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WINTER TRAINING PROJECT REPORT ON

STUDY OF MUTUAL FUND

RELIGARE SECURITIES LIMITED, KURUKSHETRA

Submitted for partial fulfillment of the requirements of

Masters Degree in Business Administration

SUBMITTED TO:Dr. R.C. Dalal

Lecture & Placement Co-ordinator (USM)

SUBMITTED BY:RAJAN GUPTA

M.B.A. (H) P2 nd Sem. Roll No. 03 (2007-08)

UNIVERSITY SCHOOL OF MANAGEMENT KURUKSHETRA UNIVERSITY KURUKSHETRA (136119).

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DECLARATION

I, Rajan Gupta , student of MBA (Hons.) (P), University School of Management, Kurukshetra University, Kurukshetra hereby declare that the Training Project Report on Study of Mutual Fund includes the original and same has not been submitted to any of the University or Institution. The Project is liable to rejected or cancelled if found otherwise;

(RAJAN GUPTA)

CONTENTS
CERTIFICATE ACKNOWLEDGEMENT COMPANYs PROFILE INTRODUCTION TO PROJECT

ACKNOWLEDGEMENT
I sincerely thankful to Dr. D.D.Arora (Director, of University School of Management, Kurukshetra University, Kurukshetra),who gave such an opportunity to work in business environment to the students of MBA (Hons.) (P).

With great pleasure, I extend my heartiest thanks to major advisor, Mr. Sandeep Gautam Relationship Manager of Religare Securities Ltd., kurukshertra for assigning me such an interesting and challenging work. I extend my indebt ness for his able guidance, support and valuable suggestions, which encouraged me to achieve my goals. I would also like to thanks Dr. Anil Mittal and other Faculty member in U.S.M. for their support during the source of study.

(RAJAN GUPTA)

Preface
Mutual fund Now represent perhaps the most appropriate investment opportunity for small investors. As financial market become more sophisticated and complex, investors needs a financial intermediary who provides the required knowledge and professional expertise on successful investing. The Indian mutual fund industry has already openedup many exciting investment opportunities to Indian Investors . Despite the expected continuing growth in the industry, mutual fund is still a new financial intermediary in India Indian households started allocating more of their savings to the capital markets a few years ago, with investments flowing into equity and debt instruments, Beside the conventional mode of Bank Deposits. We have started witnessing the phenomenon of more saving to the Fund.
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Selecting securities with growth and income potential from the capital market involved Careful study, Research and the monitoring of the Market, which was not possible for all investors. Even those investors who continued as direct investors in the Stock Market lost money, Due to Volatility in the Stock Markets. Hence, it is important that the Investors, mutual fund Agents/Distributors, Financial planners, Investment Advisors and even the fund employees acquire better knowledge of what mutual funds are, what they an do for investors and what they cannot , how they function differently from other Financial intermediaries such as Banks.

Religare is one of the leading integrated financial services institutions of India, backed by a bluechip promoter pedigree and a proven track record. Religare businesses are broadly clubbed across 3 verticals, the retail, institutional and the wealth spectrum, catering to a diverse and wide country. Structurally, all business are company:base of clients spread across the length and breadth of the operated through various subsidiaries held through the holding key

Religare Enterprises Limited.

The company offers a diverse bouquet of services and through its consolidated network reach, Religare is present in more than 1300 locations across more than 400 cities and towns. As part of its recent initiatives the group has also started expanding globally. Religare has also successfully partnered with Aegon, one of the global leaders to launch Life Insurance, Mutual Fund and Pension products in India and with Macquarie Bank, for a wealth management joint venture.

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Religare Enterprises Limited is a Ranbaxy Promoter Group Company. known as Fortis Financial Services. The Ranbaxy promoters owned Fortis Financial Services got rechristened to ReligareEnterprises Limited (REL) in the year 2006. Re branding was done with the view to reserve Fortis brand for Healthcare segment only. Pronunciation:-religare (rel'i-gir) Earlier

Religare is a Latin word which means10

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To bind together. True to this meaning Brand message of Religare is Values That Bind Religare is driven by ethical and dynamic process for wealth creation. Each leaf of the four-leaf clover has a special meaning in the sphere of Religare: Hope, Trust, Care, Good fortune;

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The first leaf of the clover represents Hope. The aspirations to succeed. The dream of becoming. Of new possibilities. It is the beginning of every step and the foundations on which a person reaches for the stars.

The second leaf of the clover represents Trust. The ability to place ones own faith in another. To have a relationship as partners in a team. To accomplish a given goal with the balance that brings satisfaction to all not in the binding but in the bond that is built.

The third leaf of the clover represents Care. The secret ingredient that is the cement in every relationship. The truth of feeling that underlines sincerity and the triumph of diligence in every aspect. From it springs true warmth of service and the ability to adapt to evolving environments with consideration to all.

The fourth and final leaf of the clover represents Good Fortune. Signifying that rare ability to meld opportunity and planning with circumstance to generate those often looked for remunerative moments of success.

Hope. Trust. Care. Good fortune. All elements perfectly combine in the emblematic and rare, four-leaf clover to visually symbolize the values that bind together and form the core of the Religare vision.

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Vision:- To build Religare as a globally trusted brand in the financial services domain and present it as the Investment Gateway of India; Mission:- To provide financial care driven by the core values of diligence & transparency ; Brand Essence:- Our Core essence is diligence and we are driven by ethical and dynamic processes for wealth creation ;

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Features: 1217 Branch office; 40000 Individual Account; 3000 Employees; Excellent Customer Services; Reasonable Commission; 580 Business Partners; International office at London,

Dubai and Singapore;

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MANAGEMENT TEAM Religare team is led by a very eminent Board of Directors who provide policy guidance and work under the active leadership of its CEO & Managing Director and support of its Central Guidance Team.
Mr. Malvinder Mohan Singh - Chairman (Non Executive) Mr. Sunil Godhwani - CEO & Managing Director Mr. Shivinder Mohan Singh - Non Executive Director Mr. Harpal Singh - Non Executive Director Mr.Deepak Ramchand Sabnani Independent Director Mr.Padam Bahl - Independent Director Mr.J.W. Balani - Independent Director Mr. Baldev Johal - Independent Director

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Mr. Sunil Godhwani is the CEO and Managing Director of the Company. He is a graduate in chemical engineering and has a masters degree in industrial engineering and finance from Polytechnic Institute, New York. He has more than 20 years experience in business. Mr. Godhwani joined the Board on July 13, 2006. He was appointed as CEO and Managing Director of our Company on April 9, 2007. Mr. Godhwani is also the managing director of Fortis Financial Services Limited. Prior to becoming the Managing Director of the Company, he was Managing Director of Religare Securities Limited since April 15, 2002.

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WHY TRADING AT RELIGARE

Trading at NSE, BSE and Derivatives on single screen; Greater exposure for trading on the available margin; Common window for market watch and order execution; Competitive Brokerage; Banking integration with ICICI Bank, HDFC Bank & Axis Bank; It also provide timely investment advice;
Trading in Equities with Religare truly empowers you for your investment needs. A highly process driven, diligent approach backed by powerful Research & Analytics and one of the best in class dealing rooms ensures that you have a superlative experience

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VISIT RELIGARE GROUP COMPANIES

www.religaresecurities.com www.religarefinvest.com www.religarecommodities.com www.religarearts.com www.religareinsurance.com www.religareonline.com

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MEANING OF MUTUAL FUND

A mutual fund is a pool of money, which is collected from many investors and is invested by an asset management company to achieve some common objectives of the investors. The AMC invests this money in various securities to generate returns for the investors. Investors get the net returns after deducting the expenses. The portfolio gets valued everyday as per market prices.

UNDERSTANDING MUTUAL FUND

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Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objectives of a mutual fund scheme generally form the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

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The flow chart below describes broadly the working of a mutual fund:-

Mutual Fund Operation Flowchart

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In a Mutual Fund, many investors contribute to form a common pool of money. This pool of money is invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belong to all investors. A single investors ownership of the fund is in same proportion as the amount of the contribution made by him bears to the total amount of the fund As the Funds investment are revalued at their market prices, the net value of investments will change depending upon the way prices of the investments move in the Market, the Net Assets Value(NAV)the Fund fluctuates.

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Let us see an Example. If the value of a funds assets stands at Rs. 1000 and its has 10 investors, Nine investors having bought 97 units and one investors having bought three units. The total no. of units issued is 100, and the value of one unit is Rs. 10.00(1000/100). If a single investors in fact owns 3 units, the value of his ownership of the fund will be Rs. 30(1000/100*3units). If value of our Funds assets increased from Rs. 1000 to 1200, NAV moves up from Rs. 10 to Rs. 12. The value of our investors holding of 3 units will now from Rs. 30 to Rs. 36(1200/100*3 units) is equal to Rs. 36. The investment value can go up or down, depending on the market value of the Funds assets.

Advantages of Investing in Mutual Funds:

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Portfolio diversification

Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Tax benefits Dividends given by equity oriented mutual funds are tax-free in the hands of the investor. In case of Debt funds, the funds pay dividend distribution tax. Flexibility Mutual fund offers features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Liquidity In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the
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units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

Professional Management Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Low Costs Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

DISADVANTAGES OF MUTUAL FUND

Costs Control Not in the Hands of an Investor Investor has to pay investment management fees and fund distribution costs as a percentage of the value
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of his investments (as long as he holds the units), irrespective of the performance of the fund. No Customized Portfolios The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. Difficulty in Selecting a Suitable Fund Scheme Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives. Principles of Investing in Mutual Funds: Learn before you begin If you want to build an investment portfolio to achieve your goals throughout your lifetime, you will

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need to learn the basics. It is very important to understand the investment philosophy of the fund and ensure that it gels well with your investment objective.

Regular & Disciplined Approach This will go a long way in achieving your longterm investment objectives. Regular investments in mutual funds provide an easy way to grow your investment over time, taking advantage of market cycles and ensuring that your investment programs stays on track. And it's a good time habit to form.

Diversification

Spread your Investments over various Mutual Funds and different schemes within them. By doing so, you increase the chances of averaging
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attaining an above average return and also spread your risk.

Think Long Term Give your investments time. Do not expect shortterm gains from Mutual funds. Also do not expect superb performance from your fund every year.

FREQUENTLY USED TERMS Net Asset Value (NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the
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number of units outstanding on the Valuation Date. Sale Price Is the price you pay when you invest in a scheme. Also called Offer Price. It may include a sales load. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load

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Is a charge collected by a scheme when it sells the units. Also called, Front-end load. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-endLoad Is a charge collected by a scheme when it buys back the units from the unitholders.

Budget for the year 2008-09 has proposed to increase the short-term capital gains tax. The proposal is to increase the tax from 10 to 15 per cent. A short-term capital asset means a capital asset held by an assesses for not more than 12 months prior to its date of transfer. These assets would include equity and preference shares, debentures, government securities, units of UTI and other mutual funds, and zero coupon bonds.

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In case these assets are held for more than 12 month immediately prior to transfer, it is a long-term capital asset. The budget proposal to increase the short-term capital gains tax to 15 per cent did not go down well with investors, and the benchmark Sensex dipped.

In addition, the Finance Minister has proposed changes in the securities transaction tax (STT), which will now be treated like any other deductible expenditure against business income. The Finance Minister has proposed that in case of sale of an option in securities, the levy of STT would be only on the option premium where the option is not exercised and the liability would be on the seller. The STT would be levied at the rate of 0.017 percent of the option premium and will be paid by the seller.

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General Classification of Mutual Funds Open-end Funds | Closed-end Funds

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Open-end Funds Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an open-end fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day. Closed-end Funds Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions: 1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer "buy-back of units" to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.

Load Funds | No-load Funds

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Load Funds Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager's salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors: Entry Load - Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor's contribution amount to the fund. Exit Load - Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor. Deferred Load - Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge. No-load Funds All those funds that do not charge any of the above mentioned loads are known as No-load Funds.

Starting Two Steps Behind

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By investing in a loaded fund, you automatically start off in a bad position.

A good way to think about load vs. no-load mutual fund investing is to imagine a race track.
The no-load mutual fund gets to start on the regular start line (see the race track image on the right). The loaded mutual fund must start a number of strides back. Assuming both these funds travel at equal speeds, which fund will cross the finish line first? The answer is obvious - the no-load fund! When you pay a commission for the purchase of your fund, you automatically start off with a loss. For example, if you start off by investing Rs 10,000, but you put it into a loaded fund with a 5% front-end load, you are really only investing Rs. 9,500. What do you get for your Rs.500? Absolutely nothing.
Tax-exempt Funds | Non-Tax-exempt Funds

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Tax-exempt Funds Funds that invest in securities free from tax are known as Tax-exempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Non-Tax-exempt Funds Funds that invest in taxable securities are known as Non-Tax-exempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

Mutual Fund Schemes

With an increase in interest and awareness about

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mutual funds amongst investors, there has also been a steady increase in the number of mutual fund schemes offered in India by as many as 35 Asset Management Companies (as on 31st January, 2008). Different schemes are introduced to suit different needs of investors. Mutual funds schemes may have different investment objectives which can be to earn recurring income for investors or growth of their invested capital or both. So investors should choose a scheme whose investment objective matches their personal objectives. To achieve the scheme's investment objectives,the fund manager, as per his own understanding, invests in a portfolio of asset classes which he thinks may provide the best returns to investors in the future. Different assets are exposed to a different level of risk. For example, investing in equities is riskier than
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investing in debt and investing in debt is slightly riskier than investing in money-market instruments. However, riskier investment options have a higher potential to provide higher returns.

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1. Equity Funds Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3 years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds: a. Aggressive Growth Funds - In Aggressive Growth Funds, fund managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. b. Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to
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5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. c. Speciality Funds - Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds: i. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer
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Goods) which is why they are more risky than equity funds that invest in multiple sectors. ii. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk. iii. Mid-Cap or Small-Cap Funds: Funds that invest in companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (More than Rs. 500 crores but Less than Rs.
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2500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. iv. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors.

d.

Diversified Equity Funds - Except for a small portion of investment in liquid money
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market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). e. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). f. Value Funds - Value Funds invest in those
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companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value stocks are generally from cyclical industries such as cement, steel, sugar etc. g. Equity Income or Dividend Yield Funds The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds.

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2. Debt / Income Funds Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds: a. Diversified Debt Funds - Debt funds that invest in all securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified
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into all sectors which results in risk reduction. b. Focused Debt Funds* - Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds.

c. High Yield Debt funds - As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different strategy and prefer securities issued by those issuers who are considered to be of "below investment grade".
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The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Currently, no AMC in India offers assured return schemes to investors.
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e. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals.

3. Gilt Funds Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the

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interest rates results in a change in the NAV of debt/gilt funds in an opposite direction.

4. Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks). 5. Hybrid Funds As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts
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and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India: a. Balanced Funds - The portfolio of balanced funds include assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. b. Growth-and-Income Funds - Funds that combine features of growth funds and income funds are known as Growth-and-Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds.

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c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like real estate, commodities etc Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at any time depending upon their outlook for specific markets. In other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends.

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6. Commodity Funds Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds. 7. Real Estate Funds Funds that invest directly in real estate or lend to real estate developers or invest in securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.

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8. Exchange Traded Funds (ETF) Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad. 9. Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund
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schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes.
* Funds not yet available in India

Mutual Fund Schemes Comparison

(Follow is a comparison between different mutual fund schemes on the
basis of their investment objectives, portfolio of investments and the level of risk associated.)
Equity Funds Types Investment Objectives Portfolio of Investments Risk Associated

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Aggressive Capital Appreciation Invest in less researched shares of speculative nature Growth Funds Growth Funds Capital Appreciation Invest in companies that are
expected to outperform the market in the future

Highly Volatile Volatile but less than Aggressive growth funds

Specialty Funds

Capital Appreciation They follow a stated criteria Concentrated and hence are for investments and their riskier than diversified funds portfolio comprises of only those companies that meet their criteria.

A small portion of Well diversified and reduce Diversified Capital Appreciation investment in liquid money sector-specific or companyEquity Funds market, diversified equity funds invest mainly in equities without concentration on a particular sector. specific risk

Equity Index Capital Appreciation Funds

Portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index.

Risk associated is the same as that of the benchmark index.

Value Funds Capital Appreciation Value funds invest in those These funds are exposed to a
companies that have sound lower risk level as compared fundamentals and whose to growth funds or specialty share prices are currently funds under-valued.

Equity Income or Dividend Yield Funds

To generate high Investments are made in These funds are generally recurring income those companies which issue exposed to the lowest risk and steady capital high dividends (such as level as compared to other appreciation Power or Utility companies). equity funds

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Income / Debt Funds and Money Market Funds Types Investment Objectives Portfolio of Investments Risk Associated

Diversified To generate fixed current income Debt Funds

These funds invest in all Low volatility, default securities issued by entities risk remains belonging to all sectors of the market Invest in securities issued by More volatile and bear those issuers who are higher default risk than considered to be of "below diversified debt funds investment grade"

High Yield Debt funds

To earn higher interest returns

Assured Return Funds

To offer assurance of Predominantly debt securities A low-risk investment annual returns to investors opportunity through out the stated lockin period

Fixed Term To generate some expected Plan Series returns in a short period

Usually invest in debt / income schemes

Low risk fund

MoneyMarket Funds

Recurring income and capital safety

Invest in short-term (maturing Safest mutual fund within one year) interest investment option, bearing debt instruments interst rate risk remains

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Hybrid Funds Types

Balanced Funds

Investment Objectives

Portfolio of Investments

Risk Associated

To generate regular Debt securities, convertible Limited risk to principal income, moderate capital securities, and equity and and moderate long-term appreciation and at the preference shares held in a growth same time minimizing the relatively equal proportion risk of capital erosion

These funds invest in Safer as compared to Growth- Capital growth and some current income companies having potential growth funds and riskier and-Income for capital appreciation and than income funds Funds those known for issuing high dividends

Asset Allocation Funds

Capital Growth and income generation

These funds invest in Success of these funds financial assets or non- depends upon the skills financial (physical) assets of a fund manager in anticipating market trends

Tax benefits for the foreign investors

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Section 115E: Under Section 115E of the Act, capital gains, chargeable on transfer of long-term capital assets of an NonResident Indians (NRIs) are subject to following rates of tax: Investment income: 20% Long term capital gains: 10%
Subject to surcharge and education cess.

Section 10(23D): Under provisions of section 10(23D) of the Act, any income received by the Mutual Fund is exempt from tax. Section 115R: Under Section 115R, the Income distributed to a unit holder of a Mutual Fund shall be charged to following rates of tax to be payable by the Mutual Fund. Amounts distributed to individual or HUF: Amounts distributed to others: 12.5% + SC, EC 20.0% + SC, EC

However, the above distribution tax will be exempted for an open-ended Equity-Oriented Funds (funds, investing more than 50% in equity or equity related instruments).

Tax implication of a bonus/rights issue on mutual fund units

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Under Section 55(2) (AA), bonus on mutual fund units has a zero (nil) cost of acquisition. The holding period is calculated from the date of allotment of mutual fund units. The net sales proceeds are treated as the capital gain. The period of holding of such issue is reckoned from the date of the allotment of such issue. The cost of acquisition of the rights issue on mutual fund units is the amount actually paid for acquiring such right, according to Section 55(2) (AA) (iii). The holding period is reckoned from the date of allotment.
Where there is a transfer of these rights, the cost of acquisition of such rights is to be taken as 'Nil' according to Section 55(2) (AA) (ii). Sale price of such transferred rights will be taken as capital gain.

Mutual funds with tax benefits You can reduce your taxable income by 20 per cent of your investment up to a maximum of Rs 2,000 by investing in mutual
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funds schemes that are authorized to offer such a benefit. These schemes are just like any other equity or bond scheme except that they give you this 20 per cent tax break. The condition is that you cannot withdraw your funds from the scheme for a certain number of years. A mutual fund from the Unit Trust of India (UTI) The Unit Trust of India (UTI) is India's oldest mutual fund it has been around since the 1960s. As such, it has a head start over other funds (most of which began in the 1990s). It manages more money than any mutual fund in India (in fact many times more), has the largest number of mutual fund investors and has the largest distribution network out of all the funds. And there is hardly a publicly listed company in India of any standing in which UTI does not have a significant shareholding.

Risk Heirarchy of Different Mutual Funds

Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:
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STRUCTURE OF MUTUAL FUNDS

SPONSOR

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Sponsor sets up a mutual fund itself or in association with another body. Sponsor sets up a mutual fund to earn money by doing fund management. ROLE OF SPONSOR Creates a public trust. Appoints trustees to manage the trust with the approval of SEBI. Creates an AMC under company act,1956 Applies and registers the trust as a mutual fund with SEBI.

ELIGIBILITY
Should be in financial services for at least 5 years.
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Should have a positive net worth in all the proceeding 5 years. Net worth in the previous year is more than the capital contribution to AMC. Must be profit making in at least 3 of the last 5 years. Must contribute at least 40% of the net worth of the AMC.

TRUSTEE
Trustees are responsible to the investors in the mutual funds. They take care of the interests of the investor s in mutual funds. They can be formed as board of trustees or Trustee Company.
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FUNCTIONS OF TRUSTEES
Ensure that the activities of the MF are in accordance with SEBI Ensure that AMC has proper systems and procedures in place Ensure that due diligence is exercised by the AMC in the appointment of constituents and business associates All schemes floated by the AMC have to be passed by the trustees Trustees review and ensure that the net worth of the AMC is accordance with the SEBI guideline Trustees give a half-yearly report to the SEBI

PROCEDURE OF INVESTING
Investors can purchase the units by completely filling an application form and submitting it at investor service centers of collection centers along with payment.
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The payment should be in the form of a local cheque or by demand draft. If the amount invested is more than 50000 then PAN has to be mentioned or form 60/61 prescribed by the IT department with a proof of address has to be given. The investor has to declare his/her bank account number After due processing of the application form the registrars will allot an account number and units to the investors and dispatch an account statement to the investors.
Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non-profit organization. Association of Mutual Funds in India (AMFI) was
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incorporated on 22nd August, 1995. AMFI is an apex body of all Asset Management Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

The objectives of Association of Mutual Funds in India The Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of
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its Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional and ethical standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field of capital markets and financial services also involved in this code of conduct of the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry. Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.

AMFI undertakes all India awarness programme for investors inorder to promote proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate informations on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies. The sponsorers of Association of Mutual Funds in India Bank Sponsored SBI Fund Management Ltd. BOB Asset Management Co. Ltd.

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Canbank Investment Management Services Ltd. UTI Asset Management Company Pvt. Ltd.

Institutions GIC Asset Management Co. Ltd. Jeevan Bima Sahayog Asset Management Co. Ltd.

Private Sector Indian: BenchMark Asset Management Co. Pvt. Ltd. Cholamandalam Asset Management Co. Ltd. Credit Capital Asset Management Co. Ltd. Escorts Asset Management Ltd. JM Financial Mutual Fund Kotak Mahindra Asset Management Co. Ltd. Reliance Capital Asset Management Ltd. Sahara Asset Management Co. Pvt. Ltd Sundaram Asset Management Company Ltd. Tata Asset Management Private Ltd. Predominantly India Joint Ventures: Birla Sun Life Asset Management Co. Ltd. DSP Merrill Lynch Fund Managers Limited HDFC Asset Management Company Ltd . Predominantly Foreign Joint Ventures:74

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ABN AMRO Asset Management (I) Ltd. Alliance Capital Asset Management (India) Pvt. Ltd. Deutsche Asset Management (India) Pvt. Ltd. Fidelity Fund Management Private Limited Franklin Templeton Asset Mgmt. (India) Pvt. Ltd. HSBC Asset Management (India) Private Ltd. ING Investment Management (India) Pvt. Ltd. Morgan Stanley Investment Management Pvt. Ltd. Principal Asset Management Co. Pvt. Ltd. Prudential ICICI Asset Management Co. Ltd. Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Association of Mutual Funds in India Publications

AMFI publices mainly two types of bulletin. One is on the monthly basis and the other is quarterly. These publications are of great support for the investors to get intimation of the knowhow of their parked money.

The mailing address of Association of Mutual Funds in India Association of Mutual Funds in India
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106, Free Press House, Free Press Journal Marg, Nariman Point, Mumbai - 400 021, India. Telephone : 91-22-5637 39 07 / 5637 39 08 Fax : 91-22-5637 3909 Website www.amfiindia.com

The following are other regulatory bodies which also play a role:
R.B.I. COMPANIES ACT 1956 STOCK EXCHANGE
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INDIAN TRUSTS ACT 1882 MINISTRY OF FINANCE

WHO CAN INVEST?

Adult resident Indian individuals. Non-resident Indians. Parent/guardians on behalf of minor. Hindu undivided families.
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Companies, bodies corporate, trusts and cooperative societies. Banks and financial institutions. Religious and charitable trusts. Foreign institutional investors registered with SEBI

Table 1:- MUTUAL FUND DATA FOR THE MONTH - FEBRUARY 2008

(Rs. in Crore)

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Category

Redemptions All Schemes From new From Total Cumulative For Cumulative Average schemes # Existing For April 07 to the April 07 to Assets Under schemes the February Month February Management Month 08 08 for the month No. Amount Amount
15277 15277 122913 13417 114879 32423

Sales-All Schemes

A) Bank Sponsored 1 Joint Ventures : Predominantly Indian (2) 2 Others (2) Total A (1+2) B) Institutions (1) C) Private Sector 1 Indian (11) 2 Foreign (2) 3 Joint Ventures Predominantly Indian (5) 4 Joint Ventures : Predominantly Foreign (9) Total C (1+2+3+4) Grand Total (A+B+C)

215

45561 60838 22563

45561 60838 22778

304174 427087 172182

42792 56209 20933

288636 403515 167788

52550 84973 15628

14 1 16

10794 468 3162

145550 156344 12976 13444 125802 128964

1221080 162696 1252398

143097 12776 128132

1155346 156278 1194404

172251 33302 173118

16

2894

65790

68684

756111

73614

731218

86894

47 48

17318 17533

350118 367436 433519 451052

3392285 3991554 *1684134

357619 434761 *172953

3237246 3808549 *1565633

465565 566166 *358233

*55 *15856 *182772 *198628

*Figures for corresponding period of last year

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Table 2:- SALES DURING THE MONTH - FEBRUARY 08- TYPE AND CATEGORY WISE Table 2.1 *NEW SCHEMES LAUNCHED (ALLOTMENT COMPLETED) (Rs. in Crore) Open End No. Of Amount Schemes Close End No. Of Amount Schemes 35 1 36 9484 215 9699 Total No. Of Schemes 42 3 2 1 48 Amount 11231 6266 33 3 17533

Income Growth Balanced Liquid/Money Market Gilt ELSS Gold ETFs Other ETFs Total

7 2 2 1 12

1747 6051 33 3 7834

Table:- 2.2 EXISTING SCHEMES Open End No. Of Amount Schemes Close End No. Of Amount Schemes 207 41 6 10 264 ^2222 3 2225

(Rs. in Crore) Total No. Of Schemes 405 260 38 57 28 39 4 8 839 Amount 85183 4202 772 341293 623 793 3 650 433519

Income Growth Balanced Liquid/Money Market Gilt ELSS Gold ETFs Other ETFs Total

198 219 32 57 28 29 4 8 575

82961 4199 772 341293 623 793 3 650 431294

Notes: 1. The change in number of existing schemes is because of the maturity and reclassification of some of the existing schemes. 2. ^ Amount mobilised by new plans launched under existing scheme. 80

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Table:- 2.3 TOTAL OF ALL SCHEMES Open End No. Of Amount Schemes Close End No. Of Amount Schemes 242 42 6 10 300 11706 218 11924

(Rs. in Crore) Total No. Of Schemes 447 263 38 57 30 39 5 8 887 Amount 96414 10468 772 341293 656 793 6 650 451052

Income Growth Balanced Liquid/Money Market Gilt ELSS Gold ETFs Other ETFs Total

205 221 32 57 30 29 5 8 587

84708 10250 772 341293 656 793 6 650 439128

*New Schemes Launched:-

Open End Income: Birla Sun Life Quarterly Interval Fund - Series 8, JM Interval Fund Quarterly Plan 3, Plan 4, Plan 5 and Plan 6, Kotak Quarterly Interval Plan Series 6 and Sahara Classic Fund. Open End Growth: AIG Infrastructure and Economic Reform Fund and Reliance Natural Resources Fund. Open End Gilt: Lotus India Gilt Fund - Short Duration Plan and Lotus India Gilt Fund - Long Duration Plan. Open End GETFs: Quantum Gold Fund .

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Close End Income:Birla FTP Series AK and Series AL, DSP Merrill Lynch FMP - 3M Series 3, DSP Merrill Lynch FMP - 15M - Series 2, DWS Fixed Term Fund Series 44 and Series 45, HSBC Fixed Term Series 42, HDFC FMP 90D January 2008 - Series VI, HDFC FMP 90D February 2008 - Series VII, HDFC FMP 15M February 2008 - Series VII, HDFC FMP 18M January 2008 - Series VII, ICICI Prudential FMP - Series 41 - 14 Months Plan, Series 42 - Three Months Plan A, Series 41 - 15 Months Plan, Series 33 Plan A, ING FMF - Series XXXV, Series 41and Series 42, Kotak FMP 14M Series 3, Lotus India FMP - 3 Months - Series XXIII, Series XXIV, Series XXV and Series XXVI, Lotus India FMP - 14 Months - Series II and Series III, Lotus India FMP - 15 Months Series III, Principal Pnb FMP - 91 Days - Series XIII, Reliance Fixed Horizon Fund VI - Series 2, Reliance Fixed Horizon Fund VII - Series 2, Tata Fixed Horizon Series 17 Scheme D, Standard Chartered FMP - Quarterly Series - 25 and Series - 26, Sundaram BNP Paribas FTP 367 Days Series - Plan 2, Sundaram BNP Paribas FTP - B - 14 Months and Sundaram BNP Paribas FTP 90 Days Series - 3.

Close End Growth:- LICMF Infrastructure Fund.

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Table 3:- REDEMPTIONS / REPURCHASES DURING THE MONTH FEBRUARY 2008 Category & Typewise Open End Close End Total

(Rs. in Crore)

Net Inflow / Net Inflow / (Outflow) (Outflow) For Net Inflow/(Outflow) For the Year to Date Year to Date Current Year Previous Year 18339 6756 430 -9356 414 776 -9 -1059 101253 36097 5750 37910 18 4080 269 -2372 39579 20198 1241 55909 -1261 2835 ++

Income Growth Balanced Liquid / Money Market Gilt ELSS

70848 3602 298 350649 242 10

7227 110 44 7 -

78075 3712 342 350649 242 17 15 1709

Gold ETFs 15 Other ETFs 1709 Total

427373

7388

434761

16291

183005

118501

++ Separate Data is not available as these schemes were earlier classified as Growth Funds and hence included that category.

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Table 4:- ASSETS UNDER MANAGEMENT AS ON 29th FEBRUARY, 2008

(Rs. in Crore)

Category & Typewise Open End Income 155779 Close End 76649 Total 232428 % to Total 42

Growth Balanced Liquid/Money Market Gilt ELSS Gold ETFs Other ETFs Total

141405 15421 112400 2443 14490 493 4096 446527

34493 2943 2208 116293

175898 18364 112400 2443 16698 493 4096 562820

31 3 20 @ 3 @ 1 100

@ Less than1%

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(Rs.in Crore) Table 5:- DATA ON FUND OF FUNDS - FEBRUARY 2008 No of Schemes Sales Redemptions AUM as on 29th February 2008 Avg. AUM for the month

Fund of Funds 35

286

510

3879

3767

Notes: 1. Fund of Funds is a scheme wherein the assets are invested in the existing schemes of mutual funds and hence, the figures indicated herein are included in tables 1 to 4 and 6. Data on fund of funds is given for information only.

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Table 6 :- AVERAGE ASSETS UNDER MANAGEMENT FOR THE MONTH OF FEBRUARY 2008

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Sr. Name of the Asset Management Company No. A 1 2 BANK SPONSORED (i) Joint Ventures - Predominantly Indian Canara Robeco Asset Management Co. Ltd. SBI Funds Management Pvt. Ltd. Total A (i) (ii) OTHERS BOB Asset Management Co. Ltd. UTI Asset Management Company Ltd Total A (ii) Total A (i + ii) INSTITUTIONS LIC Mutual Fund Asset Management Co. Ltd. Total B PRIVATE SECTOR (i) INDIAN Benchmark Asset Management Co. Pvt. Ltd. DBS Cholamandalam Asset Management Ltd. Deutsche Asset Management (India) Private Ltd. Escorts Asset Management Ltd. J.M.Financial Asset Management Pvt. Ltd. Kotak Mahindra Asset Management Co. Ltd. Quantum Asset Management Co. Pvt. Ltd. Reliance Capital Asset Management Ltd. Sahara Asset Management Co. Pvt. Ltd. Tata Asset Management Ltd. Taurus Asset Management Co. Ltd. Total C (i)
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Average Assets Under Management for the month (Rs. in Crore)

2930 29493 32423 85 52465 52550 84973

1 2

B 1

15628 15628

C 1 2 3 4 5 6 7 8 9 10 11

4955 3165 14405 147 14231 20968 64 93532 211 20204 369 172251

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BIBLIOGRAPHY

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