d. Risk Management in Bond Funds

Interest Rate Risk: Mitigated using duration matching and immunization.
Credit Risk: Avoid low-rated issuers; diversify credit exposure.
Reinvestment Risk: Use laddered maturities.
Liquidity Risk: Maintain mix of tradable bonds.
Inflation Risk: Include inflation-indexed bonds.

e. Performance Evaluation (Bond)

Assessed using:

Total Return: Income + capital gains.
Duration and Convexity: Sensitivity to interest rate changes.
Tracking Error: Deviation from benchmark.
Sharpe Ratio: Risk-adjusted performance.

Key Differences Between Equity and Bond Fund Management

Basis	Equity Fund	Bond Fund
Primary Objective	Capital appreciation	Income generation
Return Source	Dividends & capital gains	Interest & price appreciation
Risk Level	High (market volatility)	Low to moderate
Investment Horizon	Long-term	Short- to medium-term
Market Sensitivity	Sensitive to company and market performance	Sensitive to interest rates
Analysis Focus	Company earnings, market trends	Interest rates, credit ratings
Management Style	Active/passive stock selection	Duration and yield curve management

Combining Equity and Bond Fund Management (Balanced Approach)

A well-managed portfolio combines both equity and bond funds to balance growth and safety. This is part of asset allocation.

Investor Type	Equity Allocation	Bond Allocation	Purpose
Aggressive	70%	30%	Maximize growth, tolerate risk
Moderate	50%	50%	Balanced return and safety
Conservative	30%	70%	Stability and regular income

Mutual Funds

Meaning of Mutual Funds

A professionally managed investment vehicle that pools money from many investors and invests it in a diversified portfolio of securities (stocks, bonds, money market instruments, etc.).

Managed by qualified fund managers.
Each investor owns units of the fund.
Net Asset Value (NAV) represents the value of one unit.

Definition: A financial intermediary that collects savings from numerous investors and invests them in a diversified portfolio of financial instruments in accordance with stated investment objectives.

Objectives of Managing Mutual Funds

Maximize returns for investors.
Minimize risk through diversification.
Ensure liquidity for investors.
Provide professional management.
Achieve specific investment goals.
Facilitate small investors to participate in professi