MAJOR MUTUAL FUNDS IN INDIA

A PROJECT BY MOHAMMAD IKRAM BUKHARI Admission No: DPGD/JA11/ !"

SPECIALIZATION: FINANCE

#ELINGKAR INSTITUTE OF MANAGEMENT MUMBAI

APPENDIX I CERTIFICATE FROM THE GUIDE

This is to certify that the Project work titled Major mutual Funds In india. Is a bonafide work carried out by Mohammad Ikram Bukhari. (Admission No. !" #P$#%&A''"(()* A candidate for the P$#BA(FINAN+, -elin.kar Institute of Mana.ement under my .uidance and direction.

/I$NAT01, 2F $0I#,! NAM, ! 3I/4A5 +42P1A 2r.anisation 6 #esi.nation !BAN7 2F AM,1I+A"T,AM #,3,52P,1 A##1,// !$ur.aon /TAMP8/,A5 2F T4, 21$ANI9ATI2N #AT,! P5A+,!

ACKNO#LEDGEMENT Before we .et into thick of thin.s: I would like to add a few words of a;;reciation for the ;eo;le who ha<e been a ;art of this ;roject ri.ht from its ince;tion. The writin. of this ;roject has been one of the si.nificant academic challen.es I ha<e faced and without the su;;ort: ;atience: and .uidance of the ;eo;le in<ol<ed: this task would not ha<e been com;leted. It is to them I owe my dee;est .ratitude. It .i<es me Immense ;leasure in ;resentin. this ;roject re;ort on =MA&21 M0T0A5 F0N#/ IN IN#IA=. It has been my ;ri<ile.e to ha<e a team of ;roject .uide who ha<e assisted me from the commencement of this ;roject. The success of this ;roject is a result of sheer hard work: and determination ;ut in by me with the hel; of my ;roject .uide. I hereby take this o;;ortunity to add a s;ecial note of thanks for : who undertook to act as my mentor des;ite her many other academic and ;rofessional commitments. 4er wisdom: knowled.e: and commitment to the hi.hest standards ins;ired and moti<ated me. -ithout her insi.ht: su;;ort: and ener.y: this ;roject wouldn>t ha<e kick"started and neither would ha<e reached fruitfulness. I also feel heartiest sense of obli.ation to my library staff members ? seniors: who hel;ed me in collection of data ? resource material ? also in its ;rocessin. as well as in draftin. manuscri;t. The ;roject is dedicated to all those ;eo;le: who hel;ed me while doin. this ;roject.

NEED FOR THE STUDY: The main ;ur;ose of doin. this ;roject was to know about mutual fund and its functionin.. This hel;s to know in details about mutual fund industry ri.ht from its ince;tion sta.e: .rowth and future ;ros;ects. It also hel;s in understandin. different schemes of mutual funds. Because my study de;ends u;on ;rominent funds in India and their schemes like e@uity: income: balance as well as the returns associated with those schemes. The ;roject study was done to ascertain the asset allocation: entry load: eAit load: associated with the mutual funds. 0ltimately this would hel; in understandin. the benefits of mutual funds to in<estors. OBJECTI$E:
To .i<e a brief idea about the benefits a<ailable from Mutual Fund in<estment. To .i<e an idea of the ty;es of schemes a<ailable. To discuss about the market trends of Mutual Fund in<estment. To study some of the mutual fund schemes. To study some mutual fund com;anies and their funds. 2bser<e the fund mana.ement ;rocess of mutual funds. ,A;lore the recent de<elo;ments in the mutual funds in India. To .i<e an idea about the re.ulations of mutual funds.

LIMITATIONS The lack of information sources for the analysis ;art. Thou.h I tried to collect some ;rimary data but they were too inade@uate for the ;ur;oses of the study. Time and money are critical factors limitin. this study. The data ;ro<ided by the ;ros;ects may not be '((B correct as they too ha<e their limitations. The study is limited to selected mutual fund schemes.

E%ECUTI$E SUMMARY A mutual fund is a scheme in which se<eral ;eo;le in<est their money for a common financial cause. The collected money in<ests in the ca;ital market and the money: which they earned: is di<ided based on the number of units: which they hold. The mutual fund industry started in India in a small way with the 0TI Act creatin. what was effecti<ely a small sa<in.s di<ision within the 1BI. 2<er a ;eriod of C* years this .rew fairly successfully and .a<e in<estors a .ood return: and therefore in 'DED: as the neAt lo.ical ste;: ;ublic sector banks and financial institutions were allowed to float mutual funds and their success emboldened the .o<ernment to allow the ;ri<ate sector to foray into this area. The ad<anta.es of mutual fund are ;rofessional mana.ement: di<ersification: economies of scale: sim;licity: and li@uidity. The disad<anta.es of mutual fund are hi.h costs: o<er"di<ersification: ;ossible taA conse@uences: and the inability of mana.ement to .uarantee a su;erior return. The bi..est ;roblems with mutual funds are their costs and fees it include Purchase fee: 1edem;tion fee: ,Achan.e fee: Mana.ement fee: Account fee ? Transaction +osts. There are some loads which add to the cost of mutual fund. 5oad is a ty;e of commission de;endin. on the ty;e of funds. Mutual funds are easy to buy and sell. Fou can either buy them directly from the fund com;any or throu.h a third ;arty. Before in<estin. in any funds one should consider some factor like objecti<e: risk: Fund Mana.erGs and scheme track record: +ost factor etc. There are many: many ty;es of mutual funds. Fou can classify funds based /tructure (o;en"ended ? close"ended : Nature (e@uity: debt: balanced : In<estment objecti<e (.rowth: income: money market etc. A code of conduct and re.istration structure for mutual fund intermediaries: which were subse@uently mandated by /,BI. In addition: this year AMFI was in<ol<ed in a number of de<elo;ments and enhancements to the re.ulatory framework.
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The most im;ortant trend in the mutual fund industry is the a..ressi<e eA;ansion of the forei.n owned mutual fund com;anies and the decline of the com;anies floated by nationaliHed banks and smaller ;ri<ate sector ;layers. 1eliance Mutual Fund: 0TI Mutual Fund: I+I+I Prudential Mutual Fund: 4#F+ Mutual Fund and Birla /un 5ife Mutual Fund are the to; fi<e mutual fund com;any in India. 1eliance mutual fundin. is considered to be most reliable mutual funds in India. Peo;le want to in<est in this institution because they know that this institution will ne<er dissatisfy them at any cost. Fou should always kee; this into your mind that if ;articular mutual fundin. scheme is on lar.er scale then neAt time: you mi.ht not .et the same results so bein. a careful in<estor you should take your major ste; dili.ently otherwise you will be unable to obtain the hi.h returns.

INDE% SRNO. 1& '& (& !& "& +& TOPICS INTRODUCTION OF MUTUAL FUND #ORKING OF MUTUAL FUND MUTUAL FUND IN INDIA RELIANCE MUTUAL FUND )s& UTI MUTUAL FUND MUTUAL FUND )s& OTHER IN$ESTMENT FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA MF JARGON CONCLUSION BIBLOGRAPHY PAGE NO 1 '" (( (* + +* +, +*

Chapter: 1 INTRODUCTION OF MUTUAL FUND

There are a lot of in<estment a<enues a<ailable today in the financial market for an in<estor with an in<estable sur;lus. 4e can in<est in Bank #e;osits: +or;orate #ebentures: and Bonds where there is low risk but low return. 4e may in<est in /tock of com;anies where the risk is hi.h and the returns are also ;ro;ortionately hi.h. The recent trends in the /tock Market ha<e shown that an a<era.e retail in<estor always lost with ;eriodic bearish tends. Peo;le be.an o;tin. for ;ortfolio mana.ers with eA;ertise in stock markets who would in<est on their behalf. Thus we had wealth mana.ement ser<ices ;ro<ided by many institutions. 4owe<er they ;ro<ed too costly for a small in<estor. These in<estors ha<e found a .ood shelter with the mutual funds. CONCEPT OF MUTUAL FUND: A mutual fund is a common ;ool of money into which in<estors ;lace their contributions that are to be in<ested in accordance with a stated objecti<e. The ownershi; of the fund is thus joint or ImutualJK the fund belon.s to all in<estors. A sin.le in<estorGs ownershi; of the fund is in the same ;ro;ortion as the amount of the contribution made by him or her bears to the total amount of the fund. Mutual Funds are trusts: which acce;t sa<in.s from in<estors and in<est the same in di<ersified financial instruments in terms of objecti<es set out in the trusts deed with the <iew to
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reduce the risk and maAimiHe the income and ca;ital a;;reciation for distribution for the members. A Mutual Fund is a cor;oration and the fund mana.erGs interest is to ;rofessionally mana.e the funds ;ro<ided by the in<estors and ;ro<ide a return on them after deductin. reasonable mana.ement fees. The objecti<e sou.ht to be achie<ed by Mutual Fund is to ;ro<ide an o;;ortunity for lower income .rou;s to ac@uire without much difficulty financial assets. They cater mainly to the needs of the indi<idual in<estor whose means are small and to mana.e in<estors ;ortfolio in a manner that ;ro<ides a re.ular income: .rowth: safety: li@uidity and di<ersification o;;ortunities. DEFINITION: Mutual funds are collective savings and investment vehicles where savings of small (or sometimes big) investors are pooled together to invest for their mutual benefit and returns distributed proportionately. A mutual fund is an investment that pools your money with the money of an unlimited number of other investors. In return, you and the other investors each own shares of the fund. he fund!s assets are invested according to an investment ob"ective into the fund!s portfolio of investments. Aggressive growth funds see# long$term capital growth by investing primarily in stoc#s of fast$growing smaller companies or mar#et segments. Aggressive growth funds are also called capital appreciation !nds".

#./ S01023 M43451 F4nd6 The risk return trade"off indicates that if in<estor is willin. to take hi.her risk then corres;ondin.ly he can eA;ect hi.her returns and <ise <ersa if he ;ertains to lower risk instruments: which would be satisfied by lower returns. For eAam;le: if an in<estors o;t for bank F#: which ;ro<ide moderate return with minimal risk. But as he mo<es ahead to in<est in ca;ital ;rotected funds and the ;rofit"bonds that .i<e out more return which is sli.htly hi.her as com;ared to the bank de;osits but the risk in<ol<ed also increases in the same ;ro;ortion. Thus in<estors choose mutual funds as their ;rimary means of in<estin.: as Mutual funds ;ro<ide ;rofessional mana.ement: di<ersification: con<enience and li@uidity. That doesnGt mean mutual fund in<estments risk free. This is because the money that is ;ooled in are not in<ested only in debts funds which are less riskier but are also in<ested in the stock markets which in<ol<es a hi.her risk but can eA;ect hi.her returns. 4ed.e fund in<ol<es a <ery hi.h risk since it is mostly traded in the deri<ati<es market which is considered <ery <olatile. RETURN RISK MATRI%
HIGHIER RISK MODERATE RETURNS HIGHER RISK HIGHIER RETURNS

&'ntu( ' Ca)ita l

Equi t

!an" FD P#stal Sa$in%s

LOWER RISK LOWER RETURNS

Mutu al Funds
LOWER RISK HIGIER RETURNS

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HISTORY OF MUTUAL FUNDS IN INDIA: The mutual fund industry in India started in 'DLM with the formation of 0nit Trust of India: at the initiati<e of the $o<ernment of India and 1eser<e Bank. The history of mutual funds in India can be broadly di<ided into four distinct ;hases FIRST PHASE 7 1-+!8,*: 0nit Trust of India (0TI was established on 'DLM by an Act of Parliament. It was set u; by the 1eser<e Bank of India and functioned under the 1e.ulatory and administrati<e control of the 1eser<e Bank of India. In 'DNE 0TI was de"linked from the 1BI and the Industrial #e<elo;ment Bank of India (I#BI took o<er the re.ulatory and administrati<e control in ;lace of 1BI. The first scheme launched by 0TI was 0nit /cheme 'DL). At the end of 'DEE 0TI had 1s.L:N(( crores of assets under mana.ement. SECOND PHASE 7 1-,*81--( 9ENTRY OF PUBLIC SECTOR FUNDS:: 'DEN marked the entry of non" 0TI: ;ublic sector mutual funds set u; by ;ublic sector banks and 5ife Insurance +or;oration of India (5I+ and $eneral Insurance +or;oration of India ($I+ . /BI Mutual Fund was the first non" 0TI Mutual Fund established in &une 'DEN followed by +anbank Mutual Fund (#ec EN : Punjab National Bank Mutual Fund (Au. ED : Indian Bank Mutual Fund (No< ED : Bank of India (&un D( : Bank of Baroda Mutual Fund (2ct DC . 5I+ established its mutual fund in &une 'DED while $I+ had set u; its mutual fund in #ecember 'DD(. At the end of 'DDM: the mutual fund industry had assets under mana.ement of 1s.)N:(() crores. THIRD PHASE 7 1--(8' ( 9ENTRY OF PRI$ATE SECTOR FUNDS::

-ith the entry of ;ri<ate sector funds in 'DDM: a new era started in the Indian mutual fund industry: .i<in. the Indian in<estors a wider choice of fund families. Also: 'DDM was the year in which the first Mutual Fund 1e.ulations came into bein.: under which all mutual funds: eAce;t 0TI were to be re.istered and .o<erned. The erstwhile 7othari Pioneer (now mer.ed with Franklin Tem;leton was the first ;ri<ate sector mutual fund re.istered in &uly 'DDM.
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The 'DDM /,BI (Mutual Fund 1e.ulations were substituted by a more com;rehensi<e and re<ised Mutual Fund 1e.ulations in 'DDL. The industry now functions under the /,BI (Mutual Fund 1e.ulations 'DDL. The number of mutual fund houses went on increasin.: with many forei.n mutual funds settin. u; funds in India and also the industry has witnessed se<eral mer.ers and ac@uisitions. As at the end of &anuary C((M: there were MM mutual funds with total assets of 1s. ':C':E(* crores. The 0nit Trust of India with 1s.)):*)' crores of assets under mana.ement was way ahead of other mutual funds. FOURTH PHASE 7 SINCE FEBRUARY ' (:

In February C((M: followin. the re;eal of the 0nit Trust of India Act 'DLM 0TI was bifurcated into two se;arate entities. 2ne is the /;ecified 0ndertakin. of the 0nit Trust of India with assets under mana.ement of 1s.CD:EM* crores as at the end of &anuary C((M: re;resentin. broadly: the assets of 0/ L) scheme: assured return and certain other schemes. The /;ecified 0ndertakin. of 0nit Trust of India: functionin. under an administrator and under the rules framed by $o<ernment of India and does not come under the ;ur<iew of the Mutual Fund 1e.ulations. The second is the 0TI Mutual Fund 5td: s;onsored by /BI: PNB: B2B and 5I+. It is re.istered with /,BI and functions under the Mutual Fund 1e.ulations. -ith the bifurcation of the erstwhile 0TI which had in March C((( more than 1s.NL:((( crores of assets under mana.ement and with the settin. u; of a 0TI Mutual Fund: conformin. to the /,BI Mutual Fund 1e.ulations: and with recent mer.ers takin. ;lace amon. different ;ri<ate sector funds: the mutual fund industry has entered its current ;hase of consolidation and .rowth. As at the end of /e;tember: C((): there were CD funds: which mana.e assets of 1s.'*M'(E crores under )C' schemes.

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T.0 ;<5=. indi2530s 3.0 ;<o>3. o? 5ss03s 4nd0< m5n5;0m0n3 o)0< 3.0 /05<s& GRO#TH IN ASSETS UNDER MANAGEMENT

(%ource& www.amfiindia.com)

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AD$ANTAGES OF MUTUAL FUNDS: If mutual funds are emer.in. as the fa<orite in<estment <ehicle: it is because of the many ad<anta.es they ha<e o<er other forms and the a<enues of in<estin.: ;articularly for the in<estor who has limited resources a<ailable in terms of ca;ital and the ability to carry out detailed research and market monitorin.. The followin. are the major ad<anta.es offered by mutual funds to all in<estors! 1& Po<3?o1io Di)0<si?i253ion: ,ach in<estor in the fund is a ;art owner of all the fundGs assets: thus enablin. him to hold a di<ersified in<estment ;ortfolio e<en with a small amount of in<estment that would otherwise re@uire bi. ca;ital. '& P<o?0ssion51 M5n5;0m0n3: ,<en if an in<estor has a bi. amount of ca;ital a<ailable to him: he benefits from the ;rofessional mana.ement skills brou.ht in by the fund in the mana.ement of the in<estorGs ;ortfolio. The in<estment mana.ement skills: alon. with the needed research into a<ailable in<estment o;tions: ensure a much better return than what an in<estor can mana.e on his own. Few in<estors ha<e the skill and resources of their own to succeed in todayGs fast mo<in.: .lobal and so;histicated markets. (& R0d423ion/Di)0<si?i253ion O? Ris@: -hen an in<estor in<ests directly: all the risk of ;otential loss is his own: whether he ;laces a de;osit with a com;any or a bank: or he buys a share or debenture on his own or in any other from. -hile in<estin. in the ;ool of funds with in<estors: the ;otential losses are also shared with other in<estors. The risk reduction is one of the most im;ortant benefits of a collecti<e in<estment <ehicle like the mutual fund.

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!& R0d423ion O? T<5ns523ion Cos3s: -hat is true of risk as also true of the transaction costs. The in<estor bears all the costs of in<estin. such as brokera.e or custody of securities. -hen .oin. throu.h a fund: he has the benefit of economies of scaleK the funds ;ay lesser costs because of lar.er <olumes: a benefit ;assed on to its in<estors. "& LiA4idi3/: 2ften: in<estors hold shares or bonds they cannot directly: easily and @uickly sell. -hen they in<est in the units of a fund: they can .enerally cash their in<estments any time: by sellin. their units to the fund if o;en"ended: or sellin. them in the market if the fund is close"end. 5i@uidity of in<estment is clearly a bi. benefit. +& Con)0ni0n20 And F10BiCi1i3/: Mutual fund mana.ement com;anies offer many in<estor ser<ices that a direct market in<estor cannot .et. In<estors can easily transfer their holdin. from one scheme to the otherK .et u;dated market information and so on.
*& T5B B0n0?i3s:

Any income distributed after March M': C((C will be subject to taA in the assessment of all 0nit holders. 4owe<er: as a measure of concession to 0nit holders of o;en"ended e@uity" oriented funds: income distributions for the year endin. March M': C((M: will be taAed at a concessional rate of '(.*B. In case of Indi<iduals and 4indu 0ndi<ided Families a deduction u;to 1s. D:((( from the Total Income will be admissible in res;ect of income from in<estments s;ecified in /ection E(5: includin. income from 0nits of the Mutual Fund. 0nits of the schemes are not subject to -ealth"TaA and $ift"TaA. ,& C.oi20 o? S2.0m0s: Mutual Funds offer a family of schemes to suit your <aryin. needs o<er a lifetime.

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-& #011 R0;41530d: All Mutual Funds are re.istered with /,BI and they function within the ;ro<isions of strict re.ulations desi.ned to ;rotect the interests of in<estors. The o;erations of Mutual Funds are re.ularly monitored by /,BI. 1 & T<5ns=5<0n2/: Fou .et re.ular information on the <alue of your in<estment in addition to disclosure on the s;ecific in<estments made by your scheme: the ;ro;ortion in<ested in each class of assets and the fund mana.er>s in<estment strate.y and outlook.

DISAD$ANTAGES OF IN$ESTING THROUGH MUTUAL FUNDS: 1& No Con3<o1 O)0< Cos3s: An in<estor in a mutual fund has no control of the o<erall costs of in<estin.. The in<estor ;ays in<estment mana.ement fees as lon. as he remains with the fund: albeit in return for the ;rofessional mana.ement and research. Fees are ;ayable e<en if the <alue of his in<estments is declinin.. A mutual fund in<estor also ;ays fund distribution costs: which he would not incur in direct in<estin.. 4owe<er: this shortcomin. only means that there is a cost to obtain the mutual fund ser<ices. '& No T5i1o<8M5d0 Po<3?o1io: In<estors who in<est on their own can build their own ;ortfolios of shares and bonds and other securities. In<estin. throu.h fund means he dele.ates this decision to the fund mana.ers. The <ery"hi.h"net"worth indi<iduals or lar.e cor;orate in<estors may find this to be a constraint in achie<in. their objecti<es. 4owe<er: most mutual fund mana.ers hel; in<estors o<ercome this constraint by offerin. families of funds" a lar.e number of different schemes" within their own mana.ement com;any. An in<estor can choose from different in<estment ;lans and constructs a ;ortfolio to his choice. (& M5n5;in; A Po<3?o1io O? F4nds:

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A<ailability of a lar.e number of funds can actually mean too much choice for the in<estor. 4e may a.ain need ad<ice on how to select a fund to achie<e his objecti<es: @uite similar to the situation when he has indi<idual shares or bonds to select. !& T.0 #isdom O? P<o?0ssion51 M5n5;0m0n3: That>s ri.ht: this is not an ad<anta.e. The a<era.e mutual fund mana.er is no better at ;ickin. stocks than the a<era.e non;rofessional: but char.es fees. "& No Con3<o1: 0nlike ;ickin. your own indi<idual stocks: a mutual fund ;uts you in the ;assen.er seat of somebody else>s car +& Di143ion: Mutual funds .enerally ha<e such small holdin.s of so many different stocks that insanely .reat ;erformance by a fund>s to; holdin.s still doesn>t make much of a difference in a mutual fund>s total ;erformance. *& B4<i0d Cos3s: Many mutual funds s;ecialiHe in buryin. their costs and in hirin. salesmen who do not make those costs clear to their clients.

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TYPES OF MUTUAL FUNDS SCHEMES IN INDIA -ide <ariety of Mutual Fund /chemes eAists to cater to the needs such as financial ;osition: risk tolerance and return eA;ectations etc. thus mutual funds has 3ariety of fla<ors: Bein. a collection of many stocks: an in<estors can .o for ;ickin. a mutual fund mi.ht be easy. There are o<er hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in cate.ories: mentioned below.

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A:& BY STRUCTURE 1& O=0n 8 End0d S2.0m0s: An o;en"end fund is one that is a<ailable for subscri;tion all throu.h the year. These do not ha<e a fiAed maturity. In<estors can con<eniently buy and sell units at Net Asset 3alue (=NA3= related ;rices. The key feature of o;en"end schemes is li@uidity. '& C1os0 8 End0d S2.0m0s: A closed"end fund has a sti;ulated maturity ;eriod which .enerally ran.in. from M to '* years. The fund is o;en for subscri;tion only durin. a s;ecified ;eriod. In<estors can in<est in the scheme at the time of the initial ;ublic issue and thereafter they can buy or sell the units of the scheme on the stock eAchan.es where they are listed. In order to ;ro<ide an eAit route to the in<estors: some close"ended funds .i<e an o;tion of sellin. back the units to the Mutual Fund throu.h ;eriodic re;urchase at NA3 related ;rices. /,BI 1e.ulations sti;ulate that at least one of the two eAit routes is ;ro<ided to the in<estor. (& In30<)51 S2.0m0s: Inter<al /chemes are that scheme: which combines the features of o;en"ended and close" ended schemes. The units may be traded on the stock eAchan.e or may be o;en for sale or redem;tion durin. ;re"determined inter<als at NA3 related ;rices.

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B:&

BY NATURE These funds in<est a maAimum ;art of their cor;us into e@uities holdin.s. The structure

1& EA4i3/ F4nd: of the fund may <ary different for different schemes and the fund mana.erGs outlook on different stocks. The ,@uity Funds are sub"classified de;endin. u;on their in<estment objecti<e: as follows!

#i<ersified ,@uity Funds Mid"+a; Funds /ector /;ecific Funds TaA /a<in.s Funds (,5// ,@uity in<estments are meant for a lon.er time horiHon: thus ,@uity funds rank hi.h on

the risk"return matriA. '& D0C3 F4nds: The objecti<e of these Funds is to in<est in debt ;a;ers. $o<ernment authorities: ;ri<ate com;anies: banks and financial institutions are some of the major issuers of debt ;a;ers. By in<estin. in debt instruments: these funds ensure low risk and ;ro<ide stable income to the in<estors. #ebt funds are further classified as!

Gi13 F4nds! In<est their cor;us in securities issued by $o<ernment: ;o;ularly known as $o<ernment of India debt ;a;ers. These Funds carry Hero #efault risk but are associated with Interest 1ate risk. These schemes are safer as they in<est in ;a;ers backed by $o<ernment.

In2om0 F4nds! In<est a major ;ortion into <arious debt instruments such as bonds: cor;orate debentures and $o<ernment securities.

MIPs! In<ests maAimum of their total cor;us in debt instruments while they take minimum eA;osure in e@uities. It .ets benefit of both e@uity and debt market. These scheme ranks sli.htly hi.h on the risk"return matriA when com;ared with other debt schemes.
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S.o<3 T0<m P15ns 9STPs:! Meant for in<estment horiHon for three to siA months. These funds ;rimarily in<est in short term ;a;ers like +ertificate of #e;osits (+#s and +ommercial Pa;ers (+Ps . /ome ;ortion of the cor;us is also in<ested in cor;orate debentures.

LiA4id F4nds! Also known as Money Market /chemes: These funds ;ro<ides easy li@uidity and ;reser<ation of ca;ital. These schemes in<est in short"term instruments like Treasury Bills: inter"bank call money market: +Ps and +#s. These funds are meant for short"term cash mana.ement of cor;orate houses and are meant for an in<estment horiHon of 'day to M months. These schemes rank low on risk"return matriA and are considered to be the safest amon.st all cate.ories of mutual funds.

(& B515n20d F4nds: As the name su..est they: are a miA of both e@uity and debt funds. They in<est in both e@uities and fiAed income securities: which are in line with ;re"defined in<estment objecti<e of the scheme. These schemes aim to ;ro<ide in<estors with the best of both the worlds. ,@uity ;art ;ro<ides .rowth and the debt ;art ;ro<ides stability in returns. #!rther the m!t!al !nds can $e $roadl% classi ied on the $asis o investment parameter vi&' ,ach cate.ory of funds is backed by an in<estment ;hiloso;hy: which is ;re"defined in the objecti<es of the fund. The in<estor can ali.n his own in<estment needs with the funds objecti<e and in<est accordin.ly.

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C:& BY IN$ESTMENT OBJECTI$E: G<o>3. S2.0m0s: $rowth /chemes are also known as e@uity schemes. The aim of these schemes is to ;ro<ide ca;ital a;;reciation o<er medium to lon. term. These schemes normally in<est a major ;art of their fund in e@uities and are willin. to bear short"term decline in <alue for ;ossible future a;;reciation. In2om0 S2.0m0s! Income /chemes are also known as debt schemes. The aim of these schemes is to ;ro<ide re.ular and steady income to in<estors. These schemes .enerally in<est in fiAed income securities such as bonds and cor;orate debentures. +a;ital a;;reciation in such schemes may be limited. B515n20d S2.0m0s: Balanced /chemes aim to ;ro<ide both .rowth and income by ;eriodically distributin. a ;art of the income and ca;ital .ains they earn. These schemes in<est in both shares and fiAed income securities: in the ;ro;ortion indicated in their offer documents (normally *(!*( . Mon0/ M5<@03 S2.0m0s! Money Market /chemes aim to ;ro<ide easy li@uidity: ;reser<ation of ca;ital and moderate income. These schemes .enerally in<est in safer: short"term instruments: such as treasury bills: certificates of de;osit: commercial ;a;er and inter"bank call money. Lo5d F4nds: A 5oad Fund is one that char.es a commission for entry or eAit. That is: each time you buy or sell units in the fund: a commission will be ;ayable. Ty;ically entry and eAit loads ran.e from 'B to CB. It could be worth ;ayin. the load: if the fund has a .ood ;erformance history. No8Lo5d F4nds:

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A No"5oad Fund is one that does not char.e a commission for entry or eAit. That is: no commission is ;ayable on ;urchase or sale of units in the fund. The ad<anta.e of a no load fund is that the entire cor;us is ;ut to work. OTHER SCHEMES T5B S5)in; S2.0m0s: TaA"sa<in. schemes offer taA rebates to the in<estors under taA laws ;rescribed from time to time. 0nder /ec.EE of the Income TaA Act: contributions made to any ,@uity 5inked /a<in.s /cheme (,5// are eli.ible for rebate. Ind0B S2.0m0s: IndeA schemes attem;t to re;licate the ;erformance of a ;articular indeA such as the B/, /enseA or the N/, *(. The ;ortfolio of these schemes will consist of only those stocks that constitute the indeA. The ;ercenta.e of each stock to the total holdin. will be identical to the stocks indeA wei.hta.e. And hence: the returns from such schemes would be more or less e@ui<alent to those of the IndeA. S023o< S=02i?i2 S2.0m0s: These are the funds8schemes which in<est in the securities of only those sectors or industries as s;ecified in the offer documents. e... Pharmaceuticals: /oftware: Fast Mo<in. +onsumer $oods (FM+$ : Petroleum stocks: etc. The returns in these funds are de;endent on the ;erformance of the res;ecti<e sectors8industries. -hile these funds may .i<e hi.her returns: they are more risky com;ared to di<ersified funds. In<estors need to kee; a watch on the ;erformance of those sectors8industries and must eAit at an a;;ro;riate time.

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NET ASSET $ALUE 9NA$:: /ince each owner is a ;art owner of a mutual fund: it is necessary to establish the <alue of his ;art. In other words: each share or unit that an in<estor holds needs to be assi.ned a <alue. /ince the units held by in<estor e<idence the ownershi; of the fundGs assets: the <alue of the total assets of the fund when di<ided by the total number of units issued by the mutual fund .i<es us the <alue of one unit. This is .enerally called the N03 Ass03 $5140 9NA$: of one unit or one share. The <alue of an in<estorGs ;art ownershi; is thus determined by the NA3 of the number of units held. C5124153ion o? NA$: 5et us see an eAam;le. If the <alue of a fundGs assets stands at 1s. '(( and it has '( in<estors who ha<e bou.ht '( units each: the total numbers of units issued are '((: and the <alue of one unit is 1s. '(.(( ('(((8'(( . If a sin.le in<estor in fact owns M units: the <alue of his ownershi; of the fund will be 1s. M(.((('(((8'((OM . Note that the <alue of the fundGs in<estments will kee; fluctuatin. with the market";rice mo<ements: causin. the Net Asset 3alue also to fluctuate. For eAam;le: if the <alue of our fundGs asset increased from 1s. '((( to 'C((: the <alue of our in<estors holdin. of M units will now be ('C((8'((OM 1s. ML. The in<estment <alue can .o u; or down: de;endin. on the markets <alue of the fundGs assets.

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MUTUAL FUND FEES AND E%PENSES Mutual fund fees and eA;enses are char.es that may be incurred by in<estors who hold mutual funds. 1unnin. a mutual fund in<ol<es costs: includin. shareholder transaction costs: in<estment ad<isory fees: and marketin. and distribution eA;enses. Funds ;ass alon. these costs to in<estors in a number of ways. 1& TRANSACTION FEES i: P4<2.5s0 F00: It is a ty;e of fee that some funds char.e their shareholders when they buy shares. 0nlike a front"end sales load: a ;urchase fee is ;aid to the fund (not to a broker and is ty;ically im;osed to defray some of the fund>s costs associated with the ;urchase. ii: R0d0m=3ion F00: It is another ty;e of fee that some funds char.e their shareholders when they sell or redeem shares. 0nlike a deferred sales load: a redem;tion fee is ;aid to the fund (not to a broker and is ty;ically used to defray fund costs associated with a shareholder>s redem;tion. iii: EB2.5n;0 F00: ,Achan.e fee that some funds im;ose on shareholders if they eAchan.e (transfer to another fund within the same fund .rou; or =family of funds.= '& PERIODIC FEES i: M5n5;0m0n3 F00: Mana.ement fees are fees that are ;aid out of fund assets to the fund>s in<estment ad<iser for in<estment ;ortfolio mana.ement: any other mana.ement fees ;ayable to the fund>s in<estment ad<iser or its affiliates: and administrati<e fees ;ayable to the in<estment ad<iser that are not included in the =2ther ,A;enses= cate.ory. They are also called maintenance fees. ii: A22o4n3 F00:
25

Account fees are fees that some funds se;arately im;ose on in<estors in connection with the maintenance of their accounts. For eAam;le: some funds im;ose an account maintenance fee on accounts whose <alue is less than a certain dollar amount. (& OTHER OPERATING E%PENSES T<5ns523ion Cos3s: These costs are incurred in the tradin. of the fund>s assets. Funds with a hi.h turno<er ratio: or in<estin. in illi@uid or eAotic markets usually face hi.her transaction costs. 0nlike the Total ,A;ense 1atio these costs are usually not re;orted.

LOADS D0?ini3ion o? 5 1o5d 5oad funds eAhibit a =/ales 5oad= with a ;ercenta.e char.e le<ied on ;urchase or sale of shares. A load is a ty;e of +ommission (remuneration . #e;endin. on the ty;e of load a mutual fund eAhibits: char.es may be incurred at time of ;urchase: time of sale: or a miA of both. The different ty;es of loads are outlined below. F<on380nd 1o5d: Also known as %ales 'harge: this is a fee ;aid when shares are ;urchased. Also known as a =front"end load:= this fee ty;ically .oes to the brokers that sell the fund>s shares. Front"end loads reduce the amount of your in<estment. For eAam;le: let>s say you ha<e 1s.'(:((( and want to in<est it in a mutual fund with a *B front"end load. The 1s.*(( sales load you must ;ay comes off the to;: and the remainin. 1s.D*(( will be in<ested in the fund. Accordin. to NA/# rules: a front"end load cannot be hi.her than E.*B of your in<estment.

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B52@80nd 1o5d: Also known as (eferred %ales 'harge: this is a fee ;aid when shares are sold. Also known as a =back"end load:= this fee ty;ically .oes to the brokers that sell the fund>s shares. The amount of this ty;e of load will de;end on how lon. the in<estor holds his or her shares and ty;ically decreases to Hero if the in<estor holds his or her shares lon. enou.h. L0)01 1o5d / Lo> 1o5d: It>s similar to a back"end load in that no sales char.es are ;aid when buyin. the fund. Instead a back"end load may be char.ed if the shares ;urchased are sold within a .i<en time frame. The distinction between le<el loads and low loads as o;;osed to back"end loads: is that this time frame where char.es are le<ied is shorter. No81o5d F4nd: As the name im;lies: this means that the fund does not char.e any ty;e of sales load. But: as outlined abo<e: not e<ery ty;e of shareholder fee is a =sales load.= A no"load fund may char.e fees that are not sales loads: such as ;urchase fees: redem;tion fees: eAchan.e fees: and account fees.

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SELECTION PARAMETERS FOR MUTUAL FUND Yo4< oCD023i)0: The first ;oint to note before in<estin. in a fund is to find out whether your objecti<e matches with the scheme. It is necessary: as any conflict would directly affect your ;ros;ecti<e returns. /imilarly: you should ;ick schemes that meet your s;ecific needs. ,Aam;les! ;ension ;lans: childrenGs ;lans: sector"s;ecific schemes: etc. Yo4< <is@ 25=52i3/ 5nd 25=5Ci1i3/: This dictates the choice of schemes. Those with no risk tolerance should .o for debt schemes: as they are relati<ely safer. A..ressi<e in<estors can .o for e@uity in<estments. In<estors that are e<en more a..ressi<e can try schemes that in<est in s;ecific industry or sectors. F4nd M5n5;0<Es 5nd s2.0m0 3<52@ <02o<d: /ince you are .i<in. your hard earned money to someone to mana.e it: it is im;erati<e that he mana.es it well. It is also essential that the fund house you choose has eAcellent track record. It also should be ;rofessional and maintain hi.h trans;arency in o;erations. 5ook at the ;erformance of the scheme a.ainst rele<ant market benchmarks and its com;etitors. 5ook at the ;erformance of a lon.er ;eriod: as it will .i<e you how the scheme fared in different market conditions. Cos3 ?523o<: Thou.h the AM+ fee is re.ulated: you should look at the eA;ense ratio of the fund before in<estin.. This is because the money is deducted from your in<estments. A hi.her entry load or eAit load also will eat into your returns. A hi.her eA;ense ratio can be justified only by su;erlati<e returns. It is <ery crucial in a debt fund: as it will de<our a few ;ercenta.es from your modest returns.

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Also: Mornin.star rates mutual funds. ,ach year end: many financial ;ublications list the year>s best ;erformin. mutual funds. Naturally: <ery ea.er in<estors will rush out to ;urchase shares of last year>s to; ;erformers. That>s a bi. mistake. 1emember: chan.in. market conditions make it rare that last year>s to; ;erformer re;eats that rankin. for the current year. Mutual fund in<estors would be well ad<ised to consider the fund ;ros;ectus: the fund mana.er: and the current market conditions. Ne<er rely on last year>s to; ;erformers.

T/=0s o? R034<ns on M43451 F4nd: There are three ways: where the total returns ;ro<ided by mutual funds can be enjoyed by in<estors! Income is earned from di<idends on stocks and interest on bonds. A fund ;ays out nearly all income it recei<es o<er the year to fund owners in the form of a distribution. If the fund sells securities that ha<e increased in ;rice: the fund has a ca;ital .ain. Most funds also ;ass on these .ains to in<estors in a distribution. If fund holdin.s increase in ;rice but are not sold by the fund mana.er: the fund>s shares increase in ;rice. Fou can then sell your mutual fund shares for a ;rofit. Funds will also usually .i<e you a choice either to recei<e a check for distributions or to rein<est the earnin.s and .et more shares.

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RISK FACTORS OF MUTUAL FUNDS!

*+ T.0 Ris@8R034<n T<5d08O??:

The most im;ortant relationshi; to understand is the risk"return trade"off. 4i.her the risk .reater the returns 8 loss and lower the risk lesser the returns8loss. 4ence it is u;to you: the in<estor to decide how much risk you are willin. to take. In order to do this you must first be aware of the different ty;es of risks in<ol<ed with your in<estment decision.

,+ M5<@03 Ris@:
/ometimes ;rices and yields of all securities rise and fall. Broad outside influences affectin. the market in .eneral lead to this. This is true: may it be bi. cor;orations or smaller mid"siHed com;anies. This is known as Market 1isk. A /ystematic In<estment Plan (I/IPJ that works on the conce;t of 1u;ee +ost A<era.in. (I1+AJ mi.ht hel; miti.ate this risk.

-+ C<0di3 Ris@:
The debt ser<icin. ability (may it be interest ;ayments or re;ayment of ;rinci;al of a com;any throu.h its cashflows determines the +redit 1isk faced by you. This credit risk is measured by inde;endent ratin. a.encies like +1I/I5 who rate com;anies and their ;a;er. A PAAAG ratin. is considered the safest whereas a P#G ratin. is considered ;oor credit @uality. A well"di<ersified ;ortfolio mi.ht hel; miti.ate this risk.

.+ In?153ion Ris@:
Thin.s you hear ;eo;le talk about! =1s. '(( today is worth more than 1s. '(( tomorrow.= =1emember the time when a bus ride costed *( ;aiseQ= =Mehan.ai 7a &amana 4ai.= The root cause: Inflation. Inflation is the loss of ;urchasin. ;ower o<er time. A lot of times ;eo;le make conser<ati<e in<estment decisions to ;rotect their ca;ital but end u; with a sum of money that can buy less than what the ;rinci;al could at the time of the in<estment. This ha;;ens
30

when inflation .rows faster than the return on your in<estment. A well"di<ersified ;ortfolio with some in<estment in e@uities mi.ht hel; miti.ate this risk.

/+ In30<0s3 R530 Ris@:

In a free market economy interest rates are difficult if not im;ossible to ;redict. +han.es in interest rates affect the ;rices of bonds as well as e@uities. If interest rates rise the ;rices of bonds fall and <ice <ersa. ,@uity mi.ht be ne.ati<ely affected as well in a risin. interest rate en<ironment. A well"di<ersified ;ortfolio mi.ht hel; miti.ate this risk.

0+ Po1i3i251 / Go)0<nm0n3 Po1i2/ Ris@:

+han.es in .o<ernment ;olicy and ;olitical decision can chan.e the in<estment en<ironment. They can create a fa<orable en<ironment for in<estment or <ice <ersa.

1+ LiA4idi3/ Ris@:
5i@uidity risk arises when it becomes difficult to sell the securities that one has ;urchased. 5i@uidity 1isk can be ;artly miti.ated by di<ersification: sta..erin. of maturities as well as internal risk controls that lean towards ;urchase of li@uid securities.

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Chapter: ( #ORKING OF MUTUAL FUNDS

The mutual fund collects money directly or throu.h brokers from in<estors. The money is in<ested in <arious instruments de;endin. on the objecti<e of the scheme. The income .enerated by sellin. securities or ca;ital a;;reciation of these securities is ;assed on to the in<estors in ;ro;ortion to their in<estment in the scheme. The in<estments are di<ided into units and the <alue of the units will be reflected in Net Asset 3alue or NA3 of the unit. NA3 is the market <alue of the assets of the scheme minus its liabilities. The ;er unit NA3 is the net asset <alue of the scheme di<ided by the number of units outstandin. on the <aluation date. Mutual fund com;anies ;ro<ide daily net asset <alue of their schemes to their in<estors. NA3 is im;ortant: as it will determine the ;rice at which you buy or redeem the units of a scheme. #e;endin. on the load structure of the scheme: you ha<e to ;ay entry or eAit load.

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STRUCTURE OF A MUTUAL FUND: India has a le.al framework within which Mutual Fund ha<e to be constituted. In India o;en and close"end funds o;erate under the same re.ulatory structure i.e. as unit Trusts. A Mutual Fund in India is allowed to issue o;en"end and close"end schemes under a common le.al structure. The structure that is re@uired to be followed by any Mutual Fund in India is laid down under /,BI (Mutual Fund 1e.ulations: 'DDL.

T.0 F4nd S=onso<: /;onsor is defined under /,BI re.ulations as any ;erson who: actin. alone or in combination of another cor;orate body establishes a Mutual Fund. The s;onsor of the fund is akin to the ;romoter of a com;any as he .ets the fund re.istered with /,BI. The s;onsor forms a trust and a;;oints a Board of Trustees. The s;onsor also a;;oints the Asset Mana.ement +om;any as fund mana.ers. The s;onsor either directly or actin. throu.h the trustees will also a;;oint a custodian to hold funds assets. All these are made in accordance with the re.ulation and .uidelines of /,BI.

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As ;er the /,BI re.ulations: for the ;erson to @ualify as a s;onsor: he must contribute at least )(B of the net worth of the Asset Mana.ement +om;any and ;ossesses a sound financial track record o<er * years ;rior to re.istration. M43451 F4nds 5s T<4s3s: A Mutual Fund in India is constituted in the form of Public trust Act: 'EEC. The Fund s;onsor acts as a settlor of the Trust: contributin. to its initial ca;ital and a;;oints a trustee to hold the assets of the trust for the benefit of the unit"holders: who are the beneficiaries of the trust. The fund then in<ites in<estors to contribute their money in common ;ool: by scribin. to IunitsJ issued by <arious schemes established by the Trusts as e<idence of their beneficial interest in the fund. It should be understood that the fund should be just a I;ass throu.hJ <ehicle. 0nder the Indian Trusts Act: the trust of the fund has no inde;endent le.al ca;acity itself: rather it is the Trustee or the Trustees who ha<e the le.al ca;acity and therefore all acts in relation to the trusts are taken on its behalf by the Trustees. In le.al ;arlance the in<estors or the unit"holders are the beneficial owners of the in<estment held by the Trusts: e<en as these in<estments are held in the name of the Trustees on a day"to"day basis. Bein. ;ublic trusts: Mutual Fund can in<ite any number of in<estors as beneficial owners in their in<estment schemes. T<4s300s: A Trust is created throu.h a document called the Trust #eed that is eAecuted by the fund s;onsor in fa<our of the trustees. The Trust" the Mutual Fund 6 may be mana.ed by a board of trustees" a body of indi<iduals: or a trust com;any" a cor;orate body. Most of the funds in India are mana.ed by Boards of Trustees. -hile the boards of trustees are .o<erned by the Indian Trusts Act: where the trusts are a cor;orate body: it would also re@uire to com;ly with the +om;anies Act: 'D*L. The Board or the Trust com;any as an inde;endent body: acts as a ;rotector of the of the unit"holders interests. The Trustees do not directly mana.e the ;ortfolio of securities. For this s;ecialist function: the a;;oint an Asset Mana.ement +om;any. They ensure that the Fund is mana.ed by ht AM+ as ;er the defined objecti<es and in accordance with the trusts deeds and /,BI re.ulations.

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T.0 Ass03 M5n5;0m0n3 Com=5ni0s: The role of an Asset Mana.ement +om;any (AM+ is to act as the in<estment mana.er of the Trust under the board su;er<ision and the .uidance of the Trustees. The AM+ is re@uired to be a;;ro<ed and re.istered with /,BI as an AM+. The AM+ of a Mutual Fund must ha<e a net worth of at least 1s. '( +rores at all times. #irectors of the AM+: both inde;endent and non" inde;endent: should ha<e ade@uate ;rofessional eA;ertise in financial ser<ices and should be indi<iduals of hi.h morale standin.: a condition also a;;licable to other key ;ersonnel of the AM+. The AM+ cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund mana.er: it may undertake s;ecified acti<ities such as ad<isory ser<ices and financial consultin.: ;ro<ided these acti<ities are run inde;endent of one another and the AM+Gs resources (such as ;ersonnel: systems etc. are ;ro;erly se.re.ated by the acti<ity. The AM+ must always act in the interest of the unit"holders and re;orts to the trustees with res;ect to its acti<ities. C4s3odi5n 5nd D0=osi3o<i0s: Mutual Fund is in the business of buyin. and sellin. of securities in lar.e <olumes. 4andlin. these securities in terms of ;hysical deli<ery and e<entual safekee;in. is a s;ecialiHed acti<ity. The custodian is a;;ointed by the Board of Trustees for safekee;in. of securities or ;artici;atin. in any clearance system throu.h a;;ro<ed de;ository com;anies on behalf of the Mutual Fund and it must fulfill its res;onsibilities in accordance with its a.reement with the Mutual Fund. The custodian should be an entity inde;endent of the s;onsors and is re@uired to be re.istered with /,BI. -ith the introduction of the conce;t of dematerialiHation of shares the dematerialiHed shares are ke;t with the #e;ository ;artici;ant while the custodian holds the ;hysical securities. Thus: deli<eries of a fundGs securities are .i<en or recei<ed by a custodian or a de;ository ;artici;ant: at the instructions of the AM+: althou.h under the o<erall direction and res;onsibilities of the Trustees. B5n@0<s: A FundGs acti<ities in<ol<e dealin. in money on a continuous basis ;rimarily with res;ect to buyin. and sellin. units: ;ayin. for in<estment made: recei<in. the ;roceeds from sale of the in<estments and dischar.in. its obli.ations towards o;eratin. eA;enses. Thus the FundGs banker
35

;lays an im;ortant role to determine @uality of ser<ice that the fund .i<es in timely deli<ery of remittances etc. T<5ns?0< A;0n3s: Transfer a.ents are res;onsible for issuin. and redeemin. units of the Mutual Fund and ;ro<ide other related ser<ices such as ;re;aration of transfer documents and u;datin. in<estor records. A fund may choose to carry out its acti<ity in"house and char.e the scheme for the ser<ice at a com;etiti<e market rate. -here an outside Transfer a.ent is used: the fund in<estor will find the a.ent to be an im;ortant interface to deal with: since all of the in<estor ser<ices that a fund ;ro<ides are .oin. to be de;endent on the transfer a.ent. REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in India is .uided by the /,BI. 1e.ulations: 'DDL.These re.ulations make it mandatory for mutual fund to ha<e three structures of s;onsor trustee and asset Mana.ement +om;any. The s;onsor of the mutual fund and a;;oints the trustees. The trustees are res;onsible to the in<estors in mutual fund and a;;oint the AM+ for mana.in. the in<estment ;ortfolio. The AM+ is the business face of the mutual fund: as it mana.es all the affairs of the mutual fund. The AM+ and the mutual fund ha<e to be re.istered with /,BI.

36

SEBI REGULATIONS!

As far as mutual funds are concerned: /,BI formulates ;olicies and re.ulates the mutual funds to ;rotect the interest of the in<estors.

/,BI notified re.ulations for the mutual funds in 'DDM. Thereafter: mutual funds s;onsored by ;ri<ate sector entities were allowed to enter the ca;ital market.

The re.ulations were fully re<ised in 'DDL and ha<e been amended thereafter from time to time.

/,BI has also issued .uidelines to the mutual funds from time to time to ;rotect the interests of in<estors.

All mutual funds whether ;romoted by ;ublic sector or ;ri<ate sector entities includin. those ;romoted by forei.n entities are .o<erned by the same set of 1e.ulations. The risks associated with the schemes launched by the mutual funds s;onsored by these entities are of similar ty;e. There is no distinction in re.ulatory re@uirements for these mutual funds and all are subject to monitorin. and ins;ections by /,BI.

/,BI 1e.ulations re@uire that at least two thirds of the directors of trustee com;any or board of trustees must be inde;endent i.e. they should not be associated with the s;onsors.

Also: *(B of the directors of AM+ must be inde;endent. All mutual funds are re@uired to be re.istered with /,BI before they launch any scheme.

Further /,BI 1e.ualtions: inter"alia: sti;ulate that MFs cannot .urarnatee returns in any scheme and that each scheme is subject to C( ! C* condition RI.e minimum C( in<estors ;er scheme and one in<estor can hold more than C*B stake in the cor;us in that one schemeS.

Also /,BI has ;ermitted MFs to launch schemes o<erseas subject <arious restrictions and also to launch schemes linked to 1eal ,state: 2;tions and Futures: +ommodities: etc.

37

ASSOCIATION OF MUTUAL FUNDS IN INDIA 9AMFI:: -ith the increase in mutual fund ;layers in India: a need for mutual fund association in India was .enerated to function as a non";rofit or.anisation. Association of Mutual Funds in India (AMFI was incor;orated on CCnd Au.ust: 'DD*. AMFI is an a;eA body of all Asset Mana.ement +om;anies (AM+ which has been re.istered with /,BI. Till date all the AM+s are that ha<e launched mutual fund schemes are its members. It functions under the su;er<ision and .uidelines of its Board of #irectors. Association of Mutual Funds India has brou.ht down the Indian Mutual Fund Industry to a ;rofessional and healthy market with ethical lines enhancin. and maintainin. standards. It follows the ;rinci;le of both ;rotectin. and ;romotin. the interests of mutual funds as well as their unit holders. T.0 OCD023i)0s o? Asso2i53ion o? M43451 F4nds in Indi5: The Association of Mutual Funds of India works with M( re.istered AM+s of the country. It has certain defined objecti<es which juAta;oses the .uidelines of its Board of #irectors. The objecti<es are as follows!

This mutual fund association of India maintains hi.h ;rofessional and ethical standards in all areas of o;eration of the industry. It also recommends and ;romotes the to; class business ;ractices and code of conduct which is followed by members and related ;eo;le en.a.ed in the acti<ities of mutual fund and asset mana.ement. The a.encies who are by any means connected or in<ol<ed in the field of ca;ital markets and financial ser<ices also in<ol<ed in this code of conduct of the association.

AMFI interacts with /,BI and works accordin. to /,BIs .uidelines in the mutual fund industry. Association of Mutual Fund of India do re;resent the $o<ernment of India: the 1eser<e Bank of India and other related bodies on matters relatin. to the Mutual Fund Industry. It de<elo;s a team of well @ualified and trained A.ent distributors. It im;lements a ;ro.ramme of trainin. and certification for all intermediaries and other en.a.ed in the mutual fund industry.
38

AMFI undertakes all India awareness ;ro.ramme for in<estors in order to ;romote ;ro;er understandin. of the conce;t and workin. 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.

AMFI P4C1i253ions: AMFI ;ublish mainly two ty;es of bulletin. 2ne is on the monthly basis and the other is @uarterly. These ;ublications are of .reat su;;ort for the in<estors to .et intimation of the knowhow of their ;arked money.

39

Chapter: ) MUTUAL FUNDS IN INDIA

In 'DLM: the day the conce;t of Mutual Fund took birth in India. 0nit Trust of India in<ited in<estors or rather to those who belie<ed in sa<in.s: to ;ark their money in 0TI Mutual Fund. For M( years it .oaled without a sin.le second ;layer. Thou.h the 'DEE year saw some new mutual fund com;anies: but 0TI remained in a mono;oly ;osition. The ;erformance of mutual funds in India in the initial ;hase was not e<en closer to satisfactory le<el. Peo;le rarely understood: and of course in<estin. was out of @uestion. But yes: some C) million shareholders were accustomed with .uaranteed hi.h returns by the be.innin. of liberaliHation of the industry in 'DDC. This .ood record of 0TI became marketin. tool for new entrants. The eA;ectations of in<estors touched the sky in ;rofitability factor. 4owe<er: ;eo;le were miles away from the ;re;aredness of risks factor after the liberaliHation. The net asset <alue (NA3 of mutual funds in India declined when stock ;rices started fallin. in the year 'DDC. Those days: the market re.ulations did not allow ;ortfolio shifts into alternati<e in<estments. There was rather no choice a;art from holdin. the cash or to further continue in<estin. in shares. 2ne more thin. to be noted: since only closed"end funds were floated in the market: the in<estors disin<ested by sellin. at a loss in the secondary market. The ;erformance of mutual funds in India suffered @ualitati<ely. The 'DDC stock market scandal: the losses by disin<estments and of course the lack of trans;arent rules in the whereabouts rocked confidence amon. the in<estors. Partly owin. to a relati<ely weak stock market ;erformance: mutual funds ha<e not yet reco<ered: with funds tradin. at an a<era.e discount of '(C( ;ercent of their net asset <alue. The securities and ,Achan.e Board of India (/,BI came out with com;rehensi<e re.ulation in 'DDM which defined the structure of Mutual Fund and Asset Mana.ement +om;anies for the first time. The su;er<isory authority ado;ted a set of measures to create a trans;arent and com;etiti<e en<ironment in mutual funds. /ome of them were like relaAin. in<estment
40

restrictions into the market: introduction of o;en"ended funds: and ;a<in. the .ateway for mutual funds to launch ;ension schemes. The measure was taken to make mutual funds the key instrument for lon."term sa<in.. The more the <ariety offered: the @uantitati<e will be in<estors. /e<eral ;ri<ate sectors Mutual Funds were launched in 'DDM and 'DD). The share of the ;ri<ate ;layers has risen ra;idly since then. +urrently there are M) Mutual Fund or.aniHations in India mana.in. ':(C:((( crores. At last to mention: as lon. as mutual fund com;anies are ;erformin. with lower risks and hi.her ;rofitability within a short s;an of time: more and more ;eo;le will be inclined to in<est until and unless they are fully educated with the dos and donGts of mutual funds. Mutual fund industry has seen a lot of chan.es in ;ast few years with multinational com;anies comin. into the country: brin.in. in their ;rofessional eA;ertise in mana.in. funds worldwide. In the ;ast few months there has been a consolidation ;hase .oin. on in the mutual fund industry in India. Now in<estors ha<e a wide ran.e of /chemes to choose from de;endin. on their indi<idual ;rofiles.

41

MUTUAL FUND COMPANIES IN INDIA: The conce;t of mutual funds in India dates back to the year 'DLM. The era between 'DLM and 'DEN marked the eAistance of only one mutual fund com;any in India with 1s. LNbn assets under mana.ement (A0M : by the end of its mono;oly era: the 0nit Trust of India (0TI . By the end of the E(s decade: few other mutual fund com;anies in India took their ;osition in mutual fund market. The new entries of mutual fund com;anies in India were /BI Mutual Fund: +anbank Mutual Fund: Punjab National Bank Mutual Fund: Indian Bank Mutual Fund: Bank of India Mutual Fund. The succeedin. decade showed a new horiHon in Indian mutual fund industry. By the end of 'DDM: the total A0M of the industry was 1s. )N(.() bn. The ;ri<ate sector funds started ;enetratin. the fund families. In the same year the first Mutual Fund 1e.ulations came into eAistance with re"re.isterin. all mutual funds eAce;t 0TI. The re.ulations were further .i<en a re<ised sha;e in 'DDL. 7othari Pioneer was the first ;ri<ate sector mutual fund com;any in India which has now mer.ed with Franklin Tem;leton. &ust after ten years with ;ri<ate sector ;layers ;enetration: the total assets rose u; to 1s. 'C'E.(* bn. Today there are MM mutual fund com;anies in India. M5Do< M43451 F4nd Com=5ni0s in Indi5 ABN AM12 Mutual Fund Birla /un 5ife Mutual Fund Bank of Baroda Mutual Fund 4#F+ Mutual Fund 4/B+ Mutual Fund IN$ 3ysya Mutual Fund Prudential I+I+I Mutual Fund /tate Bank of India Mutual Fund Tata Mutual Fund 0nit Trust of India Mutual Fund 1eliance Mutual Fund
42

/tandard +hartered Mutual Fund Franklin Tem;leton India Mutual Fund Mor.an /tanley Mutual Fund India ,scorts Mutual Fund Alliance +a;ital Mutual Fund Benchmark Mutual Fund +anbank Mutual Fund +hola Mutual Fund 5I+ Mutual Fund $I+ Mutual Fund

For the first time in the history of Indian mutual fund industry: 0nit Trust of India Mutual Fund has sli;;ed from the first slot. ,arlier: in May C((L: the Prudential I+I+I Mutual Fund was ranked at the number one slot in terms of total assets. In the <ery neAt month: the 0TIMF had re.ained its to; ;osition as the lar.est fund house in India. Now: accordin. to the current ;e..in. order and the data released by Association of Mutual Funds in India (AMFI : the 1eliance Mutual Fund: with a &anuary"end A0M of 1s MD:(C( crore has become the lar.est mutual fund in India 2n the other hand: 0TIMF: with an A0M of 1s MN:*M* crore: has .one to secomd ;osition. The Prudential I+I+I MF has sli;;ed to the third ;osition with an A0M of 1s M):N)L crore. It ha;;ened for the first time in last one year that a ;ri<ate sector mutual fund house has reached to the to; slot in terms of asset under mana.ement (A0M . In the last one year to &anuary: A0M of the Indian fund industry has risen by L)B to 1s M.MD lakh crore. Accordin. to the data released by Association of Mutual Funds in India (AMFI : the combined a<era.e A0M of the M* fund houses in the country increased to 1s *:*'C.DD billion in A;ril com;ared to 1s ):DMC.EL billion in March 1eliance MF maintained its to; ;osition as the lar.est fund house in the country with 1s N).C* billion jum; in A0M to 1s EEM.EN billion at A;ril"end. The second"lar.est fund house 4#F+ MF .ained 1s *D.C) billion in its A0M at 1s LME.E( billion. I+I+I Prudential and state"run 0TI MF added 1s )L.'L billion and 1s *N.M* billion re res;ecti<ely to their assets last month. I+I+I PrudentialTs A0M stood at 1s *L(.)D billion at the end of A;ril: while 0TI MF had assets worth 1s *)).ED billion. The other fund houses which saw an increase in their a<era.e A0M in A;ril include "+anara 1obeco MF: I#F+ MF: #/P Black1ock: #eutsche MF: 7otak Mahindra MF and 5I+ MF.

43

Chapter: * RELIANCE MUTUAL FUND $s UTI MUTUAL FUND

RELIANCE MUTUAL FUND 1eliance Mutual Fund (1MF was established as trust under Indian Trusts Act: 'EEC. The s;onsor of 1MF is 1eliance +a;ital 5imited and 1eliance +a;ital Trustee +o. 5imited is the Trustee. It was re.istered on &une M(: 'DD* as 1eliance +a;ital Mutual Fund which was chan.ed on March '': C((). 1eliance Mutual Fund was formed for launchin. of <arious schemes under which units are issued to the Public with a <iew to contribute to the ca;ital market and to ;ro<ide in<estors the o;;ortunities to make in<estments in di<ersified securities. 1MF is one of IndiaGs leadin. Mutual Funds: with A<era.e Assets 0nder Mana.ement (AA0M of 1s. EE:MEE crs (AA0M for M(th A;r (D and an in<estor base of o<er N'.*M 5acs. 1eliance Mutual Fund: a ;art of the 1eliance " Anil #hirubhai Ambani $rou;: is one of the fastest .rowin. mutual funds in the country. 1MF offers in<estors a well"rounded ;ortfolio of ;roducts to meet <aryin. in<estor re@uirements and has ;resence in ''E cities across the country. 1eliance Mutual Fund constantly endea<ors to launch inno<ati<e ;roducts and customer ser<ice initiati<es to increase <alue to in<estors. =1eliance Mutual Fund schemes are mana.ed by 1eliance +a;ital Asset Mana.ement 5imited.: a subsidiary of 1eliance +a;ital 5imited: which holds DM.MNB of the ;aid"u; ca;ital of 1+AM: the balance ;aid u; ca;ital bein. held by minority shareholders.= S=onso< : 1eliance +a;ital 5imited. T<4s300 : 1eliance +a;ital Trustee +o. 5imited.
44

In)0s3m0n3 M5n5;0< : 1eliance +a;ital Asset Mana.ement 5imited. The /;onsor: the Trustee and the In<estment Mana.er are incor;orated under the +om;anies Act 'D*L. $ision S3530m0n3 ITo be a .lobally res;ected wealth creator with an em;hasis on customer care and a culture of .ood cor;orate .o<ernance.J Mission S3530m0n3 To create and nurture a world"class: hi.h ;erformance en<ironment aimed at deli.htin. our customers. T.0 M5in OCD023i)0s O? T.0 T<4s3: To carry on the acti<ity of a Mutual Fund as may be ;ermitted at law and formulate and de<ise <arious collecti<e /chemes of sa<in.s and in<estments for ;eo;le in India and abroad and also ensure li@uidity of in<estments for the 0nit holdersK To de;loy Funds thus raised so as to hel; the 0nit holders earn reasonable returns on their sa<in.s and To take such ste;s as may be necessary from time to time to realise the effects without any limitation.

45

SCHEMES

A:& EFUITY/GRO#TH SCHEMES:

The aim of .rowth funds is to ;ro<ide ca;ital a;;reciation o<er the medium to lon." term. /uch schemes normally in<est a major ;art of their cor;us in e@uities. /uch funds ha<e com;arati<ely hi.h risks. $rowth schemes are .ood for in<estors ha<in. a lon."term outlook seekin. a;;reciation o<er a ;eriod of time. 1& R01i5n20 In?<5s3<4234<0 F4nd9O=0n8End0d EA4i3/:: The ;rimary in<estment objecti<e of the scheme is to .enerate lon. term ca;ital a;;reciation by in<estin. ;redominantly in e@uity and e@uity related instruments of com;anies en.a.ed in infrastructure (Air;orts: +onstruction: Telecommunication: Trans;ortation and infrastructure related sectors and which are incor;orated or ha<e their area of ;rimary acti<ity: in India and the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities. In)0s3m0n3 S3<530;/: The in<estment focus would be .uided by the .rowth ;otential and other economic factors of the country. The Fund aims to maAimiHe lon."term total return by in<estin. in e@uity and e@uity"related securities which ha<e their area of ;rimary acti<ity in India. '& R01i5n20 F45n3 P14s F4nd/R01i5n20 Ind0B F4nd 9O=0n8End0d EA4i3/:: The in<estment objecti<e of the /cheme is to .enerate ca;ital a;;reciation throu.h in<estment in e@uity and e@uity related instruments. The /cheme will seek to .enerate ca;ital a;;reciation by in<estin. in an acti<e ;ortfolio of stocks selected from / ? P +NU Nifty on the basis of a mathematical model. An in<estment fund that a;;roach stock selection ;rocess based on @uantitati<e analysis. (& R01i5n20 N534<51 R0so4<20s F4nd 9O=0n8End0d EA4i3/:: The ;rimary in<estment objecti<e of the scheme is to seek to .enerate ca;ital a;;reciation ? ;ro<ide lon."term .rowth o;;ortunities by in<estin. in com;anies ;rinci;ally en.a.ed in the disco<ery: de<elo;ment: ;roduction: or distribution of natural resources and
46

the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities. Natural resources may include: for eAam;le: ener.y sources: ;recious and other metals: forest ;roducts: food and a.riculture: and other basic commodities. !& R01i5n20 EA4i3/ Lin@0d S5)in; F4nd 9A 1 Y05< C1os08End0d EA4i3/ :: The ;rimary objecti<e of the scheme is to .enerate lon."term ca;ital a;;reciation from a ;ortfolio that is in<ested ;redominantly in e@uities alon. with income taA benefit. The scheme may in<est in e@uity shares in forei.n com;anies and instruments con<ertible into e@uity shares of domestic or forei.n com;anies and in deri<ati<es as may be ;ermissible under the .uidelines issued by /,BI and 1BI. "& R01i5n20 EA4i3/ Ad)5n35;0 F4nd 9O=0n8End0d Di)0<si?i0d EA4i3/:: The ;rimary in<estment objecti<e of the scheme is to seek to .enerate ca;ital a;;reciation ? ;ro<ide lon."term .rowth o;;ortunities by in<estin. in a ;ortfolio ;redominantly of e@uity ? e@uity related instruments with in<estments .enerally in / ? P +NU Nifty stocks and the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities. +& R01i5n20 EA4i3/ F4nd 9O=0n8End0d Di)0<si?i0d EA4i3/: : The ;rimary in<estment objecti<e of the scheme is to seek to .enerate ca;ital a;;reciation ? ;ro<ide lon."term .rowth o;;ortunities by in<estin. in a ;ortfolio constituted of e@uity ? e@uity related securities of to; '(( com;anies by market ca;italiHation ? of com;anies which are a<ailable in the deri<ati<es se.ment from time to time and the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities.

47

*& R01i5n20 T5B S5)0< 9ELSS: F4nd 9O=0n8End0d EA4i3/:: The ;rimary objecti<e of the scheme is to .enerate lon."term ca;ital a;;reciation from a ;ortfolio that is in<ested ;redominantly in e@uity and e@uity related instruments. T5B B0n0?i3s:

In<estment u;to 1s ' lakh by the eli.ible in<estor in this fund would enable you to a<ail the benefits under /ection E(+ (C of the Income"taA Act: 'DL'. #i<idends recei<ed will be absolutely TAU F1,,. The di<idend distribution taA (;ayable by the AM+ for e@uity schemes is also NI5

,& R01i5n20 G<o>3. F4nd 9O=0n8End0d EA4i3/:: The ;rimary in<estment objecti<e of the /cheme is to achie<e lon. term .rowth of ca;ital by in<estment in e@uity and e@uity related securities throu.h a research based in<estment a;;roach. -& R01i5n20 $ision F4nd 9O=0n8End0d EA4i3/: : The ;rimary in<estment objecti<e of the /cheme is to achie<e lon. term .rowth of ca;ital by in<estment in e@uity and e@uity related securities throu.h a research based in<estment a;;roach. 1 & R01i5n20 EA4i3/ O==o<34ni3i0s F4nd 9O=0n8End0d Di)0<si?i0d EA4i3/:: The ;rimary in<estment objecti<e of the scheme is to seek to .enerate ca;ital a;;reciation ? ;ro<ide lon."term .rowth o;;ortunities by in<estin. in a ;ortfolio constituted of e@uity securities ? e@uity related securities and the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities. 11& R01i5n20 NRI EA4i3/ F4nd 9O=0n8End0d Di)0<si?i0d EA4i3/:: The Primary in<estment objecti<e of the scheme is to .enerate o;timal returns by in<estin. in e@uity or e@uity related instruments ;rimarily drawn from the +om;anies in the B/, C(( IndeA.

48

1'& R01i5n20 Lon; T0<m EA4i3/ F4nd 9O=0n8End0d Di)0<si?i0d EA4i3/:: The ;rimary in<estment objecti<e of the scheme is to seek to .enerate lon. term ca;ital a;;reciation ? ;ro<ide lon."term .rowth o;;ortunities by in<estin. in a ;ortfolio constituted of e@uity ? e@uity related securities and #eri<ati<es and the secondary objecti<e is to .enerate consistent returns by in<estin. in debt and money market securities. It is a ML"month close ended di<ersified e@uity fund with an automatic con<ersion into an o;en ended scheme on eA;iry of ML"months from the date of allotment. It aims to maAimiHe returns by in<estin. N("'((B in ,@uities focusin. in small and mid ca; com;anies. 1(& R01i5n20 R0;415< S5)in;s F4nd 9O=0n8End0d EA4i3/:: 1eliance 1e.ular /a<in.s Fund ;ro<ides you the choice of in<estin. in #ebt: ,@uity or 4ybrid o;tions with a ;ertinent in<estment objecti<e and ;attern for each o;tion. In<est as little as 1s.'((8"e<ery month in the 1eliance 1e.ular /a<in.s Fund. For the first time in India: your mutual fund offers instant cash withdrawal facility on your in<estment at any 3I/A"enabled ATM near you. -ith a choice of three in<estment o;tions: the fund is truly: the smart new way to in<est.

B:& DEBT/INCOME SCHEMES:

The aim of income funds is to ;ro<ide re.ular and steady income to in<estors. /uch schemes .enerally in<est in fiAed income securities such as bonds: cor;orate debentures: $o<ernment securities and money market instruments. /uch funds are less risky com;ared to e@uity schemes. These funds are not affected because of fluctuations in e@uity markets. 4owe<er: o;;ortunities of ca;ital a;;reciation are also limited in such funds. The NA3s of such funds are affected because of chan.e in interest rates in the country. If the interest rates fall: NA3s of such funds are likely to increase in the short run and <ice <ersa. 4owe<er: lon. term in<estors may not bother about these fluctuations.

49

1& R01i5n20 Mon3.1/ In2om0 P15n : (An 2;en ,nded Fund: Monthly Income is not assured ? is subject to the a<ailability of distributable sur;lus The Primary in<estment objecti<e of the /cheme is to .enerate re.ular income in order to make re.ular di<idend ;ayments to unit holders and the secondary objecti<e is .rowth of ca;ital. '& R01i5n20 Gi13 S024<i3i0s F4nd 8 S.o<3 T0<m Gi13 P15n G Lon; T0<m Gi13 P15n : (2;en"ended $o<ernment /ecurities /cheme The ;rimary objecti<e of the /cheme is to .enerate o;timal credit risk"free returns by in<estin. in a ;ortfolio of securities issued and .uaranteed by the central $o<ernment and /tate $o<ernment. (& R01i5n20 In2om0 F4nd : (An 2;en"ended Income /cheme The ;rimary objecti<e of the scheme is to .enerate o;timal returns consistent with moderate le<els of risk. This income may be com;lemented by ca;ital a;;reciation of the ;ortfolio. Accordin.ly: in<estments shall ;redominantly be made in #ebt ? Money market Instruments. !& R01i5n20 M0di4m T0<m F4nd : (An 2;en ,nd Income /cheme with no assured returns The ;rimary in<estment objecti<e of the /cheme is to .enerate re.ular income in order to make re.ular di<idend ;ayments to unit holders and the secondary objecti<e is .rowth of ca;ital "& R01i5n20 S.o<3 T0<m F4nd : (An 2;en ,nd Income /cheme The ;rimary in<estment objecti<e of the scheme is to .enerate stable returns for in<estors with a short in<estment horiHon by in<estin. in FiAed Income /ecurities of short term maturity. +& R01i5n20 LiA4id F4nd : (2;en"ended 5i@uid /cheme The ;rimary in<estment objecti<e of the /cheme is to .enerate o;timal returns consistent with moderate le<els of risk and hi.h li@uidity.

50

Accordin.ly: in<estments shall ;redominantly be made in #ebt and Money Market Instruments. *& R01i5n20 F1o53in; R530 F4nd : (An 2;en ,nd 5i@uid /cheme The ;rimary objecti<e of the scheme is to .enerate re.ular income throu.h in<estment in a ;ortfolio com;risin. substantially of Floatin. 1ate #ebt /ecurities (includin. floatin. rate securitised debt and Money Market Instruments and FiAed 1ate #ebt Instruments swa;;ed for floatin. rate returns . The scheme shall also in<est in fiAed rate debt /ecurities (includin. fiAed rate securitised debt: Money Market Instruments and Floatin. 1ate #ebt Instruments swa;;ed for fiAed returns. ,& R01i5n20 NRI In2om0 F4nd : (An 2;en"ended Income scheme The ;rimary in<estment objecti<e of the /cheme is to .enerate o;timal returns consistent with moderate le<els of risks. This income may be com;limented by ca;ital a;;reciation of the ;ortfolio. Accordin.ly: in<estments shall ;redominantly be made in debt Instruments. -& R01i5n20 LiA4idi3/ F4nd : (An 2;en " ended 5i@uid /cheme The in<estment objecti<e of the /cheme is to .enerate o;timal returns consistent with moderate le<els of risk and hi.h li@uidity. Accordin.ly: in<estments shall ;redominantly be made in #ebt and Money Market Instruments. 1 & R01i5n20 In30<)51 F4nd : (A #ebt 2riented Inter<al /cheme The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio 11& R01i5n20 LiA4id P14s F4nd:

51

(An 2;en"ended Income /cheme The in<estment objecti<e of the /cheme is to .enerate o;timal returns consistent with moderate le<els of risk and li@uidity by in<estin. in debt securities and money market securities. 1'& R01i5n20 FiB0d Ho<iHon F4nd7I: (A closed ended /cheme The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio. 1(& R01i5n20 FiB0d Ho<iHon F4nd 7II: (A closed ended /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio. 1!& R01i5n20 FiB0d Ho<iHon F4nd 7III: (A +lose"ended Income /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio. 1"& R01i5n20 FiB0d T0no< F4nd : (A +lose"ended /cheme The ;rimary in<estment objecti<e of the Plan is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio. 1+& R01i5n20 FiB0d Ho<iHon F4nd 8P15n C : (A closed ended /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio. 1*& R01i5n20 FiB0d Ho<iHon F4nd 8 I$: (A +lose"ended Income /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio.

52

1,& R01i5n20 FiB0d Ho<iHon F4nd 8 $: (A +lose"ended Income /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio of! +entral and /tate $o<ernment securities and 2ther fiAed income8 debt securities normally maturin. in line with the time ;rofile of the scheme with the objecti<e of limitin. interest rate <olatility 1-& R01i5n20 FiB0d Ho<iHon F4nd 7 $I : (A +lose"ended Income /cheme The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio of! " +entral and /tate $o<ernment securities and 2ther fiAed income8 debt securities normally maturin. in line with the time ;rofile of the series with the objecti<e of limitin. interest rate <olatility ' & R01i5n20 FiB0d Ho<iHon F4nd 7 $II : (A +lose"ended Income /cheme. The ;rimary in<estment objecti<e of the scheme is to seek to .enerate re.ular returns and .rowth of ca;ital by in<estin. in a di<ersified ;ortfolio of! " +entral and /tate $o<ernment securities and 2ther fiAed income8 debt securities normally maturin. in line with the time ;rofile of the series with the objecti<e of limitin. interest rate <olatility.

C:& SECTOR SPECIFIC SCHEMES:

These are the funds8schemes which in<est in the securities of s;ecified sectors or industries e... Pharmaceuticals: /oftware: FM+$: Petroleum stocks: etc. The returns in these funds are de;endent on the ;erformance of the res;ecti<e sectors8industries. -hile these funds may .i<e hi.her returns: they are more risky com;ared to di<ersified funds.

53

1& R01i5n20 B5n@in; F4nd ! 1eliance Mutual Fund has an 2;en",nded Bankin. /ector /cheme which has the ;rimary in<estment objecti<e to .enerate continuous returns by acti<ely in<estin. in e@uity 8 e@uity related or fiAed income securities of banks. '& R01i5n20 Di)0<si?i0d Po>0< S023o< F4nd ! 1eliance #i<ersified Power /ector /cheme is an 2;en"ended Power /ector /cheme. The ;rimary in<estment objecti<e of the /cheme is to seek to .enerate consistent returns by acti<ely in<estin. in e@uity 8 e@uity related or fiAed income securities of Power and other associated com;anies. (& R01i5n20 P.5<m5 F4nd ! 1eliance Pharma Fund is an 2;en"ended Pharma /ector /cheme. The ;rimary in<estment objecti<e of the /cheme is to .enerate consistent returns by in<estin. in e@uity 8 e@uity related or fiAed income securities of Pharma and other associated com;anies. !& R01i5n20 M0di5 G En30<35inm0n3 F4nd ! 1eliance Media ? ,ntertainment Fund is an 2;en"ended Media ? ,ntertainment sector scheme. The the ;rimary in<estment objecti<e of the /cheme is to .enerate consistent returns by in<estin. in e@uity 8 e@uity related or fiAed income securities of media ? entertainment and other associated com;anies.

D:& RELIANCE GOLD E%CHANGE TRADED FUND:

(An o;en"ended $old ,Achan.e Traded Fund The in<estment objecti<e is to seek to ;ro<ide returns that closely corres;ond to returns ;ro<ided by ;rice of .old throu.h in<estment in ;hysical $old (and $old related securities as ;ermitted by 1e.ulators from time to time . 4owe<er: the ;erformance of the scheme may differ from that of the domestic ;rices of $old due to eA;enses and or other related factors.

54

UNIT TRUST OF INDIA MUTUAL FUND >Uni3 T<4s3 o? Indi5 was created by the 0TI Act ;assed by the Parliament in 'DLM. For more than two decades it remained the sole <ehicle for in<estment in the ca;ital market by the Indian citiHens. In mid" 'DE(s ;ublic sector banks were allowed to o;en mutual funds. The real <ibrancy and com;etition in the MF industry came with the settin. u; of the 1e.ulator /,BI and its layin. down the MF 1e.ulations in 'DDM.0TI maintained its ;re"eminent ;lace till C((': when a massi<e decline in the market indices and ne.ati<e in<estor sentiments after 7etan Parekh scam created doubts about the ca;acity of 0TI to meet its obli.ations to the in<estors. This was further com;ounded by two factorsK namely: its fla.shi; and lar.est scheme 0/ L) was sold and re";urchased not at intrinsic NA3 but at artificial ;rice and its Assured 1eturn /chemes had ;romised returns as hi.h as 'EB o<er a ;eriod .oin. u; to two decades. In order to distance $o<ernment from runnin. a mutual fund the ownershi; was transferred to four institutionsK namely /BI: 5I+: B2B and PNB: each ownin. C*B. 0TI lost its market dominance ra;idly and by end of C((*:when the new share"holders actually ;aid the consideration money to $o<ernment its market share had come down to close to '(B. A new board was constituted and a new mana.ement inducted. /ystematic study of its ;roblems role and functions was carried out with the hel; of a re;uted international consultant. 2nce a.ain 0TI has emer.ed as a serious ;layer in the industry. /ome of the funds ha<e won famous awards: includin. the Best Infra Fund .lobally from 5i;;er. 0TI has been able to benchmark its em;loyee com;ensation to the best in the market. Besides runnin. domestic MF /chemes 0TI AM+ is also a re.istered ;ortfolio mana.er under the /,BI (Portfolio Mana.ers 1e.ulations.
55

This com;any runs two successful funds with lar.e international in<estors bein. acti<e ;artici;ants. 0TI has also launched a Pri<ate ,@uity Infrastructure Fund alon. with 4/4 Nord Bank of $ermany and /hinsei Bank of &a;an $ision: To be the most Preferred Mutual Fund. Mission: V The most trusted brand: admired by all stakeholders. V The lar.est and most efficient money mana.er with .lobal ;resence V The best in class customer ser<ice ;ro<ider V The most ;referred em;loyer V The most inno<ati<e and best wealth creator V A socially res;onsible or.anisation known for best cor;orate .o<ernance Ass03s Und0< M5n5;0m0n3: 0TI Asset Mana.ement +o. 5td S=onso<:

/tate Bank of India Bank of Baroda Punjab National Bank 5ife Insurance +or;oration of India

T<4s300: 0TI Trustee +o. 5imited. R01i5Ci1i3/ 0TIMF has consistently reset and u;.raded trans;arency standards. All the branches: 0F+s and re.istrar offices are connected on a robust IT network to ensure cost"effecti<e @uick and efficient ser<ice. All these ha<e e<ol<ed 0TIMF to ;osition as a dynamic: res;onsi<e: restructured: efficient and trans;arent entity: fully com;liant with /,BI re.ulations.

56

SCHEMES A:& EFUITY FUND 1& UTI En0<;/ F4nd 9O=0n End0d F4nd:: In<estment will be made in stocks of those com;anies en.a.ed in the followin. are! 5: Petro sector " oil and .as ;roducts ? ;rocessin. C: All ty;es of Power .eneration com;anies. 2: +om;anies related to stora.e of ener.y. d: +om;anies manufacturin. ener.y de<elo;ment e@ui;ment related ( like ;etro and ;ower 0: +onsultancy ? Finance +om;anies '& UTI T<5ns=o<353ion And Lo;is3i2s F4nd 9A43o S023o< F4nd: 9O=0n End0d F4nd:: In<estment 2bjecti<e is Ica;ital a;;reciationJ throu.h in<estments in stocks of the com;anies en.a.ed in the trans;ortation and lo.istics sector. At least D(B of the funds will be in<ested in e@uity and e@uity related instruments. Atleast E(B of the funds will be in<ested in e@uity and e@uity related instruments of the com;anies ;rinci;ally en.a.ed in ;ro<idin. trans;ortation ser<ices: com;anies ;rinci;ally en.a.ed in the desi.n: manufacture: distribution: or sale of trans;ortation e@ui;ment and com;anies in the lo.istics sector. 0;to '(B of the funds will be in<ested in cash8money market instruments. (& UTI B5n@in; S023o< F4nd 9O=0n End0d F4nd:: An o;en"ended e@uity fund with the objecti<e to ;ro<ide ca;ital a;;reciation throu.h in<estments in the stocks of the com;anies8institutions en.a.ed in the bankin. and financial ser<ices acti<ities. !& UTI In?<5s3<4234<0 F4nd 9O=0n End0d F4nd:: An o;en"ended e@uity fund with the objecti<e to ;ro<ide +a;ital a;;reciation throu.h in<estin. in the stocks of the com;anies en.a.ed in the sectors like Metals: Buildin. materials: oil and .as: ;ower: chemicals: en.ineerin. etc. The fund will in<est in the stocks of the com;anies which form ;art of Infrastructure Industries
57

"& UTI EA4i3/ T5B S5)in;s P15n 9O=0n End0d F4nd:: An o;en"ended e@uity fund in<estin. a minimum of E(B in e@uity and e@uity related instruments. It aims at enablin. members to a<ail taA rebate under /ection E(+ of the IT Act and ;ro<ide them with the benefits of .rowth. +& UTI G<o>3. S023o< F4nd 7 P.5<m5 9O=0n End0d F4nd:: An o;en"ended fund which eAclusi<ely in<ests in the e@uities of the Pharma ? 4ealthcare sector com;anies. This fund is one of the .rowth sector funds aimin. to in<est in com;anies en.a.ed in business of manufacturin. and marketin. of bulk dru.: formulations and healthcare ;roducts and ser<ices. *& UTI G<o>3. S023o< F4nd 7 S0<)i20s 9O=0n End0d F4nd:: An o;en"ended fund which in<ests in the e@uities of the /er<ices /ector com;anies of the country. 2ne of the .rowth sector funds aimin. to ;ro<ide .rowth of ca;ital o<er a ;eriod of time as well as to make income distribution by in<estin. the funds in stocks of com;anies en.a.ed in ser<ice sector such as bankin.: finance: insurance: education: trainin.: telecom: tra<el: entertainment: hotels: etc. ,& UTI G<o>3. S023o< F4nd 7 So?3>5<0 9O=0n End0d F4nd:: An o;en"ended fund which in<ests eAclusi<ely in the e@uities of the /oftware /ector com;anies. 2ne of the .rowth sectors funds aimin. to in<est in e@uity shares of com;anies belon.in. to information technolo.y sector to ;ro<ide returns to in<estors throu.h ca;ital .rowth as well as throu.h re.ular income distribution -& UTI M5s30< EA4i3/ P15n Uni3 S2.0m0 9C1os0 End0d F4nd:: The scheme ;rimarily aims at securin. for the in<estors ca;ital a;;reciation by in<estin. the funds of the scheme in e@uity shares of com;anies with .ood .rowth ;ros;ects.

58

1 &

UTI M5s30< P14s Uni3 S2.0m0 9O=0n End0d F4nd:: An o;en"ended e@uity fund with an objecti<e of lon."term ca;ital a;;reciation throu.h in<estments in e@uities and e@uity related instruments: con<ertible debentures: deri<ati<es in India and also in o<erseas markets.

11&

UTI M5s30< $5140 F4nd 9O=0n End0d F4nd:: An o;en"ended e@uity fund in<estin. in stocks which are currently under<alued to their future earnin. ;otential and carry medium risk ;rofile to ;ro<ide >+a;ital A;;reciation>.

1'&

UTI EA4i3/ F4nd 9O=0n End0d F4nd:: 0TI ,@uity Fund is o;en"ended e@uity scheme with an objecti<e of in<estin. at least E(B of its funds in e@uity and e@uity related instrument with medium to hi.h risk ;rofile and u;to C(B in debt and money market instruments with low to medium risk ;rofile.

1(&

UTI To= 1

F4nd 9O=0n End0d F4nd::

An o;en"ended e@uity fund for in<estment in e@uity shares: con<ertible ? non" con<ertible debentures and other ca;ital and money market instruments with a ;ro<ision to in<est u;to *(B of its cor;us in P/0>s e@uities and e@uity related ;roducts. The fund aims to ;ro<ide unit holders ca;ital a;;reciation ? income distribution. 1!& UTI M5s30<s.5<0 Uni3 S2.0m0 9O=0n End0d F4nd:: An 2;en"end e@uity fund aimin. to ;ro<ide benefit of ca;ital a;;reciation and income distribution throu.h in<estment in e@uity. 1"& UTI Mid C5= F4nd 9O=0n End0d F4nd:: An o;en"ended e@uity fund with the objecti<e to ;ro<ide >+a;ital a;;reciation> by in<estin. ;rimarily in mid ca; stocks.

59

1+&

UTI MNC F4nd 9O=0n End0d F4nd:: An o;en"ended e@uity fund with the objecti<e to in<est ;redominantly in the e@uity shares of multinational com;anies in di<erse sectors such as FM+$: Pharmaceutical: ,n.ineerin. etc.

1*&

UTI Di)id0nd Yi01d F4nd 9O=0n End0d F4nd:: It aims to ;ro<ide medium to lon. term ca;ital .ains and8or di<idend distribution by in<estin. ;redominantly in e@uity and e@uity related instruments which offer hi.h di<idend yield.

1,&

UTI O==o<34ni3i0s F4nd 9O=0n End0d F4nd:: This scheme seeks to .enerate ca;ital a;;reciation and8or income distribution by in<estin. the funds of the scheme in e@uity shares and e@uity"related instruments. The focus of the scheme is to ca;italise on o;;ortunities arisin. in the market by res;ondin. to the dynamically chan.in. Indian economy by mo<in. its in<estments amon.st different sectors as ;re<ailin. trends chan.e.

1-&

UTI L05d0<s.i= EA4i3/ F4nd 9O=0n End0d F4nd:: This scheme seeks to .enerate ca;ital a;;reciation and 8 or income distribution by in<estin. the funds in stocks that are =5eaders= in their res;ecti<e industries 8 sectors 8 sub" sector.

' &

UTI Con3<5 F4nd 9O=0n End0d F4nd:: An o;en ended e@uity scheme with the objecti<e to ;ro<ide lon. term ca;ital a;;reciation8di<idend distribution throu.h in<estments in listed e@uities ? e@uity related instruments. The fund offers an o;;ortunity to benefit from the im;act of non" rational in<estors> beha<iour by focussin. on stocks that are currently under<alued because of emotional ? beha<ioural ;atterns ;resent in the stock market.

60

'1&

UTI SPREAD F4nd 9O=0n End0d F4nd:: The in<estment objecti<e of the scheme is to ;ro<ide ca;ital a;;reciation and di<idend distribution throu.h arbitra.e o;;ortunities arisin. out of ;rice differences between the cash and deri<ati<e market by in<estin. ;redominantly in e@uity ? e@uity related securities: deri<ati<es and the balance ;ortion in debt securities. 4owe<er: there can be no assurance that the in<estment objecti<e of the scheme will be realised.

''&

UTI #0513. B4i1d0< F4nd 9C1os0 End0d F4nd:: The objecti<e of the scheme is to achie<e lon. term ca;ital a;;reciation by in<estin. ;redominantly in a di<ersified ;ortfolio of e@uity and e@uity related instruments.

'(&

UTI Lon; T0<m Ad)5n35;0 F4nd 8 S0<i0s I 9C1os0 End0d F4nd:: The in<estment objecti<e of the scheme is to ;ro<ide medium to lon. term ca;ital a;;reciation alon. with income taA benefit.

'!&

UTI Indi5 Li?0s3/10 F4nd 9C1os0 End0d F4nd:: The in<estment objecti<e of the scheme is to ;ro<ide lon. term +a;ital a;;reciation and 8 or income distribution from a di<ersified ;ortfolio of e@uity and e@uity related instruments of com;anies that are eA;ected to benefit from chan.in. Indian demo.ra;hics: Indian 5ifestyle and risin. consum;tion ;attern. 4owe<er: there can be no assurance that the in<estment objecti<e of the scheme will be achie<ed.

A:& INDE% FUND: 1& UTI M5s30< Ind0B F4nd 9O=0n End0d F4nd:: 0TI MIF is an o;en"ended ;assi<e fund with the ;rimary in<estment objecti<e to in<est in securities of com;anies com;risin. the B/, senseA in the same wei.hta.e as these com;anies ha<e in B/, senseA. The fund stri<es to minimise ;erformance difference with the senseA by kee;in. the trackin. error to the minimum. '& UTI Go1d EB2.5n;0 T<5d0d F4nd 9O=0n End0d F4nd::
61

To endea<our to ;ro<ide returns that: before eA;enses: closely track the ;erformance and yield of $old. 4owe<er the ;erformance of the scheme may differ from that of the underlyin. asset due to rackin. error. There can be no assurance or .uarantee that the in<estment objecti<e of 0TI"$old ,TF will be achie<ed. (& UTI S4nd0< 9O=0n End0d F4nd:: To ;ro<ide in<estment returns that: before eA;enses: closely corres;ond to the ;erformance and yield of the basket of securities underlyin. the / ? P +NU Nifty IndeA. C:& ASSETS FUND UTI $5<i5C10 In)0s3m0n3 S2.0m0: 0TI 3I/"I5P is an o;en ended scheme with the objecti<e of ;ro<idin. the in<estors with a ;roduct that would enable them to di<ersify their risks throu.h a suitable allocation between debt and e@uity asset classes and thereby .enerate su;erior risk"adjusted returns throu.h a dynamic asset allocation ;rocess.

D:&

BALANCED FUND: To in<est in a ;ortfolio of e@uity8e@uity related securities and debt and money market

1& UTI M5.i15 Uni3 S2.0m0 9O=0n End0d F4nd:: instruments with a <iew to .enerate reasonable income with moderate ca;ital a;;reciation. The asset allocation will be #ebt ! Minimum N(B: MaAimum '((B ,@uity ! Minimum (B: MaAimum M(B. '& UTI B515n20d F4nd 9O=0n End0d F4nd:: An o;en"ended balanced fund in<estin. between )(B to N*B in e@uity 8e@uity related securities and the balance in debt (fiAed income securities with a <iew to .enerate re.ular income to.ether with ca;ital a;;reciation.

62

(& UTI R03i<0m0n3 B0n0?i3 P0nsion F4nd 9O=0n End0d F4nd:: The objecti<e of the scheme is to ;ro<ide ;ension to in<estors ;articularly self" em;loyed ;ersons after they attain the a.e of *E years: in the form of ;eriodical cash flow u;to the eAtent of re;urchase <alue of their holdin. throu.h a systematic withdrawal ;lan. !& UTI Uni3 Lin@ Ins4<5n20 P15n 9O=0n End0d F4nd:: To ;ro<ide return throu.h .rowth in the NA3 or throu.h di<idend distribution and rein<estment thereof "& UTI CCP 9C.i1d<0n C5<00< P15n: Ad)5n35;0 F4nd 9O=0n End0d F4nd:: An o;en ended balanced fund with N("'((B in<estment in ,@uity. In<estment can be made in the name of the children u;to the a.e of '* years so as to ;ro<ide them: after they attain the a.e of 'E years: a means to recei<e scholarshi; to meet the cost of hi.her education 8 or hel; them in settin. u; a ;rofession: ;ractice or business or enablin. them to set u; a home or finance: the cost of other social obli.ations. +& UTI C.5<i35C10I R01i;io4s T<4s3 And R0;is30<0d So2i03/ 9O=0n End0d F4nd:: 2;en"ended debt oriented Income scheme with an objecti<e of in<estin. not more than M(B of the funds in e@uity related instruments and the balance in debt and money market instruments with low to medium risk ;rofile. The scheme is caterin. to the In<estment needs of +haritable: 1eli.ious and ,ducational Trusts as well as 1e.istered societies with the .oal of ;ro<idin. re.ular income. E:& INCOME FUND 9DEBT FUND: 2;en"end '((B ;ure debt fund: which in<ests in rated cor;orate debt ;a;ers and .o<ernment securities with relati<ely low risk and easy li@uidity.

1& UTI Bond F4nd 9O=0n End0d F4nd::

63

'& UTI F1o53in; R530 F4nd STP 9O=0n End0d F4nd:: To .enerate re.ular income throu.h in<estment in a ;ortfolio com;risin. substantially of floatin. rate debt 8 money market instruments and fiAed rate debt 8 money market instruments. (& UTI Gi13 Ad)5n35;0 F4nd LTP9O=0n End0d F4nd:: To .enerate credit risk"free return throu.h in<estments in so<erei.n securities issued the +entral and 8 or a /tate $o<ernment. !& UTI Gi13 Ad)5n35;0 F4nd STP 9O=0n End0d F4nd:: To .enerate credit risk"free return throu.h in<estment in so<erei.n securities issued the +entral and 8 or a /tate $o<ernment. "& UTI G8SEC STP 9O=0n End0d F4nd:: An o;en"end $ilt"Fund with the objecti<e to in<est only in +entral $o<ernment securities includin. call money: treasury bills and re;os of <aryin. maturities with a <iew to .enerate credit risk free return with a stated objecti<e of maintainin. the a<era.e maturity of the ;ortfolio at less than M years. +& UTI G8S028In)0s3m0n3 P15n 9O=0n End0d F4nd:: An o;en"end $ilt"Fund with the objecti<e to In<ests only in +entral .o<ernment securities includin. call money: treasury bills and re;os of <aryin. maturities with a <iew to .eneratie credit risk free return. -hile selectin. the maturity ;rofile of the in<estment in .o<ernment securities the need for maAimisation of the returns and meetin. of the li@uidity re@uirements of the scheme is ke;t in <iew. *& UTI T<05s4</ Ad)5n35;0 F4nd 9O=0n End0d F4nd:: It aims to .enerate attracti<e returns consistent with ca;ital ;reser<ation and li@uidity

64

,& UTI Mon3.1/ In2om0 S2.0m0 9O=0n End0d F4nd:: This is an o;en"end debt oriented scheme with no assured returns. The scheme aims at distributin. income: if any: ;eriodically. -& UTI Mis Ad)5n35;0 P15n 9O=0n End0d F4nd:: ,ndea<ours to make ;eriodic income distribution to unitholders throu.h in<estments in fiAed income securities and e@uity ? e@uity related instruments. 1 & UTI S.o<3 T0<m In2om0 F4nd 9O=0n End0d F4nd:: The /cheme seeks to .enerate steady ? reasonable income with low risk ? hi.h le<el of li@uidity from a ;ortfolio of money market securities ? hi.h @uality debt. 11& UTI C5=i351 P<o3023ion O<i0n30d S2.0m0 9O=0n End0d F4nd:: The in<estment objecti<e of the scheme is to endea<our to ;rotect the ca;ital by in<estin. in hi.h @uality fiAed income securities as the ;rimary objecti<e and .enerate ca;ital a;;reciation by in<estin. in e@uity and e@uity related instruments as secondary objecti<e. F:& LIFUID FUND 9DEBT FUND:: The scheme seeks to .enerate steady ? reasonable income with low risk ? hi.h le<el of li@uidity from a ;ortfolio of money market securities ? hi.h @uality debt. '& UTI Mon0/ M5<@03 F4nd 9O=0n End0d F4nd:: An o;en"ended ;ure debt li@uid ;lan seekin. to ;ro<ide hi.hest ;ossible current income by in<estin. in a di<ersified ;ortfolio of short"term money market securities.

1& UTI LiA4id C5s. P15n 9O=0n End0d F4nd::

65

-hen /tartedQ

RELIANCE MUTUAL FUND ,stablished in 'DD*: +urrently: number one com;any in India. 1e.istered with /,BI as trust under Indian Trusts Act: 'EEC 1s. *(( EA4i3/ Bank! E"'*B /oftware! E"'DB Petroleum Products! )"EB Pharmaceuticals! L"'(B in)0s3 in 1'8' s023o<s >.i2. in214d0: Auto : Auto Ancillaries: Finance: Industrial +a;ital $oods: Telecom" /er<ices: Power: +onstruction Project: 4otels: 1etailin.: Media ? ,ntertainment: Trans;ortation etc

UTI MUTUAL FUND ,stablished in 'DL). First mutual fund com;any in India By the 0TI Act ;assed by the Parliament in 'DLM. 1s.'((( EA4i3/ Financial /er<ice! 'L"CCB ,ner.y! 'C"'EB +onsumer .oods! (E"')B in)0s3 in *81" s023o<s >.i2. in214d0: IT: Telecom: Automobile: +ement Products: #eri<ati<es: TeAtile: Metals etc

4ow they came into business Minimum in<estment. In<estment.

Main Funds.

0TI #i<idend yield Fund: 0TI 2;;ortunity Fund: ,@uity Fund: #ebt Fund: /ector /;ecific Fund and $old ,Achan.e Traded Fund. '(L schemes 2nline and internet based distribution. 1eliance outlets and branches.

Ty;e of fund offered

1eliance #i<ersified Fund: 1eliance ,@uity 2;;ortunity Fund: 1eliance 1e.ular /a<in. Funds ,@uity Fund: IndeA Fund: Asset Fund: Balanced Fund: #ebt Fund (Income: 5i@uid '(N schemes. Tie"u; with Post offices branches. 0TI outlets and branches.

Numbers of schemes offered #istribution

66

Is any other <entureQ

5ife Insurance $eneral Insurance Brokin. ? #istribution +onsumer Finance Pri<ate ,@uity Assets 1econstruction.

0TI Bank Pan card Bank 1ecruitment 05IP

67

Chapter: + MUTUAL FUNDS $S& OTHER IN$ESTMENTS

F<om in)0s3o<sE )i0>=oin3 m43451 ?4nds .5)0 s0)0<51 5d)5n35;0s s42. 5s: Professional mana.ement and research to select @uality securities. /;readin. risk o<er a lar.er @uantity of stock whereas the in<estor has limited to buy only a hand full of stocks. The in<estor is not ;uttin. all his e..s in one basket. Ability to add funds at set amounts and smaller @uantities such as W'(( ;er month Ability to take ad<anta.e of the stock market which has .enerally out;erformed other in<estment in the lon. run. Fund mana.er are able to buy securities in lar.e @uantities thus reducin. brokera.e fees.

Ho>0)0< 3.0<0 5<0 som0 dis5d)5n35;0s >i3. m43451 ?4nds s42. 5s: The in<estor must rely on the inte.rity of the ;rofessional fund mana.er. Fund mana.ement fees may be unreasonable for the ser<ices rendered. The fund mana.er may not ;ass transaction sa<in.s to the in<estor. The fund mana.er is not liable for ;oor jud.ment when the in<estor>s fund loses <alue. There may be too many transactions in the fund resultin. in hi.her fee8cost to the in<estor " This is sometimes call =+hurn and ,arn=. Pros;ectus and Annual re;ort are hard to understand. In<estor may feel a lost of control of his in<estment dollars.

T.0<0 m5/ C0 <0s3<i23ions on >.0n 5nd .o> 5n in)0s3o< s011s/<0d00ms .is m43451 ?4nd s.5<0s&

68

Com=5n/ FiB0d D0=osi3s )0<s4s M43451 F4nds FiAed de;osits are unsecured borrowin.s by the com;any acce;tin. the de;osit. +redit ratin. of the fiAed de;osit ;ro.ram is an indication of the inherent default risk in the in<estment. The moneys of in<estors in a mutual fund scheme are in<ested by the AM+ in s;ecific in<estments under that scheme. These in<estments are held and mana.ed in$trust for the benefit of schemeGs in<estors. 2n the other hand: there is no such direct correlation between a com;anyGs fiAed de;osit mobilisation: and the a<enues where these resources are de;loyed. A corollary of such linka.e between mobilisation and in<estment is that the .ains and losses from the mutual fund scheme entirely flow throu.h to the in<estors. Therefore: there can be no certainty of yield: unless a named .uarantor assures a return or: to a lesser eAtent: if the in<estment is in a serial .ilt scheme. 2n the other hand: the return under a fiAed de;osit is certain: subject only to the default risk of the borrower. Bo3. ?iB0d d0=osi3s 5nd m43451 ?4nds o??0< 1iA4idi3/I C43 s4CD023 3o som0 di??0<0n20s: The ;ro<ider of li@uidity in the case of fiAed de;osits is the borrowin. com;any. In mutual funds: the li@uidity ;ro<ider is the scheme itself (for o;en"end schemes or the market (in the case of closed"end schemes . The basic <alue at which fiAed de;osits are encashed is not subject to a market risk. 4owe<er: the <alue at which units of a scheme are redeemed de;ends on the market. hi.her than what he antici;ated when he in<ested. But he could also end u; with a loss. ,arly encashment of fiAed de;osits is always subject to a ;enalty char.ed by the com;any that acce;ted the fiAed de;osit. Mutual fund schemes also ha<e the o;tion of char.in. a ;enalty on IearlyJ redem;tion of units (throu.h by way of an PeAit loadG: If the NA3 has a;;reciated ade@uately: then e<en after the eAit load: the in<estor could earn a ca;ital .ain on his in<estment.
69

If

securities ha<e .ained in <alue durin. the ;eriod: then the in<estor can e<en earn a return that is

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B5n@ FiB0d D0=osi3s )0<s0s M43451 F4nd: Bank fiAed de;osits are similar to com;any fiAed de;osits. The major difference is that banks are .enerally more strin.ently re.ulated than com;anies. They e<en o;erate under stricter re@uirements re.ardin. /tatutory 5i@uidity 1atio (/51 and +ash 1eser<e 1atio (+11 . -hile the abo<e are causes for comfort: bank de;osits too are subject to default risk. 4owe<er: .i<en the ;olitical and economic im;act of bank defaults: the .o<ernment as well as 1eser<e Bank of India (1BI try to ensure that banks do not fail. Further: bank de;osits u;to 1s '((:((( are ;rotected by the #e;osit Insurance and +redit $uarantee +or;oration (#I+$+ : so lon. as the bank has ;aid the re@uired insurance ;remium of * ;aise ;er annum for e<ery 1s '(( of de;osits. The monetary ceilin. of 1s '((:((( is for all the deposits in all the branches of a ban#, held by the depositor in the same capacity and right.

BANKS R034<ns Adminis3<53i)0 0B=& Ris@ In)0s3m0n3 o=3ions N03>o<@ LiA4idi3/ F451i3/ o? 5ss03s In30<0s3 25124153ion G45<5n3o< A22o4n3 5ow 4i.h 5ow 5ess 4i.h ;enetration At a cost Not trans;arent Xuarterly i.e. Mrd: Lth: Dth ? 'Cth. $uarantor is needed. Needed.

MUTUAL FUNDS Better 5ow Moderate More 5ow but im;ro<in. Better Trans;arent ,<ery Month $uarantor is not needed. Not Needed.

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Bonds 5nd D0C0n34<0s )0<s4s M43451 F4nds As in the case of fiAed de;osits: credit ratin. of the bond 8 debenture is an indication of the inherent default risk in the in<estment. 4owe<er: unlike F#: bonds and debentures are transferable securities. -hile an in<estor may ha<e an early encashment o;tion from the issuer (for instance throu.h a I;utJ o;tion : .enerally li@uidity is throu.h a listin. in the market. Im=1i253ions o? 3.is 5<0:

If the security does not .et traded in the market: then the li@uidity remains on ;a;er. In this res;ect: an o;en"end scheme offerin. continuous sale 8 re";urchase o;tion is su;erior.

The <alue that the in<estor would realise in an early eAit is subject to market risk. The in<estor could ha<e a ca;ital .ain or a ca;ital loss. This as;ect is similar to a MF scheme. It is ;ossible for a ;rofessional in<estor to earn attracti<e returns by directly in<estin. in

the debt market: and acti<ely mana.in. the ;ositions. $i<en the market realities in India: it is difficult for most in<estors to acti<ely mana.e their debt ;ortfolio. Further: at times: it is difficult to eAecute trades in the debt market e<en when the transaction siHe is as hi.h as 1s ' crore. In this res;ect: in<estment in a debt scheme would be beneficial. #ebt securities could be backed by a hy;othecation or mort.a.e of identified fiAed and 8 or current assets (secured bonds 8 debentures . In such a case: if there is a default: the identified assets become a<ailable for meetin. redem;tion re@uirements. An unsecured bond 8 debenture is for all ;ractical ;ur;oses like a fiAed de;osit: as far as access to assets is concerned. The in<estments of a mutual fund scheme are held by a custodian for the benefit of in<estors in the scheme. Thus: the securities that relate to a scheme are rin."fenced for the benefit of its in<estors.

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EA4i3/ )0<s4s M43451 F4nds In<estment in both e@uity and mutual funds are subject to market risk. An in<estor holdin. an e@uity security that is not traded in the market ;lace has a ;roblem in realisin. <alue from it. But in<estment in an o;en"end mutual fund eliminates this direct risk of not bein. able to sell the in<estment in the market. An indirect risk remains: because the scheme has to realise its in<estments to ;ay in<estors. The AM+ is howe<er in a better ;osition to handle the situation Another benefit of e@uity mutual fund schemes is that they .i<e in<estors the benefit of ;ortfolio di<ersification throu.h a small in<estment. For instance: an in<estor can take an eA;osure to the indeA by in<estin. a mere 1s *:((( in an indeA fund. Ad)5n35;0s O? M43451 F4nds O)0< S3o2@s6 A mutual fund offers a .reat deal of di<ersification startin. with the <ery first dollar in<ested: because a mutual fund may own tens or hundreds of different securities. This di<ersification hel;s reduce the risk of loss because e<en if any one holdin. tanks: the o<erall <alue doesn>t dro; by much. If you>re buyin. indi<idual stocks: you can>t .et much di<ersity unless you ha<e W'(7 or so. /mall sums of money .et you much further in mutual funds than in stocks. First: you can set u; an automatic in<estment ;lan with many fund com;anies that lets you ;ut in as little as W*( ;er month. /econd: the commissions for stock ;urchases will be hi.her than the cost of buyin. no"load fund (2f course: the fund>s <arious eA;enses like commissions are already taken out of the NA3 . /maller siHed ;urchases of stocks will ha<e relati<ely hi.h commissions on a ;ercenta.e basis: althou.h with the W'( trade becomin. common: this is a bit less of a concern than it once was. Fou can eAit a fund without .ettin. cau.ht on the bid8ask s;read. Funds ;ro<ide a chea; and easy method for rein<estin. di<idends. 5ast but most certainly not least: when you buy a fund you>re in essence hirin. a ;rofessional to mana.e your money for you. That ;rofessional is (;resumably monitorin. the economy and the markets to adjust the fund>s holdin.s a;;ro;riately.
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Ad)5n35;0s O? S3o2@ O)0< M43451 F4nds6 The o;;osite of the di<ersification issue! If you own just one stock and it doubles: you are u; '((B. If a mutual fund owns *( stocks and one doubles: it is u; CB. 2n the other hand: if you own just one stock and it dro;s in half: you are down *(B but the mutual fund is down 'B. +uts both ways. If you hold your stocks se<eral years: you aren>t nicked a 'B or so mana.ement fee e<ery year (althou.h some brokera.e firms char.e if there aren>t enou.h trades . Fou can take your ;rofits when you want to and won>t inad<ertently buy a taA liability. (This refers to the common ;ractice amon. funds of distributin. ca;ital .ains around No<ember or #ecember of each year. /ee the article elsewhere in this FAX for more details. Fou can do a co<ered write o;tion strate.y. (/ee the article on o;tions on stocks for more details. Fou can structure your ;ortfolio differently from any eAistin. mutual fund ;ortfolio. (Althou.h with the current uni<erse of funds I>m not certain what could ;ossibly be missin. out thereY Fou can buy smaller ca; stocks which aren>t suitable for mutual funds to in<est in. Fou ha<e a ;otential ;rofit o;;ortunity by shortin. stocks. (Fou cannot: in .eneral: short mutual funds. The ar.ument is offered that the funds ha<e a =herd= mentality and they all end u; ownin. the same stocks. Fou may be able to ;ick stocks better.

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Li?0 Ins4<5n20 )0<s4s M43451 F4nd 5ife insurance is a hed.e a.ainst risk 6 and not really an in<estment o;tion. /o: it would be wron. to com;are life insurance a.ainst any other financial ;roduct. 2ccasionally on account of market inefficiencies or mis";ricin. of ;roducts in India: life insurance ;roducts ha<e offered a return that is hi.her than a com;arable IsafeJ fiAed return security 6 thus: you are effecti<ely ;aid for .ettin. insuredY sustainable in the lon. run. /uch o;;ortunities are not

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FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA Financial eA;erts belie<e that the future of Mutual Funds in India will be <ery bri.ht. It has been estimated that by March"end of C('(: the mutual fund industry of India will reach 1s )(:D(:((( crore: takin. into account the total assets of the Indian commercial banks. In the comin. '( years the annual com;osite .rowth rate is eA;ected to .o u; by 'M.)B.

'((B .rowth in the last L years. Number of forei.n AM+>s are in the @ueue to enter the Indian markets like Fidelity In<estments: 0/ based: with o<er 0/W'trillion assets under mana.ement worldwide. 2ur sa<in. rate is o<er CMB: hi.hest in the world. 2nly channeliHin. these sa<in.s in mutual funds sector is re@uired. -e ha<e a;;roAimately CD mutual funds which is much less than 0/ ha<in. more than E((. There is a bi. sco;e for eA;ansion. >B> and >+> class cities are .rowin. ra;idly. Today most of the mutual funds are concentratin. on the >A> class cities. /oon they will find sco;e in the .rowin. cities. Mutual fund can ;enetrate rurals like the Indian insurance industry with sim;le and limited ;roducts. /,BI allowin. the MF>s to launch commodity mutual funds. ,m;hasis on better cor;orate .o<ernance. Tryin. to curb the late tradin. ;ractices. Introduction of Financial Planners who can ;ro<ide need based ad<ice. 5ookin. at the ;ast de<elo;ments and combinin. it with the current trends it can be

concluded that the future of Mutual Funds in India has lot of ;ositi<e thin.s to offer to its in<estors.

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MF JARGON N03 Ass03 $5140 9NA$: Net Asset 3alue is the market <alue of the assets of the scheme minus its liabilities. The ;er unit NA3 is the net asset <alue of the scheme di<ided by the number of units outstandin. on the 3aluation #ate. S510 P<i20 /ale ;rice is the ;rice you ;ay when you in<est in a scheme. Also called 2ffer Price. It may include a sales load. R0=4<2.5s0 P<i20 Is the ;rice at which a close"ended scheme re;urchases its units and it may include a back"end load. This is also called Bid Price. R0d0m=3ion P<i20 It is the ;rice at which o;en"ended schemes re;urchase their units and close"ended schemes redeem their units on maturity. /uch ;rices are NA3 related. S510s Lo5d It is a char.e collected by a scheme when it sells the units. Also called as PFront"endG load. /chemes that do not char.e a load are called PNo 5oadG schemes. R0=4<2.5s0 o< JB52@80ndE Lo5d It is a char.e collected by a scheme when it buys back the units from the unit holders.

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CONCLUSION Mutual Funds now re;resent ;erha;s most a;;ro;riate in<estment o;;ortunity for most in<estors. As financial markets become more so;histicated and com;leA: in<estors need a financial intermediary who ;ro<ides the re@uired knowled.e and ;rofessional eA;ertise on successful in<estin.. As the in<estor always try to maAimiHe the returns and minimiHe the risk. Mutual fund satisfies these re@uirements by ;ro<idin. attracti<e returns with affordable risks. The fund industry has already o<ertaken the bankin. industry: more funds bein. under mutual fund mana.ement than de;osited with banks. -ith the emer.ence of tou.h com;etition in this sector mutual funds are launchin. a <ariety of schemes which caters to the re@uirement of the ;articular class of in<estors. 1isk takers for .ettin. ca;ital a;;reciation should in<est in .rowth: e@uity schemes. In<estors who are in need of re.ular income should in<est in income ;lans. The stock market has been risin. for o<er three years now. This in turn has not only ;rotected the money in<ested in funds but has also to hel;ed .row these in<estments. This has also instilled .reater confidence amon. fund in<estors who are in<estin. more into the market throu.h the MF route than e<er before. 1eliance India mutual funds ;ro<ide major benefits to a common man who wants to make his life better than ;re<ious. India>s lar.est mutual fund: 0TI: still controls nearly E( ;er cent of the market. Also: the mutual fund industry as a whole .ets less than C ;er cent of household sa<in.s a.ainst the )L ;er cent that .o into bank de;osits. /ome fund mana.ers say this only indicates the sector>s ;otential. =If mutual funds succeed in chi;;in. away at bank de;osits: e<en a tri;le di.it .rowth is ;ossible o<er the neAt few years.

!I!LIOGRAPH2
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