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Unit 13: Mutual Funds and Insurance Services

3. Balanced Funds: Balanced funds combine bonds and/or preferred stocks with the ownership Notes
of common stock, usually at some predetermined percentage relationship. Several balanced
funds keep one-half of the portfolio in common stocks and one-half in bonds and preferred
stocks. Balanced portfolios are more conservative than common stock funds and they
generally do not have significant price movement either up or down. The main purpose of
balanced funds is to earn an adequate return in the form of interest and dividends from the
fixed portion of the portfolio, while at the same time gaining a modest growth in the
common stock portion. Balanced funds are most suited for the investors who have an
appetite for some risk, but are wary of taking to 100 percent equity route through an
equity fund.
4. Money Market/Liquid Funds: These funds invest in highly liquid money market
instruments such as Treasury Bills (issued by the government), certificate of deposits
(issued by banks) and commercial papers (issued by companies). Hallmarks of such funds
are safety and high liquidity. Pru ICICI liquid funds, Birla Cash plus and Templeton India
Liquid fund are some examples of liquid funds.

5. Other Schemes: Within each of the above categories, there can be further variants of the
funds. For instance, debt funds may be diversified debt funds, focused debt funds and high
yield debt funds. Likewise, equity funds may be diversified funds, sector funds, index
funds and equity linked savings schemes.
(a) Diversified funds have investment portfolios spread across industries and companies.
Choice of stock is the discretion of the fund managers. Can equity diversified funds
of Canara Bank is an example of such funds. HDFC Top 200 fund is another diversified
equity funds.
(b) Sector funds deploy funds in stocks of a particular business sector or industry, like
Information Technology (IT), Fast Moving Consumer Goods (FMCG) or pharma.
The degree of diversification of risk is very limited in this type of fund, making it
extremely risky. Of course, the potential earnings can be high if the sector does very
well. Franklin Pharma, Franklin FMCG, Franklin Infotech, Kotak Tech, Tata Life
Science and Tech, UTI Petro and UTI Pharma and Health Care are some examples of
this type of fund.
(c) Index funds track key market indices like BSE SENSEX or NSE Nifty. Thus, an index
fund is directly related to the performance of the index, except the tracking error,
which is due to the management fees and transaction costs, charged to its unitholders.
Nifty EeEs and Bank BeEs of Bench mark mutual fund, Magnum Index of SBI mutual
fund and Index Adv BSE-Sensex of UTI mutual fund are important examples of Index
funds.
(d) Taxation funds are designed to provide tax exemption benefits to the investors,
whether in the domestic or foreign capital markets. Birla Tax Plan 98, FT Tax Shield
99, SBI Magnum ELSS 96 and Sundaram Tax Saver 98 are some examples of these
funds.

Geographical Classification

Mutual funds can also be grouped according to geographical boundaries of their operations, as
domestic mutual funds, offshore funds and overseas funds.
1. Domestic funds are open for mobilizing savings of the nationals within the country. These
funds may be of various kinds, as outlined above under the portfolio and functional
groups.

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