!

SIDDHARTHA SHEKHAR
ROLL NUMBER 63

MUTUAL FUND MANAGEMENT

The Aditya Birla Group is one of India's largest business houses. Global in
vision, rooted in Indian values, the Group is driven by a performance ethic
pegged on value creation for its multiple stakeholders.

The Group's operations span 66 state of the art, straddling India, Thailand,
Malaysia, Indonesia, Egypt, Philippines, Canada, Australia and China.

A US $28 billion corporation with a market cap. Of US $31.5 billion and in the
League of Fortune 500, the Aditya Birla Group is anchored by an
extraordinary force of 100,000 employees, belonging to 25 different
nationalities. Over 50 per cent of its revenues flow from its operations across
the world.

The Aditya Birla Group is a dominant player in all its areas of operations viz;
Aluminum, Copper, Cement, Viscose Staple Fiber, Carbon Black, Viscose
Filament Yarn, Fertilizers, Insulators, Sponge Iron, Chemicals, Branded
Apparels, Insurance, Mutual Funds, Software and Telecom. The Group has
strategic joint ventures with global majors such as Sun Life (Canada), AT&T
(USA), the Tata Group and NGK Insulators (Japan), and has ventured into the
BPO sector with the acquisition of Trans Works, a leading ITES/BPO
company.

Sun Life Financial

Sun Life Financial is a leading international financial services organization

providing a diverse range of wealth accumulation and protection products and
services to individuals and corporate customers. Chartered in 1865, Sun Life
Financial and its partners today have operations in key markets worldwide,
including Canada, the United States, the United Kingdom, Hong Kong, the
Philippines, Japan, Indonesia, India, China and Bermuda.
 !2

Since its inception in 1994, Birla Sun Life Mutual fund has emerged as one of
India's leading Mutual Funds managing assets of a large investor base. The
fund offers a range of investment options, which include diversified and sector
specific equity schemes, fund of fund schemes, hybrid and monthly income
funds, a wide range of debt and treasury products and offshore funds.

Birla Sun Life Asset Management Company Ltd. (BSLAMC), the investment
managers of Birla Sun Life Mutual Fund, is a joint venture between the
Aditya Birla Group and the Sun Life Financial Services Inc. of Canada. The
joint venture brings together the Aditya Birla Group s experience in the
Indian market and Sun Life s global experience.

No. of schemes 71
No. of schemes including options 218
Equity Schemes 63
Debt Schemes 106
Short term debt Schemes 17
Equity & Debt 10
Money Market 0
Gilt Fund 16

Corpus under management

Rs.49983.17 Crs. as on Feb 28, 2009

Key Personnel
 !3

Donald Stewart (Chairman), A Balasubramanian (CEO), Ashok Suvarna

(COO), Abhay Palnitkar (CFO), Sanjay Singal(CMO), Bhavdeep Bhatt
( Head Products), Chandrashekhar Chavan (Head HRD), Rama
Vasantharajan (Hd Compliance & Risk),

Fund Managers
Ajay Garg , Ankit Sancheti , Atul Penkar , Maneesh Dangi , Navneet Munot,
Nishit Dholakia , Prasad Dhonde , Sanjay Chawla , Satyabrata Mohanty,
Sunaina da Cunha , Vineet Maloo .

BSLAMC follows a long-term, fundamental research based approach to

investment. The approach is to identify companies, which have excellent
growth prospects and strong fundamentals. The fundamentals include the
quality of the company’s management, sustainability of its business model
and its competitive position, amongst other factors. Birla Sun Life Asset
Management Company has one of the largest team of research analysts in
the industry, dedicated to tracking down the best companies to invest in. Birla
Sun Life AMC strives to provide transparent, ethical and research-based
investments and wealth management services.

As of 30 June 2010, the Sun Life Financial group of companies had total
assets under management of CDN $ 435 billion.

Vision
To be the most trusted name in investment and wealth management, to be the
preferred employer in the industry and to be a catalyst for growth and
excellence of the asset management business in India.

Mission

▪ Achieving superior and consistent investment results.

▪ Creating a conducive environment to hone and retain talent.
▪ Providing customer delight.
 !4

▪ Institutionalizing system-approach in all aspects of functioning.

▪ Upholding highest standards of ethical values at all times.

Values

▪ Integrity
▪ Commitment
▪ Passion
▪ Seamlessness
▪ Speed

Track Record
With a proven track record of over 14 years, Birla Sun Life Mutual Fund has
been a catalyst towards the growth of the private sector asset management
business.

Investment Philosophy

Birla Sun Life Mutual Fund follows a long-term, fundamental research based
approach to investment. The approach is to identify companies, which have
excellent credit-worthiness and strong fundamentals. The fundamentals
include the quality of the company's management, sustainability of its
business model and its competitive position, amongst other factors. Birla Sun
Life Asset Management Company (BSLAMC) has one of the largest team of
research analysts in the industry, dedicated to tracking down the best
companies to invest in.

BSLAMC will always strive to provide transparent, ethical and research-based

investments and wealth management services.

Geographical Reach
Today, BSLAMC is present in 111 locations, including 74 branches.
 !5

Product Offerings

Birla Sun Life Mutual Fund offers a range of investment options, which include
diversified and sector specific equity schemes, fund-of-fund schemes, hybrid
and monthly income funds, a wide range of debt and treasury products and
offshore funds. BSLAMC also provides Private Wealth Management services.

BIRLA SUN LIFE MUTUAL FUND’s

DIFFERENT SCHEMEs

EQUITY SCHEMES DEBT SCHEMES

Birla Sun Life Advantage Fund
Birla Sun Life Dividend Yield Plus
Birla Sun Life Tax Plan
Birla Sun Life Index Fund
Birla Sun Life India GenNect Fund
Birla Sun Life India Opportunities
Fund
Birla Sun Life Midcap Fund
Birla Sun Life MNC Fund
Birla Sun Life Basic Industries fund
Birla Sun Life Short Term
Opportunities Fund
Birla Sun Life Dynamic Bond fund
Birla Sun Life Gilt Plus- liquid Plan
Birla Sun Life Gilt Plus-PF Plan
Birla Sun Life Gilt Plus- Regular Plan
Birla Sun Life Income Plus
Birla Sun Life Govt. Securities(Long
Term)
Birla Sun Life Govt. Securities(Short
Term)
Birla Sun Life Income Fund- Half
Yearly Dividend
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Birla Sun Life Income Fund- Quarterly

Birla Sun Life Buy India Fund
Dividend
Birla Sun Life Liquid Plus-Institutional
Birla Sun Life Equity Fund
Monthly Dividend
Birla Sun Life Liquid Plus-Retail
Birla Sun Life Frontline Equity Fund
Monthly Dividend
Birla Sun Life Short Term Fund-
Birla Sun Life New Millennium fund
Monthly Dividend
Birla Sun Life Tax Relief’96
Birla Sun Life Top 100 fund

MARKRTING DEPARTMENT

Marketing is a comprehensive term & it includes all resources & set of

activities necessary to direct & facilitate the flow of goods & services from
producer to consumer in the process of distribution.
“Marketing is the human activity directed at satisfying needs & wants through
exchange process.”
Marketing is the process of planning, pricing, distribution of goods, ideas;
services create exchanges that satisfy individual & organizational goals.

PRODUCT PLANNING

A product planning is a company plan for marketing its products. Product

planning means planning for the product that is to decide what type of
products to be produced or what needs or requirements the product should
satisfy.
 !7

In Birla Sun Life Mutual Fund, product planning is done very carefully. They
first contact Advisors & ask, for the what type of product customers want
means Debt based, Equity Based or Low risk Product etc then they prepare
few samples & give to Advisors. As per the suggestions & Response of
customers they prepare the new Schemes.

STRATEGIES RELATED PRODUCT

In developing a marketing strategy of individual products, the seller has to

comfort many decision. There are four elements related to the products. The
brief study of these elements will complete the concept. These four elements
are:
1. Branding
2. Packing & labeling
3. Promotion
4. After sales service
First one is Brand. Branding is the art and corner stone of marketing. A brand
identifies the seller or marketing. It can a name, trademark, logo or other
symbol under trademark law, the seller is granted exclusive right to the use of
brand name.

Second element is packing and labeling. Many marketers are of view

that packing is a fifth P along with price, product, place and promotion.
Packing includes the activities of designing and producing the container or
wrapper for product while the label identifies the product. “Birla Sun Life
Mutual Fund” also gives much important to the packing and labeling.

Next is Promotion. Today promotion is one of the most important tools

for stay in competition. Birla give full attention on this segment because
Mutual Fund Industry is totally service based company and required high
promotion to attract the investors.
 !8

BIRLA prepare and distribute its new schemes regularly with some
exclusive paper advertisement. Because in this industry the past performance
is only measure of performance of company and it only show through paper
Advertisement.

It also distributes Seasonal Gifts to their Advisor for promoting their

product and motivates them. Example: Give free Umbrella in Monsoon under
“Monsoon Dhamaka” Schemes to attract the advisor for promote BIRLA’s
products.
In this business the actual work of company start after sales of product i.e.
After Sales Services. After Sales Services include how company response to
their Clint. BIRLA is known for their After Sales Services.
• Birla send monthly valuation report of their Clint through currier.

• Birla solved any Query within 48 hours.

• Birla also continues suggest good schemes to their current Clint.

• Birla give Statement of their (Clint) investment free of costs.

PERSONNEL (HR) DEPARTMENT

Personnel management is the most important area of any business

organization. The main aim of personnel management is to manage the
personnel at work. It is concern with employees both as individual as well as
group. The aim being to get better results with their collaboration and activity
involvement in the organization activity.
“Personnel management means quite simply the task of dealing with human
relationship within an organization.”
 !9

“Personnel management is that phase of management which deals with the

effective control and use of manpower as distinguished from other sources of
power”

ORGANISATION STRUCTURE

Organization is a group of people working together co-operating under

“authority”, towards achieving benefit the participants and the organization.
Every organization has goals and objectives.
In Birla Sun Life Mutual Fund, there is a separate personnel department for
achievement of goals. Personnel management is a most important part in an
organization. All the functions related with personnel department. Personnel
manager has got higher status in the organization.

RECRUITMENT

Recruitment is the process of selection for prospective employees

simulating them to apply for job in the organization. In other words it is linking
activity bearing to gather with jobs, selection jobs. Recruitment makes it
possible to acquire the number and type of people necessary to ensure the
continued operation of the organization.
“Recruitment is a process of searching for prospective employee and
stimulating encouraging them to apply for jobs in an organization”.

There are two sources of requirement:

1. Internal Sources
o Promotion
o Transfer
o Demotion
2. External Sources
o Advertisement
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o Employment
o On Campus Requirement
o Employee Recommendation

In “Birla Sun Life Mutual Fund” they are using internal sources as well as
external sources. Their policy for external sources is such that first they give
advertisement in the newspaper and they have also contact with employment
exchange through these source first of all collect application, separated and
then after appropriate candidates are called for the interview.

SELECTION

After creating if application of required number of employees secured

through different sources of recruitment the selection process begins. The
main purpose of selection process of selection process is it find the right man
for each job. The efficiency and profitability of the concern depends mainly on
proper selection of the personnel.
Company select employees through commercial made of three numbers. One
is the work manager, second is of manager and the third is the head
department in which company exists.
 !11

WHY SHOULD INVESTORS CHOOSE BIRLA?

Excellence is next to nothing….and here at Birla everybody tries their best to

offer excellent services to its clientele through its offerings maintaining the
Birla culture which includes:

Controlled and low cost service culture

Birla is there to serve its client at the minimum possible cost. it controls cost
by its various cost- cutting techniques and minimization of avoidable costs.

Large volume processing capability

Being the largest financial service provider in the country, it has the unique
distinction of operating its activities on a large scale which benefits all the
parties cordially.

Adherence to strict time schedule

Birla knows that time is money and tries it best to finish the task within the
stipulated time schedule.

Expertise in coordinating multi-location responses

Birla has got a wide network and hence one can find its branches at most of
the places in India. Thus it enjoys its presence everywhere and coordinates
among itself in solving the queries and in responding to any situation.

Expertise in managing independent entities such as banks, post-office

etc.

The work culture of Birla and the ethics followed inside Birla makes its
workforce compatible with everybody.
 !12

Pooling of group resources

Birla group consists of eight subsidiaries, so it can easily pool up its resources
for accomplishment of its goals, whenever needed. The groups can help each
other whenever there are peaks and lows, and even in the case when they
have huge targets just as we saw few years back, Tata group pooling its
resources to acquire Corus.

How Birla achieved it?

The core competency of Birla lies in the following points due to which it enjoys
a1 competitive edge over its competitors. The following culture adopted by
Birla makes it all time favorite among its clientele:

1. Professionally managed by qualified and trained manpower.

2. Uniquely structured in-house software and hardware department

3. Query handling within 48 hrs.

4. Strong secretarial, accounting and audit systems.

5. Unique work culture of working 7 days a week in 3 shifts.

6. Unmatched network spreading all over India.

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A Mutual fund is a trust that pools the savings of a number of investors who
share a common financial goal. The money thus collected is invested by the
fund manager in different types of securities depending upon the objective of
the scheme. These could range from shares to debentures to money market
instruments. The income earned through these investments and the capital
appreciation realized by the scheme is shared by its unit holders in proportion
to the number of units owned by the (pro rata). Thus a Mutual fund is the most
suitable investment for the common man as it offers an opportunity to invest in
a diversified, professionally managed portfolio at a relatively low cost.
Anybody with an invest able surplus of as a few thousand rupees can invest in
Mutual Funds. Each Mutual Fund scheme has a defined investment objective
and strategy.

A mutual fund is the ideal investment vehicle for today's complex and modern
financial scenario. Markets for equity shares, bonds and other fixed income
instruments, real estate, derivatives and other assets have become mature
and information driven. Price changes in these assets are driven by global
events occurring in faraway places. A typical individual is unlikely to have the
knowledge, skills, inclination and time to keep track of events, understand
their implications and act speedily. An individual also finds it difficult to keep
track of ownership of his assets, investments, brokerage dues and bank
transactions etc.

A mutual fund is answer to all these situations. It appoints professionally

qualified and experienced staff that manages each of these functions on a full
time basis. The large pool of money collected in the fund allows it to hire such
staff at a very low cost to each investor. In effect, the mutual fund vehicle
exploits economies of scale in all three areas – research, investments and
transaction processing. While the concept of individuals coming together to
invest money collectively is not new, the mutual fund in its present form is a
20th century phenomenon. In fact, mutual fund gained popularity only after
the Second World War. Globally, there are thousands of firms offering tens of
thousands of mutual funds with different investment objectives. Today, mutual
 !14

funds collectively manage almost as much as or more money as compared to

banks

Mutual Funds now represent perhaps the most appropriate investment

opportunity for most investors. As financial markets become more
sophisticated and complex, investors need a financial intermediary who
provides the required knowledge and professional expertise on successful
investing. As a result, in the birthplace of mutual funds - the U.S.A. - the fund
industry has overtaken the banking industry: more funds are under mutual
fund management than deposited with banks.

In India with more person getting interested to earn more from their saving to
minimize the effect of growing inflation mutual funds are becoming one the
best way to achieve the required solution. Despite the fact that mutual funds
are still a new financial intermediary in India, they have started opening up
many exciting investment opportunities for the Indian investor.

A mutual fund is a professionally-managed firm of collective

investments that pools money from many investors and invests it in stocks,
bonds, short-term money market instruments, and/or other securities. In other
words we can say that A Mutual Fund is a trust registered with the Securities
and Exchange Board of India (SEBI), which pools up the money from
individual / corporate investors and invests the same on behalf of the
investors /unit holders, in equity shares, Government securities, Bonds, Call
money markets etc., and distributes the profits.
The value of each unit of the mutual fund, known as the net asset value
(NAV), is mostly calculated daily based on the total value of the fund divided
by the number of shares currently issued and outstanding. The value of all the
securities in the portfolio in calculated daily. From this, all expenses are
deducted and the resultant value divided by the number of units in the fund is
the fund’s NAV.
 !15

NAV = Total value of the fund

Number of shares currently issued and
outstanding

ADVANTAGES OF MUTUAL FUNDs

Professional Management

The primary advantage of funds (at least theoretically) is the professional

management of your money. Investors purchase funds because they do not
have the time or the expertise to manage their own portfolios. A mutual fund is
a relatively inexpensive way for a small investor to get a full-time manager to
make and monitor investments.

Diversification

By owning shares in a mutual fund instead of owning individual stocks or

bonds, your risk is spread out. The idea behind diversification is to invest in a
large number of assets so that a loss in any particular investment is minimized
by gains in others. In other words, the more stocks and bonds you own, the
less any one of them can hurt you (think about Enron). Large mutual funds
typically own hundreds of different stocks in many different industries. It
wouldn't be possible for an investor to build this kind of a portfolio with a small
amount of money.

Economies of scale

Because a mutual fund buys and sells large amounts of securities at a time,
its transaction costs are lower than what an individual would pay for
securities transactions.
 !16

Liquidity

Just like an individual stock, a mutual fund allows you to request that your
shares be converted into cash at any time.

DRAWBACKS OF MUTUAL FUNDs

No guarantee

No investment is risk free. If the entire stock market declines in value, the
value of mutual fund shares will go down as well, no matter how balanced the
portfolio is. Investors encounter fewer risks when they invest in mutual funds
than when they buy and sell stocks on their own. However, anyone who
invests through a mutual fund runs the risk of losing money.

Fees and commission

All funds charges administrative fees to cover their day to day expenses.
Some funds also charge sales commission or “loads” to compensate brokers,
financial consultants or financial planners. Even if you do not use a broker or
other financial adviser, you will pay a sales commission if you buy shares in a
load fund.

Taxes
During a typical year, most actively managed mutual funds sell anywhere from
20 to 70 % of the securities in their portfolios, if your fund makes a profit on its
sales, you will pay taxes on the income you receive, even if you reinvest the
money you made.

Management risk
 !17

When you invest in a mutual fund, you depend on the fund manager to make
the right decisions regarding the fund’s portfolio. If the manager does not
freeform as well as you had hoped, you might not make as much money on
your investment as you expected. Of course, if you invest in Index funds, you
forego management risk because these funds do not employ managers.

RISK ASSOCIATED WITH THE INVESTMENT IN THE

MUTUAL FUNDS

Savings are invested in various investment opportunities for earning better

returns. The returns of the investment depend upon the risk of such
investment. All investments involve some risk. The objective of any investor is
to minimize the risk and maximize returns. The value of financial assets
depends on their return and risk patterns.
Risk can be defined as “the chance factor in trading in which expected or
perspective advantage, gain, profit or return may not materialize”
The actual outcome of investment may be less than the expected outcome.
The greater is the variability in the possible outcome, the greater is the risk.
Generally, the variance and the standard deviation of return are used as the
alternative statistical measures of the risk of the financial asset. Similarly, co-
variance measured the risk of the assets, relative to other assets in a portfolio.
Some risks can be controlled by the investors. Others cannot be controlled,
and they are to be borne by the investor compulsorily.
 !18

DIFFERENT TYPES OF RISK IN MUTUAL FUNDs

Risk is an inherent aspect of every form of investment. For mutual fund

investments, risks would include variability, or period-by-period fluctuations in
total return. The value of the scheme’s investment may be affected by factors
affecting capital markets such as price and volume, volatility in the stock
markets, interest rates, currency exchange rates, foreign investment, changes
in government policy, political, economic or other developments.

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 it is referred to as “loss of purchasing power”. Whenever the rate

of inflation exceeds the earnings on your investment, you run the risk that you
will actually be able to buy less, not more.

Credit Risk
 !19

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?

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Bond
prices are influenced by movements in the interest rates in the financial
system. Generally, when interest rates rise, prices of the securities fall and
when interest rates drop, the prices increase. Interest rate movements in the
Indian debt markets can be volatile leading to the possibility of large price
movements up or down in debt and money market securities and thereby to
possibly large movements in the NAV.

Investment Risk

In the sectored fund schemes, investments will be predominantly in equities of

selected 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.

Liquidity Risk

Thinly traded securities carry the danger of not being easily saleable at or
near their real values. The fund manager may therefore be unable to quickly
sell an illiquid bond and this might affect the price of the fund unfavorably.
Liquidity risk is characteristic of the Indian fixed income market.
 !20

Changes 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.

PERFORMANCE OF MUTUAL FUND IN INDIA

Let us start the discussion of the performance of mutual funds in India from
the concept of mutual fund took birth in India. The year was 1963, Unit Trust
of India invited investors or rather to those who believed in savings, to park
their money in UTI mutual fund. And their idea of this investment was good.

For 30 years it goaled without a single second player. Though the 1988 year
saw some new mutual fund companies, but UTI remained in a monopoly
position.

The performance of mutual funds in India in the initial phase was not even
closer to satisfactory level. People rarely understood, and of course investing
was out of question. But yes, some 24 million shareholders were accustomed
with guaranteed high returns by the beginning of liberalization of the industry
in 1992. This good record of UTI became marketing tool for new entrants. The
expectations of investors touched the sky in profitability factor. However,
people were miles away from the preparedness of risks factor after the
liberalization.



The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let
me concentrate about the performance of mutual funds in India through
figures. From Rs. 67bn. the Assets under Management rose to Rs. 470 bn. in
 !21

March 1993 and the figure had a three times higher performance by April
2004. It rose as high as Rs. 1,540bn.



The net asset value (NAV) of mutual funds in India declined when stock prices
started falling in the year 1992. Those days, the market regulations did not
allow portfolio shifts into alternative investments. There were rather no
choices apart from holding the cash or to further continue investing in shares.
One more thing to be noted, since only closed-end funds were floated in the
market, the investors disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992

stock market scandals, the losses by disinvestments and of course the lack of
transparent rules in the where about rocked confidence among the investors.
Partly owing to a relatively weak stock market performance, mutual funds
have not yet recovered, with funds trading at an average discount of 1020
percent of their net asset value.



The supervisory authority adopted a set of measures to create a transparent
and competitive environment in mutual funds. Some of them were like
relaxing investment restrictions into the market, introduction of open-ended
funds, and paving the gateway for mutual funds to launch pension schemes.



The measure was taken to make mutual funds the key instrument for long-
term saving. The more the variety offered, the quantitative will be investors.



At last to mention, as long as mutual fund companies are performing with
lower risks and higher profitability within a short span of time, more and more
people will be inclined to invest until and unless they are fully educated with
the dos and don’ts of mutual funds.
 !22

ORGANISATION OF MUTUAL FUND

A mutual fund is set up in the form of a trust, which has sponsor, trustees,
Asset Management Company (AMC) and custodian. The trust is
established by a sponsor or more than one sponsor who is like promoter
of a company. The trustees of the mutual fund hold its property for the
benefit of the unit holders. AMC approved by SEBI manages the fund by
making investments in various types of securities. A custodian, who is
registered with SEBI, holds the securities of various schemes of the fund
in its custody. The trustees are vested with the general power of
superintendence and direction over AMC. They monitor the performance
and compliance of SEBI regulations by the mutual fund.
➢ Sponsor
➢ Mutual Fund as Trust
➢ Asset Management Company
➢ Other Fund Constituents

1. Sponsor
Any person acting alone or in concert with another body corporate
comparable to a promoter of a company as he gets fund registered with
SEBI. For person to qualify as sponsor at least 40% of the initial Net worth
of AMC should be contributed by him should be in the financial services
business for a period of not less than five years should possess sound
financial track record of over five years & should have positive net worth in
all the immediately preceding five years form a trust and appoint Board of
Trustees appoint AMC directly or in concert with Trustees.

2. Mutual Fund as Trust

Constituted as Trust under Indian Trust Act, 1882 (and registered
under Indian Registration Act, 1908). Sponsor acts as Settler of trust
contributes initial trustee to hold the investors’ assets in trust. Trust deed
to be executed by the sponsor in favor of trustees.
 !23

3. Trustees

Eligibility of Board of Trustees or a Trustee Company

❖ Not guilty of moral turpitude

❖ Not convicted (economic offence and securities laws)
❖ Not part of AMC (director, employee or officer of AMC)
❖ Appointment approved by SEBI
❖ More than one trusteeship (in mutual fund industry; approved by
SEBI)
❖ At least two third should be independent
❖ ‘Meaning of Independence’

Rights of Trustees

❖ Appoint AMC with SEBI approval

❖ Approve schemes floated by AMC
❖ Right to necessary information
❖ Remedial action to ensure that business is conducted as per SEBI
regulation – right to dismiss AMC with approval from SEBI and in
accordance with regulations
❖ Ensure based on quarterly review that any shortfall in NW of AMC is
made up.

Obligations of Trustee

❖ Investment Management Agreement between trustee and AMC with

approval from SEBI (4th schedule)
❖ Monitoring of AMC by trustees – right to information
❖ Right to dismiss the AMC with approval SEBI
❖ Must ensure transactions are in accordance with trust deed
 !24

❖ Ensure AMC has proper systems and procedures

❖ Due diligence in appointment of brokers
❖ Ensure AMC is managing funds independent of other activities
❖ Half yearly report of fund activities and certificate that AMC has been
managing funds independent of other activities

4. Other Fund Constituents

i. Custodian and Depositories

For safekeeping of securities and participating in clearing system
through approved depository companies. Entity independent of the
sponsor’s direction and responsibility of the Trustees.

ii. Bankers
Bankers are dealing with money for buy and sale of units, paying
and receiving funds for investments, discharging obligations for
operational expenses.

iii. Transfer Agent

Transfer agents are used for used for issuing and redeeming units,
preparation of transfer documents, updating investor records, in-
house or external agency.

iv. Distributors
Distributor enable fund to sell units over a wide bas of investors,
brokers, banks, individual agents
 !25

HOW TO INVEST IN MUTUAL FUND

1. Reading a Prospectus
2. Objective Statement
3. Performance
4. Fees and Expenses

THE PROCESS TO PURCHASE AND REDEEM

UNITS

The most common method to invest in a fund once you are in it is to

simply fill out investment forms and write a check to the mutual fund
family. This is probably the easiest but it often takes a few days or even a
week to have the funds credited to your account.

Another method that is common is automatic withdrawals. These

allow you to have a certain amount, which you choose to be deducted
from your bank account each month. These are excellent for getting into
the habit of investing on a regular basis.

The fund will also provide information on how you can redeem your
shares. One common way is to request redemption by filling out a form or
writing a letter to the mutual fund family. This is the most common method
but it isn’t the only one.

Now that you understand the basics of a prospectus, you are one step
closer to getting started in mutual funds. So when you finally receive the
information you requested on a mutual fund, look it over carefully and make
an educated decision if it is right for you.
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PROCESS OF INVESTING IN MUTUAL FUND

❖ Identify Your Investment Needs

Your financial goals will vary, based on your age, lifestyle, financial
independence, family commitments, and level of income and expenses
among many other factors. Therefore, the first step is to assess your
needs. You can begin by defining your investment objectives and needs,
which could be regular income, buying a home or finance a wedding or
educate your children or a combination of all these needs, the quantum of
risk you are willing to take and your cash flow requirements.

❖ Choose the Right Mutual Fund

The important thing is to choose the right mutual fund scheme,

which suits your requirements. The offer document of the scheme tells you
its objectives and provides supplementary details like the track record of
other schemes managed by the same Fund Manager.

❖ Select the Ideal Mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your
investment needs. Your may consider investing in a combination of
schemes to achieve your specific goals.

❖ Invest Regularly

The best approach is to invest a fixed amount at specific intervals,

say every month. By investing a fixed sum each month, you buy fewer
units when the price is higher and more units when the price is low, thus
bringing down your average cost per unit. This is called rupee cost
 !27

averaging and do investors all over the world follow a disciplined

investment strategy.

❖ Start Early
It is desirable to start investing early and stick to a regular
investment plan. If you start now, you will make more than if you wait and
invest later. The power of compounding lets you earn income on income
and your money multiplies at a compounded rate of return.

❖ The Final Step

All your need to do now is to for online application forms of various
mutual fund schemes and start investing. You may reap the rewards in the
years to come.

THE COST ASSOCIATED WITH MUTUAL FUND

Costs are the biggest problem with mutual funds. These costs eat into your
return, and they are the main reason why the majority of funds end up with
sub-par performance. 



What's even more disturbing is the way the fund industry hides costs through
a layer of financial complexity and jargon. Some critics of the industry say that
mutual fund companies get away with the fees they charge only because the
average investor does not understand what he/she is paying for.
Fees can be broken down into two categories: 

1. ongoing yearly fees to keep you invested in the fund. 

2. Transaction fees paid when you buy or sell shares in a fund.



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The Expense Ratio



The ongoing expenses of a mutual fund are represented by the expense ratio.
This is sometimes also referred to as the management expense ratio (MER).
The expense ratio is composed of the following:
1. The Cost Of Hiring The Fund Manager(S)
Also known as the management fee, this cost is between 0.5% and
1% of assets on average. While it sounds small, this fee ensures that
mutual fund managers remain in the country's top echelon of earners.
Think about it for a second: 1% of 250 million (a small mutual fund) is
$2.5 million - fund managers are definitely not going hungry! It's true
that paying managers is a necessary fee, but don't think that a high fee
assures superior performance.

2. Administrative Costs

These include necessities such as postage, record keeping, customer

service, cappuccino machines, etc. Some funds are excellent at
minimizing these costs while others (the ones with the cappuccino
machines in the office) are not.

On the whole, expense ratios range from as low as 0.2%

(usually for index funds) to as high as 2%. The average equity mutual
fund charges around 1.3%-1.5%. You'll generally pay more for
specialty or international funds, which require more expertise from
managers.
Loads are just fees that a fund uses to compensate brokers or
other salespeople for selling you the mutual fund. All you really need to
know about loads is this: don't buy funds with loads. 

Here is how certain loads work
3. Front-end loads
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These are the simplest type of load: you pay the fee when you
purchase the fund. If you invest $1,000 in a mutual fund with a 5%,
$50 will pay for the sales charge, and $950 will be invested in the fund.

4. Back-end loads (also known as deferred sales charges)

These are a bit more complicated. In such a fund you pay the back end
load. If you sell a fund within a certain time frame. A typical example is
a 6% back-end load that decreases to 0% in the seventh year. The
load is 6% if you sell in the first year, 5% in the second year, etc. If you
don't sell the mutual fund until the seventh year, you don't have to pay

them.