A Report on Investment Behavior of the Customers (A comparison between Mutual funds and other products) at Axis Bank

By Apoorv Raj 11BSPHH010171 IBS Hyderabad

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A Report on Investment Behavior of the Customers (A comparison between Mutual funds and other products) By Apoorv Raj 11BSPHH010171

A report submitted in partial fulfillment of the requirement of MBA program of IBS Hyderabad

Distribution List:

Axis Bank Lucknow

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ACKNOWLEDGEMENT
Knowledge is an experience gained in life, it is the choicest possession, which should not be shelved but should be happily shared with others. I take this opportunity to express my heartfelt gratitude to my company guide Mr. Chetan Srivastava (Operations Head) for allowing me to undertake this project and for all the facilities provided to me. I would also like to thank all the staffs of Axis Bank for their support towards my task, I take this opportunity to sincerely express my profound gratitude to them who took time out of their busy schedules and provided me the knowledge of Mutual Funds and all other technical aspects. Their kindness and suggestions stood me in good stead all along the project work. I take this opportunity to thank Faculty Guide Prof. S.C Bihari for his guidance and valuable advice and constant encouragement, all through the project and provided with the necessary facilities for completion of the project. Apoorv Raj 11BSPHH010171

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Content:
Chapters
1. a. b. c. d. 2. a. b. c. d. e. f. 3. a. 4. a. 5. a. b. c. 6. a. b. c. d. e. f. g. h. i. j. k. 7.

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INTRODUCTION 7-10 Abstract 8 Objective of the Project 9 Research Methodology 10 Limitation of the Study 11 PROFILE 12-25 Overview of the Indian Banking Industry 13 Fiscal and Monetary Policy 20 Demand Drivers for Banking Segment 21 Critical Success Factors 22 Key Risk Factors 23 Global Economic Environment 24 LITERATURE REVIEW 26-37 Introduction of Mutual Funds 27 ECONOMY INDUSTRY ANALYSIS 38-49 Mutual Fund Market in India: A Macro Economic 39 Overview COMPANY ANALYSIS 50-63 Introduction: Axis Bank 51 Axis Mutual Funds 60 About Axis Mutual Funds 62 PROJECT SPECIFIC ANALYSIS 64-79 Basics of Fund Fact Sheets 65 Risk, Return and Performance 68 Evaluating Risks 69 Risk-Adjusted Return 70 Risk from Tactical Asset Allocation 70 Equity and Debt Fund Information 71 Portfolio Diversification 72 Sector Allocation 72 Mutual Fund Offer Document 75 Fund Ratings and Rankings 76 Consolidated Mutual Fund Information 79 Analysis of Questionnaire 80-91

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Executive Summary:
In fe w years Mut ual Fund has e me rged as a tool for ensuring one s f i n a n c i a l we l l being. Mutual Funds have not only contributed to the India growth story but have alsohelped families tap into the success of Indian Industry. As information and awareness isrising more and more people are enjoying the benefits of investing in mutual funds. The main reason the number of retail mutual fund investors remains small is that ninein ten people with incomes in India do not know that mutual funds exist. But once people are aware of mutual fund investment opportunities, the number who decide toi n v e s t i n mu t u a l f u n d s i n c r e a s e s t o a s m a n y a s o n e i n f i v e p e o p l e . T h e t r i c k f o r c o n v e r t i n g a p e r s o n wi t h n o k n o wl e d g e o f m u t u a l f u n d s t o a n e w M u t u a l F u n d c u s t o m e r i s t o u n d e r s t a n d wh i c h o f t h e p o t e n t i a l i n v e s t o r s a r e mo r e l i k e l y t o b u y mutual funds and to use the right arguments in the sales process that customers willaccept as important and relevant to their decision. This Project intends to get in-depth knowledge about the Mutual Fundsas well as know as to what is the knowledge of people about Mutual Funds and learn what all are the reasons for the lack of knowledge among the people. In order to know about all the mentioned points a survey was done through questionnaire of 100 customers arriving at Axis Bank.

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List of Illustrations:
Tables:
Table1: Key players In Indian Banking Sector Table 2: Top funds in Mutual Fund Market Table3: Key Information of Axis Mutual Fund Table4: Balanced Schemes Table5: Equity Diversified Schemes Table6: Exchange Traded Fund Schemes Table7: FMP Schemes Table8: Fund of Funds Schemes Table9: Gilt Schemes Table10: Debt Schemes Table 11: Liquid Schemes Table 12: Monthly Income Schemes

Figures:
Figure 1: Role of Banks Figure 2: Porters Five Forces Model Figure 3: Growth in Asset under Management Figure 4: Reasons for Non-Investment in Mutual Funds Figure 5:Reasons for Investment Figure 6-16: Questionnaire Pie Charts

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INTRODUCTION

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Abstract:
This project report provides detailed information on the Mutual Funds and its popularity among the people. For the better understanding of the project the main contents of the project are divided into seven chapters. These are: First chapter contains the objective of the project, its research methodology and the limitations of the study. Second chapter provides the information about the banking industry its fiscal and monetary policies, demand drivers, major players etc. Third chapter of the report contains theoretical knowledge about the Mutual Funds. Fourth chapter explains about the macro-economic analysis of Mutual Funds. It tells about the current economic condition of the mutual funds. Fifth chapter tells about the bank, its mutual funds and also the different types of schemes that the bank offers. Sixth chapter contains the details about the functioning of mutual fund products and everything related to mutual fund products. Seventh chapter contains the analysis of the questionnaire used during the research. Finally there are findings and recommendations conclusion and annexure.

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1.1 Objective of the Project:

To understand the concept of Mutual Funds. To know the insight about the peoples knowledge about Mutual Funds. To know which investment option is more prefered by the people. To know what are the reasons for people not opting for Mutual Funds nd going for other investment options. To introduce and provide the kind of work done by me in the organization during my SIP.

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1.2 Research Methodology:

Type of Research:
The study is descriptive in nature. This research report analyzes the credit appraisal system with reference to Axis Bank in detail. It also touches few topics which are the subject area of an exploratory design like problem with mutual funds, peoples knowledge about it.

Data Collection:
The data is collected through both Primary and secondary sources: Primary Data is collected through the responses given by the people visiting axis bank of the questionnaire provided to them. Secondary Data is collected through many sources like: Websites Reading materials provided by bank to their employees Books Information provided by the bank staff.

Data Analysis:
The data collected is qualitative and quantitative in nature. The data is interpreted by the researcher as per his knowledge. The report does not involve any specific research technique. The packages which can use for the analysis are limited to Microsoft Excel.

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1.3 Limitations of the study:

I could have gone to the other banks and collected the data of their customers. The official staff shows a great support and very helpful but because of their high work pressure they cannot give much time to us. This report gives major emphasis only on a sub part of Mutual Funds. The response given by the respondents are limited to their individual knowledge about the subject. Apart from these time and resource constraints are always there.

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PROFILE

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2.1 Overview of Indian Banking Industry:

EVOLUTION OF THE INDIAN BANKING INDUSTRY:

The Indian banking industry has its foundations in the 18 th century, and has had a varied evolutionary experience since then. The initial banks in India were primarily traders, banks engaged only in financing activities. Banking industry in the pre-independence era developed with the Presidency banks, which were transformed into the Imperial Bank of India and subsequently into State Bank of India. The initial days of the industry saw a majority private ownership and a highly volatile work environment. Major strides towards public ownership and accountability were made with nationalization in 1969 and 1980 which transformed the face of banking in India. The industry in recent times has recognized the importance of private and foreign players in a competitive scenario and has moved towards greater liberalization.

ROLE OF BANKS:
The Banking industry plays a dynamic role in the economic development of a country. The growth story of an economy depends on the robustness of its banking industry. Banks act as the store as well as the power house of the countrys wealth. They accept deposits from individuals and corporate and lends to the businesses. They use the deposits collected for productive purposes which help in the capital formation in the country. Today, the Indian Banking System is known the world over for its robustness. The Reserve Bank of India is the central/ apex Bank which regulates the functioning of all banks operating within the country. The banking system largely, comprises of schedules banks (banks that are listed under the Second Schedule of the RBI Act, 1934). Unscheduled banks form a very small component (function in the form of Local Area Bank). Scheduled banks are further classified into commercial and cooperative banks, with the basic difference in their holding pattern. Cooperative banks are cooperative credit institutions that are registered under the Cooperative Societies Act and work according to the cooperative principles of mutual assistance. The role of Bank credit is an important factor to be examined, as it helps to create favorable situation as well as maintain it for a long period to boost economy.

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Figure1: Role of Banks

MAJOR PLAYERS: Public Sector Banks (SBI and associates + Nationalized Banks) control more than 74-75% of the credit and deposits businesses in India whereas Private Sector Banks around 17-18%. The core operating income of a bank is interest income (comprises 75-85% in the total income of almost all Indian Banks). Besides interest income, a bank also generates feebased income in the form of commissions and exchange, income from treasury operations and other income from other banking activities. As banks were assigned a specific role in the economic development of the country, RBI ahs stipulated that a portion of bank lending should be for the development of under-banked and underprivileged sections, which is called the priority sector. Current rules stipulate that domestic banks should lend 40% and the foreign banks should lend 32% of their net credit to the priority sector. On the cost sides, the major items for a bank are interest paid on different types of deposits, bonds issued and borrowings, and provisioning cost for Non-performing Assets (NPAs). While the Indian banking sector features a large number of players competing against each other, the top 10 banks accounted for a significant 57% share of the total credit as on March 31, 2011 in which State Bank of India accounting for the highest share of 18%.

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EMERGING ISSUES IN THE BANKING SECTOR IN INDIA:

1. The first issue is the issue of consolidation which is the current buzzword in the banking industry worldwide. The largest bank in China with an asset base of over US $400 billion. In contrast, the total asset of the largest two banks in India, one in public sector and another private entity, are US $105 billion and US $38 billion. These figures are extremely illuminating and the onus is on Indian banks to take cognizance of this fact. The government has raised the cap on FDI in private banks. The Reserve Bank has, on its part, suggested certain changes in the Banking Regulation (Amendment) Bill, 2003 that seek to address some of the legal impediments arising in the consolidation process. 2. The second issue is that of Management of costs. Cost Containment is a key to sustainability of bank profit as well as their long-term viability. Operating cost of banks is expressed as per cent of total average assets. Another related challenge is in reducing the cost of funds of the banking sector. With the rise in oil prices and its cascading effects on inflation along with the raising of policy rates by several central banks, sooner or later, this reversal of the existing comfortable liquidity conditions is likely to have ramifications on domestic financial markets, and with that, on the cost of funds of banks as well. Diversification into fee- based activities coupled with prudent asset liability management hold the key to future profitability.

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3. Lately the issue of credit delivery system has come into focus. The persistence of divergence between the informal and formal sector interest rates in effect has meant that, with deregulation, the formal credit mechanisms have not been able to pierce the informal system. The differences in apparent cost and total real cost might be an important factor behind this divergence. Reducing the total real cost in the formal sectors is likely to be an important consideration to bring about a degree of convergence between the price of credit between the formal and informal sectors. In recognition of this fact, the last several annual policies have placed explicit emphasis on streamlining credit delivery through certain measures like widening the scope of infrastructure lending, revamping the rural credit delivery system by restructuring of the rural banking segment, widening the scope of priority sector lending. 4. The fourth issue is the management of sticky assets. This is a key to the stability and continued viability of the banking sector. Although the ratio of nonperforming loans to total assets is higher in comparison to international standards, the Indian banks have done a great job in containment of nonperforming loans (NPL) in recent times. Nonperforming loans to total loans of Indian banks was 2.4 per cent in 2010.

5. The fifth issue concerns the management of risks. Banking in modern economy is all about risk management. The successful negotiation and implementation of Base II is likely to lead to an even closer focus on risk measurement and risk management at the institutional level. Over the past few years, the Reserve Bank of India has initiated several steps to promote adequate risk management systems across market participants. Among the measures that were instituted to insulate the financial institutions from the vagaries of the market were gradual increase in the cushion of capital, frequent revaluation of the portfolio based on market fluctuations, increasing transparency and a framework for asset liability management (ALM) to combat the risks facing the Indian financial Sector. The RBI has taken a lead in providing guidance to banks by bringing out guidance notes on how to identify, monitor, measure and control the various facets of risks. However, in the ultimate analysis, the onus is on the banks themselves to adopt an integrated risk management approach, based on coherent risk models suited to their risk appetite, business philosophy and expansion strategies. Such improved risk management systems are not only crucial stepping stones towards Base II but also are expected to enable banks to shed their risk averse attitude and contributing more finance to unbaked segments of agriculture, industry and services.

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Industrial Analysis: Porters Five Force Model

Figure2: Portes Five Forces Model

Overall Analysis: The key issue is how banks can leverage their strengths to have a better future. Since the banks have a great threat from the substitutes like Mutual funds, T-bills, Government securities so they should concentrate on bringing these products to their customers. As there is a expected rivalry in the Indian economy Banks have a major role to play.

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SWOT Analysis: STRENGTH

Indian banks have compared favourably on growth, asset quality and profitability with other emerging economies banks over the last few years. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms. enhancing the payments system and integrating regulations between commercial and co-operative banks. Bank lending has been a significant driver of GDP growth and employment.

Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean, strong and transparent balance sheets relative to other banks in comparable economies in its region. Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks

WEAKNESS:
PSUs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organisational performance ethic & strengthen human capital. Old private sector banks also have the need to fundamentally strengthen skill levels. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU banks below 51% thus choking the headroom available to these banks for raining equity capital.

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OPPORTUNITY:
The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealthmanagement on the retail side, and in fee-based income and investment bankingon the wholesale banking side. These require new skills in sales & marketing,credit and operations. With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and retaining more leadership capacity Foreign banks committed to making a play in India will need to adopt alternative approaches to win the race for the customer and build a value-creatingcustomer franchise in advance of regulations potentially opening up post 2009. Atthe same time, they should stay in the game for potential acquisitionopportunities as and when they appear in the near term. Maintaining afundamentally long-term value-creation mindset. Reach in rural India for the private sector and foreign banks.

With the growth in the Indian economy expected to be strong for quite some time-especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong.

THREATS:
Threat of stability of the system: failure of some weak banks has often threatened the stability of the system. Rise in inflation figures which would lead to increase in interest rates.

Increase in the number of foreign players would pose a threat to the PSB as well as the private players.

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2.2 FISCAL AND MONETARY POLICY:

The Word Globalization can be defined as Growing interdependence of countries world-wide through the increasing volume and variety of cross border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology. It is argued that the negative integration of breaking down trade and protective barriers and consequences of the speed and size of the capital flows in international financial markets, which led to the distressing costs of the developed countries in the form of subprime crisis is the reason for Global financial crisis. As a result of the global financial crisis central banks across the world have responded in terms of fiscal and monetary levels. The Reserve bank of India has also responded with certain fiscal and monetary measures.

Impact over Indian Banking Sector:

As a result of the financial crisis of the US and globalization, most of the European, UK and Asian countries were adversely affected. However, the Indian economy was affected very less. Indian banks having incredibly low revelation to the subprime mortgage assets of the developed countries has not experienced many losses when compared to other western countries banks. This is because of the major role played by the nationalized banks and their controls over domestic finance. Also the strictly adopted rules of the Reserve Bank of India could protect India from getting insulated from the traits of the western counteracts. It is predicted that the future exposure of Indian banks to the investment bankers, of the USA could show its adverse impacts over Indian banking sector.

RBIs Policy Response:

RBI has taken certain measures to ensure systematic operation of financial markets and financial stability which included extension of liquidity support to banks. The financial crisis in developed countries led to lack of trust among the major players which almost froze the un-collateralized interbank money markets. Central banks in larger economies have taken steps to increase the short term liquidity requirement and also lost collateral requirement to provide the short term liquidity in some cases. Though India was not much affected by the turmoil it was under pressure and RBI with its consistent monetary policies effectively managed the monetary conditions and domestic liquidity. This was enabled with the appropriate use of multiple instruments like repo and reverse repo; statutory liquidity ratio (SLR), Cash reserve ratio (CRR), open market operations, including the Liquidity Adjustment Facility (LAF) and market stabilization scheme (MSS), special market operations and sector specific liquidity facilities.

Further, due to our forex market operations the money market liquidity was impacted which in turn reflected the developing capital flows. Various policy initiatives imposed by
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RBI have provided sufficient rupee liquidity to ensure ease of dollar liquidity and maintain a market environment responsible for sustained credit flows to productive sectors.

2.3 DEMAND DRIVERS FOR BANKING SEGMENT:

Market Dynamics:
Increasing reach of banks into rural areas and tier2/tier 3 cities. Banks aim to achieve penetration level of 74% and 81.5% in 2013 and 2018 respectively. Micro finance emerging as a major thrust area. Increasing mergers and acquisitions to reap the benefits of consolidation. Improving competitiveness in terms of lower interest rates, increased productivity, better working capital management, deleveraging. Growth in Indian exports and imports.

Technology:
Technology in banking is drawing more and more customers for banking related products and services as they become more cost effective and customer friendly. Banks renders various technology based services such as mobile banking, net banking, tele banking, ATM/credit cards etc. Banking sector spend about 46% of its technology budget in business continuity, 32% for adding product functionality/new products/new features and the remaining 22% in new technology which can change the business process.

Household savings:

Bank deposits have been the mainstay of the saving process in the Indian economy and banks have played an increasingly important role in stepping up the financial savings rate, physical savings, nevertheless, have tended to grow in tandem with the financial savings. With the shrinking of household sector deposits in total deposits, banks need to explore ways of broadening the depositor base, especially in rural and semi-urban areas by offering customized products and features suitable to individual risk-return requirements.

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2.4 CRITICAL SUCCESS FACTORS:

1. Outsourcing of activities to achieve greater efficiencies and reduce overheads. While new entrants and substantial industry growth drive outsourcing among the private and foreign players, inefficiency among the employees to handle front-end functions drives the public sector banks. Banking industrys outsourcing size is estimated as Rs. 4.08 billion and is expected to grow at a CAGR of 47% for the next 4 years. This is expected to generate significant employment opportunities. 2. Consolidation through mergers and acquisitions to reduce the operating cost of banks which has increased at an annual growth rate of 21% during 2010. 3. Six Sigma strategies in banking to bring down the transaction time for customers. For example, ICICI bank adopting six-sigma to reduce the transaction time to almost one third of the current transaction time. 4. Ability to adopt technology. Indian banks have been making significant investments in technology. In addition to the computerization of their front-office operations, the banks have moved towards back-office centralization. Banks are also implementing Core Banking or Centralized Banking, which provides connectivity between branches and helps offer a large number of value added products, benefitting a large number of customers. A number of banks have joined together in small clusters to share their ATM networks. 5. Ability to tap the retail market can be an important success factor banks. Retail Finance market has grown rapidly over the last 4-5 years and the momentum is expected to continue. 6. Ability to tap into new markets and to venture into new areas such as Micro finance, investment banking, banc assurance etc. 7. Ability to transform Plain Vanilla banking to multi-specialist banking offering wide range of services to increase reach ability and to retain customers. 8. Ability to offer new customized product for the targeted population. 9. Proper Asset liability management.

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2.5 KEY RISK FACTORS:

Asset Quality Stress: Liquidity shortage faced by small and leveraged companies might translate into a solvency crisis and uncertainty on personal incomes of the borrower has increased the risk of banks. Operating expenses of public sector bank is much higher than the Private and foreign banks. Customer defaults will affect the performance of the banks. Increase in interest rates reduces the competitiveness of banks in lending. Liberalization of norms for the entry of foreign players. Pose a threat to Indian players.

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2.6 GLOBAL ECONOMIC ENVIRONMENT:

Introduction: The global financial system suffered a profound and traumatic shock in September 2008 when US investment bankLehman Brothers collapsed. As market players withdrew from the financial system, credit dried up and world tradecollapsed, there was a real and immediate fear that the world was heading for a repeat of the Great Depression ofthe 1930s. Two years on and there is growing optimism that both the world economy and the banking industry are recovering from the impact of the financial crisis. But it is equally clear that the financial world has changed permanently, both in terms of who holds the balance of power within global industry and how banks will be allowed to operate infuture. Global shifts in banking: While the growing power of emerging markets is a long-term structural phenomenon, it has accelerated in the bankingindustry thanks as much to the relative decline of the west as to expansion in the east. There has been a pronouncedshift from west to east and, to some extent, from north to south in the wake of the crisis. Banks on both sidesof the Atlantic are expected to have written down more than $2.1trn of assets by the end of 2010, according to theInternational Monetary Fund. The equivalent figure for Asian banks is just $115bn.Banks in emerging markets are nowwell capitalised and well funded and big enough to be able to compete directly against their western counterparts inthe global marketplace. The two largest banks by market capitalisation are both Chinese ICBC and China ConstructionBank. Although third place is taken by a British bank, HSBC, it is largely an Asian operation. A league table, compiled by Bloomberg in April shows that Citi, once the worlds largest bank, comes in at fifth, while banks from Brazil, Russia andIndia the other members of the BRIC grouping alongside China are all in the top 25. Stephen Green, Group Chairman of HSBC, referred to this trend just a month after the collapse of Lehman, when hesaid there was a long-term shift towards Asia and the Middle East. It is this shift that will affect financial markets mostprofoundly, he told a global financial summit in Dubai. The rapid growth of emerging markets does not signal an absolutedecline in the economies of mature nations. The pie will grow. But it does entail a loss of share the developed world willhave a smaller share of a larger pie. The rise of China is the most obvious feature of this shift. Chinas banking marketis dominated by the big four state owned commercial banks, of which three are listed on the Shanghai stock market.As well as ICBC, the worlds largest bank, there is Bank of China, the countrys foreign exchange and trade financebank and China Construction Bank, which specialises in infrastructure projects. The last one and the only one still in full state control is the Agricultural Bank of China, which is gearing up for a flotation in 2010. The key role of the statein investment banking is also evident in India, where three quarters of the banking sector is in government hands. TheState Bank of India alone controls about one quarter of the market. The countrys largest private sector bank and secondbiggest lender is ICICI Bank, which is 23rd in the global table. HDFC Bank is another significant private bank.

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But this is not just an Asian story. Brazil has three out of the top 25 global banks: Ita Unibanco is the pre-eminent privatebank and seventh in the global league table, just ahead of rival Bradesco, while state owned Banco do Brasil is 15th. InRussia, the industry is dominated by Sberbank, a state controlled institution that holds a third of the countrys deposits,and by VTB Bank, which is also in government ownership. Singapore, Turkey and South Korea also have banks with marketvalues above $20bn, the cut-off point for the top 25. South Africa often known as the S in the BRICS is now a globalplayer thanks to Standard Bank, in which ICBC holds a 20% stake. Focus on emerging markets: The interesting question is why these emerging market banks were better able to weather what is always described as aglobal financial crisis better than their US and European counterparts. For many in Asia, the answer is simple, there was no financial crisis in India, says K.R. Muthu Manickam, Vice-President of Finance at HDFC Bank in India. Andrew Lockhart,Head of the Banking and Finance Group at Baker & McKenzie Hong Kong, says Chinese banks were far more insulatedthan their western counterparts both in terms of direct exposure and in the impact on their share price. At the time when there was almost paralysis in the global banking lending market, the Chinese banks were still doing transactions, he says.These sentiments are echoed in other emerging markets. Alfred Ramosedi, Managing Director of Nedbank Private Bank, part of South Africas fourth largest bank, says: Banks here did not get hit by the financial crises. The impact of the creditcrunch and on these emerging market banks was largely psychological, with many emerging market banks using the crisisas an opportunity to reevaluate their growth plans, risk management principles and governance. Looking ahead, banks in emerging markets have a greater potential for growth because of the relatively immaturedevelopment of their domestic financial markets. Consultancy firm McKinsey estimates that 2.2 billion out of the 2.5billion people globally who do not use a bank live in Africa, Asia, Latin America and the Middle East.4 This offers huge potential for expansion based on innovations such as mobile phone banking and microfinance lending. Bradesco has opened a floating branch on a riverboat on the Amazon River system, the first of its kind in the world, as well as an outlet in Helipolis, the largest slum in the Brazilian city of So Paulo. As Noel Gordon, a consultant at Accenture, told TheEconomist, while western banks were fiddling with rocket-science finance, emerging market banks were innovating moreproductively.Even more significant is the rise of the middle class across emerging markets and a consequent increaseddemand for credit. As wage levels increase in industrialising countries, demand for mortgages and consumer loans for carsand household appliances is likely to increase. Furthermore, emerging market banks are well placed to exploit the marked revival in growth. According to the WorldBank, developing countries will enjoy annual economic growth of 6% over the next three years, compared with 2.2-2.6% in the OECD area.6 As businesses find new market opportunities they will need access to corporate finance,which will open up markets for bond and share issues. Giles Keating, Head of Global Research at Credit Suisse, sayssome Asian banks, which are already strong and very large but domestic focused, are likely to play a much larger rolein intermediating capital flows at the global level.

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LITERATURE REVIEW

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3.1 INTRODUCTION OF MUTUAL FUNDS:

A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities. While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered a type of mutual fund. The term mutual fund is less widely used outside of the United States. For collective investment schemes outside of the United States, see articles on specific types of funds including open-ended investment companies, SICAVs, unitized insurance funds, unit trusts and Undertakings for Collective Investment in Transferable Securities. In the United States, mutual funds must be registered with the Securities and Exchange Commission, overseen by a board of directors or board of trustees and managed by a registered investment advisor. They are not taxed on their income if they comply with certain requirements. Mutual funds have both advantages and disadvantages compared to direct investing in individual securities. They have a long history in the United States. Today they play an important role in household finances. There are 3 types of U.S. mutual funds: open-end, unit investment trust, and closed-end. The most common type, the open-end mutual fund, must be willing to buy back its shares from its investors at the end of every business day. Exchange-traded funds are open-end funds or unit investment trusts that trade on an exchange. Open-end funds are most common, but exchange-traded funds have been gaining in popularity. Mutual funds are classified by their principal investments. The four largest categories of funds are money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds may also be categorized as index or actively-managed. Investors in a mutual fund pay the funds expenses. There is controversy about the level of these expenses. A single mutual fund may give investors a choice of different combinations of expenses by offering several different types of share classes.

3.1.1 Structure:
In the United States, a mutual fund is registered with the Securities and Exchange Commission (SEC) and is overseen by a board of directors (if organized as a corporation) or board of trustees (if organized as a trust). The board is charged with ensuring that the fund is managed in the best interests of the fund's investors and with hiring the fund manager and other service providers to the fund. The fund manager, also known as the fund sponsor or fund management company, trades (buys and sells) the fund's investments in accordance with the fund's investment objective. A fund manager must be a registered investment advisor. Funds that are managed by the same fund manager and that have the same brand name are known as a "fund family" or "fund complex".

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Mutual funds are not taxed on their income as long as they comply with requirements established in the Internal Revenue Code. Specifically, they must diversify their investments, limit ownership of voting securities, distribute most of their income to their investors annually, and earn most of the income by investing in securities and currencies. Mutual funds pass taxable income on to their investors annually. The type of income they earn is unchanged as it passes through to the shareholders. For example, mutual fund distributions of dividend income are reported as dividend income by the investor. There is an exception: net losses incurred by a mutual fund are not distributed or passed through to fund investors. Mutual funds may invest in many kinds of securities. The types of securities that a particular fund may invest in are set forth in the fund's prospectus, which describes the fund's investment objective, investment approach and permitted investments. The investment objective describes the type of income that the fund seeks. For example, a "capital appreciation" fund generally looks to earn most of its returns from increases in the prices of the securities it holds, rather than from dividend or interest income. The investment approach describes the criteria that the fund manager uses to select investments for the fund. A mutual fund's investment portfolio is continually monitored by the fund's portfolio manager or managers, who are employed by the fund's manager or sponsor. Hedge funds are not considered a type of mutual fund. While they are another type of commingled investment scheme, they are not governed by the Investment Company Act of 1940 and are not required to register with the Securities and Exchange Commission (though many hedge fund managers now must register as investment advisors).

3.1.2 How mutual funds earn money:

A mutual fund is a means of investing that enables individuals to share the risks of investing with other investors. All contributors to the fund experience an equal share of gains and losses for each dollar invested. A mutual fund owns the securities of several corporations. A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate, or other securities, according to the kind of investments the mutual fund trades. Investors purchase shares in the mutual fund as if it was an individual security. Fund managers hired by the mutual fund company are paid to invest the money that the investors have placed in the fund. Heeding the adage "Don't put all your eggs in one basket" the holders of mutual fund shares are able to gain the advantage of diversification which might be beyond their financial means individually.

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3.1.3 Professional management of mutual funds:

Mutual funds use professional managers to make the decisions regarding which companies' securities should be bought and sold. The managers of the mutual fund decide how the pooled funds will be invested. Investment opportunities are abundant and complex. Fund managers are expected to know what is available, the risks and gains possible, the cost of acquiring and selling the investments, and the laws and regulations in the industry. The ability of the managers to select profitable investments and to sell those likely to decline in value is a key factor for the mutual fund to earn money for the investors.

3.1.4 Mutual fund ranking:

Funds are ranked based upon their performance as a whole and performance against their peers by such companies as Morning Star which has an industry recognized rating system for mutual funds. They have a one-to-five star system in which five stars is the best. Usually the higher the rank, the higher the quality of the fund. For example Morning Star rates mutual funds from 1 to 5 stars based on how well they've performed (after adjusting for risk and accounting for sales charges) in comparison to similar funds. Within each Morning Star Category, the top 10% of funds receive 5 stars and the bottoms 10% receive 1 star. Funds are rated for up to three time periods: three-, fiveand 10- years and these ratings are combined to produce an overall rating. Funds with less than three years of history are not rated. Ratings are objective, based entirely on a mathematical evaluation of past performance. The ratings are a useful tool for identifying funds worthy of further research, but should not be considered signals to buy or sell.

3.1.5 Mutual fund share classes:

MorningStar is a generally accepted authority on divides most stocks into classesor types. The use eight type designations: Distressed, Hard Asset, Cyclical, Speculative Growth, Aggressive Growth, Classic Growth, Slow Growth and High Yield. Each designation defines a broad category of investment characteristics. Stocks are assigned to a type based on objective financial criteria and MorningStar's proprietary algorithm, so stocks of the same type have similar economic fundamentals. Every stock has individual idiosyncrasies, but in general, when evaluating investments, many of the same concerns and evaluation methods will apply across the stocks in one type. By establishing stock types one has an easy way to narrow down the stock universe to those best filling specific investment needs. Stock Types also help you quickly determine the diversification level of portfolios. MorningStar's classes/types are: Distressed These companies are having serious operating problems. This could mean declining cash flow, negative earnings, high debt, or some combination of these. Such "turnaround" stocks tend to be highly risky but also harbour some intriguing investments.

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Hard Asset These companies' main businesses revolve around the ownership or exploitation of hard assets like real estate, metals, timber, etc. Such companies typically sport a low correlation with the overall stock market and investors have traditionally looked to them for inflation hedges. Cyclical Cyclical companies core businesses can be expected to fluctuate in line with the overall economy. In a booming economy such companies will look excellent; in a recession, their growth stalls, and they might even lose money. Speculative Growth Don't expect consistency from speculative growth-companies. At best their profits are spotty. At worst they lose money. In fact, many companies never make it beyond speculative growth, going instead to bankruptcy court. That's why they're speculative. But current profitability isn't what makes speculative-growth companies interesting. It's future profits. Hopefully, a speculative-growth company will eventually blossom into a world-class company. Aggressive Growth Aggressive-growth companies show a bit more maturity than their speculative-growth counterparts: They post rapid growth in profits, not just in sales-a sign of more staying power. At this point, it's time to make some money. Classic Growth These firms are in their prime and have little left to prove. The best classic growers have blossomed into money machines, churning out steady growth, high returns on capital, positive free cash flows, and rising dividends. The catch is, their growth is nowhere near that of the aggressive-growth group. Slow Growth and High Yield The growth of these companies is a fading memory. Having run out of attractive investment opportunities, most of them pay out the bulk of their earnings in dividends expects - high payout ratios - rather than plow the profits back into their businesses.

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3.1.6 MUTUAL FUNDS VS. OTHER INVESTMENTS:

From investors viewpoint mutual funds have several advantages such as:

Professional management and research to select quality securities Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a hand full of stocks. The investor is not putting all his eggs in one basket

Ability to add funds at set amounts and smaller quantities such as $100 per month Ability to take advantage of the stock market which has generally out performed other investment in the long run

Fund manager are able to buy securities in large quantities thus reducing brokerage fees

However there are some disadvantages with mutual funds such as:

The investor must rely on the integrity of the professional fund manager Fund management fees may be unreasonable for the services rendered The fund manager may not pass transaction savings to the investor The fund manager is not liable for poor judgment when the investor's fund loses value There may be too many transactions in the fund resulting in higher fee/cost to the investor - This is sometimes call "Churn and Earn"

Prospectus and Annual report are hard to understand Investor may feel a lot of control of his investment dollars There may be restrictions on when and how an investor sells/redeems his mutual fund shares.

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3.1.7 Advantages of Mutual Funds:

1. Advanced Portfolio Management: You pay a management fee as part of your expense ratio, which is used to hire a professional portfolio manager who buys and sells stocks, bonds, etc. This is a relatively small price to pay for help in the management of an investment portfolio. 2. Dividend Reinvestment: As dividends and other interest income is declared for the fund, it can be used to purchase additional shares in the mutual fund, thus helping your investment grow. 3. Risk Reduction (Safety): A reduced portfolio risk is achieved through the use of diversification, as most mutual funds will invest in anywhere from 50 to 200 different securities - depending on their focus. Several index stock mutual funds own 1,000 or more individual stock positions. 4. Convenience and Fair Pricing: Mutual funds are common and easy to buy. They typically have low minimum investments (some around $2,500) and they are traded only once per day at the closing net asset value (NAV). This eliminates price fluctuation throughout the day and various arbitrage opportunities that day traders practice.

3.1.8 Disadvantages of Mutual Funds:

1. High Expense Ratios and Sales Charges: If you're not paying attention to mutual fund expense ratios and sales charges, they can get out of hand. Be very cautious when investing in funds with expense ratios higher than 1.20%, as they will be considered on the higher cost end. Be weary of 12b1 advertising fees and sales charges in general. There are several good fund companies out there that have no sales charges. Fees reduce overall investment returns. 2. Management Abuses: Churning, turnover and window dressing may happen if your manager is abusing his or her authority. This includes unnecessary trading, excessive replacement and selling the losers prior to quarter-end to fix the books. 3. Tax Inefficiency: Like it or not, investors do not have a choice when it comes to capital gain payouts in mutual funds. Due to the turnover, redemptions, gains and losses in security holdings throughout the year, investors typically receive distributions from the fund that are an uncontrollable tax event. 4. Poor Trade Execution: If you place your mutual fund trade anytime before the cut-off time for same-day NAV, you'll receive the same closing price NAV for your buy or sell on the mutual fund. For investors looking for faster execution times, maybe because of short investment horizons, day trading, or timing the market, mutual funds provide a weak execution strategy.

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3.1.9 Types of mutual funds:

Most funds have a particular strategy they focus on when investing. For instance, some invest only in Blue Chip companies that are more established and are relatively low risk. On the other hand, some focus on high-risk startup companies that have the potential for double and triple digit growth. Finding a mutual fund that fits your investment criteria and style is important. Types of mutual funds are: 1. Value stocks: Stocks from firms with relative low Price to Earning (P/E) ratio, usually pay good dividends. The investor is looking for income rather than capital gains. 2. Growth stock:

Stocks from firms with higher low Price to Earning (P/E) ratio, usually pay small dividends. The investor is looking for capital gains rather than income. Based on company size, large, mid, and small cap: Stocks from firms with various asset levels such as over $2 Billion for large; in between $2 and $1 Billion for mid and below $1 Billion for small. 3. Income stock: The investor is looking for income which usually comes from dividends or interest. These stocks are from firms which pay relative high dividends. This fund may include bonds which pay high dividends. This fund is much like the value stock fund, but accepts a little more risk and is not limited to stocks. 4. Index funds: The securities in this fund are the same as in an Index fund such as the Dow Jones Average or Standard and Poor's. The number and ratios or securities are maintained by the fund manager to mimic the Index fund it is following. 5. Enhanced index: This is an index fund which has been modified by either adding value or reducing volatility through selective stock-picking. 6. Stock market sector: The securities in this fund are chosen from a particular marked sector such as Aerospace, retail, utilities, etc. 7. Defensive stock: The securities in this fund are chosen from a stock which usually is not impacted by economic down turns.

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8. International: Stocks from international firms. 9. Real estate Stocks from firms involved in real estate such as builder, supplier, architects and engineers, financial lenders, etc. 10. Socially responsible: This fund would invest according to non-economic guidelines. Funds may make investments based on such issues as environmental responsibility, human rights, or religious views. For example, socially responsible funds may take a proactive stance by selectively investing in environmentally-friendly companies or firms with good employee relations. Therefore the fund would avoid securities from firms who profit from alcohol, tobacco, gambling, pornography etc. 11. Balanced funds: The investor may wish to balance his risk between various sectors such as asset size, income or growth. Therefore the fund is a balance between various attributes desired. 12. Tax efficient: Aims to minimize tax bills, such as keeping turnover levels low or shying away from companies that provide dividends, which are regular payouts in cash or stock that are taxable in the year that they are received. These funds still shoot for solid returns; they just want less of them showing up on the tax returns. 13. Convertible: Bonds or Preferred stock which may be converted into common stock. 14. Junk bond: Bonds which pay higher that market interest but carry higher risk for failure and are rated below AAA. 15. Mutual funds of mutual funds: This funds that specializes in buying shares in other mutual funds rather than individual securities. 16. Closed end: This fund has a fixed number of shares. The value of the shares fluctuates with the market, but fund manager has less influence because the price of the underlining owned securities has greater influence. 17. Exchange traded funds (ETFs): Baskets of securities (stocks or bonds) that track highly recognized indexes. Similar to mutual funds, except that they trade the same way that a stock trades, on a stock exchange.

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3.1.10 Mutual Fund Expenses:

Investors in a mutual fund pay the fund's expenses. These expenses fall into five categories: distribution charges (sales loads and 12b-1 fees), the management fee, other fund expenses, shareholder transaction fees and securities transaction fees. Some of these expenses reduce the value of an investor's account; others are paid by the fund and reduce net asset value. Recurring fees and expenses -- specifically the 12b-1 fee, the management fee and other fund expenses -- are included in a fund's total expense ratio, or simply the "expense ratio". Because all funds must compute an expense ratio using the same methodology, it allows investors to compare costs across funds. Distribution charges: Distribution charges pay for marketing, distribution of the fund's shares as well as services to investors. Front-end load or sales charge: A front-end load or sales charge is a commission paid to a broker by a mutual fund when shares are purchased. It is expressed as a percentage of the total amount invested or the "public offering price," which equals the net asset value plus the front-end load per share. The front-end load often declines as the amount invested increases, through breakpoints. The front-end load is paid by the shareholder; it is deducted from the amount invested. Back-end load: Some funds have a back-end load, which is paid by the investor when shares are redeemed. If the back-end load declines the longer the investor holds shares, it is called a contingent deferred sales charges (or CDSC). Like the front-end load, the back-end load is paid by the shareholder; it is deducted from the redemption proceeds. 12b-1 fees: Some funds charge an annual fee to compensate the distributor of fund shares for providing ongoing services to fund shareholders. This fee is called a 12b-1 fee, after the SEC rule authorizing it. The 12b-1 fee is paid by the fund and reduces net asset value. No-load funds: A no-load fund does not charge a front-end load under any circumstances does not charge a back-end load under any circumstances and does not charge a 12b-1 fee greater than 0.25% of fund assets.

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Management fee: The management fee is paid to the fund manager or sponsor who organizes the fund, provides the portfolio management or investment advisory services and normally lends its brand name to the fund. The fund manager may also provide other administrative services. The management fee often has breakpoints, which means that it declines as assets (in either the specific fund or in the fund family as a whole) increase. The management fee is paid by the fund and is included in the expense ratio. The fund's board of directors reviews the management fee annually. Fund shareholders must vote on any proposed increase in the management. However, the fund manager or sponsor may agree to waive all or a portion of the management fee in order to lower the fund's expense ratio. Other fund expenses: A mutual fund may pay for other services including:

Board of directors or trustees fees and expenses Custody fee: paid to a custodian bank for holding the fund's portfolio in safekeeping and collecting income owed on the securities Fund administration fee: for overseeing all administrative affairs of the fund such as preparing financial statements and shareholder reports, preparing and filing a myriad of SEC filings required of registered investment companies, monitoring compliance with investment restrictions, computing total returns and other fund performance information, preparing/filing tax returns and all expenses of maintaining compliance with state "blue sky" laws Fund accounting fee: for performing investment or securities accounting services and computing the net asset value (usually each day the equity market's are open) Professional services fees: legal and auditing fees Registration fees: for 24F-2 fees owed to the SEC for net sales of registered fund shares and state blue sky fees owed for selling shares to residents of states in the US and jurisdictions such as Puerto Rico and Guam Shareholder communications expenses: printing and mailing required documents to shareholders such as shareholder reports and prospectuses Transfer agent service fees and expenses: for keeping shareholder records, providing statements and tax forms to investors and providing telephone, internet and or other investor support and servicing Other/miscellaneous fees The fund manager or sponsor may agree to subsidize some of these other expenses in order to lower the fund's expense ratio.

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Shareholder transaction fees: Shareholders may be required to pay fees for certain transactions. For example, a fund may charge a flat fee for maintaining an individual retirement account for an investor. Some funds charge redemption fees when an investor sells fund shares shortly after buying them (usually defined as within 30, 60 or 90 days of purchase); redemption fees are computed as a percentage of the sale amount. Shareholder transaction fees are not part of the expense ratio. Securities transaction fees: A mutual fund pays expenses related to buying or selling the securities in its portfolio. These expenses may include brokerage commissions. Securities transaction fees increase the cost basis of the investments. They do not flow through the income statement and are not included in the expense ratio. The amount of securities transaction fees paid by a fund is normally positively correlated with its trading volume or "turnover." Controversy: Critics of the fund industry argue that fund expenses are too high. They believe that the market for mutual funds is not competitive and that there are many hidden fees, so that it is difficult for investors to reduce the fees that they pay. They argue that the most effective way for investors to raise the returns they earn from mutual funds is to invest in funds with low expense ratios. Fund managers counter that fees are determined by a highly competitive market and, therefore, reflect the value that investors attribute to the service provided. In addition, they note that fees are clearly disclosed.

3.1.11 Mutual Fund Danger:

Unfortunately there have been incidences in which mutual fund managers have traded stocks at prices other than reported to the investor. An example is the use of closing share price for reported trades for the day the investor request an execution of his shares. Whereas the mutual fund manager may have received a more advantageous share price before the closing share price is set. The mutual fund manager retains the additional gain for himself or his firm. Since there are usually large volume trades the gain may be substantial even with a fraction of a share price.

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ECONOMY INDUSTRY ANALYSIS

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4.1 MUTUAL FUND MARKET IN INDIA: A MACRO-ECONOMIC OVERVIEW:

4.1.1 Trends in Mutual Fund Market:
The origin of mutual fund industry in India is with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both qualitywise as well as quantitywise. Before, the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family raised the AUM to Rs. 470 bn in March 1993 and till April 2004; it reached the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the prime responsibility of all mutual fund companies, to market the product correctly abreast of selling. The mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under. First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700crores of assets under management. Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Can bank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47,004 as assets under management.

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Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. Fourth Phase - since February 2003 This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs.29,835crores (as on January 2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000crores of AUM and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.
The major players in the Indian Mutual Fund Industry are:
Figure3: GROWTH IN ASSETS UNDER MANAGEMENT

Note: Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

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4.1.2 Performance of Mutual Funds in India:

The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization. The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. One more thing to be noted, since only closedend funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal, the losses by disinvestments and of courses the lack of transparent rules in the whereabout rocked confidence among the investors. Partly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 1020 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long-term saving. The more the variety offered, the quantitative will be investors. At last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and donts of mutual funds.

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4.1.3 Mutual Fund Companies in India:

The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of the 80s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund. The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came into existence with re-registering all mutual funds except UTI. The regulations were further given a revised shape in 1996. Kothari Pioneer was the first private sector mutual fund company in India which has now merged with Franklin Templeton. Just after ten years with private sector players penetration, the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

4.1.4 Major Mutual Fund Companies in India:

ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund. Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organisation evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores. Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsorersnemely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

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HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund. ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998. Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993. Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

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Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Privete Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsorers of UTI Mutual Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999. Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organisations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focussing on a long-term capital appreciation.

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Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited. Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsorers. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd. with the corporate office in Mumbai. Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsorers and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC. Can bank Mutual Fund Can bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Can bank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai. Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

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4.1.5 Mutual funds are an under tapped market in India:

Despite being available in the market for over two decades now with assets under management equalling Rs 7,81,71,152 Lakhs (as of 28 February 2010) (Source: Association of Mutual Funds, India), less than 10% of Indian households have invested in mutual funds. A recent report on Mutual Fund Investments in India published by research and analytics firm, Boston Analytics, suggests investors are holding back from putting their money into mutual funds due to their perceived high risk and a lack of information on how mutual funds work. This report is based on a survey of approximately 10,000 respondents in 15 Indian cities and towns as of March 2010. There are 43 Mutual Funds recently. The primary reason for not investing appears to be correlated with city size. Among respondents with a high savings rate, close to 40% of those who live in metros and Tier I cities considered suchinvestments to be very risky, whereas 33% of those in Tier II cities said they did not how or where to invest in such assets.

Figure4: Reasons for non-investment in Mutual Funds

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On the other hand, among those who invested, close to nine out of ten respondents did so because they felt these assets were more professionally managed than other asset classes. Exhibit 2 lists some of the influencing factors for investing in mutual funds. Interestingly, while non-investors cite risk as one of the primary reasons they do not invest in mutual funds, those who do invest consider that they are professionally managed and more diverse most often as their reasons to invest in mutual funds versus other investments.

Figure 5: Reasons for investment

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4.1.6 Top funds in Indian Mutual Fund Market:

Table 2: Top Funds In Indian Mutual Fund Market

Scheme Name SBI Magnum Sector Funds CanaraRobecoInDiGo Fund Escorts Opportunities Fund DSP BlackRock MIP Fund Escorts Liquid Plan - Gr

Nature Equity Debt Balanced MIP Liquid

1M% -2.06 -0.14 0.41 -0.32 0.84 -3.53 -1.21 0.89 -4.04

6M% 4.12 1.53 7.79 7.58 5.22

1Y% 12.13 13.25 2.82 9.96 10.52

3Y% 34.47 6.56 9.93 8.05

ICICI Prudential RIGHT F

ELSS

4.31

2.84

MOSt Shares NASDAQ 100

ETF

18.16

28.41

Baroda Pioneer Gilt Fund

Gilt

8.66

13.28

11.48

HDFC Index Fund - Sensex

Index

-1.38

-8.42

14.79

*Note: - Returns calculated for less than 1 year are Absolute returns and returns calculated for more than 1 year are compounded annualized.

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COMPANY ANALYSIS

Page 49

5.1 Introduction: Axis Bank

Axis Bank was the first of the new private banks to have begun operations in 1994, after the Government of India allowed new private banks to be established. The Bank was promoted jointly by the Administrator of the specified undertaking of the Unit Trust of India (UTI - I), Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC) and other four PSU insurance companies, i.e. National Insurance Company Ltd., The New India Assurance Company Ltd., The Oriental Insurance Company Ltd. and United India Insurance Company Ltd. The Bank as on 31st March, 2012 is capitalized to the extent of Rs. 413.20 crores with the public holding (other than promoters and GDRs) at 54.08%. The Bank's Registered Office is at Ahmadabad and its Central Office is located at Mumbai. The Bank has a very wide network of more than 1281 branches (including 169 Service Branches/CPCs as on 31st March, 2011). The Bank has a network of over 7591 ATMs (as on 30th September, 2011) providing 24 hrs a day banking convenience to its customers. This is one of the largest ATM networks in the country. The Bank has strengths in both retail and corporate banking and is committed to adopting the best industry practices internationally in order to achieve excellence.

5.1.1 Branch Network:

The Bank's Registered Office is at Ahmadabad and its Central Office is located at Mumbai. At the end of December 2011, The Bank has a very wide network of more than had a network of 1,493 domestic branches and extension counters and at end of March 2012 there were 10,000 ATMs situated in 971 cities and town. The Bank has loans now (as of June 2007) account for as much as 70 per cent of the banks total loan book of 20 trillion. For HDFC Bank, retail assets are around 57 per cent ( 280 billion) of the total loans as of March 2007. In the case of Axis Bank, retail loans have declined from 30 per cent of the total loan book of 258 billion in June 2006 to around 23 per cent of loan book of 412.8 billion (as of June 2007). Even over a longer period, while the overall asset growth for Axis Bank has been quite high and has matched that of the other banks, retail exposures grew at a slower pace. If the sharp decline in the retail asset book in the past year in the case of Axis Bank is part of a deliberate business strategy, this could have significant implications (not necessarily negative) for the overall future profitability of the business. Despite the slower growth of the retail book over a period of time and the outright decline seen in the past year, the banks fundamentals are quite resilient. With the high level of mid-corporate and wholesale corporate lending the bank has been doing, one would have expected the net interest margins to have been under greater pressure. The bank, though, appears to have insulated such pressures. Interest margins, while they have declined from the 3.15 per cent seen in 2003-04, are still hovering close to the 3 per cent mark. (The comparable margins for ICICI Bank and HDFC Bank are around 2.60 per cent and 4 per cent respectively. The margins for ICICI Bank are lower despite its much larger share of the higher margin retail business, since funding costs also are higher).

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The Bank today is capitalized to the extent of 4.099 billion with the public holding (other than promoters and GDRs) at 53.63%. It is also listed in the top 100 most trusted brands of India in the Brand Trust report. Axis Bank operates the worlds highest ATM site at Thegu, Sikkim at 13,200 feet above sea level.

5.1.2 Vision and Values:

VISION 2015: To be the preferred financial solutions provider excelling in customer delivery through insight, empowered employees and smart use of technology. Core Values: Customer Centricity Ethics Transparency Teamwork Ownership

5.1.3 Awards:
Awards & recognition received by the Bank during the Year 2011:

Best Risk Master award - (private sector category) - 'FIBAC 2011 Banking Awards' Most Productive Private Sector Bank Award - 'FIBAC 2011 Banking Awards' Ranked 3rd Strongest Bank in Asia Pacific region by Asian Banker The CLSA survey on personal banking trends validated again that Axis is the preferred bank amongst retail consumers. Best Bond house India - 2011 by Finance Asia
Awards & recognition received by the Bank during the Year 2010:

Euromoney Best Debt House in India Asiamoney Best Domestic Debt House in India Financeasia Best Bond House in India FE Best Banks Award Best New Private Sector Bank, Rank 2

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5.1.4 Products and Services:

Personal Banking: Account:

Zero Balance Savings Account A savings account that doesnt require a minimum balance. Krishi Savings Account This product has been specially designed for farmers and others employed in the allied agricultural activities sector. It is easy to operate and allows you to transact immediately. EasyAccess Savings Account Instant access to your money anywhere, anytime. Prime Savings Account Access to a wide network of over 1281 branches and one of the largest ATM networks. Corporate Salary Account It is is designed to offer payroll solutions through in a 24 X 7 environment. Womens Savings Account Manage your money, your life, and instant access to your money anywhere, anytime. Demat Account Avail the depository-related services by just opening an account with NSDL through Axis Bank. Senior Citizens Account It is designed by keeping an eye on Senior citizens banking requirements which is totally different and requires special consideration. Defense Salary Account Absolutely free and no minimum balance is required. Specially designed for defense forces. Trust/NGO Savings Account It is a complete banking solution for Trusts, Associations, Societies, Government Bodies, Section 25 companies and NGOs. Resident Foreign Currency (Domestic) RFC(D) Account Theres no need to wonder how to keep your foreign currency safe, fluctuations in forex market, or if you regularly issue cheques and drafts for payments abroad. Azzadi No Frills Experience a host of unparalleled features and heightened convenience. Pension Savings Account Specially designed for Pensioners (Existing & Prospective) of Central Govt.

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Deposits:

Fixed Deposits Recurring Deposits Encash 24 Tax Saver Fixed Deposit

Loans:

Home Loan Car Loan Personal Loan Loan Against Shares Loan Against Property Loan Against Security Study Loan Consumer Loan

Cards:

Credit Cards Debit Cards Prepaid Cards

Investments:

Mohur Gold Online Trading Mutual Funds Demat Account A Smile Solution KalBhi, AajBhi

Insurance:

Life Insurance 1) Life Insurance Products 2) 5 For Life Health Insurance 1) Family Health 2) Silver Health Motor Insurance Jewellery Insurance Personal Accident Safe Guard Home 1) Safe Home 2) Safe Home Plus Travel Companion Critical Illness

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Payments:

Bill Pay Electronic Clearing Service Tax Payments 1) Tax e-Payments 2) Direct Tax Payments 3) Pension Disbursement

Other Services:

Mobile Refill Locker Online Shopping IPOSmart E-Statement Corporate Banking:

Accounts:

Normal Current Account At Monthly Average Balance (MAB) of Rs. 10,000, you can have an optimum value for your money. Business Advantage Account It comes with a host of privileges while requiring you to maintain Rs. 25,000 as Monthly Average Balance. Business Select Account Monthly Average Balance requirement shall be Rs 50,000. Business Classic Account A Monthly Average Balance of Rs 1 lac. Business Privilege Account Maintain Rs 5 lacs monthly average balance to opt for the great facilities. Channel One Account Minimum Monthly Average Balance requirement of Rs. 10 lacs (Rs. 5 lacs at Semi Urban / Rural branches). Current Account for Govt. Organizations No Minimum Balance Stipulation and host of other services without any charges. Current Account for Banks Special relationship with over 1000 Co-operative Banks/Private Sector Banks/MNC Banks/Public Sector Banks across the country. Current Account for Builders & Real Estate Monthly average balance of Rs. 5 lacs. Capital Market Current Account It comes with wider choice of variants for brokers. Krishi Current Account The product with half yearly average balance requirements. Business Global Current Account It satisfies the need of Exporters / Importers for both domestic & foreign transactions. Club 50 Current Account Half yearly average balance of Rs. 50 lacs (Rs. 25 lacs at Semi Urban / Rural branches). Shipping and Maritime current account Specially designed and customized to meet the banking requirements of the Shipping and Maritime industry. Inland Road Transport Current Account Specially designed and customized to meet the banking requirements of the inland road transport industry. Travel, Tourism, and Hospitality Current Account Exclusively designed and customized to meet the banking requirements of players in travel, tourism & hospitality industry.

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Credit Large Corporate:

Working Capital Finance Term Loans Trade Services Structured Finance Supply Chain Management Overseas Transactions

Agri Business:

Kisan Power Powertrac Commodity Power Contract Farming Arthia Power

Capital Market:

Debt Solutions Equity Solutions Private Equity, Mergers & Acquisitions Advisory Services Trusteeship Services Depository Services eDepository Services Capital Market Funding Custodial Services e-Broking

Govt. Business:

Authorization Direct Tax Payment Indirect Tax Payment State Tax Payment Pension Disbursement

Cash Management Services:

Payment Solutions Collection Solutions

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Treasury: Forex International Business Money Market Constituent SGL Facilities Retailing of Government Securities Priority Banking: Accounts Resident It not only ensures the highest level of Priority but also preferential treatment to selected customers like you.

NRI It permits a NRI to hold and maintain foreign currency earnings in Indian rupees. Loans Home Loan Personal Loan Loan Against Property Loan Against Security Car Loan Study Power Consumer Power

Deposits: Fixed Deposits Recurring Deposits Encash 24 Investments: Resident Indians: Mohur Gold Online Trading Mutual Funds Depository Services eDepository Services Investments: NRI: PIS Account PAN Assistance Cards

Platinum Credit Card Gold Plus Credit Card Gold Credit Card Silver Credit Card Secured Credit Card eShop Card

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Remittances SWIFT Partner Banks NRI: Accounts:

NRE Savings Account It permits a NRI to hold and maintain foreign currency earnings in Indian rupees. NRO Savings Account Any person resident outside India may open NRO account and conveniently deposit and manage local rupee fund. NRI Prime Account - Look forward to some truly exclusive benefits. NRI Priority You and your family member resident in India enjoy an unmatched banking experience. Portfolio Investment Scheme(PIS) Account - NRIs can invest in shares of Indian companies, in secondary market. NRE Salary Account - Minimum of ten NRI employees can opt for Axis Bank NRI salary accounts. Resident Foreign Currency (RFC) Account - It can be opened, held and maintained by a person resident in India with an authorized dealer.

Services:

PAN Assistance Locker NRI Local Post Box

Deposits: NRE Rupee Deposit NRO Rupee Deposit FCNR Deposit RFC Term Deposit Remittances: AxisRemit SWIFT Partner Banks

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5.2 Axis Mutual Funds:

5.2.1 Axis Triple Advantage Fund
We all dream for a bright future for our loved ones and plan our investments accordingly. However markets fluctuations & changes in the economy can sometimes put an end to your dreams. Therefore it's advisable to spread your investments across different asset classes.

5.2.2 Build wealth no matter what is happening in the economy

There are obviously no guarantees but you can maximise your chances of making money irrespective of what is happening in the economy by investing in a diverse range of assets (such as equity, debt and gold). By balancing your investments across multiple asset classes, you tend to reduce risk of losing money to economic shocks (like the recent global financial crisis).

5.2.3 Here's how

Empirical studies have shown that between 1995 and 2009, if you had invested equally in stocks, bonds and gold, only once would you have lost money i.e. in 1995. In all the other 14 years, average returns from an equal mix of these three assets were positive.

5.2.4 Growth through diversification

There's always a solution. Axis Triple Advantage Fund helps you take advantage of diversification by investing in a mix of equity, fixed income and gold. This not only helps avoid monetary surprises but also provides opportunity for wealth growth. With Axis Triple Advantage Fund, if you have planned for something, chances are you should be able to go and get it.

5.2.5 Key Features

Provides diversification across three asset classes viz. equity, fixed income and gold thereby leading to reduction in risk Returns potential not compromised even with reduced risk levels Returns more stable than pure equity or gold investments over the long term Offers convenience. Now one single application is sufficient for investment in three asset classes. 20 - 30% of investment in gold. Gold is a good hedge against financial crises.

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5.2.6 Offering:
As Axis Bank Financial Advisory team, we adopt a strong research driven recommendation model to help you choose the best funds based on qualitative and quantitative parameters. Apart from this, a dedicated Relationship Manager can also be assigned to you to ensure that your investment requirements are taken care of, smoothly and efficiently. Our advisors understand your profile and lead you through a structured financial planning process to devise financial solutions best suited to you. The advisors will also help you choose the right investment products in line with your investment goals. We offer a unique 'One Page Portfolio Snapshot' report across investment products to our customers investing in Mutual Funds. This report can be viewed through our Internet Banking module.

5.2.7 Services / Charges:

Mutual Funds - Please contact your nearest Branch / Relationship Manager to know the applicable charges. Axis Bank has "opted in" for transaction charge as per SEBI Circular no. Cir/IMD/DF/13/2011 dated August 22, 2011 (with effect from November 01, 2011).

5.2.8 Key Information:

Mutual Fund Setup Date Incorporation Date Sponsor Trustee Chairman CEO / MD CIO Compliance Officer Investor Service Officer Assets Managed
Table 3: Key Information of Axis Mutual Funds

Axis Mutual Fund Sep-04-2009 Jan-13-2009 Axis Bank Limited Axis Mutual Fund Trustee Limited Dr. T. C. Nair Mr. Rajiv Anand Mr. Chandresh Nigam Mr. MitenChawda Mr. MilindVengurlekar Rs. 8814.94 crore (Mar-31-2012)

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5.3 About Axis Mutual Funds:

Axis Mutual Fund was set up on September 4, 2009 and sponsored by Axis Bank Limited. Assets of Axis Mutual Fund are managed by Axis Asset Management Company Limited which January 13, 2009. Mentioned below are the schemes offered by Axis Mutual Fund for investment in India. Balanced Schemes:
Balanced Schemes Axis Triple Advantage Fund - Growth
Table 4: Balanced Schemes

1mth -1.05

3mth -0.24

6mth 2.79

1yr 8.84

3yr NA

5yr NA

NAV 11.20

Size* 452.51

Equity Diversified Schemes:

Equity Diversified Schemes Axis Long Term Equity Fund - Growth Axis Midcap Fund - Growth
Table 5: Equity Diversified Schemes

1mth -5.78 -8.62

3mth -5.78 -5.74

6mth 3.34 4.56

1yr 0.48 -2.94

3yr NA NA

5yr NA NA

NAV

Size*

12.08 207.01 9.86 120

Exchange Traded Fund Schemes:

Exchange Traded Fund (ETF) Schemes Axis Gold ETF
Table 6: Exchange Traded Fund Schemes

1mth 2.36

3mth 3.81

6mth 0.4

1yr 30.93

3yr NA

5yr NA

NAV 2850.28

Size* 250.03

FMP Schemes:
FMP Schemes Axis Fixed Term Plan - Series 15 (370 Days) - Retail Growth Axis Fixed Term Plan - Series 14 (368 Days) - Retail Growth Axis Fixed Term Plan - Series 16 (370 Days) - Retail Growth
Table 7: FMP Schemes

1mth 0.56

3mth 2.57

6mth 4.6

1yr 3yr NA NA

5yr NAV

Size*

NA 10.63 225.95

0.84

2.55

4.67

NA NA

NA 10.85

30.69

0.53

2.58

4.58

NA NA

NA 10.59 111.23

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Fund of Funds Schemes:

Fund of Funds Schemes Axis Gold Fund - Growth
Table 8: Fund of Funds Scheme

1mth 1.59

3mth 3.15

6mth 0.87

1yr NA

3yr NA

5yr NA

NAV 10.86

Size* 67.13

Gilt Schemes:
Gilt Schemes Axis Treasury Advantage Fund - Institutional Growth
Table 9: Gilt Schemes

1mth 0.84

3mth 6mth 1yr 2.51 4.91 9.73

3yr NA

5yr NA

NAV 1208.56

Size* 855.03

Debt Schemes:
Debt Schemes Axis Liquid Fund - Retail - Growth Axis Dynamic Bond Fund - Growth Axis Hybrid Fund - Series 2 - Growth
Table 10: Debt Schemes

1mth 0.78 0.4 -6.54

3mth 2.38 1.53 -10.36

6mth 4.7 6.04 -2.77

1yr 9.19 9 NA

3yr NA NA NA

5yr NA NA NA

NAV 1179.07 10.96 10.49

Size* 3490.8 74.68 239.34

Liquid schemes:
Liquid Schemes Axis Liquid Fund - Institutional Growth
Table 11: Liquid Schemes

1mth 0.81

3mth 2.49

6mth 4.93

1yr 9.65

3yr NA

5yr

NAV

Size* 3490.8

NA 1205.54

Monthly Income Schemes:

Monthly Income Plan (MIP) Schemes Axis Income Saver Fund - Growth Axis Hybrid Fund - Series 1 - Growth
Table 12: Monthly Income Schemes

1mth -2.54 -6.45

3mth -2.31 -10.21

6mth 2.49 -2.78

1yr 2.67 NA

3yr NA NA

5yr

NAV

Size* 171.87 147.85

NA 10.62 NA 10.47

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PROJECT SPECIFIC ANALYSIS

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6 FUNCTIONING OF MUTUAL FUND PRODUCTS:

6.1Basics of Fund Fact Sheets:
Investors need to choose from a growing number of products, those that fit their needs. Current, relevant and useful information about products is necessary to make these decisions. Mutual fund facts sheets offer information on a monthly basis, for all mutual fund schemes of a fund house regarding portfolio composition, performance, investment strategy and such information that may be required by investors to compare products and make investment decisions.

Why Fact Sheets?

A fact sheet is used as a means to tracking the fund performance and portfolios on a monthly basis. It is used to study the products of a fund house in details and to evaluate its performance. Investors, distributors, competitors, research agencies, rating agencies and the media, track mutual fund fact sheets. Fact sheets aim to keeping investors informed and help prospective investors evaluate and analyze the product before investing. Fund house use fact sheets primarily to disclose scheme performance. The fact sheet also provides scheme objectives, fund managers commentary on the portfolio and market outlook. Distributors use the fact sheet for comparing the portfolio of various fund houses for their relative performance. Fund houses provide additional information such as awards won, product advertisements, announcements (such as NFOs, value-added services, enhanced disclosures) and achievements to create awareness about their products, services and brand. Fact sheets are also used as investor education material by including explanation to simple investment concepts and glossaries. Fact sheets are also used as marketing tools and are branched. For example, Birla Sun Life AMCs Connect, Reliance AMCs Fundamentals, HDFC AMCs In Touch Mutually, ICICI Prudential AMCs Prudent Fact Sheet are all examples of fact sheet branding.

6.1.1 Format and Concept

As per SEBI guidelines, fund houses are required to disclose the detailed portfolio of each one of their schemes in the prescribed format periodically. The statement of scheme portfolios need not be sent to the unit holders, provided they are published by way of an advertisement, in one English daily circulating in whole of India and in a newspaper published in the language of the region where the head office of the mutual fund is located. Detailed information about a mutual fund scheme can be obtained from these disclosures. Close-ended debt schemes and interval plans have to do a monthly disclosure of portfolios as a regulatory requirement. Disclosing information in a monthly fact sheet is not a regulatory requirement but a market practice that most fund houses follow. Fact sheets fall within the purview of the advertisement code of SEBI, as they contain information about the fund and are disseminated to the public.

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Given that the fact sheet has become a much-used public document, Association of Mutual Funds in India (Amfi) has worked on standardizing the fact sheet disclosures and prescribed the recommended disclosures in January 2008. Amfis guidelines are only recommendations for best practice and are not binding on the fund houses for compliance. Not all fund houses have implemented the guidelines prescribed by AMFI. Fact sheets provide information about each scheme in a one-page format that contains key information about the portfolio.

6.1.2 General Information:

A typical list of information found in the fact sheet is as follows: Scheme objective and suitability Basic fund details Fund snapshot Portfolio details Performance-related information Key facts of funds (at-a-glance) Market outlook, views and commentary Fund recommendations from the CIO Fund ranking, rating and awards Fund house initiatives

6.1.3 Scheme Objective:

Fundobjective explains what the fund intend to do. Each category of fond is backed by investment philosophy, which is predefined in the objectives of the fund. Investors can align their investment needs with the funds objective and invest accordingly. The mutual funds investment objective states what the portfolio aims to achieve in terms of capital appreciation and income generation, among others. It could also inform the investor about the investment style of the managers and the risk it is prepared to take for achieving its investment objective.

6.1.4 Basic Fund Information:

Fact sheets features summary information about each fund, to provide a snap shot of features. The fund manager names, fund inception date, current NAV of all options, are some of the key information disclosed as a summary. Fund size is the total assets under management (AUM) for a particular fund. Fund size has a bearing on the way a fund performs. In case of equity funds, corpus in an important factor in judging the impact of stock selection. Large funds tend to become less agile and find it difficult to rebalance their portfolios. In case of mid cap and small caps funds when the fund size gets larger, finding stocks to invest becomes a challenge for the fund manager. In a liquid fund, size is an advantage. Managers can deal with inflows and outflows without influencing portfolio yield.

Net Asset Value (NAV) is the current market value per unit. It provides an indication of what it would cost to buy a unit of the fund, on the date of the factsheet.

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Expense ratio indicates how much is being charged to investors for managing a fund. Equity funds tend to have a higher expense ratio than debt funds. For a given kind of product, expense ratios are comparable across funds. For example, liquid funds across fund houses may charge an expense ratio of 0.35% to 0.50% while equity funds may feature expense ratio 1.5% to 2.25%. Using the factsheet information, it is possible choose lower cost funds of the same kind. Fund manager details include providing the name and total experience of the fund manager along with the duration for which the fund manager has been managing a particular fund. Fund manager differ in their styles and strategies. Investors tend to use the track-record of a fund manager to evaluate the performance of the fund they are currently managing. Style box is a nine square grid that provides insights into the fund positioning and investment strategy. It indicates the broad categories into which the fund manager has chosen to invest. Fund inception date is the allotment date of the fund. It indicated the vintage of the fund and enables investors to access a longer performance history. Dividend history provides information on the dividends declared by each of the schemes, usually at the end of the fact sheet. Investors would like to know the income distribution by the fund in which they have invested. The extent, amount and frequency of dividend distributed by the fund are published. Monthly income plans for examples, are expected to declare dividends regularly. An investor would like to know the rate and consistency of the dividend declared. Dividend history helps in getting such information and understating whether the fund has skipped any dividend payouts in the past. Investors and distributors can find all the operational details required to make an investment. The applicable loads, cut-off times for transacting, minimum investment amounts, the various options and plans within the scheme and service standards, are provided in the factsheet itself to complete the decisions about the choice of the fund to invest in after evaluating its performance.

6.1.5 Market outlook, Views and Commentary:

Facts sheets carry the outlook and covering notes from senior officials in the first few pages. The CEOs note mentions any significant development in the industry, impact of changes in regulations, rewards and recognition, and the happenings in the company. The outlook and commentary on the markets from the Chief Investment Officer (CIO) is found next. The CIOs note forms an important part of overall marketing and communication strategy of the fund house. The objective of the CIOs note is to: Review the marketers over the past month View and outlook for debts and equity markets, Communicate other significant market events

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Commentary on events like budget, credit policy announcement, general elections and such are also part of this note, seeking to provide a perspective on the impact of key on the markets. Some research and product information teams of distributors pick up these market views and consolidate them to arrive at consensus view of fund managers regarding the equity and debt markets. Funds also tend to send out ad-hoc notes without waiting for a factsheet edition if there is news or events that can have a significant impact, to keep their investors informed.

6.2 Risk, Return and Performance:

Mutual fund factsheet disclose the portfolio and performance statistics of each scheme of a fund. Some funds provide a detailed disclosure of the entire portfolio while some indicate the top ten holdings. Return and performance date is usually published, in complete adherence to SEBI Regulation for such disclosure.

6.2.1 Fund and Benchmark Returns:

SEBI mandates that all fund returns should be benchmarked to an index. The benchmark of the fund is decided before the fund launch and disclosed in the scheme information document. Benchmarks are usually market indices, such as the CNX S&P Nifty or the BSE Sensitive Index (Sensex) for diversified equity funds. Sector funds use sector indices as benchmarks. Funds that invest in small and mid-cap funds tend to use the BSE 500 or Mid-cap indices, which are more broad-based. Debt and hybrid funds use indices created by CRISIL. CRISIAL has a range of indices created for use as benchmarks for monthly income plans balanced funds liquid funds and gilt funds. Funds fact sheets carry return of the fund and the representative benchmark index to enable an investor to compare the funds performance with its benchmark, to understand relative performance.

6.2.2 Return Representation:

Fact sheets have to disclose fund return data in a SEBI complaint manner along with the benchmark returns. Peer group returns cannot be disclosed for comparative analysis. As per SEBIs advertisement code, funds have to include the following standard disclaimers and disclosures along with returns: The disclaimer Past performance may or may not be sustained in future must immediately follow performance numbers. The disclaimer Since inception returns are calculated on Rs. 10/- invested at inception must be provided. Inception date and benchmark name must be specified. The option used for calculating returns, whether dividend reinvestment or growth must be stated. Explanation that Return<1 year are Absolute, >1 year are CAGR must be given. Impact of dividend distribution tax and dividend pay out must be disclosed.

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As per SEBI compliance requirements, returns have to be published for the last 5 months, 1 year, 3 year, 5 year, 7 year, 10 year and since inception. However additional return and performance disclosures can be made. Fund houses depict returns in various formats and styles. Some additionally declare calendar year returns, NAV movement graphs, SIP returns, fund performance during market up-turn and down-turn and the like. The absolute return is simply return whatever an asset or portfolio returned over a certain period. The return for mutual funds that have not completed one year since inception is represented as a simple annualized returns is used to depict returns instead of absolute returns since the total return is steady and is made up of interest income accrued every day. Compounded annualise growth rate (CAGR) is the accepted standard for all return calculations and is mandated by SEBI in its return guidelines for all funds except those that involve periods of less than 1 year.

6.3 EVALUATING RISK:

6.3.1 RELATIVE VOLATILITY:
The fact sheet provides various tools to discern the risk in a fund. The return disclosures over various holding periods as mandated by SEBI are indicative of the volatility of different funds types. The return of the floating rate fund which is a very short term debt fund, is within a narrow range over all the three holding periods. It is the lowest risk product. In the case of the short term fund the range is a bit wider. The equity fund has the widest range of returns indicating the highest level of risk. The return is also the highest for the equity fund. Mutual funds provide a whole range of products with varying levels of risk and return and investors need to choose based on their need. It is also evident that returns have to be evaluated over long periods of time for risky products like an equity fund, and shorter period evaluation is adequate for funds with lower level risk.

6.3.2 VISUAL REPRESENTATION OF RISK:

Most fund houses like to represent the movement in their NAVs in a graphical format by common sizing the NAVs and benchmark values to the same number. The graph typically depicts the growth of the NAV from its inception to the current date using a hypothetical amount. A common sized graph starts from same value and depicts the behaviour of the NAVs over a period of time. Funds with long term track records are able to show how they have performed over time comparison with their benchmarks. Such common-sized graphs may conceal any period-onperiod under performance by the fund, for any of the intervening periods. They are useful in visually assessing risks.

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6.4 RISK-ADJUSTED RETURN

Risk and return move together. A fund may have posted a higher return, but that would have also come with a higher level of risk. In order to know whether return performance of a fund is consistent, and has not been improvised by merely assuming higher risk, compute risk and return. The Sharp ratio compares the excess return of the fund makes over and above a risk- free rate, with its risk as measured by standard deviation. It is also called the risk- reward ratio. If a fund earns a higher return than a risk-free rate, and is able to achieve such performance at a lower level of standard deviation, its sharp ratio will be high. Higher the ratio, better, when similar funds are compared for the same period. Sharp ratio are used to compare and ranked funds within the same category.

6.5 RISK FROM TACTICAL ASSET ALLOCATION:

Mutual funds typically invest in three asset classes- equity, debt and cash. The risk and return features of these asset classes are distinctive. Asset allocation defines the risk-return positioning of the fund. Asset allocation in a fund product refers to the exposure to various asset classes in the portfolio given the investment objective of the fund that represent the strategic asset allocation of the fund. For example, the extent of equity in a debt-oriented hybrid such as monthly income plan is limited by the investment objective. An MIP may state its allocation as 0% to 20% in equity and 0%-100%. The strategic allocation would be 20% equity and 80% debt, but the fund manager may tactically take equity to 20% or to reduce it all the way t 0, based on the view of the market. Such tactical changes in asset allocation impact return and risk, and can be discerned from the fact sheet. In addition of the long term debt securities to the money market instrument may enhance the return from a short term debt portfolio, if the fund manager view of falling interest rate materializes. If the interest rate increases, long term debt would suffer mark to market losses, increasing the risk of the short term fund. A large cap equity fund with a higher allocation to mid cap stocks with this segment witnesses a rally, could be risky if the large caps outperform midcaps. A fund that adheres to its investment objective or mandate is less risky than one that alters its asset allocation tactically. Such funds run the risk that the return would be impacted if the view of the fund manager do not materializes. Hybrid funds disclosure in the fact sheet shows the proportion of both equity and debt securities in the portfolio. It also indicates the market cap composition of their equity fund portfolio.

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6.6 EQUITY AND DEBT FUND INFORMATION:

6.6.1 Equity fund information:
Mutual fund discloses the portfolio of their equity fund with percentage holdings in various stocks that are held by the fund. Allocation to individual stock as percentage to the total asset is a standard disclosure norm across fund. This shows the weightage of the stock in the portfolio, which is derived by dividing the market value (market value of the stock = market price * quantity) by the total asset of the fund. The stock name usually the sector name is also mentioned to provide enhance information. Detailed portfolios enable the investors to study the fund managers stock picks and sector-wise exposures. This is used to evaluate the sector and stock calls being taken by the fund manager, to understand what could have contributed positively or negatively to the performance of the portfolio. The extent of cash (or debt holding in case of hybrid fund) tells whether the fund manager is taking an aggressive and defensive stance, given the market situation. The fund manager deploys all funds; cash component will be high for newly launched funds. Equity funds asset allocation patterns typically carry a minimum of 10% allocation to money market securities (such as CBLO, reverse repo, treasury bills, CPs and CDs) and a short term debt instrument, mainly in order to maintain liquidity. Closed-ended funds or funds with lock-ins such as ELSS usually are invested upto 98-99% in the normal market condition.

6.6.2 Equity fund style boxes:

Style refers to the favored investment strategy of a fund manager to achieve the investment objective. An equity fund may be managed aggressively, over weighting mid-cap stock. Another could be focusing on a large cap value stock. Both funds are not strictly comparable, though they may be diversified equity fund. Their risk and return features are different due to difference in style. Style of fund is represented using style box. The vertical axis of the style box is divided into three categories, which are based on market caplarge, mid, small. The horizontal axis is also divided into three categories, based on valuationvalue, growth and blend. The average market cap, price to earnings (P/E) and price-to-book (P/B) ratios are used as a basis for classification of each stock as growth, blend or value. The term blend is used to describe stock that exhibit both growth and value characteristics. The categorization is useful in determining how an investment fits into a particular might focus primarily on a small capitalization funds or growth fund.

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6.7 PORTFOLIO DIVERSIFICATION:

Diversification is a key feature of a mutual fund product. An equity fund may be called welldiversified if it invests across various stocks and sectors. If a fund is concentrated in terms of stocks and sectors, the fund manager is taking active view on the performance of the given stock or sector. Such concentration can enhance returns if the call is right, but the stock or sector does not perform as well as expected, the fund runs the risk of underperforming its peer group as well as its benchmarks. If the top 10 stocks of a diversified equity fund account for over 40% of the net assets then the fund should be treated as concentrated. Sector funds are typically highly concentrated funds while thematic funds are less concentrated than sector funds. A concentrated portfolio may be risky. While it may generate above-average growth if the stocks it holds do well, it could suffer if it is highly concentrated in a volatile sector. Mid-cap and small-cap funds are well diversified in terms of both stocks as well as sectors due to the higher degree of market risk and liquidity risk involved. Thematic or sector-based equity funds on the other hand, are expected to be concentrated. The ability of a thematic fund to outperform a benchmark index, which is typically a narrow market index, comes from the sector weighting and how they vary in relation to the market index. A sector fund is concentrated not only in the sector of choice but also in the stocks of that sector. The 10% limit on holding in a single stock does not apply to a sector funds.

6.8SECTOR ALLOCATION:
Equity funds may exhibit diversification across the top 10 stock, but may be heavily concentrated across a few sectors, thus creating concentration risk for the investors. A diversified equity funds expected to be invested across several sectors. If a fund has invested heavily across a few sectors, it may have a sector concentration that could enhance its risk, if the fund manager views on the performance of the sector do not materialize. Sector concentration could adversely affect the performance of the fund if the in which it has invested significantly do not outperform the funds benchmark. A fund with diverse sector holdings is more diversified and therefore carries a lower risk. Even a new sector do not perform as expected, it may not affect the funds perform significantly, given smaller weighting of each sector and portfolio. A fund with higher concentration in a few sectors will be impacted, positively or negatively, depending on the performance of chosen sector. Sector exposure usually defines with respect to benchmark. If the funds benchmark has 10% in a sector, say telecom and the fund holds 20% in telecom stocks, it is overweight with respect to that sector. The fund outperformance and underperformance can be attributed to such differences in sector weighting, compare to benchmark index. In order to ensure uniform classification of sector across funds, AMFI has created a four level sectors classification of equity stocks. Mutual funds used this classification to determine the industry to which the stocks they hold belong.

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6.8.1 VALUATION RATIOS:

A valuation ratio is a measure of how cheap or expensive a security (or business) is, compared to some measure of profit or value. A valuation ratio is calculated by dividing a measure of price by measure of value, or vice-versa. The point of a valuation ratio is to compare the price of a security to the benefits of owing it. Investors can discern the focus of a fund, based on the overvalued or under-valued stocks held in the portfolio. Price/Earnings (P/E) ratio compares the cost of a share to the profits made for shareholders per share. Price /Book Value (P/BV) compares a share price to the value of a companys assets while dividend yield is the dividend per share divided by the current market price of the stock. Each of these valuation ratios of each stock in the portfolio is weighted by its holding in the portfolio to calculate the aggregate average P/E, average P/BV and average dividend yield ratios of the portfolios. Momentum-driven stocks will trade at higher valuation while the out-of-favor or value stocks will trade at low valuations. Value-based funds will have lower valuation ratios such as P/E and P/BV while dividend yield will be higher than that of growth funds.

6.8.2 MARKET CAPITALISATION:

It is an indicator of size. The criteria for different classifications into large, mid or small cap are not strictly defined in terms of a number. Market cap is the product of number of share and market price, and the latter can change with market cycles. The classification of companies of different size segments can allows investors to compare growth versus risk. Large cap stocks exhibit slower growth with lower risk. Small cap feature higher growth potential, but with higher risk Many funds list average market capitalization of their holdings, letting investors know if the funds primarily invest in large, mid or small cap stock. Some funds provide the break-up in percentage terms for each category.

6.8.3 DEBT FUND INFORMATION:

Debt fund provide a list of holdings issue-wise. They indicate the percentage holding in the securities of various issuers as a percentage of net assets. The individual holding in debt instruments issued by a single issuer (market price*quantity) is divided by the total net assets of the fund. Just as equity funds are classified based on sectors, the debt portfolios are classified based on type of instrument. The percentage holding in each category is also indicated. The percentage holding in each category is also indicated. The allocation to various categories differs depending on the type and objective of the fund.

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The usual classifications of debt portfolio are as under: Government securities Corporate bonds PSU/PFI/Banks bonds Securitized instruments Money market instruments Cash and current assets The percentage holding in each category indicates whether the fund is true to its objective. For e.g. in a long debt fund, the holdings in money market securities will be lower than in the case of a liquid fund. Liquid funds invest predominantly in money market securities such as CPs, CDs and Treasury bills while gilt funds invest in G-section only and income funds primarily invest in corporate bonds. To indicate the styles features of a debt fund, the horizontal axis is divided into three maturity categories: short term, intermediate term and long term. The vertical axis is divided into three volatility categories: high, medium and low. A low volatility funds that invest in short to intermediate-term maturity categories. An investor seeking to implement an interest rate view may choose the combination of medium to high volatility and long term maturity to hold high-risk, high-yield fund Funds track the rating provided by agencies for possible downgrade or upgrade of the securities. The factsheet can also be tacked for agility of the fund to act on such changes. Short-term funds tend to take on credit-risk to earn a higher level yield. They buy short tenure money market instruments issued by non-banking finance companies, at an attractive yield. Tracking the holding in such investments is also another tool to assessing relative credit quality of fund portfolios.

6.8.4 MATURITY PROFILE:

In the debt markets, securities are available from maturity periods of 1 day to 30 years. The maturity profile of a debt fund provides indication of the extent of interest rate risk in a fund. Interest rate risk refers to the change in the value of a security due to change in interest rates. Securities with a shorter maturity usually offer lower yield than securities with a longer maturity and they come with lower level of interest rate risk. A long term debt security is subject to higher interest rate risk.

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6.8.5 AVERAGE PROFILE:

The average maturity is the weighted average of the maturities of the individual holdings, weighted by the market value of the securities to the total net assets of the fund. A mutual fund offers debt funds with varying maturity profiles. In order to enable investors understand the risk of the portfolio and differentiate between the debt funds, the average maturity is disclosed in the fact sheet, usually in terms of days or years. The fund manager manages maturity of the debt fund portfolio according to its investment objective. For example, an income fund will typically have a higher average maturity than a liquid or a short-term bond fund. Similarly, a long-term gift fund will have a higher maturity and will invest in G-sections while short term gilt fund will have a lower average maturity and will invest primarily in T-bills. The average maturity could be altered depending upon the market conditions. For example, if the interest rates expected to fall, the fund manager could increase exposure to longer tenor securities. As opposed to this, if interest rates are expected to rise, running a higher maturity would hurt the performance of the fund.

6.9 MUTUAL FUND OFFER DOCUMENT:

An offer document is an important regulatory and legal document for a mutual fund product. It contains detailed information about the fund scheme. The offer document (OD) is split into two parts- Scheme information Document (SID) and statement of additional information (SAI). SAI incorporates all the statutory information about the fund. This includes the details of the sponsors, trustees, AMC and basic financial information that is required. The information provided in SAI is generic and is applicable to all funds of a fund house. It is updated periodically to keep the information up to date. The SID provides the information about the scheme that a prospective investor ought to know before investing. The SID is first prepared for a scheme before its launch and filed with SEBI for approval. All draft SIDs is also uploaded on the SEBI website for public viewing and comment.

6.9.1 Scheme Information Document (SID):

The cover page of the SID specifies the full name, type, face value of each unit (in Rs) along with the particulars of the AMC and the Mutual Fund. Since it is first made available during the new fund offer of the fund, it specifies the opening and closing dates of the new fund offer along with the date when the scheme re-opens for subscription after allotment. It also specifies the date of the publishing of the SID and includes a disclaimer that the SID must be read in conjunction with the SAI and not in the isolation. Standard and scheme specific risk factors highlighting the risks associated with mutual fund investments and the risk factors specific to an asset class or investment strategy are incorporated in the SID so that the investors know the kind of risk involved. In order to help the investment advisor or a prospective investor understand the specifics of the mutual fund scheme, the SID also provides the definitions of the various technical terms used.

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6.9.2 Statement of Additional Information (SAI):

SAI contains the information of mutual funds, its constitution, tax, legal and general information. SAI is legally the part of the SID. It provides information relevant across schemes of the fund house. It contains information on key AMC personnel, custodian, transfer agents, auditors, legal counsel and collecting banker. It provides condensed financial information for all the schemes launched by mutual fund during the last three fiscal years (excluding redeemed schemes) in the prescribed format. Investment valuation norms are also provided in the SAI. Tax provisions applicable to mutual funds, mutual fund investment, legal information regarding nomination, KYC, duration of scheme, winding up provisions and such, are also included.

6.9.3 Key Information Memorandum (KIM):

As the SID and SAI are very detailed legal documents, KIM helps summarize the key elements. It contains all the important information forming part of the SID in a concise form. It mandatory that KIM is provided to the investors along with the application forms in order to ensure that the investors go through the key fund information before investing into a fund. KIM is easier to read and less expensive. KIM contains key information pertaining to investment objective, asset allocation, performance, load structure and minimum investment. The investment objective provides clarity about the schemes goals and investing rationale. It also specifies the schemes investment strategy and asset allocation profile to their own and also compares various schemes. Key fund details relevant for investment are also provided in KIM. The KIM also includes the instructions to fill the form. It guides an investor about how to fill application form, list of document required, need to KYC, mode of payment, and other such details. It also provides information on investor service and how to approach the authorities concerned for any query resolution.

6.10 FUND RATINGS AND RANKINGS:

6.10.1 Purpose of fund ratings and rankings:
Though various components of the factsheet may be used to understand and form opinions about the fund management strategies and performance, an investor or a financial advisor may still find it difficult to interpret the same to evaluate funds. In order to assist investors and financial advisors in choosing funds after considering various aspects of portfolio quality and performance, various research engines generate and publish fund rating and rankings. Fund ratings provide quick reference point of how a fund has performed relative to its peer. The ratings and rankings are tool to compare a funds past risk and return performance in a easy to follow manner. Rankings can be in terms of simple ordering of funds as number 1, 2, 3 and so on. Some agencies use proprietary names CPR1.

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6.10.2 Rating Framework:

The rating and ranking methodology is proprietary to the research agencies, devised and tested over a period of time. The complete details of the methodology used and therefore not disclosed. Ratings are always carried out in fund categories or peer groups which are created based on the following: Type of the funds Fund Management strategy Investment objective Investment style

A score in terms of risk and risk is derived using their proprietary models. Most models are quantitative in nature, while they may also include some qualitative parameters. Quantitative measures typically include relevant fund performance linked factors such as risk- adjusted returns, concentration, liquidity, asset quality and asset size, commonly found in fact sheets and from the funds NAV history.

6.10.3 Scheme classification:

The classification for the purpose of ranking of different from the simple offer document. Peer groups are created using finer differentiation, so that the funds in the group are comparable. For eg. Hybrid schemes with equity exposure can be further classified as marginal equity, balanced, dominant equity, on the basis of the extent of the equity exposure. Diversified equity funds may be sub-classified as diversified-defensive, diversified-aggressive. Debt based scheme may be categorized on the basis of their average location to guilt securities and sub-classified as debt-short term and debt- long term schemes, depending on the average portfolio maturity over the ranking period.

6.10.4 Value research ratings:

Value research fund risk grade captures the funds risk of loss or downside vitality. The risk grade captures the risk characteristics and statistics, with value research fund return grade captures a funds risk adjusted return. The returns though adjusted for dividend, bonus or rights, are not adjusted for loads. For equity and hybrid funds, 3-5 years scores are combined to give a single assessment of each fund rating. For debt funds, fund ratings are based on 18-month weekly risk-adjusted performance both in terms of risk and return.

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The Value Research Fund Rating is determined by subtracting the funds risk score from its return score. The rating is then assigned according to the following distribution:

5 star: top 10% of the funds in the category 4 star: next 22.5% of the funds in the category

3 star: Middle 35% of the funds in the category

2 star: next 22.5% of the funds in the category 1 star: bottom 10% of the funds in the category.

6.10.5 CRISIL CPR:

Crisil composite programme ranking (CPR) has been issued since 2000. It is a quarterly exercise and considers various quantitative parameters to assess the overall score of the fund. The criteria for ranking open ended funds are as follows: At least 2 years NAV history (one year for all liquid/ income short, index and Ultra short term debt categories) Full portfolio disclosure for all three-months in last quarter. Minimum 5 schemes in the category Asset size criteria depending upon fund type.

The CPRs is as follows: CPR 1: Very good performance (top 10%) CPR 2: Good performance CPR 3: Average performance CPR 4: Below average performance CPR 5: Relatively weak performance (Bottom 10%)

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6.10.6 Morningstar Ratings:

The risk ranking is based on Morningstars risk rating of the fund. The risk of the fund is calculated as its absolute performance minus risk-adjusted performance. Funds are categorized as low, moderate, moderately high and high risk, based on their rankings within the Morningstar category. The Morningstar rating is calculated for each fund within a three year history based on a proprietary risk-adjusted return adjusted return measure, placing emphasis on downward variation and rewarding consistent performance. Star ratings are calculated on the returns a fund earns after management fees. The rating is derived from a weighted average of the performance figures associated with 3-year, 5 year, and 10 year Morningstar metrics.

6.11 CONSOLIDATED MUTUAL FUND INFORMATION:

Service providers such as ICRA, Crisil, Value Research help maintain and provide Mutual Fund databases. These agencies track daily NAVs and monthly portfolios of all the fund houses and at as a reservoir of data. They offer products such as Value Research Fund Card, CRISILs Fund Tracker, Morningstar Direct and ICRAs Mutual Fund India Explorer. The databases are updated daily with NAVs, monthly with portfolios and on a regular basis with other information such as latest load structures, expense ratios, fund managers and such. Since these agencies source data from all fund houses, they provide the benefit of consolidated information being available in one single place. This saves the investors or distributors effort in tracking and consolidated various pieces of information and data from different fact sheets and fund publications.

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ANALYSIS OF QUESTIONNAIRE

Page 78

7.1 ANALYSIS OF QUESTIONNAIRE:

In order to know whether customers prefer Mutual Funds over the other products we prepared a questionnaire consisting of 11 questions. These questionnaires were given to the customers coming to the Axis bank. The analyses of all the questions along with the pie chart are described briefly under. The excel sheet of the data collected from the customers and sample questionnaire are attached in the annexure. Q1. Are you an existing customer of Axis Bank?

Are you an existing customer of Axis Bank?

10%

Yes No
90%

Figure 6

Analysis: The first question that we asked to the customers was that whether the customers are the customers of Axis bank or not. The reason for asking this question was to know that the questions that we are asking are being asked to the Axis Bank customers or not as we are researching about the knowledge of Axis Bank Customers about Mutual Funds. The response we got was that 90 out of 100 respondents were the customers of Axis Bank that means that maximum response that we got were sufficient to know about the customers knowledge about Mutual funds.

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Q2. If yes, what type of relationship do you have with the bank?

If yes, what type of relationship do you have with the bank?

0%
7%

7% 43%

Saving Banking Current Account Term Deposit

11%
14%

Recurring Deposit 18%

Loan Mutual Fund

Insurance

Figure 7

Analysis: The next question that we asked from the respondents was to know what type of relationship they have with the bank. This was necessary as we came to know that around 7% (of 90 customers) of the customers have invested in mutual funds in the Axis bank itself. Though many of the customers have the savings account at the bank but the number of people having mutual funds at the bank was also impressing.

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Q3. Which investment option do you feel is better?

Which investment option do you feel is better?

3%
35% Fixed Deposit Recurring Deposit 60% Mutual Funds P.O Savings 2%

Figure 8

Analysis: The next question asked was a bit direct question but was a very important one as it revealed as to how many customers prefer Mutual Funds or any other type of investment option. The result was very amazing 60% of the customers prefer Mutual funds over the other options. The second most preferred option was Fixed Deposit. These options were only selected as these are the most preferred option of investment among the customers. Thos question was asked to every respondent irrespective of whether he/she is customer of Axis Bank or not.

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Q4. If Fixed Deposit, what time period do you prefer?

If Fixed Deposit, what time period you prefer?

3% 35% Up to 1 Year 1-2 year 60% 2-5 years More than 5 years 2%

Figure 9

Analysis: This question was specific to only those customers who selected the Fixed Deposit as their answer in the previous question. This question was asked to know the time period that people prefer to invest in the Fixed Deposit. We can see that maximum of the people prefer to invest for the period of 2-5 years this number is around 60% and the second preference of the customers is upto 1 year this option was opted by around 35% of the respondents. We can also see that people do not prefer invest in mutual funds for more than 5 years. The next two questions were specific to only those who opted Mutual Fund as their choice in the previous question.

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Q5. If Mutual Funds, what kind of investment would you prefer?

If Mutual Funds, what kind of investment would you prefer?

7% 3% 8% 5%

10%

Equity Diversified Sectorial fund 50% Mid cap/ Small Cap Balanced

17%

Debt Fund Gold Fund Others

Figure 10

Analysis: The above question was asked to know the investment preference of those respondents who opted Mutual Fund as their investment choice. We got the mixed response for this question. Though most of them opted for Equity Diversified investment option and the response for other type of investment option were more or less the same. What was felt while asking this question was that many of the respondents did not have the complete knowledge of types of Mutual Funds thus they opted for that which they thought they are familiar with it.

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Q6. If mutual fund, why do you prefer it over fixed deposit?

If Mutual Funds, why do you prefer it over fixed deposit?

13%

15%

High Risk High Return

Short Term Tax Benefit

72%

Figure 11

Analysis: This question was asked to know the reason for peoples preference of Mutual Funds over Fixed Deposit. The reason for asking this question was that before doing the final survey we conducted a primary survey to check the usefulness of the questionnaire and we found that most of the people either opted for Fixed Deposit or Mutual Funds thus I considered to add this question as well. We found that the main reason for people preferring Mutual fund was that it was a Short Term Plan and thus was convenient for the people to invest and reap the benefit of it.

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Q7. Have you ever invested in Mutual funds?

Have you ever invested in Mutual Funds?

29%

Yes No

71%

Figure 12

Analysis: This was another direct question asked to the respondents to know that whether they have invested in mutual funds or not. While asking the question it was observed that many respondents who feel Fixed Deposit as better investing option have invested in mutual funds thus they might be having some reasons for the change of mind. Here we can see that around 70% of the people have already invested in Mutual Funds and 30% of them have never invested in Mutual Funds. Thus, there are many people who have knowledge of Mutual Funds and have already invested in it.

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Q8. If No, what was the reason?

If No, what was the reason?

21% Lack of knowledge 10% Unavailability of advisor 69% High Risk Product

Figure 13

Analysis: This was the question specific to those who have never invested in Mutual Funds. It was asked to know the reason as to why they have never invested in Mutual Funds. With the help of questionnaire we came to know that many people did not invested in Mutual Funds due to its risky nature and only 21% have not invested due the lack of knowledge. Thus, the lack of knowledge cannot be classified as the core reason for non investment in Mutual Funds. The next two questions were for those who have already invested in Mutual Funds.

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Q9. What is your frequency of investment in Mutual Funds?

What is your frequency of investment in Mutual Funds?

4%

17% 34%

Within 1 year
2-5 years 5-10 years

45%

More than 10 years

Figure 14

Analysis: The above question was asked to know about the frequency of investment of the respondent in Mutual Funds. The reason for asking this question was to gain knowledge about the investment behavior of the customers of Axis Bank. Thus we came to know that the maximum number of people invest for the period of 2-5 years or for less than 1 year. As we have seen the question number 4 that maximum number of people prefer to invest in Fixed Deposit for 2-5 years. Thus people among those who are not willing to invest in mutual funds might me having some other reason for not investing in Mutual Funds as time period is not a problem here it is preferred equally for both the periods.

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Q10. What is quantum of your investment in Mutual funds?

What is quantum of your investment in Mutual funds?

49%

51%

Lumpsum

SIP

Figure 15

Analysis: This question was asked to know the quantum of investment of the people. The respondents were given two options Lump sum and SIP and it was found that the respondents responded equally for both the options thus there is not much difference between them.

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Q11. What is your source of information about Mutual Funds updates?

What is your source of information about Mutual Funds updates?

13% 16%

3%

20%

News Paper Electronic Media Advisors' opinion

48%

Word of Mouth Others

Figure 16

Analysis: This was a very general question its purpose was to know that what are the sources of Mutual Fund updates. Maximum numbers of respondents gain knowledge of Mutual Funds through Electronic Media and all the sources had less number of weightage. Around 3% of the respondents selected others as their option in which they wrote Self Survey as the source of knowledge about the mutual funds.

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Findings and Recommendations

Page 90

Findings and Recommendations:

The most vital problem spotted is of ignorance. Investors should be made aware of the benefits. Nobody will invest until and unless he is fully convinced. Investors should be made to realize that ignorance is no longer bliss and what they are losing by not investing.

Mutual fund offers a lot of benefit which no other single option could offer but most of the people are not even aware of what actually a mutual fund is? They only see it as just another investment option. So the advisors should try to change their mindset. The advisors should target for more and more young investors. Young investors as well as person at the height of their career would like to go for advisors due to lack of expertise and time.

Mutual Fund Company needs tom give the training of the Individual Financial Advisors about the Fund/ Schemes and its objectives, because they are main source to influence to investors.

Before making any investment Financial Advisors should first enquire about the risk tolerance of the investors/customers, their need and time (how long they want to invest). By considering these three things they can take the customers into consideration.

Younger people aged under 35 will be a key new customer group into the future, so making greater efforts with younger customers who show some interest in investing should pay off.

Systematic Investment Plan (SIP) is one the innovative products launched by Assets Management companies very recently in the industry. SIP is easy for monthly salaried person as it provides the facility of do the investment in EMI. Through most of the prospects and potential investors are not aware about the SIP. There is a large scope for the companies to tap the salaried persons.

Customers with graduate level education are easier to sell to and there is a large untapped market there. To succeed however, advisors must provide sound advice and high quality.

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Conclusion
Running a successful Mutual Fund requires complete understanding of the peculiarities of the Indian Stock Market and also the psyche of the small investors. This study has made an attempt to understand the financial behavior of Mutual Fund investors in connection with the preferences of Brand ( AMC ), Products, Channels etc. I observed that many of people have fear of Mutual Fund. They need the knowledge of Mutual fund and related terms. Many of people do not have invested in mutual fund due to lack of awareness although they have money to invest. As the awareness and income is growing the number of mutual fund investors are also growing. Brand plays important role for the investment. People invest in those Companies where they have faith or they are well known with them. Thus the mutual fund companies need to fill in the confidence among their customers and should educate them about the Mutual Funds so that they come out of the fear of Mutual Fund risks.

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References:
Books:
1. I M PANDEY, 2010 FINANCIAL MANAGEMENT TENTH EDITION VIKAS PUBLISHING HOUSE PVT.LTD. 2. WEALTH MANAGEMENT Centre for Investment Education and Learning By : Uma Shashikant Sunita Abraham

Annual Report:
1. ANNUAL REPORT ON AXIS BANK 2. ANNUAL REPORT OF OTHER ORGANISATIONS

Internal Material of Axis Bank

1. 2. 3. 4. Information of Axis Mutual Funds Policies Circulars Industrial Policy

Websites:
1. 2. 3. 4. 5. 6. 7.
http://www.axisbank.com http://www.mutualfundsresource.com http://www.wikipedia.com www.mutualfundsindia.com

www.amfiindia.com
http://mf.appuonline.com/axis-mutual-fund/ www.moneycontrol.com/

Page 93

Annexure

Page 94

Excel Sheet of Questionnaire Data: (Annexure 1)

S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Q1 1 1 1 1 1 1 2 1 1 1 1 2 1 1 1 2 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 Q2 1 1 2 3 1 1 1 1 2 1 1 6 4 2 1 2 2 1 1 2 6 6 7 3 1 3 1 3 1 4 2 6 2 7 1 4 1 Q3 3 1 4 2 1 3 3 3 3 3 3 3 1 3 1 2 1 3 1 1 1 3 3 3 3 1 3 3 1 3 3 1 3 1 3 1 3 3 1 3 3 3 Q4 3 Q5 6 Q6 2 Q7 1 2 2 1 2 1 1 1 2 1 1 1 2 1 2 2 1 1 2 2 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 2 1 1 2 1 1 1 Q8 3 1 4 1 2 2 1 3 2 2 3 1 3 1 3 1 1 1 1 2 4 3 2 2 1 1 2 1 2 1 1 2 2 4 3 4 1 3 2 2 1 2 2 1 1 2 2 2 1 1 1 1 2 2 2 1 2 1 1 2 1 2 1 2 1 1 1 1 1 1 Q9 2 Q10 2 Q11 2 2 2 1 2 2 5 1 4 1 1 2 4 2 1 1 2 3 4 2 2 3 2 2 3 1 1 2 1 1 2 2 4 3 3 4 2 2 2 2 4 2

3 6 1 1 7 2 1 1 3 1 3 2 1 3 3 4 3 1 4 4 1 5 3 1 1 1 3 1 2 2 1 1 1 4 7 3 1 2 2 2 3 2 2 2 2 2 1 2 3 3 3 1 2 2 2 1 2 1 1 1 1

Page 95

43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87

1 1 1 1 1 2 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 2 1 1 1 1 1

2 1 1 1 4 1 3 7 3 1 3 1 3 1 4 2 6 2 7 1 4 1 2 2 1 1 1 4 1 3 7 3 1 3 1 3 1 4 1 1 3

1 1 3 3 4 1 3 3 3 3 1 3 3 1 3 1 3 1 3 3 1 3 3 3 1 1 1 3 3 4 1 3 3 3 3 1 3 3 1 3 1 3 3 3 1

4 2 2 7 4 1 6 5 3 1 1 1 3 1 2 2 1 1 1 4 7 2 1 4 4 2 2 7 4 1 6 5 3 1 1 1 3 1 2 2 1 1 3 2 2 2 2 2 2 2 2 1 2 2 3 2 2 2 3 2 2 2 2 2 2 2 1 2 2 3

2 2 1 1 2 2 1 1 1 2 1 1 1 1 1 1 1 2 1 1 2 1 1 1 2 2 2 1 1 2 2 1 1 1 2 1 1 1 1 1 1 1 1 1 1

3 3 2 4 3 3 2 2 1 2 1 2 1 1 2 2 4 3 4 1 3 2 2 1 3 3 3 2 4 3 3 2 2 1 2 1 2 1 1 2 2 4 4 1 1 2 2 1 1 1 1 2 2 1 1 2 2 2 1 2 2 2 1 1 2 2 2 1 1 1 1 2 2 2 2 1 2

2 2 3 5 1 1 2 3 1 2 1 1 2 2 4 3 3 4 2 2 2 2 4 2 2 2 2 3 5 1 1 2 3 1 2 1 1 2 2 4 3 3 2 2 2

Page 96

88 89 90 91 92 93 94 95 96 97 98 99 100

2 1 1 1 1 1 1 1 1 1 1 1 1

1 4 2 6 2 7 1 4 1 2 1 1

3 1 3 1 3 3 1 3 3 3 1 1 3

1 2 2 1 1 1 4 7 2 1 4 2 2

2 2 3 2 2 2 2

1 1 1 2 1 1 2 1 1 1 2 2 1

2 2 4 3 4 1 3 2 2 1 3 3 2

1 1 2 1 2 2 2 1

4 3 3 4 2 2 2 2 4 2 2 2 3

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QUESTIONNAIRE (Annexure 2)
NAME: .................................................................. AGE: ..................................................................... OCCUPATION: ..................................................... Q1. Are you an existing customer of Axis Bank? Yes No

Q2. If yes, what type of relationship do you have with the bank? Saving Banking Current Account Term Deposit Recurring Deposit Loan Mutual Fund Insurance Q3. Which investment option do you feel is better? Fixed Deposit Mutual Funds Recurring Deposit P.O Savings

Q4. If fixed deposit, what time period do you prefer? Up to 1 year 2-5 years 1-2 years more than 5 years

Q5. If Mutual funds, what kind of investment would you prefer? Equity diversified Sectorial fund Mid cap/Small cap Balanced Debt fund Gold fund Others (please specify).

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Q6. If Mutual funds, why do you prefer it over Fixed deposit? High risk High return Short Term Tax benefit Q7. Have you ever invested in Mutual funds? Yes No

Q8. If No, what was the reason? Lack of knowledge Unavailability of advisor High risk product

If yes, Please answer the following questions: (Question 9, 10) Q9. What is your frequency of investment in mutual funds? Within 1 year 2-5 years 5-10 years More than 10 years Q10. What is your quantum of your investment in Mutual funds? Lump sum SIP Q11. What is your source of information about mutual funds updates? Newspapers Electronic Media Advisors Opinion Word of Mouth Others (please specify).

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