Scheme Info

Let’s assume your friend wants to get into the business of managing Mutual Funds. In order to do that, He sets up an AMC ( asset management company ) known as XYZ asset management company Ltd.


An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks & bonds. AMCs are colloquially referred to as money management firms.


After setting up his AMC, he launches several Mutual fund Strategies : 

Equity Strategies : Large Cap Fund, Mid Cap Fund, Multi cap Fund etc.

Debt strategies : Corporate Bond Fund, Short Duration Fund etc

Now he needs to specify the benchmark for each of his strategies so that he has something to compare his performance against. Benchmarks also allow the investors to see if they have invested in good strategies or not.

A benchmark is a standard against which the performance of a security, mutual fund, or investment manager can be measured. Generally, broad markets like Nifty 50, Nifty 500 and bond indexes like Crisil Corporate bond Index are used for this purpose i.e. benchmarks are indexes created to include multiple securities representing some aspect of the total market. Benchmark indexes have been created across all types of asset classes.

It is important that benchmarks are relevant to the strategy of the fund, for example if the fund belongs to the large cap category then its benchmark should be Nifty 50 and not a mid/small cap index.

Expense ratio

At the end of the day, your friend is in the business of making money for both the people invested in his funds and himself. He charges the people invested in his funds for running and managing the funds, This % he charges is called the TER (total expense ratio). The TER covers : sales & marketing / advertising expenses, administrative expenses, transaction costs, investment management fees, registrar fees, custodian fees, audit fees.

An expense ratio (ER) measures how much of a fund’s assets are used for administrative and other operating expenses. An expense ratio is determined by dividing a fund’s expenses by the average value of its assets under management. The TER is calculated as a percentage of the Scheme’s average Net Asset Value (NAV). The daily NAV of a mutual fund is disclosed after deducting the expenses. Expenses reduce the fund’s assets, thereby reducing the return to investors. 

As more people invest in the strategies, The fund manager of the strategy goes ahead and invests that money into stocks, bonds and other assets.

In return of the money that investors invest, they receive units that are proof of their ownership.

Investors track the value of their investments through the NAV (net asset value) of their units where the NAV = (total net value of the fund)/(total units issued by the fund)

Mutual fund net asset value (NAV) represents a fund’s per share market value. It is the price at which investors buy/sell fund units from/to a fund company. It is calculated by dividing the total value of all the cash and securities in a fund’s portfolio, less any liabilities, by the number of units outstanding. NAV of a fund moves on a daily basis depending on how the underlying assets of the fund perform. 

Minimum Lump Sum

Minimum lump sum amount is pretty straightforward, It is the minimum amount we can invest in a fund and It varies from fund to fund.

Minimum SIP

Investing lump sum is not the only way of investing into mutual funds, people choose the SIP ( systematic investment plan ) for regular investments into funds where no manual transactions are needed and money is deducted in a predetermined fashion as decided by the investor. Minimum SIP amount is the minimum amount that can be invested into funds through the SIP route and like lump sum investments, it varies from fund to fund.


Lock-in periods are the horizon for which any investor cannot redeem their invested amount from their date of investment. 

Majority mutual funds are open ended and thus have no lock-in periods unless stated otherwise. Most popular category of MFs with a lock-in are ELSS funds that are used for tax saving purposes under 80C and have a lock-in period of 3 years.

For eg : one of the funds managed by your friend’s AMC has a lock-in of 2 years and you invest in his fund on 31st March 2021 then you will not be allowed to redeem your investment before 31st March 2023.

Time since inception

Time since inception is a pretty straight forward metric, It measures the age of the fund.

For eg : A fund started in March 2018 would have an age of 36 months or 3 years in March 2021.

Exit load

An exit load refers to the fee that the Asset Management Companies (AMCs) charge investors at the time of exiting or redeeming their fund units. Exit loads are generally applicable for the first couple of years or months depending on the fund. Exit loads are meant to penalize investors for exiting investments before their recommended investment horizon.

Exit loads are more popular in Equity funds as equity funds are preferred for longer horizon investments. These also vary from fund to fund.

Exit loads are applicable on the current value of the investment and not the invested value. For eg, The large cap fund managed by your friend’s AMC has an exit load of 1% for the first 12 months of investment. You had invested Rs. 10,000, 2 months ago which has now grown to Rs.11,500 and now you want to exit the fund. You will have to pay 1%*11,500 = 115 as an exit load to the AMC. Exit loads are deducted automatically by the AMC so you will receive 11,500 – 115 = Rs.11,385 in your bank account. 

Fund Manager

Fund manager is the key person when it comes to Mutual funds; fund managers decide the asset allocation, market cap allocation, entry & exit into stocks & all the other major decisions involving the strategy & its implementation. 

Broadly, Fund managers can be categorized into the following types as per the strategy they follow:

Growth :

The managers using this style have a lot of emphasis on the current and future Corporate Earnings. They are even prepared to pay a premium on securities having strong growth potential. The growth stocks are generally the cash-cows and are expected to be sold at prices in the northern direction.

Value :

Managers following such a response will thrive on bargaining situations and offers. They are on the hunt for securities that are undervalued about their expected returns. Securities could be undervalued even because they do not hold preference with the investors for multiple reasons.

Growth at a reasonable price :

The Growth at Reasonable Price style will use a blend of Growth and Value investing for constructing the portfolio. This portfolio will usually include a restricted number of securities that are showing consistent performance. The sector constituents of such portfolios could be slightly different from that of the benchmark index to take advantage of growth prospects from these selected sectors since their ability can be maximized under specific conditions.

Fundamental Style :

This is the basic and one of the most defensive styles which aim to match the returns of the benchmark index by replicating its sector breakdown and capitalization. The managers will strive to add value to the existing portfolio. Such styles are generally adopted by mutual funds to maintain a cautious approach since many retail investors with limited investments expect a necessary return on their overall investment.

Quantitative Style :

The managers using such a style rely on computer-based models that track the trends of price and profitability for identification of securities offering higher than market returns. Only necessary data and objective criteria of protection are taken into consideration, and no quantitative analysis of the issuer companies or its sectors are carried out.

Risk Factor Control :

This style is generally adopted for managing fixed-income securities which take into account all elements of risk such as:

  • Duration of the portfolio compared with the benchmark index
  • The overall interest rate structure
  • Breakdown of the deposits by the category of the issuer and so on

Bottom Up style :

The selection of the securities is based on the analysis of individual stocks with less emphasis on the significance of economic and market cycles. The investor will concentrate their efforts on a specific company instead of the overall industry or the economy. The approach is the company exceeding expectations despite the sector or the economy not doing well.

Top Down Style :

This approach of investment involves considering the overall condition of the economy and then further breaking down various components into minute details. Subsequently, analysts examine different industrial sectors for the selection of those scripts which are expected to outperform the market.