WHAT IS A MUTUALFUND?

A M utual Fund is a trust that pools the savings of a Number of inve stors who share a c ommon financial Goal . Anybody with an investible surplus of as little as a f ew thousand rupee s can inve st in Mutual Funds. These investors buy units of a particular Mutual Fund S cheme that has a defined investment ob j ective and Strategy. The money thus collected is then invested by the fund manager in dif ferent type s of se curities . The se could range from shares to debentures to money market instruments, depending upon the scheme's stated

__________________________________Mutual fund market and kotak scheme analys4s 7 ob j ec tive s . The income earned through these investments and the capital appreciation realise d by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a M utual Fund is the most suitable inve stment f or the c ommon man as it of fers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. M utual funds are 0pen -ended investme nt funds , meaning that new investors c an contribute money to the f und at any time , and existing investors can return their units or shares to the fund f or rede mption at any time . When you rede em your units or shares of a mutual fund you will receive a cheque base d on the curre nt marke t value of the f und s portf olio .

__________________________________Mutual fund market and kotak scheme analys4s 8 Several parkies are inv0lved in khe 0rganizaki0n and Operaki0n 0f a mukual fund, including: Mukual Fund Manager : Establishes one or more mutual funds , marke ts them and overse es the ir general administration. P0rkf0li0 Adviser : The professional money manager appointed by the Mutual Fund Manager to direct the f und s investments . The M utual Fund M anager also of te n acts as the P ortfolio Adviser. P rincipal Diskribuk0r : Coordinates the sale of the fund to investors , e ither directly or through a network of registered dealers.

__________________________________Mutual fund market and kotak scheme analys4s 9 Cusk0dian : The bank or trust company appointed by the M utual Fund Manager to hold all of the securities owned by the fund. Transf er Agenk and Regiskrar : The group re sponsible f or maintaining a list of all investors in the fund. Andit0r: The independent accountants retained by the Mutual Fund M anage r to audit eac h year , and report on the financial statements of the fund. Truskee : The entity that has title to the securities owned by the f und (when the fund is organi2ed as a trust, instead of as a corporation) on behalf of the unitholder.

__________________________________Mutual fund market and kotak scheme analys4s 1O TYPES OF MUTUAL FUND SCHEMES There are a wide variety of M utual Fund schemes that cater to your ne eds , whatever your age , financial position , risk tole ranc e and return expectations . Whether as the foundation of your investment programme or as a supplement, Mutual Fund schemes can help you meet your financial goals. (AI) By Skruckure Open -Ended Schemes These do not have a fixe d maturity . You deal directly with the M utual Fund f or your inve stme nts and redemptions . The key f e ature is liquidity . You c an c onveniently buy and sell your units at Ne t Asset Value ("NAV") related prices. Cl0se-Ended Schemes S chemes that have a stipulate d maturity period (ranging f rom 2 to 1 5 ye ars) are called c lose - ended schemes. You can invest directly in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the scheme on the stock exchange s whe re they are listed . The market price at the stock exc hange c ould vary from the scheme ' s NAV on acc ount of demand and supply situation , Unit holders' expectations and other market factors. One of the c haracteristics of the close - ended schemes is that they are generally trade d at a discount to NAV but c loser to maturity , the disc ount narrows . S ome close - ended sc heme s give you an additional option of selling your units directly to the M utual Fund through periodic repurc hase at NAV related prices. SEBI Regulations ensure that at least one of the two exit routes are provided to the investor. Interval Schemes

__________________________________Mutual fund market and kotak scheme analys4s 11 These combine the f e atures of open- ended and close -e nde d sche mes . They may be trade d on the stock exchange or may be open for sale or redemption during predetermined intervals at NAV related prices. (B) By Inveskmenk Objeckive Gr0wth Schemes Aim to provide capital apprec iation over the me dium to long term . The se schemes normally invest a maj ority of their funds in equities and are willing to bear short-term de cline in value for possible f uture appreciation . These scheme s are not for investors seeking regular inc ome or ne eding their money back in the short term. Inc0me Schemes Aim to provide regular and steady income to inve stors . These sc heme s ge nerally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Ideal f0r Retired people and others with a need for capital Stability and regular income Investor who need some income to supplement their earnings. Balanced Schemes Aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn . They invest in both shares and fixed income sec urities in the proportion indicated in their off e r documents . In a rising stock market the NAV of the se sc heme s may not

normally keep pace , or fall equally when the market falls. Ideal f0r: Investors looking for a combination of income and moderate growth.

__________________________________Mutual fund market and kotak scheme analys4s 12 M0ney Market/Liqnid Schemes Aim to provide easy liquidity , pre servation of c apital and moderate income . These schemes ge nerally invest in safer , short- term instrume nts such as treasury bills , certif icates of de posit , commercial paper and inte r bank c all money . Returns on these scheme s may fluctuate , depending upon the intere st rates prevailing in the market. Ideal f0r: corporate and individual inve stors as a means to park their surplus f unds f or short periods or awaiting a more favorable investment alternative. Okher Schemes Tax Saving Schemes These schemes off e r tax rebates to the investors unde r tax laws as pre scribed f rom time to time . This is made possible because the Government offers tax incentives for investment in specified avenues. F0r example , Equity Linked S avings S chemes (ELS S) and P ension S chemes . The details of such tax saving schemes are provided in the relevant offer documents. Ideal f0r: Investors seeking tax rebates. Special Schemes This category includes index sc heme s that attempt to replic ate the performanc e of a particular index such as the BSE Sensex or the NSE 5O, or industry specific schemes (which invest in specific industries) or se ctoral schemes (which invest exclusively in se gments suc h as A Group share s or initial public offerings).

__________________________________Mutual fund market and kotak scheme analys4s 13 I ndex f und sc heme s are ide al for investors who are satisf ied with a return approximately e qual to that of an index. Sectoral fund schemes are ideal for investors who have already decided to invest in a particular sector or segment. Keep in mind that anyone scheme may not meet all your requirements for all time. You need to plac e your money j udiciously in dif ferent sc hemes to be able to get the combination of growth , income and stability that is right f or you . Remember , as always , higher the return you se ek highe r the risk you should be prepared to take. A few frequenkly used kerms are explained here bel0w: Net Asset Valne ("NAV") Net Asset Value is the market value of the asse ts of the scheme minus its liabilities . The per unit NAV is the net asset value of the scheme divided by the 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. Repnrchase 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. Redempti0n Price I s the price at which open- ende d scheme s re purc hase their units and close - ende d sc heme s re deem their units on maturity. Such prices are NAV related. Sales L0ad I s a charge collected by a scheme when it sells the units . Also calle d , ' Front- end' load. Schemes that do not charge a load are called 'No Load' schemes.

__________________________________Mutual fund market and kotak scheme analys4s 14 Repnrchase 0r 'Back-end' L0ad Is a charge collected by a scheme when it buys back the units from the unit holders. BASIC FUNDAMENTALS OF MUTUAL FUND WHY SHOULD YOU INVEST IN MUTUAL FUNDS? The advantages of investing in a Mutual Fund are: 1j Pr0fessi0nal Management: You avail of the services of experienced and skilled professionals who are bac ked by a dedicate d investment research team which analyse s the perf ormance and prospec ts of companies and selects suitable investments to achieve the objectives of the scheme. 2j Diversificati0n: Mutual Funds invest in a numbe r of companies across a broad cross- se ction of industries and sec tors . This diversif ic ation reduces the risk bec ause seldom do all stocks decline at the same time and in the same proportion . You achieve this diversification through a M utual Fund with f ar less money than you can do on your own. 3j C0n v enient Ad mi ni st r at i0n: I nvesting in a M utual Fund reduc es pape rwork and helps you avoid many problems such as bad deliverie s , de layed payme nts and unnece ssary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. 4j Retnr n P 0t ent i al: Ove r a me dium to long-te rm , M utual Funds have the potential to provide a highe r return as they invest in a diversified basket of selected securities.

__________________________________Mutual fund market and kotak scheme analys4s 15 5 j L0w C0st s: Mutual Funds are a relatively le ss expe nsive way to invest c ompared to direc tly investing in the capital markets because the benefits of scale in brokerage , custodial and other f ee s translate into lower costs for investors. 6j Liqnid it y: I n open- ended sche me s , you can ge t your money back promptly at net asset value related prices from the Mutual Fund itse lf. With close -e nded schemes , you c an sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurc hase at NAV related price s which some c lose - ende d and interval sc heme s off e r you periodically. ' 7. Transparency: You get regular inf ormation on the value of your investment in addition to disclosure on the specific investments made by your

scheme , the proportion invested in each class of assets and the fund manager's investment strategy and outlook. 8j Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans , you can systematically inve st or withdraw f unds according to your needs and convenience. 9j C h0ice 0f Sc hemes: M utual Funds of fer a f amily of schemes to suit your varying needs ove r a lifetime. 1 0 j W el l Re gn l at ed: All Mutual Funds are re gistered with SEBI and they function within the provisions of strict re gulations designed to protect the intere sts of ' investors . The ope rations of M utual Funds are regularly monitored by SEBI. UNDERSTANDINGAND MANAGING RISK All investme nts whether in shares , debentures or de posits involve risk : share value may go down depe nding upon the perf ormance of the company , the industry , state of c apital markets and the ec onomy ; generally , however , longer the te rm , lesser the risk ; companies may def ault in payment of interest/ principal on their debentures/bonds/deposits ; the rate of interest on an investment may fall short

__________________________________Mutual fund market and kotak scheme analys4s 16 of the rate of inflation reducing the purc hasing power . While risk cannot be eliminated , skillf ul manage ment c an minimi2e risk . Mutual Funds help to reduce risk through dive rsif ication and prof e ssional management . The experience and expe rtise of Mutual Fund managers in selecting fundamentally sound securities and timing their purc hases and sales , he lp them to build a diversif ied portfolio that minimi2es risk and maximi2es returns. HOW TO INVEST IN MUTUAL FUNDS. St e p O ne - Ide ntif y your investment needs . Your f inancial goals will vary , based on your age , lifestyle , financial inde pendence , f amily co mmitments , leve l of income and expenses among many other f ac tors . Therefore, the first step is to assess your needs. Begin by asking y0urself khese queski0ns : l. Whak are my inveskmenk 0bjeckives and needs? P robable Answers : I need re gular income or ne ed to buy a home or f inanc e a wedding or e duc ate my children or a combination of all the se needs. 2. H0w mnch risk am I willing k0 take? P robable Answers : I can only take a minimum amount of risk or I am willing to accept the fact that my investme nt value may fluctuate or that there may be a short- term loss in orde r to ac hieve a long- term potential gain. 3j What are my cash fl0w reqnirements? P robable Answers : I need a re gular cash f low or I need a lump sum amount to me et a spec if ic need after a certain period or I don't re quire a current cash flow but I want to build my assets f or the f uture . By going through such an exercise , you will know what you want out of your investment and can set the foundation for a sound Mutual Fund investment strategy. Step Tw0 - Ch00se khe righk Mukual Fund .

__________________________________Mutual fund market and kotak scheme analys4s 17 O nce you have a c lear strategy in mind , you now have to choose which M utual Fund and scheme you want to invest in . The of fer document of the sc heme tells you its ob j ectives and provides supplementary details like the track rec ord of other sc heme s managed by the same Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are: the track rec ord of performance ove r the last f ew ye ars in relation to the appropriate yardstick and similar funds in the same category. how well the Mutual Fund is organised to provide efficient, prompt and personali2ed service. degree of transparency as reflected in frequency and quality of their communications. St e p T hree - S elect the ideal mix of S che mes . I nvesting in j ust one Mutual Fund scheme may not meet all your inve stment needs . You may conside r investing in a combination of sc hemes to achieve your specific goals. The following charts could prove useful in selecting a combination of schemes that satisfy your needs. This plan may suit Investor seeking Income & moderate growth. Investor looking for growth & stability with moderate risk Aggressive Plan G rowth S ch e m e l n co m e S ch e m e Mo n e y m a rke t S ch e m e B a l a n ce d S ch e m e 1O% 5O% 3O% 1O% Scheme Balanced Scheme

__________________________________Mutual fund market and kotak scheme analys4s 18 This plan may suit Retired & other investor who needs to preserve capital & earn regular income Step F0nr - Invest regularly For most of , the approach that works be st is to invest a fixed amount at specif ic intervals , say every month . By investing a fixed sum eac h month , you buy f ewe r units when the price is higher and more units when the price is low , thus bringing down your average c ost per unit . This is called rupe e c ost ave raging and is a disciplined investment strategy followed by inve stors all over the world . With many open- ende d sc heme s of fering systematic investment plans , this regular inve sting habit is made e asy f or you. Step Five - Keep your taxes in mind As per the c urrent tax laws , D ividend/I ncome D istribution made by mutual funds is exempt f rom I ncome Tax in the hands of investor . Further , there are other be nef its available f or investme nt in Mutual Funds under the provisions of the prevailing tax laws . You may the re f ore consult your tax advisor or Charte red Acc ountant for specific advice to achieve maximu m tax eff ic iency by inve sting in M utual Funds Step Six- Start early I t is desirable to start investing early and stick to a regular investment plan . I f you start now , you will make more than if you wait and invest later. The power of co mpounding lets you earn income on income and your money multiplies at a compounded rate of return. St e p S e v en - The final step all you need to do now is to get in touch with a Mutual Fund or your agent/broker and start investing . Reap the

rewards in the years to come . Mutual Funds are suitable for eve ry kind of investor-whether starting a care er or retiring , conservative or risk taking , growth oriented or income seeking.

__________________________________Mutual fund market and kotak scheme analys4s 19 YOUR RIGHTS AS A MUTUAL FUND UNITHOLDER As a unitholder in a Mutual Fund sche me coming Under the S EBI (Mutual Funds) Regulations , you are entitled to: 1. Receive unit ce rtificates or statements of acc ounts Confirming your title within 3 O days fro m the date of closure of the subscription under open- end scheme s or wi thin 6 wee ks fro m the date your request for a unit certificate is received by the Mutual Fund. 2. Rece ive information about the inve stment policies , inve stment ob j ectives , financial position and general affairs of the scheme. 3. Rec eive dividend within 3 O days of their declaration and rec eive the redemption or re purchase proceeds within 1O days from the date of redemption or repurchase. 4. Vote in accordance with the Regulations to a change the Asset Management Company; b. wind up the schemes. 5. To receive communication from the Trustee about change in the fundamental attributes of any scheme or any other changes which would modif y the sc heme and aff ec t the inte re st of the unit holders and to have option to exit at prevailing Net Asset Value without any exit load in such cases. 6. Inspect the documents of the Mutual Funds specified in the scheme's offer document. I n addition to your rights , you can expe ct the Following f rom mutual fund . To publish the ir NAV , in accordance with the re gulations daily in c ase of open- ende d sche mes and once a week , in case of close - ende d sc hemes . To disclose your schemes ' entire portf olio twice a ye ar, unaudited financial re sults half yearly and audited annual acc ounts once a ye ar. I n addition many mutual f unds send out newsletters periodically . To adhere to a Code of Ethics which re quire that investment decisions are take n in the be st interests of the unit holders.

__________________________________Mutual fund market and kotak scheme analys4s 2O Whak are khe p0kenkial advankages 0f invesking in mukual funds? There are many reas0ns why pe0ple invesk in mukual funds: Diversificaki0n : I nvesting in a numbe r of diff e re nt se curities he lps reduce the risk of investing . When you buy a mutual fund , you are buying an interest in a portf olio of do2ens of diff erent sec urities , giving you instant diversification, at least within the type of securities held in the fund. Aff0rdabiliky : With many mutual funds, you can begin buying units with a relatively small amount of money (e . g . , Rs 5 OOO for the initial purchase) . S ome mutual f unds also le t you buy more u nits on a regular basis with even smaller installments (e.g., Rs 5OO per month). Pr0f essi0nal M anage me nk : Mutual funds are managed by prof e ssionals who are expe rience d in investing money and who have the skills and re sources tore search many diff e re nt investment opportunities. Liquidiky : Units or shares of mutual funds can be redeemed at any time. Flexibiliky : M any mutual f und companies administer several dif ferent mutual funds (e . g . , money market , fixed - income , growth , balanc ed and international funds) and allow you to switch between funds within the ir fund family at little or no c harge . This can enable you to change the balance of your portfolio as your personal needs or market conditions change. Perf0rmance M0nik0ring : The value of most mutual funds is reported daily in the financial press and on many internet sites, allowing you to continually monitor the performance of your investment. Whak are s0me 0f khe p0kenkial disadvankages? When you i nvest in a mutual f und you plac e your money in the hands of a professional manager . The return on your inve stment will de pe nd heavily on that manager s skill and j udgement . Eve n the best

__________________________________Mutual fund market and kotak scheme analys4s 21 portf olio advisers are wrongs one time s , and studies have shown that few portf olio advise rs are able to consistently out- perf orm the market . Check the fund manager s trac k re cord over a period of time when choosing a fund. As a mutual fund investor, you will also be paying, through management expenses and commissions, for management services and for various administrative and sales costs. Those fees and commissions reduce the return on your investment and are c harge d , in almost all cases , whethe r the f und pe rforms well or not . Sales commissions and rede mption fees can have a ve ry signif icant impact on your return if you decide to redeem your mutual fund investment in the short-term. H0w will I kn0w if mukual funds are righk f0r me? For most investors , choosing a qualif ie d f inancial adviser is an important first step in any investment program With the help of your financial adviser (s) , you ll want to e stablish your investment goals , asse ss your risk tolerance , and develop a personal investment strategy . Ask your f inancial adviser if mutual f unds are an appropriate inve stment f or you . D iscuss what type of fund best matches your personal investment strategy, then ask for some specific suggestions. O nce you have identif ied some f unds that seem to me et your investment needs , re ad the prospectus and financial statements for each one. C0nsider: Inveskmenk Objeckives : Are the fund s investme nt ob j e ctives consistent with your own? Can the fund provide the level of regular income you need? D oe s it provide the type of diversification you re looking for? If you have other investments, how will this fund affect the overall balance of your portfolio? Risk : Are you comfortable with the level of risk associated with the fund? I f you have othe r investme nts , would this f und tend to increase or de crease your overall risk exposure? Unlike GI Cs or savings accounts , mutual f unds are not covered by deposit insurance . Values of mo st mutual f u nds will fluctuate and you can lose money depending on changes in the marketplace.

__________________________________Mutual fund market and kotak scheme analys4s 22 Time H0riz0ns : Does the investment fit with your expected investment time hori2on? For example, if you re investing f or a relatively short time , will sale s charges and redemption fees of fset any possible gains? Might the value of the fund be down just when you need to redeem your investment? Expecked Rekurn : Does the fund have the potential to provide the returns you need to meet your goals? Remember, predicting the return of any mutual fund requires that you predict the future something that can never be done with certainty . P ast perf ormance will tell you about the f und s historical volatility and its performance relative to c ompeting f unds , but it is not are liable indicator of future pe rformanc

e . The return you can expect from a mutual fund is closely related to its risk. The lower the risk of the fund, the lower the return you should expect. Be realistic in your expectations. C0sks : Fee s and commissions associated with mutual funds will aff e ct your overall re turn and can vary widely fro m one f und to the next . Higher f e es and commissions do not nece ssarily mean be tter performance. Check and compare fees and commissions before you invest. S ervice Pr0vider : D o you know something about the mutual f und f irm offering the mutual funds f or sale? Consider who operates the mutual fund and who provides the services nece ssary f or its operations . You ll also want to look at the perf ormance history of the fund manage r who selec ts the securities to be held in the fund. Flexibiliky : Will you be entitled to switch your investme nt to other funds in the same fund family ? Can you afford the minimum initial investment? Does the fund offer other features such as regular monthly purchase plans or redemption plans that are attractive to you? Tax C0nsideraki0ns : Is the mutual f und a qualif ying inve stment f or your RRS P , Re gistered Retire ment I ncome Fund (RRI F) or other registered plan? I f you are inve sting in the f und outside a registe red plan , do you understand the tax implications of the distributions of inc ome or capital gains that the fund may make to you? Wh0 can sell mukual funds?

__________________________________Mutual fund market and kotak scheme analys4s 23 Like other securities , mutual f unds must be sold through de alers who are registered with the sec urities regulator in your provinc e or territory . The names of re gistere d de alers in your are a can be found in the tele phone book . M ost f inanc ial institutions such as banks , credit unions and trust companies also have subsidiaries that are registered to sell mutual funds. You will also be able to find information about dealers and salespersons from your provincial securities regulator or its web site. Whak sh0uld I expeck fr0m khe salespers0n when I buy a mukual fund? Y0u sh0uld expeck y0ur salespers0n: to deal with you fairly, honestly and in good faith; to discuss with you your general investment objectives and tolerance for risk; to make recommendations that are consiste nt with your objectives and risk tolerance; to disclose to you any significant conflicts of interest (the form of disclosure may vary depending on the nature of the conflict); to promptly deliver a disclosure docu ment (simplif ie d prospectus) and curre nt financial information for any mutual fund you buy; to relay your purchase order to the fund on the day you place it, or on the next business day if the order was given after normal business hours; Research Mekh0d0l0gy Re searc h M ethodology is a syste matic method of discovering new f ac ts or ve rif ying old f acts , the ir sequence, inter- relationship, casual explanation and the natural laws which governs them. Re searc h M ethodology explained by Redman and Mory are as follows systemati2ed e f fort to gain new knowledge Research Methodology is original contribution to the existing stock of knowledge making for its advancement . It is the purist of truth with the help of study . O bservation , comparison and expe riment . I n short also cove rs the syste matic method of f inding solution to a proble m is research . I t also covers the systematic approach concerning generali2ation and the formulation of the theory.