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Comparison of benefits to EOU SEZ and DTA
Posted on February 22, 2014 by indiataxfin
We have provided here comparison of benefits available to EOU SEZ vis-a-vis DTA units.
In case of any query please post it in comments section
Factor

EOU/ STP Unit

SEZ Unit

DTA unit

Location

Anywhere in India

In the Zone

Anywhere in India

Not Permitted

Permitted

No restrictions

Trading
Units
NFE
requiremen
t

+ve NFE over 5 years (cumulative)

NA

No restriction on DTA
sale

DTA sales

50% of export value of services

Customs duty on goods/

No restrictions on DTA sale

allowed on payment of Service

Service tax on services

Customs duty on goods/ Service

tax/ Excise duty

payable

tax on services payable

Yes

No

NA

Customs
Bonding

Income tax
holiday

No

Service tax

Refund on export of services

Yes
MAT still
payable

No

Input services
exempt/refund

Refund on export of services

specified procedure

Exemption available

CST is always a cost

Reimbursement allowed as per

CST

VAT exemptions not available to

Exempt/Refund as per

VAT available as credit not a

VAT

service units

State VAT laws

cost

Customs

Exempt on inputs and capital

Exempt on inputs,

Duty

goods

capital goods
and construction

Exemption depends
on product/ industry

material

Exemption on raw
material/
consumables
available against
advance authorization

Exemption on capital

goods available
against EPCG
authorisation

If exemption not
available

For manufacturersCVD & SAD available

as credit

For service providersCVD available as

credit hence CVD is
cost

For traders- CVD &

SAD can be passed
on (refund of SAD
also available)

BCD is cost to every

one

Exempt on inputs,

on product/ industry

capital goods
Excise duty

Exemption depends
If exemption not

Exempt on inputs and capital

and construction

available, credit of

goods

material

Excise duty available

Ease of
Customs

No routine examination

compliance

No routine examination of Export

of Export Import Cargo

Examination of Export Import

Import Cargo by Customs

by Customs

Cargo By Customs

Import /

Restricted/ canalised goods (e.g.

goods (e.g. petrol) can

export

petrol) can be imported without

be imported without

Import licence needed for import

restrictions

import licence

import licence

of restricted goods

Allowed

Allowed

NA

Restricted/ canalised

Transfer of
existing
employees
from
existing
facilities

Allowed upto 20% of

total investment in
capital goods.
Used

In case limit of 20% is

capital
goods

breached, only income

Allowed

tax exemption is denied

Allowed

100% FDI in allowed

automatically for
Investment

FIPB approval required as per

Manufacturing SEZ

FIPB approval required as per

approvals

sectoral guideline

Units

sectoral guideline

Remain where the unit is

Exit

situated

To move out of the Zone

NA

Abbreviations
STP

Software Technology Park unit established under Chapter 6 of Foreign Trade of Policy of India

EOU

Export Oriented unit established under Chapter 6 of Foreign Trade of Policy of India

SEZ

Special Economic Zone established under SEZ Act, 2005

DTA

Domestic Tariff Area means area which is not SEZ, EOU or STP

+NFE

Positive Net Foreign Exchange Earner Export in forex is more than imports in forex

MAT

Minimum Alternate Tax

Value added tax- Levied on sale within the State. Rate of tax varies from 4% to 15% depending upon nature
VAT

of goods and State of sale

Central Sales Tax- Levied on inter State sale of goods- Rate equal to VAT rate in the State of sale; rate 2%
VAT

if statutory declaration in Form C is provided by buyer to seller

BCD

Basic Customs duty

Additional duty of Customs in lieu of Excise duty levied on import of goods- Rate is equal to Excise duty
CVD

on manufacture of goods in India

SAD

Additional duty of Customs in lieu of VAT/ CST levied on import of goods- Rate is 4%

Credit

Input credit in terms of CENVAT Credit Rules, 2004

The 100% EOUs fall into 3 categories:

(a) EOUs established anywhere in India and exporting 100% products except certain fixed percentage of
sales in the Domestic Tariff Area (DTA) as may be permissible under the Policy.
(b) Units in Free Trade Zones in Special Economic Zones (SEZs) and exporting 100% of their products.
(c) EOUs set up in Software Technology Parks (STPs) and Electronic Hardware Technology Parks (EHTPs)
of India for development of Software & Electronic Hardware.
Major Sectors in EOUsare:
1.

Granite

2.

Textiles / Garments

3.

Food Processing

4.

Chemicals

5.

Computer Software

6.

Coffee

7.

Pharmaceuticals

8.

Gem & Jewellery

9.

Engineering Goods

10. Electrical & Electronics

11. Aqua & Pearl Culture
To set up an EOU for the following sectors, an EOU owner needs a special license. EOUs can be set up
anywhere in the country and may be engaged in the manufacture and production of software, floriculture,
horticulture, agriculture, aquaculture, animal husbandry, pisciculture, poultry and sericulture or other
similar activities. Apart from local zonal office and state government, setting up of an EOU is also strictly
guided by the environmental rules and regulations.

Brief Highlights about EOU

An EOU is basically an Export Oriented units which can be set up in the declared warehouse stations in India. There are
almost 300 such warehouse stations. EOU units are very closely connected with Customs Law and Excise Law. Besides,
Foreign Trade Policy deals with EOUs at larger extent. Further, Income Tax Act and Foreign Exchange Management Act are
also very relevant for EOU units. EOU not availing direct tax benefit are entitled to Duty Credit Scrip of VKGUY, FMS, FPS and
SHIS.
Setting Up of a new EOU
Initially the unit have to prepare detailed Project Report as these forms the basis of sanction of the scheme. The NFE should be
positive. Thereafter, the unit is required to obtain approval from the Unit Approval Committee (UAC) for automatic approval
scheme and from Board of Approval (BOA) for schemes other than under automatic approval scheme. The afore-said
authorities shall issue Letter of Approval after which a Legal Undertaking has to be submitted and Green Card shall be obtained
from him. A Licence has to be obtained u/s 58 and 65 of the Customs Act. B-17 bond has to be submitted with solvency
certificate or bank guarantee. CT-3 certificates have to be obtained.
Requirements of Positive NFE
The units should have a positive NFE (Net Foreign Exchange) which is A-B where A is FOB value of Exports and B is the sum
total of CIF value of all imported inputs and capital goods and all payments (like commission, royalty, fees, dividends, interest
on borrowings) made in FOREX. It is pertinent to note that the goods which are purchased on high sea sale basis in Indian
rupees will be considered as imported goods for the purpose of calculation of NFE, even if payment is made in Indian Rupees
as mentioned in Para 14 of MF(DR) circular No. 12/2008-Cus dated 24-07-2008. NFE Earning shall be calculated in a block of
five years starting from commencement of production. Further, certain other aspects as mentioned in Para 6 of HBP Vol. 1 have
to be kept in mind.
Failure to achieve NFE: It is worthwhile to mention that if NFE is not achieved then the unit is liable to pay duty and interest in
proportion to default will be payable as per MF(DR) Circular No. 29/2003-Cus dated 03-04-2003. Further, if the NFE is not
achieved then the EOU is not allowed to exit. A plethora of judicial pronouncements have dealt with the issue of failure to
achieve NFE by EOU some of which is mentioned here-in-below for ease of reference:
a)

In case of Natural Stone Exports (2006) 198 ELT 440, it has been held that duty is payable only at the time of de-

bonding even in case of failure to achieve NFE as EOU is a warehouse.

b)

In case of Suvarna Aqua Farm (2005) 190 ELT 284 it has been held that penalty cannot be imposed if export obligation

was not fulfilled as the circumstances were beyond the control of the assessee.
c)

In case of Noel Agritech (2011) 273 ELT 306, it has been held that in case of failure to meet export obligation, duty is

payable but confiscation of capital goods is not warranted.

Procurement of Inputs & Capital goods
An EOU is entitled to procure inputs and capital goods without payment of duty. Thus, All India Rate of Duty Drawback cannot
be taken by an EOU. Further, the EOU can procure inputs or capital goods under CT-3 from the manufacturer of such goods
without payment of duty. Otherwise, the EOU units can procure goods on payment of duty which can be used for DTA sales by
an EOU unit or refund can be claimed under Rule 5 of CENVAT Credit Rules, 2004 for the inputs &/or input services. The
matter is no longer res integra as it has been held in a plethora of cases that Rule 5 of CCR04 is also available to an EOU.

Bonding Period for EOU

The EOU units are the bonded warehouses. The bonding period for an EOU is three years for raw materials, consumables &
spares and five years for capital goods. Bonding period means that the goods must be used by the EOU within the bonded
period. The same can be extended by the Commissioner without any upper limit if the same is not likely to deteriorate.
Warehouse licence is given to EOU for a period of five years which has to be renewed from time to time.
Exit of EOU (De-Bonding)
An EOU can opt out of the scheme only with the approval of Development Commissioner as per Provisions of para 6.18 of FTP.
Exit from EOU is not possible in case positive NFE is not achieved under Advance Authorisation scheme.
The requirement of positive NFE is mandatory in case EOU is applying for EPCG after exiting as NOC is required to be
obtained from the Development Commissioner. Export obligation for a unit which converts from EOU/SEZ scheme to EPCG
would be same as available to direct EPCG authorisation holder, i.e., 8 or 12 years from the issue of EPCG authorisation.
Further, it has been clarified that if a standalone EOU unit converts into EPCG scheme, the additional export obligation shall be
equivalent to six/eight times of depreciated value. Further, if the unit of a Firm/company opts to de-bond then the average
export obligation in respect of firm/company (other than debonding unit) shall remain unchanged. For the debonded unit, the
export obligation shall be fixed by excluding the exports made by such unit from the exports of the company/firm.
Unit can be ordered to be exited if it fails to achieve NFE or other requirements. Duty on raw material, capital goods is payable
at the time of debonding. It is pertinent to note that in case of Premier Granites Limited (2000) 122 ELT 220,it has been held
that duty demand can only be raised after the order for exit has been issued. Further, in case of Trans Freight Containers
(2012) 277 ELT 168, it has been held that even if export obligation is not fulfilled, duty can be demanded on inputs lying in
stock at the rate of duty prevalent at the time of payment of duty, on original value of importation. Duty cannot be demanded on
consumed inputs and final products were exported. Further, depreciation on capital goods (CG) is available even if export
obligation was partially fulfilled.
It is worthwhile to mention that Honble CESTAT in case of Tecumseh Products (2011) 269 ELT 401 has held that CENVAT
Credit available with an EOU can be transferred to DTA unit on de-bonding. New IEC number will have to be taken at the time
of exit.
Customs duty will have to be paid on unused imported raw material and consumables lying in stock at the time of exit at the
rates as on date of clearance. In respect of excisable goods, excise duty is to be levied without depreciation at rates as on duty
of clearance Pune Commissioner of Customs PN 131/99 dated 09-09-1999. At the time of exit, the unit has to pay customs
duty on the imported machinery on the basis of depreciated value or transaction value whichever ishigher. The depreciation
rate is 4% per quarter in the first year, 3% per quarter in the second year and third year, 2.5% per quarter in the fourth and fifth
year and 2% per quarter for subsequent years. The rates of depreciation for computer or computer peripherals are different
which can be referred in Para 6.36.2 of HBP Vol. 1.
It is pertinent to note that if the unit is unable to achieve positive NFE, then the duty forgone at the time of import shall be paid
on such goods in proportion to the non-achieved portion of NFE in terms of para 3 of MF(DR) Circular No. 12/2008-Cus dated
24-07-2008. In case of Solitaire Machine Tools (2003) 152 ELT 384, it has been held that depreciation should be allowed upto
date of payment of duty and not only till date of application for de-bonding. In case of Business Process Technologies (2010)
249 ELT 248, it has been held that rate of duty is at the time of filing ex-bond bill of entry for de-bonding and not rate prevalent
at the time of procurement of goods.
- See more at: http://taxguru.in/custom-duty/synopsis-export-oriented-units.html#sthash.nAfDttQD.dpuf

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Fidelity Balanced Fund

Symbol:FBALX

No Transaction Fee 1
Fidelity Fund Pick 2

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Summary

Performance & Risk- current selection

Ratings
Composition
Fees and Distributions
Commentary

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Average Annual Total Returns

3, 4, 5
AS OF 9/30/2015; FUND INCEPTION 11/6/1986

-10%0%10%20%
1 Yr

3 Yr

5 Yr

10 Yr

Life

Fidelity Balanced Fund

-0.70%

8.65%

9.47%

6.30%

9.11%

S&P 500

-0.61%

12.40%

13.34%

6.80%

9.80%

0.95%

8.14%

9.33%

6.23%

8.95%

-2.51%

6.41%

7.33%

5.08%

--

21%

11%

7%

12%

--

929

838

722

481

--

Fid Bal Hybrid Comp Idx

Moderate Allocation
Rank in Morningstar Category
# of Funds in Morningstar Category

Yield

10/19/201
5 9/30/2015
Glossary definition opens in new
window.30-Day Yield 6

1.66%

1.67%

Hypothetical Growth of $10,000

4, 7
AS OF 09/30/2015; MORNINGSTAR CATEGORY: MODERATE ALLOCATION
Fidelity Balanced Fund

S&P 500

Fid Bal Hybrid Comp Idx

Moderate Allocation

6k9k12k16k19k22k

This Fund

Benchmark

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

10.68%

11.65%

8.99%

-31.31%

28.05%

13.76%

1.68%

12.90%

20.50%

10.37%

-3.75%

4.91%

15.79%

5.49%

-37.00%

26.46%

15.06%

2.11%

16.00%

32.39%

13.69%

-5.29%

Benchmark-2

4.95%

12.96%

4.13%

-21.51%

18.40%

12.13%

4.69%

11.31%

17.56%

10.62%

-2.62%

5.13%

11.29%

5.99%

-28.00%

24.13%

11.83%

-0.11%

11.72%

16.48%

6.21%

-4.44%

+/- Benchmark

5.77%

-4.14%

3.50%

5.69%

1.59%

-1.30%

-0.43%

-3.10%

-11.89%

-3.32%

1.54%

+/- Benchmark-2

5.73%

-1.31%

4.86%

-9.80%

9.65%

1.63%

-3.01%

1.59%

2.94%

-0.25%

-1.13%

+/- Category

5.55%

0.36%

3.00%

-3.31%

3.92%

1.93%

1.79%

1.18%

4.02%

4.16%

0.69%

Category

Compare Chart | Fund Facts Search

The performance data featured represents past performance, which is no guarantee of future results. Investment return and principal value of an
investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the
performance data quoted.

Quarter-End Average Annual Total Returns

4, 5
AS OF 9/30/2015; FUND INCEPTION 11/6/1986 GLOSSARY DEFINITION OPENS IN NEW WINDOW.
EXPENSE RATIO (GROSS): 0.56% AS OF 10/30/2014

1 Yr

3 Yr

5 Yr

10 Yr

Life

Fidelity Balanced Fund

-0.70%

8.65%

9.47%

6.30%

9.11%

S&P 500

-0.61%

12.40%

13.34%

6.80%

9.80%

0.95%

8.14%

9.33%

6.23%

8.95%

-2.51%

6.41%

7.33%

5.08%

--

Glossary definition opens in new window.Before Taxes

Fid Bal Hybrid Comp Idx

Moderate Allocation

Glossary definition opens in new window.After Taxes on Distributions

Fidelity Balanced Fund

-3.47%

6.86%

8.22%

5.17%

--

Moderate Allocation

-5.36%

4.65%

5.98%

3.81%

--

Glossary definition opens in new window.After taxes on distributions and sale of fund shares
Fidelity Balanced Fund
Moderate Allocation

0.88%

6.38%

7.28%

4.83%

--

-1.37%

4.32%

5.27%

3.63%

--

Cumulative Total Returns

5
AS OF 9/30/2015

Fidelity Balanced Fund

YTD (Daily)*

YTD (Monthly)

1 Month

3 Months

6 Months

0.18%

-3.75%

-2.60%

-5.97%

-5.86%

S&P 500

--

-5.29%

-2.47%

-6.44%

-6.18%

Fid Bal Hybrid Comp Idx

--

-2.62%

-1.21%

-3.39%

-3.87%

Moderate Allocation

--

-4.44%

-2.13%

-5.60%

-6.11%

*AS OF 10/20/2015

Fund Risk and Return

AS OF 9/30/2015; MORNINGSTAR CATEGORY: MODERATE ALLOCATION

Return of this Fund within Morningstar Category

LOW AVG HIGH

Risk of this Fund within Morningstar Category

LOW AVG HIGH

Risk of this Category

LOWERHIGHER

Risk
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or
economic developments. Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default,
issuer credit risk and inflation risk. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Lower-quality
bonds can be more volatile and have greater risk of default than higher-quality bonds. Leverage can increase market exposure and magnify investment
risk.

Volatility Measures

Beta0.69
AS OF 9/30/2015

A measure of a portfolio's sensitivity to market movements (as represented by a benchmark index). The benchmark index has a beta of 1.0. A beta of
more (less) than 1.0 indicates that a fund's historical returns have fluctuated more (less) than the benchmark index. Beta is a more reliable measure of
volatility when used in combination with a high R2 which indicates a high correlation between the movements in a fund's returns and movements in a
benchmark index.
R20.94
AS OF 9/30/2015

A measurement of how closely the portfolio's performance correlates with the performance of the fund's primary benchmark index or equivalent.
R2 is a proportion which ranges between 0.00 and 1.00. An R 2 of 1.00 indicates perfect correlation to the benchmark index, that is, all of the
portfolio's fluctuations are explained by performance fluctuations of the index, while an R 2 of 0.00 indicates no correlation. Therefore, the lower the
R2, the more the fund's performance is affected by factors other than the market as measured by that benchmark index. An R 2 value of less than 0.5
indicates that the Annualized Alpha and Beta are not reliable performance statistics.
Sharpe Ratio1.24
AS OF 9/30/2015

The Sharpe ratio is a measure of historical risk-adjusted performance calculated by dividing the fund's excess returns (fund's average annual return for
the period minus the average annual return for the period of the Salomon Smith Barney 3-Month T-Bill Index) by standard deviation of the fund
returns. The higher the ratio, the better the fund's return per unit of risk.
Standard Deviation6.95
AS OF 9/30/2015

Statistical measure of how much a return varies over an extended period of time. The more variable the returns, the larger the standard deviation.
Investors may examine historical standard deviation in conjunction with historical returns to decide whether an investment's volatility would have
been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater
historical volatility. Standard deviation does not indicate how an investment actually performed, but it does indicate the volatility of its returns over
time. Standard deviation is annualized. The returns used for this calculation are not load-adjusted.

Historical Fund Performance

5
Current year's data as of: 9/30/2015

Year

Total Returns

Capital Gains Dividends

Glossary definition opens in new window.Share Class Net Assets ($M)

2015

-3.75%

$1.215

$0.282

$19,620.86

2014

10.37%

$1.862

$0.366

$20,043.90

2013

20.50%

$1.134

$0.342

$17,916.15

2012

12.90%

--

$0.347

$14,826.99

2011

1.68%

--

$0.349

$14,861.70

2010

13.76%

$0.008

$0.351

$17,287.94

2009

28.05%

$0.01

$0.379

$18,108.33

2008

-31.31%

$0.03

$0.386

$16,459.65

2007

8.99%

$1.18

$0.42

$27,227.22

2006

11.65%

$1.04

$0.4

$22,439.29

Characteristics & Attribution

Fund characteristics and performance attribution information provides a framework for examining performance of a fund vs. its benchmark based on
relative asset weightings. Click here to see Fund Characteristics and Attribution.
The "Mutual Funds" area at the top of each page allows access to mutual fund holdings with individual and joint Fidelity non-retirement
accounts. Individual stock positions, ETFs and 529 funds are not available through this view. For the full list of your holdings
visitPortfolio Summary.
Mutual Funds are priced as of the previous business day's market close when the market is open. Mutual fund positions are priced as
of the official market close (typically 4p.m.) and prices are generally available between 5 p.m. and 6p.m.
The performance data featured represents past performance, which is no guarantee of future results. Investment return and principal value of an
investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the
performance data quoted.
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 2015 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content
providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content
providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and,
for fund performance, you should check the fund's current prospectus or other product materials for the most up-to-date information concerning
applicable loads, fees and expenses.
1. No Transaction Fee Fidelity funds are available without paying a trading fee to Fidelity or a sales load to the fund. However, the fund may
charge a short-term trading or redemption fee to protect the interests of long-term shareholders of the fund. Shares are subject to the fund's
management and operating expenses. See Expenses & Fees for more information.
2. The funds on the Fund Picks From Fidelity list are selected based on certain selection criteria. Fund Picks From Fidelity is not a personalized
recommendation or endorsement of any fund for an investor's individual circumstances.
3. Percent Rank in Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest
(or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always
receive a rank of 1. % Rank in Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales
charges.
4. The Morningstar Category Average is the average return for the peer group based on the returns of each individual fund within the group, for
the period shown. This average assumes reinvestment of dividends.
5. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns
are reported as of the period indicated. Life of fund figures are reported as of the commencement date to the period indicated and are cumulative
if the fund is less than one year old. Total returns do not reflect the fund's [%] sales charge. If sales charges were included, total returns would
have been lower.
6. A standard yield calculation developed by the Securities and Exchange Commission for bond funds. The yield is calculated by dividing the net
investment income per share earned during the 30-day period by the maximum offering price per share on the last day of the period. The yield
figure reflects the dividends and interest earned during the 30-day period, after the deduction of the fund's expenses. It is sometimes referred to
as "SEC 30-Day Yield" or "standardized yield".
7. This chart illustrates the performance of a hypothetical $10,000 investment made in this investment product (and a benchmark or category
average, if shown) from the beginning date shown or on the inception date of the product (whichever is later). The inception date used for
products with underlying funds, or multiple shares classes, or are offered as a separate account, strategy or sub account, may be the inception
date of the underlying fund, the earliest share class of the product, or the date composite performance for the product was first made available.
The product's returns may not reflect all its expenses. Any fees not reflected would lower the returns. Benchmark returns include reinvestment of
capital gains and dividends, if any, but do not reflect any fees or expenses. It is not possible to invest in an index. Past performance is no
guarantee of future results. This chart is not intended to imply any future performance of the investment product.
Generally, data on Fidelity mutual funds is provided by FMR, LLC, Morningstar ratings and data on non-Fidelity mutual funds is provided by
Morningstar, Inc. and data on non-mutual fund products is provided by the product's investment manager, trustee or issuer or the plan sponsor
whose plan is offering the product to participants. Although Fidelity believes the data gathered from these third-party sources is reliable, it does
not review such information and cannot warrant it to be accurate, complete or timely. Fidelity is not responsible for any damages or losses arising
from any use of this third-party information.

Before investing, consider the investment objectives, risks, charges and

expenses of the fund or annuity and its investment options. Contact Fidelity for a
free prospectus and, if available, summary prospectus containing this
information. Read it carefully.
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vThe discussion on investment objectives would not be complete without a discussion on the risks that investing in a mutual fund
entails.
At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that
the value of all financial investments will fluctuate.
Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital
will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest appraisal of
your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for
each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider your
investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will
be as the value of your investment moves up or down.
Recognizing the type of investor you are will go a long way towards helping you build a meaningful portfolio of investments that you can
live with. Take the test "Tolerance Questionnaire" to determine where your preferences lie.

Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and Automatic Investing (SIP) are two key techniques
you can use to reduce your investment risk considerably and reach your long-term financial goals.

Diversification

When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You can also diversify over
several different kinds of securities by investing in different mutual funds, further reducing your potential risk. Diversification is a basic
risk management tool that you will want to use throughout your lifetime as you rebalance your portfolio to meet your changing needs
and goals. Investors, who are willing to maintain a mix of equity shares, bonds and money market securities have a greater chance of
earning significantly higher returns over time than those who invest in only the most conservative investments. Additionally, a diversified
approach to investing -- combining the growth potential of equities with the higher income of bonds and the stability of money markets -helps moderate your risk and enhance your potential return.

Systematic Investment Plan (SIP)

The Unitholders of the Scheme can benefit by investing specific Rupee amounts periodically, for a continuous period. Mutual fund SIP
allows the investors to invest a fixed amount of Rupees every month or quarter for purchasing additional units of the Scheme at NAV
based prices.
Here is an illustration using hypothetical figures indicating how the SIP can work for investors:

Suppose an investor would like to invest Rs.1,000 under the Systematic Investment Plan on a quarterly basis.

Amount
Invested (Rs.)

Purchase
Price (Rs.)

No. of Units
Purchased

Initial
Investment

1000

10

100

1000

8.20

121.95

1000

7.40

135.14

1000

6.10

163.93

1000

5.40

185.19

1000

6.00

166.67

1000

8.20

121.95

1000

9.25

108.11

1000

10.00

100.00

1000

11.25

88.89

10

1000

13.40

74.63

11

1000

14.40

69.44

TOTAL

12,000

1,435.90

Average unit cost Rs 12,000/1,435.9 = Rs 8.36

Average unit price 109.6/12 = Rs 9.13
Unit price at beginning of next quarter Rs 14.90
Market value of investment 1435.9 * 14.90= Rs 21,395/The investor liquidates his units and gets back Rs 21,395/Using the SIP strategy the investor can reduce his average cost per unit. The investor gets the advantage of getting more units when
the market is turned down.

Types of risks
All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than
your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when
he was your age). Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens,
the stock prices of both an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is
due to "market risk".

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment,
you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.

Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to
pay the interest you are promised, or repay your principal when the investment matures?

Inflation Risk
Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is
rarely successful. A diversified portfolio can help in offseting these changes.

Effect of loss of key professionals and inability to adapt

An industries' key asset is offen the personnel who run the business i.e. intellectual properties of the key employees of the respective
companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and
motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and
also to retain them to meet the changing environment and challenges the sector offers.
Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in
which the fund invests.

Exchange Risk
A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign
currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an
effect on the investment of the fund.

Investment Risk
The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the
NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio
of equities.

Change in the Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to

The discussion on investment objectives would not be complete without

a discussion on the risks that investing in a mutual fund entails.
an impact on the investments made by the fund.

At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential
reward. Remember that the value of all financial investments will fluctuate.
Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your
accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial
goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual
tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept
short-term volatility with ease, others with near panic. So whether you consider your investment temperament to
be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as
the value of your investment moves up or down.
Recognizing the type of investor you are will go a long way towards helping you build a meaningful portfolio of
investments that you can live with. Take the test "Tolerance Questionnaire" to determine where your preferences
lie.

Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and Automatic Investing (SIP)
are two key techniques you can use to reduce your investment risk considerably and reach your long-term

financial goals.

Diversification

When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You
can also diversify over several different kinds of securities by investing in different mutual funds, further reducing
your potential risk. Diversification is a basic risk management tool that you will want to use throughout your
lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to
maintain a mix of equity shares, bonds and money market securities have a greater chance of earning
significantly higher returns over time than those who invest in only the most conservative investments.
Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher
income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential
return.

Systematic Investment Plan (SIP)

The Unitholders of the Scheme can benefit by investing specific Rupee amounts periodically, for a continuous
period. Mutual fund SIP allows the investors to invest a fixed amount of Rupees every month or quarter for
purchasing additional units of the Scheme at NAV based prices.
Here is an illustration using hypothetical figures indicating how the SIP can work for investors:
Suppose an investor would like to invest Rs.1,000 under the Systematic Investment Plan on a quarterly basis.

Amount
Invested (Rs.)

Purchase
Price (Rs.)

No. of Units
Purchased

Initial
Investment

1000

10

100

1000

8.20

121.95

1000

7.40

135.14

1000

6.10

163.93

1000

5.40

185.19

1000

6.00

166.67

1000

8.20

121.95

1000

9.25

108.11

1000

10.00

100.00

1000

11.25

88.89

10

1000

13.40

74.63

11

1000

14.40

69.44

TOTAL

12,000

1,435.90

Average unit cost Rs 12,000/1,435.9 = Rs 8.36

Average unit price 109.6/12 = Rs 9.13
Unit price at beginning of next quarter Rs 14.90
Market value of investment 1435.9 * 14.90= Rs 21,395/The investor liquidates his units and gets back Rs 21,395/Using the SIP strategy the investor can reduce his average cost per unit. The investor gets the advantage of
getting more units when the market is turned down.

Types of risks
All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation
will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000
gets you less than it got your father when he was your age). Consider these common types of risk and evaluate
them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences.
When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling
corporation may be affected. This change in price is due to "market risk".

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings
on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs
when prices rise faster than your returns.

Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are
you that it will be able to pay the interest you are promised, or repay your principal when the investment
matures?

Inflation Risk
Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting"
which way rates will go is rarely successful. A diversified portfolio can help in offseting these changes.

Effect of loss of key professionals and inability to adapt

An industries' key asset is offen the personnel who run the business i.e. intellectual properties of the key
employees of the respective companies. Given the ever-changing complexion of few industries and the high
obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of
industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the
changing environment and challenges the sector offers.
Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the
particular sector in which the fund invests.

Exchange Risk
A number of companies generate revenues in foreign currencies and may have investments or expenses also
denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative
impact on companies which in turn would have an effect on the investment of the fund.

Investment Risk
The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular
sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may
be more volatile than a more diversified portfolio of equities.

Change in the Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the
companies leading to an impact on the investments made by the fund. The discussion on investment objectives
would not be complete without a discussion on the risks that investing in a mutual fund entails.
At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential
reward. Remember that the value of all financial investments will fluctuate.
Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your
accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial
goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual
tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept
short-term volatility with ease, others with near panic. So whether you consider your investment temperament to
be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as

the value of your investment moves up or down.

Recognizing the type of investor you are will go a long way towards helping you build a meaningful portfolio of
investments that you can live with. Take the test "Tolerance Questionnaire" to determine where your preferences
lie.

Managing risks
Mutual funds offer incredible flexibility in managing investment risk. Diversification and Automatic Investing (SIP)
are two key techniques you can use to reduce your investment risk considerably and reach your long-term
financial goals.

Diversification

When you invest in one mutual fund, you instantly spread your risk over a number of different companies. You
can also diversify over several different kinds of securities by investing in different mutual funds, further reducing
your potential risk. Diversification is a basic risk management tool that you will want to use throughout your
lifetime as you rebalance your portfolio to meet your changing needs and goals. Investors, who are willing to
maintain a mix of equity shares, bonds and money market securities have a greater chance of earning
significantly higher returns over time than those who invest in only the most conservative investments.
Additionally, a diversified approach to investing -- combining the growth potential of equities with the higher

income of bonds and the stability of money markets -- helps moderate your risk and enhance your potential
return.

Systematic Investment Plan (SIP)

The Unitholders of the Scheme can benefit by investing specific Rupee amounts periodically, for a continuous
period. Mutual fund SIP allows the investors to invest a fixed amount of Rupees every month or quarter for
purchasing additional units of the Scheme at NAV based prices.
Here is an illustration using hypothetical figures indicating how the SIP can work for investors:
Suppose an investor would like to invest Rs.1,000 under the Systematic Investment Plan on a quarterly basis.

Amount
Invested (Rs.)

Purchase
Price (Rs.)

No. of Units
Purchased

Initial
Investment

1000

10

100

1000

8.20

121.95

1000

7.40

135.14

1000

6.10

163.93

1000

5.40

185.19

1000

6.00

166.67

1000

8.20

121.95

1000

9.25

108.11

1000

10.00

100.00

1000

11.25

88.89

10

1000

13.40

74.63

11

1000

14.40

69.44

TOTAL

12,000

1,435.90

Average unit cost Rs 12,000/1,435.9 = Rs 8.36

Average unit price 109.6/12 = Rs 9.13
Unit price at beginning of next quarter Rs 14.90
Market value of investment 1435.9 * 14.90= Rs 21,395/The investor liquidates his units and gets back Rs 21,395/Using the SIP strategy the investor can reduce his average cost per unit. The investor gets the advantage of
getting more units when the market is turned down.

Types of risks
All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation
will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000
gets you less than it got your father when he was your age). Consider these common types of risk and evaluate
them against potential rewards when you select an investment.

Market Risk
At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences.
When this happens, the stock prices of both an outstanding, highly profitable company and a fledgling
corporation may be affected. This change in price is due to "market risk".

Inflation Risk
Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings
on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs
when prices rise faster than your returns.

Credit Risk
In short, how stable is the company or entity to which you lend your money when you invest? How certain are
you that it will be able to pay the interest you are promised, or repay your principal when the investment
matures?

Inflation Risk
Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting"
which way rates will go is rarely successful. A diversified portfolio can help in offseting these changes.

Effect of loss of key professionals and inability to adapt

An industries' key asset is offen the personnel who run the business i.e. intellectual properties of the key
employees of the respective companies. Given the ever-changing complexion of few industries and the high
obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of
industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the
changing environment and challenges the sector offers.
Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the
particular sector in which the fund invests.

Exchange Risk
A number of companies generate revenues in foreign currencies and may have investments or expenses also
denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative
impact on companies which in turn would have an effect on the investment of the fund.

Investment Risk
The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular
sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may
be more volatile than a more diversified portfolio of equities.

Change in the Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the
companies leading to an impact on the investments made by the fund.
What are ratios to measure mutual fund risks For a mutual fund, it becomes more difficult when it entails
investment in equity instruments in general. There are number of ratios which mutual fund investors should
consider before making their investments. JUZER GABAJIWALA Director, Ventura Securities Expertise : Mutual
Funds More about the Expert... 17 0Google +0 0 Juzer Gabajiwala Ventura Securities Every investor has a
tendency to focus only on returns. However, it is very important to also consider the risk aspect of the investment
since risk and return are two sides of the same coin. ADVERTISING For a mutual fund, it becomes more difficult
when it entails investment in equity instruments in general. There are number of ratios which mutual fund
investors should consider before making their investments. We attempt to demystify some of the popular ratios
used in this regard. This is not a foolproof tool but can be used in conjunction with other analysis as well. Among
the most commonly used ratios to measure risk, there are 3 ratios; we come across these very often but fail to
understand their importance. These are: 1. Standard Deviation 2. Beta 3. Sharpe ratio 1. Standard Deviation
(SD): It tells how much the return of a particular fund is deviating from the expected returns based on its
historical performance. In other words, it can be said that it evaluates the volatility of the fund. The standard
deviation of a fund measures this risk by measuring the degree to which the fund fluctuates in relation to its
average return of a fund over a period of time. High standard deviation denotes high volatility. For example : a
fund with standard deviation of 10% will have a tendency to deviate 10% from its average return. Let us look at
an example, Fund Name 1-yr Returns (%) SD (%) Fund A- UTI Top 100 Fund 19 18 Fund B- Reliance Top 200
Fund 19 20 Source: ACE MF, Data as on 27th March 2014 In the above case both are equity diversified large
cap funds, we can see that both have similar returns but fund B's SD is 20 which is more risky or volatile than
fund A. In such cases, one should prefer fund A since its returns are comparable to fund B and are more
predictable. 2. Beta: It is a measure of volatility or systematic risk of a security or a portfolio compared to the
market as whole. A fund with a beta greater than 1 is considered more volatile than the market; less than 1 is less
volatile. Funds with higher beta signifies greater volatility and are considered to carry a higher risk. If Beta is
more than 1: It means fund moves up / down with the market with greater proportionate. E.g. if market goes up
by 10%, then fund with beta 1.2 will move up by 12% and vice versa. However, whether a high beta is good or

bad depends upon the state of the market. If the market sentiments are bullish, then a high beta stock is better
and if the market sentiments are bearish then, low beta stock is better. 3. Sharpe ratio: This is one of the most
widely used performance tracker in the mutual fund industry. It evaluates the return that a fund has generated
relative to the risk taken. It shows whether the returns from investments are due to smart investment decisions or
the result of excess risk taken by the Fund Manager. Sharpe Ratio depicts what is the return earned at what
level of risk. Fund Name Beta SD Sharpe 1-yr Returns (%) HDFC Capital builder Fund 18 24 Reliance Vision
Fund 21 24
Source: ACE MF, Data as on 27th March 2014 In the above example, both funds have given
absolute return of 24% each in last one year period. Reliance's fund with an SD of 21 was more volatile than
HDFC's (SD of 18). This implies that HDFCs fund carried less risk compared to Reliance. Which fund is better
among the two, given the situation? Obviously, HDFC Capital Builder Fund is better, as it is offering same return
at a lower risk (represented by standard deviation) Higher ratio depicts a high return with lower risk. (Here,
Sharpe ratio of HDFC's fund is higher than Reliance's Fund). Let us consider another example, where risk
measures - Beta and Std. Dev are same and returns generated by them are different for the same period. Fund
Name Beta SD Sharpe 1-yr Returns (%) Principal Large Cap Fund 0.91 20 0.07 22 Franklin India Bluechip
Fund 0.91 20 0.05 15
From the above table, we can see that if the investor was faced with the same levels
of risk, he should have gone for Principal large cap fund which gave 22% returns, whereas Franklin India
Bluechip fund posted only 15% returns for the same tenure. Thus, if one has to choose between two funds with
the same level of risk, then he should go for a fund which generated higher returns. The above interpretation is
only for analytical purposes; both the funds have similar characteristics and belong to the same category. In a
nutshell, Ratio Name Significance Standard Deviation The lower this figure, the better the fund is, as a higher
figure means more inconsistency and a higher risk of a downslide in return. Beta Gives an idea of how much a
fund is likely to move compared to movements of the benchmark. Thus, if you are Bullish; you should opt for a
high beta funds and go in for a low beta if you are bearish. Sharpe Funds that post a higher-than-market Sharpe
are preferable. And a ratio that does not beat the risk free rate of return is worth ignoring.
Conclusion:
These ratios are just raw numbers which are meaningless unless compared with ratios of other investments over
the same time frame with similar objectives and features. These ratios should not be looked at in isolation but
with other parameters like fund performance, long term objective, etc.
Read more at: http://www.moneycontrol.com/news/mf-experts/whatratios-to-measure-mutual-fundrisks_1065979.html?utm_source=ref_article