Management: A Field Study
Perspective (Harvard Business School Press, 1987) ISBN 0-87584-186-4
• Sapp, Richard, David Crawford and Steven Rebishcke "Article title?" Journal of
Bank Cost and Management Accounting (Volume 3, Number 2), 1990.
• Author(s)? "Article title?" Journal of Bank Cost and Management Accounting
(Volume 4, Number 1), 1991.
[edit] See also

• accountancy
• cost overrun
• fixed asset turnover
• management accounting
• lean accounting
Retrieved from "http://en.wikipedia.org/wiki/Cost_accounting"

Categories: Costs | Management accounting
Hidden categories: Articles lacking sources from June 2007 | All articles lacking sources |
Wikipedia articles needing clarification from August 2007 | All Wikipedia articles
needing clarification
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Get a Widget for this title
Standard costing: Limitations and disadvantages
Top Article
1 of 1
Write now Article Tools
by Darrell Victor
Standard costing is a valuable control technique that helps management to improve

performance and efficiency in production. While there are several benefits of using this
technique, there are attendant demerits that must be considered when using this control
mechanism. These include limitations of the model itself, disagreement over how it
should be used and the potential effect on the workplace.
Disagreement over suitable performance standards and resources
In using standard costing, management must decide which of four primary standards they
would utilize as a benchmark. Since management can use the basic, ideal, current or
attainable standard, there could be discord over which is most appropriate. Another point
of contention would concern the costs/resources relationship. For example, resources that
are more expensive would raise expected costs but might improve quality or reduce
wastage. Deciding on this trade-off can be problematic as well.
Accounting for variations
In a dynamic, complex business environment, it is easy to understand how an expected
cost is difficult to establish. There might be seasonal variations in the prices of direct
materials; the influence of inflation might be difficult to impute and factoring the impact
of trade discounts might not be prudent or practical.
Behavioural problems and morale
Sometimes, adherence to standards can cause problems if managers do not use it
properly. For example, if a variance is unfavourable, some managers might assume that it
is a result of lack of effort or efficiency on the part of employees, when it could be
another reason. One aspect of using the standards associated with this technique is that
employees might try to "game" the system such that quality might suffer in favour of
production. Work-to-rule and resistance are other problems associated with the
introduction of standard costing.
Timeliness
Management information is useful when it is timely. Variance reports can take a long
time to process, which can significantly reduce the value of the standard costing
information. Timeliness is a major problem because variance analysis would be easier to
perform once the business environment is similar. Trying to get actual cost data too
accurate can stall the reports. To avoid this disadvantage, standard cost variance reports
should be more frequent and without unnecessary detail.
Time and cost
Standard costing can be a costly and time-consuming technique. Setting standards,
implementing a system to
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performance and efficiency in production. While there are several benefits of using this
technique, there are attendant demerits that must be considered when using this control
mechanism. These include limitations of the model itself, disagreement over how it
should be used and the potential effect on the workplace.
Disagreement over suitable performance standards and resources
In using standard costing, management must decide which of four primary standards they
would utilize as a benchmark. Since management can use the basic, ideal, current or
attainable standard, there could be discord over which is most appropriate. Another point
of contention would concern the costs/resources relationship. For example, resources that
are more expensive would raise expected costs but might improve quality or reduce
wastage. Deciding on this trade-off can be problematic as well.
Accounting for variations
In a dynamic, complex business environment, it is easy to understand how an expected

cost is difficult to establish. There might be seasonal variations in the prices of direct
materials; the influence of inflation might be difficult to impute and factoring the impact
of trade discounts might not be prudent or practical.
Behavioural problems and morale
Sometimes, adherence to standards can cause problems if managers do not use it

properly. For example, if a variance is unfavourable, some managers might assume that it
is a result of lack of effort or efficiency on the part of employees, when it could be
another reason. One aspect of using the standards associated with this technique is that
employees might try to "game" the system such that quality might suffer in favour of
production. Work-to-rule and resistance are other problems associated with the
introduction of standard costing.
Timeliness
Management information is useful when it is timely. Variance reports can take a long
time to process, which can significantly reduce the value of the standard costing
information. Timeliness is a major problem because variance analysis would be easier to
perform once the business environment is similar. Trying to get actual cost data too
accurate can stall the reports. To avoid this disadvantage, standard cost variance reports
should be more frequent and without unnecessary detail.
Time and cost
Standard costing can be a costly and time-consuming technique. Setting standards,

implementing a system to
In accounting, historical cost is the original monetary value of an economic item.[1]

Historical cost is based on the stable measuring unit assumption. In some circumstances,
assets and liabilities may be shown at their historical cost, as if there had been no change
in value since the date of acquisition. The balance sheet value of the item may therefore
differ from the "true" value.
While historical cost is criticised for its inaccuracy (deviation from "true" value), it
remains in use in most accounting systems. Various corrections to historical cost are
used, many of which require the use of management judgment and may be difficult to
implement or verify. The trend in most accounting standards is a move to more accurate
reflection of the fair or market value, although the historical cost principle remains in use,
particularly for assets of little importance.
Depreciation affects the carrying value of an asset on the balance sheet. The historical
cost will equal the carrying value if there has been no change recorded in the value of the
asset since acquisition. Improvements may be added to the cost basis of an asset.
Historical cost does not generally reflect current market valuation. Alternative
measurement bases to the historical cost measurement basis, which may be applied for
some types of assets for which market values are readily available, require that the
carrying value of an asset (or liability) be updated to the market price (mark-to-market
valuation) or some other estimate of value that better approximates the real value.
Accounting standards may also have different methods required or allowed (even for
different types of balance sheet variable real value non-monetary assets or liabilities) as
to how the resultant change in value of an asset or liability is recorded, as a part of
income or as a direct change to shareholders' equity.
The Constant Item Purchasing Power Accounting model is an International Accounting

Standards Board approved alternative basic accounting model to the traditional Historical
Cost Accounting model.
Contents
[hide]
• 1 Historical cost basis (original cost)

• 2 Measurement under the historical cost basis
o 2.1 Inventory
o 2.2 Property, plant and equipment
o 2.3 Assets and liabilities denominated in foreign currency
• 3 Exceptions to the historical cost basis of accounting
o 3.1 Revaluation of property, plant and equipment
o 3.2 Derivative financial instruments
o 3.3 Financial reporting in hyperinflationary economies
o 3.4 Management accounting techniques
• 4 IASB approved alternative to Historical Cost Accounting
• 5 Advantages and disadvantages of historical cost accounting
• 6 See also
• 7 References
[edit] Historical cost basis (original cost)

Under the historical cost basis of accounting, assets and liabilities are recorded at their
values when first acquired. They are not then generally restated for changes in values.
Costs recorded in the Income Statement are based on the historical cost of items sold or
used, rather than their replacement costs.
For example –
• a company acquires an asset in year 1 for $100;

• the asset is still held at the end of year 1, when its market value is $120;
• the company sells the asset in year 2 for $115.
At the end year 1 the asset is recorded in the balance sheet at cost of $100. No account is
taken of the increase in value from $100 to $120 in year 1. In year 2 the company records
a sale of $115. The cost of sales is $100, being the historical cost of the asset. This gives
rise to a profit of $15 which is wholly recognised in year 2.
[edit] Measurement under the historical cost basis

[edit] Inventory
It is standard under the historical cost basis to write down the value of inventory (stock)
to a lower cost and net realisable value.[2] As a result:-
• A downward movement in the realisable value of inventory below cost is

recognised immediately[3]
• An upward movement in the realisable value of inventory is not recognised until
the inventory is sold[3]
[edit] Property, plant and equipment
Property, plant and equipment is recorded at cost under the historical cost basis.[4] Cost
includes:-
• Purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discounts and rebates;
• Any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating. These can include site preparation,
delivery and handling costs, installation, assembly, testing, professional fees and
the costs of employees directly involved in these activities.
In IFRS, cost also includes the initial estimate of the costs of dismantling and removing
the item and restoring it. Cost may include the cost of borrowing to finance construction
if this policy is consistently adopted. Cost is then subject to depreciation with to write
off the cost of the asset over its estimated useful life down to the recoverable amount.[5] In
most cases the method is "straight line", with the same depreciation charge from the date
when an asset is brought into use until it is expected to be sold or no further economic
benefits obtained from it, but other patterns of depreciation are used if assets are used
proportionately more in some periods than others.
[edit] Assets and liabilities denominated in foreign currency
Monetary items such as cash balances, receivables and payables which are denominated
in foreign currency are reported using the closing exchange rate under IFRS.[6]
[edit] Exceptions to the historical cost basis of

accounting
[edit] Revaluation of property, plant and equipment
Under IFRS it is acceptable, but not required, to restate the values of property, plant and
equipment to fair value.[7] ‘Fair value’ is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable, willing parties in an arm's
length transaction. Such a policy must be applied to all assets of a particular class. It
would therefore be acceptable for an entity to revalue freehold properties every three
years. The revaluations must be made with sufficient regularity to ensure that the carrying
value does not differ materially from market value in subsequent years. A surplus on
revaluation would be recorded as a reserve movement, not as income.
[edit] Derivative financial instruments
Under IFRS and US GAAP derivative financial instruments are stated at fair value
(“mark to market”) with movements recorded in the income statement.[8][9]
[edit] Financial reporting in hyperinflationary economies
IFRS requires a separate method of accounting in currencies deemed to be

hyperinflationary.[10] The characteristics of a hyperinflation include the population
keeping its wealth in non-monetary assets or relatively stable foreign currencies, prices
quoted in foreign currencies or widespread indexation of prices. This might arise if
cumulative inflation reaches or exceeds 100% over three years. An entity operating in a
hyperinflationary economy:-
• Records a gain or loss on its ‘net monetary position’ in its income statement.
• Records non-monetary items (for example, property, plant & equipment) in the
balance sheet by applying indexation to their historical cost.
[edit] Management accounting techniques
In management accounting there are a number of techniques used as alternatives to

historical cost accounting including:-
• measuring profit on sale of inventory by reference to its replacement cost. If

inventory with a historical cost of $100 is sold for $115 when it costs $110 to
replace it, the profit recorded would be $5 only based on replacement cost, not
$15;
• charging economic rent for assets, particularly property. If a business uses a 20-
year old property which it owns, depreciation on a historical cost basis might be
insignificant. However, the management accounts could show a notional rent
payable, being perhaps opportunity cost - the amount the business could receive if
it let the property to a third party.
[edit] IASB approved alternative to Historical Cost

Accounting
The IASB's Framework introduced Constant Item Purchasing Power Accounting as an
alternative to Historical Cost Accounting in 1989 in Par. 104 (a) where it states that
financial capital maintenance - not variable real value non-monetary items, e.g. property,
plant, equipment, inventory, intangible assets, etc., - can be measured in either nominal
monetary units - the traditional HCA model - or in units of constant purchasing power:
the CIPPA model.[11]
The specific choice of measuring financial capital maintenance in units of constant

purchasing power (the CIPPA model) at all levels of inflation and deflation as contained
in the Framework for the Preparation and Presentation of Financial Statements, was
approved by the International Accounting Standards Board’s predecessor body, the
International Accounting Standards Committee Board, in April 1989 for publication in
July 1989 and adopted by the IASB in April 2001.
“In the absence of a Standard or an Interpretation that specifically applies to a

transaction, management must use its judgement in developing and applying an
accounting policy that results in information that is relevant and reliable. In making that
judgement, IAS 8.11 requires management to consider the definitions, recognition
criteria, and measurement concepts for assets, liabilities, income, and expenses in the
Framework. This elevation of the importance of the Framework was added in the 2003
revisions to IAS 8."
[12]
IAS8, 11:
“In making the judgement, management shall refer to, and consider the applicability of,
the following sources in descending order: (a) the requirements and guidance in
Standards and Interpretations dealing with similar and related issues; and (b) the
definitions, recognition criteria and measurement concepts for assets, liabilities, income
and expenses in the Framework.”
There is no applicable International Financial Reporting Standard or Interpretation

regarding the valuation of constant real value non-monetary items, e.g. issued share
capital, retained earnings, capital reserves, all other items in Shareholders Equity, trade
debtors, trade creditors, deferred tax assets and liabilities, taxes payable and receivable,
all other non-monetary receivables and payables, Profit and Loss account items such as
salaries, wages, rents, etc. The Framework is thus applicable.
The CIPPA model is chosen by hardly any accountant in non-hyperinflationary

economies even though it would maintain the real values of constant real value non-
monetary items - e.g. issued share capital, retained income, other shareholder equity
items, trade debtors, trade creditors, etc. for an unlimited period of time. This is because
the CIPPA model is generally viewed by accountants as a 1970's failed inflation
accounting model that requires all non-monetary items - variable real value non-monetary
items and constant real value non-monetary items - to be inflation-adjusted by means of
the Consumer Price Index.
The IASB did not approve CIPPA in 1989 as an inflation accounting model. CIPPA by
measuring financial capital maintenance in units of constant purchasing power
incorporates an alternative capital concept, financial capital maintenance concept and
profit determination concept to the Historical Cost capital concept, financial capital
maintenance concept and profit determination concept. CIPPA only requires all constant
real value non-monetary items, e.g. issued share capital, retained income, all other items
in Shareholders Equity, trade debtors, trade creditors, deferred tax assets and liabilities,
taxes payable and receivable, all items in the profit and loss account, etc. to be valued in
units of constant purchasing power. Variable real value non-monetary items, e.g.
property, plant, equipment, listed and unlisted shares, inventory, etc. are valued in terms
of IFRS and are not required in terms of the Framework, Par. 104 (a) to be valued in units
of constant purchasing power.
The IASB requires entities to implement IAS 29 which is a Constant Purchasing Power
Accounting model during hyperinflation.
[edit] Advantages and disadvantages of historical cost

accounting
Advantages
• Historical cost accounts are straightforward to produce

• Historical cost accounts do not record gains until they are realized
• Historical cost accounts are still used in most accounting systems
Disadvantages
• Historical cost accounts give no indication of current values of the assets of a

business
• Historical cost accounts do not record the opportunity costs of the use of older
assets, particularly property which may be recorded at a value based on costs
incurred many years ago
• Historical cost accounts do not measure the loss of value of monetary assets as a
result of inflation.[13][14][15]
[edit] See also

• Constant Purchasing Power Accounting
• Inflation
[edit] References
1. ^ IFRS - Framework for the Preparation and Presentation of Financial Statements,
paragraph 100, IASC
2. ^ IFRS - IAS2, Inventories, paragraph 9, IASC
3. ^ a b Woodford, William; Wilson, Valerie; Freeman, Suellen; Freeman, John
(2008). Accounting: A Practical Approach (2 ed.). Pearson Education. pp. 13.
ISBN 978-0-409-32357-3.
4. ^ IFRS - IAS16, Property, Plant & Equipment, paragraph 15, IASC
6. ^ IFRS - IAS21, Effects of changes in foreign exchange rates, paragraph 23(a),
IASC
8. ^ Wolk, Harry I.; James L. Dodd and Michael G. Tearney (2004). Accounting
Theory: Conceptual Issues in a Political and Economic Environment, 6th ed.
South-Western. p. 133. ISBN 0324186231.
9. ^ IFRS - IAS39, Financial Instruments : Recognition and Measurement,
paragraphs 46 and 47(a), IASC
10. ^ IFRS - IAS29, Financial Reporting in Hyperinflationary Economies, paragraphs
8 and 9, IASC
11. ^ IASB Framework, Par. 104 (a): "Financial capital maintenance can be measured
in either nominal monetary units or in units of constant purchasing power."
12. ^ IAS Plus, Deloitte
13. ^ PriceWaterHouseCoopers (May, 2006) ([dead link]). Financial Reporting in
Hyperinflationary Environments: Understanding IAS 29.
PriceWaterHouseCoopers.
http://www.pwc.com/gx/eng/about/svcs/corporatereporting/IAS29Publication06.p
df, page 3
14. ^ IASC Foundation Education (Undated). Technical Summary: IAS 29 Financial
Reporting in Hyperinflationary Economies. IASC Foundation.
http://www.iasb.org/NR/rdonlyres/C2563EF2-89A8-4ED7-82A3-
E31EDF33E428/0/IAS29.pdf
15. ^ Kapnick, H. (1976). "Value-Based Accounting - Saxe Lectures (1975/76)".
http://newman.baruch.cuny.edu/DIGITAL/saxe/saxe_1975/kapnick_76.htm.
Retrieved from "http://en.wikipedia.org/wiki/Historical_cost"

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Standard costing advantages and disadvantages"
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SBI Mutual Fund Is India

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SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious

investments and consistent wealth creation.

Exploiting expertise, compounding growth

A mutual fund is a professionally managed type of collective investment scheme that

[edit] Usage, investment objectives

[edit] Net asset value

[edit] Average annual return

P = a hypothetical initial payment of $1,000.

[edit] Expenses and expense ratios

[edit] Management fees

[edit] Non-management expenses

[edit] 12b-1/Non-12b-1 service fees

[edit] Investor fees and expenses

[edit] Brokerage commissions

[edit] Types of mutual funds

Main article: Exchange-traded fund

A relatively recent innovation, the exchange-traded fund or ETF, is often structured as an

[edit] Equity funds

[edit] Market Cap(italization)

• Russell Microcap Index – micro-cap ($54.8 – 539.5 million)

[edit] Growth vs. value

[edit] Index funds versus active management

Main articles: Index fund and active management

[edit] Bond funds

[edit] Money market funds

[edit] Funds of funds

[edit] Hedge funds

Main article: Hedge fund

[edit] Mutual funds vs. other investments

[edit] Share classes

[edit] Load and expenses

Main article: Mutual fund fees and expenses

[edit] See also

[edit] Further reading

Common contractual fund · Fond

Active or Passive management · Value or

Efficient-market hypothesis · Net asset

List of asset management firms ·

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Mutual Fund Investment in India

Growth of Indian MF Industry

Phases of Indian Mutual Funds investment

4 phases in the Indian Mutual Funds investment India

• First Phase - 1964-87

Types of Mutual fund investment in India

List of top Indian mutual funds