“MUTUAL FUND”

Dissertation Submitted to the

Padmashree Dr. D.Y.Patil University
In partial fulfillment of the requirement for the award of
the Degree of
MASTERS IN BUSINESS ADMINISTRATION

Submitted by:-
ROHAN KAMBLI
(Roll No.180)

Research Guide:
Prof.Dr.Pradip Manjrekar
Placement Head
Department of Business Management
Padmashree DR. D.Y. Patil University
CBD Belapur, Navi Mumbai
FEBRUARY 2010

1
“MUTUAL FUND”

2
 DECLARATION

I here by declare that the dissertation “MUTUAL FUND.” submitted

for the MBA degree at Padmashree Dr. D.Y. Patil University

Department of Business Management is my original work and the

dissertation has not formed the basis for the award of any degree,

associate ship, fellowship or any other similar titles.

Place: Mumbai

Date:

ROHAN KAMBLI

Signature of the student

3
 CERTIFICATE

This is to certify that the dissertation entitled “ MUTUAL FUND” is the

bonafide research work carried out by Mr. ROHAN KAMBLI student

of MBA, at Padmashree Dr. D.Y. Patil University Department Of

Business Management during the year 2008-2010, in partial

fulfillment of the requirements for the award of the degree of master

in business management and that the dissertation has not formed the

basis for the award previously of any degree, diploma, associate ship,

fellowship or any other similar title.

Signature of the Director Signature of the guide

(DR. R. GOPAL) (DR.PRADIP MANJREKAR)

Place: Mumbai

Date:

4
 ACKNOWLEDGMENTS

In the first place, i thank Dr.Pradip Manjarekar, Placement Head,

Padmashree DR. D.Y. Patil University Department of Business

Management, Navi Mumbai for having me her valuable guidance for

the project. Without her help it would have been impossible for me to

completed the project.

I would also like to thank the various people from the

Manufacturing Industry who have provided me lot of information and

in fact even sharing some of the confidential company documents

and data-many of which i have used in this report an without which

this could not have been completed.

I would be failing in my duty if I do not acknowledge with a

deep sense of gratitude the sacrifices made by my parents and thus

have helped me in completing the project work successfully.

Place:

Date:

Signature of the student

5
 TABLE OF CONTENTS

CHAPTER NO. PARTICULERS PAGE NO.

1 EXECUTIVE 10-11
SUMMARY
2 METHODOLOGY / 13-15
RESEARCH DESIGN
3 LITERATURE REVIEW 15-16

4 INTRODUCTION 18-22
5 THE OBJECTIVES OF
ASSOCIATION OF
MUTUAL FUND IN 24-26
INDIA
6 BENEFITS OF 28-32
MUTUAL FUNDS
7
TYPES OF MUTUAL
34-45
FUNDS
8 47-51
PROCEDURE TO
INVEST IN MUTUAL
FUND
9 STRUCTURE OF THE 52-53
INDIAN MUTUAL

6
 FUND INDUSTRY
10 55-59
ADVANTAGES OF
MUTUAL FUND
11 61-63
LIMITATIONS OF
MUTUAL FUNDS
12 65-68
PLANS OF MUTUAL
FUNDS
13 FUTURE OF MUTUAL 70-74
FUNDS IN INDIA
14 RIGHTS OF A 76-77
MUTUAL FUND UNIT
HOLDER
15 RECENT TRENDS IN 79-81
MUTUAL FUND
INDUSTRY
16 83-84
MUTUAL FUNDS IN
INDIA
17 SWOT OF THE 86-88
ORGANISATION
18 90-92
PARTIES INVOLVED
IN MUTUAL FUND

DEALINGS

7
19 RISKS IN MUTUAL 94-97
FUNDS
20 EVOLUTION OF 99-102
MUTUAL FUNDS IN
INDIA
21 THE SPONSOR OF 104-106
ASSOCIATION OF
MUTUAL FUNDS IN
INDIA
22 BASIC FEATURE OF 108
MUTUAL FUNDS
23 GOALS OF THE FUND 110
24 RESULT AND 112-120
ANALYSIS
25 FINDING 122

26 SUGGESTION & 124

RECOMMENDATION

27 CONCLUSION 126

28 ANNEXURE 128-132

29 CASE STUDY- 134-148

PENSION PLANS V/S
MUTUAL FUNDS

8
 CHAPTER – 1

EXECUTIVE SUMMARY

9
 EXECUTIVE SUMMARY

This project has been design to serve as a main project in fifth

semester for course of banking and insurance of university of

Mumbai. It has been specially written covering all topics consider

important for subject matter of the project.

I have kept in mind purpose and scope of project and have treated all

topics in language, which would be easily understood.

Since I have taken the topic as “mutual fund in India” I have included

the major content of Indian mutual funds which helps to understand

the working of mutual funds and importance of mutual funds

companies in Indian financial market. This project also helps to

understand the concept of mutual fund and types of schemes

available to investors in the financial market.

Mutual fund is a company which shares the income and risk with its

investors. Small and medium investors use to burn there fingers in

10
stock exchange operations with relatively modest outlay. Now, these

investors can enjoy the wide portfolio of the investment held by the

mutual fund companies.

This project also serves the information related to the risk involved in

investment and income that can be earned by investing in various

schemes, with different objective of each scheme in the mutual fund.

11
 CHAPTER – 2

METHODOLOGY / RESEARCH DESIGN

12
 METHODOLOGY / RESEARCH DESIGN

Type of Study:

The study at Mahindra finance is a combination of analytical and

practical study. It is based on data collected from records of the

company and is administered to various departmental heads

connected with Fund Management.

Types of Data:

Primary Data: This data was collected from discussions and

interactions with respective departmental heads and clients.

Secondary Data: This data was collected through various

newsletters, publications through researchers in the field of fund

management, journals magazine reports and consolidated records

from Mahindra finance.

Sampling plan:

The sampling universe consisted of various mutual funds and their

returns.

13
 CHAPTER – 3

LITERATURE REVIEW

14
 LITERATURE REVIEW

 Financial Statement Analysis:

Author - JOHN J. WILD

Robert F.HALSEY

It brings to the for all tools, methods, techniques, concept of

Mutual fund for modern business.

 Finance Management and Policies:

Author - R.M.SRIVASTAVA

It helps the researcher conceptual information about the subject

matter.

15
  Financial statement:

Author – Satish B Mathur.

This comprehensive text systematically explains the various

benefits, important, roles involved in mutual fund.

 Indian Mutual Funds Handbook

Author: Sundar Sankaran

Like in the US and Japan, mutual funds are on their way to becoming
an indispensable investment avenue for Indian investors. This
comprehensive handbook by an expert lays out the working of Indian
mutual funds, their operational and regulatory mechanisms, the
advantages and limitations of investing in them along with sensible
approaches to personal financial planning. The author's experience of
handling hundreds of training programmes ensures an engaging and
easy to understand approach to mastering.

Highlights

 Benefits of investing in mutual funds; how they compare with

bank and company fixed deposits and other investment
avenues.

16
  The different types of equity, debt, balanced and liquid
schemes available for investment - and the rewards and risks
each one.
 NAV - what it reveals, its calculation and finer nuances.
 The costs of investing in mutual funds - loads, expenses and
management fee.
 The safety net of mutual fund investing - information disclosure
and investor protection stipulated by SEBI.
 Financial planning based on investment needs and goals, life
stage and risk tolerance.

X-Raying Mutual Funds

 How to select a mutual fund for investment: the things to look

for.
 How to compare mutual funds: the right performance evaluation
tools for different kinds of schemes.
 Disciplined methods of mutual funds investing - systematic
investment, withdrawal and transfer plans.

 How Mutual Funds Work Book Description

Author: Fredman Albert J, Wiles Russ

A detailed presentation providing investors with the background and

tools necessary to analyze mutual funds, this book is written together

17
by an academic specializing on investments and a journalist well-
versed in mutual funds. It devotes considerable attention to the
different kinds of securities that funds invest in. Other topics such as
return and risk analysis, mutual fund analysis, the efficient-markets
hypothesis, currency fluctuations, bond characteristics compare
mutual funds to alternative vehicles, especially closed-end funds,
unit-investment trusts and individual stocks and bonds. The authors
cover eleven risk factors that one should know about, before
investing in any fixed-income portfolio, the text is interspersed with
short cases and numerical examples that illustrate important points.

 Mutual Funds in India

Author: Daryab Singh

Economic Scenario worldwide has radically changed in recent years.

The principle of Globalization and Liberalization has accepted by the
economy of different countries of the world including India. For fast
economic development it becomes necessary to develop sound and
large capital market.

 Mutual Funds in India: Marketing Strategies and

Investment Practices

Author : H. Sadhak

This revised, enlarged and up to date edition of a very successful

book is the most important of its kind regarding the mutual funds

18
industry in India. It provides a thorough analysis of mutual funds to
the general public and fund managers alike

19
CHAPTER – 4

INTRODUCTION

20
 INTRODUCTION

An investor earns or expects to earn additional monetary value from

the mode of investment that could be in the form of financial assets.

FUND Instead of directly buying equity shares or fixed income

instruments an investor can participate in various schemes floated by

mutual fund. 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 then invested in capital market instruments such as

shares, debentures and other securities. The income earned through

these investments and the capital appreciation realized is shared by

its unit holders in proportion to the number of units owned by them.

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 basket of securities at a relatively low cost.

21
HISTORY OF MUTUAL FUND:-

The government of India setup unit trust of India in 1963 by an

act on parliament. UTI function under the regulatory and

administrative control of the Reserve Bank of India till 1978.The

industrial development Bank of India took over the regulatory and

administrative control that year. The first scheme launched by UTI

was unit scheme 1964 or the infamous unit 64. The second phase of

the mutual fund industry began with the public sector bank and Life

Insurance Corporation of India and General Insurance Corporation of

India setting up there own mutual fund in 1987.

Finally, in 1993 Kothari pioneer (now merged with Franklin

Templeton) became the first private sector mutual fund to start

operations in the country. A host of private sector as well as foreign

funds set up shop after that. In 1996, a comprehensive and revised

mutual fund regulation was put in place. The industry now functions

under SEBI (mutual fund) regulations, 1996.

22
The industry faced its toughest challenge when the US 64 fiasco

shattered the confidence of investors. However, in 2003, the

government bifurcated the erstwhile UTI. One entity manages the

assets of US 64 and some assured returns schemes. The other is a

regular mutual fund working under the SEBI regulation. Thanks to the

boom in the stock market, UTI managed to clean up its act and

continue to enjoy the confidence of several investors. The whole

industry also came out of the controversy without any major setbacks.

Mutual funds have been around for a long time, dating back to the

early 19th century. The first modern American mutual fund opened in

1924, yet it was only in the 1990‟s that mutual funds became

mainstream investments, as the number of households owning them

nearly tripled during that decade. With recent surveys showing that

over 88% of all investors participate in mutual funds, you‟re probably

already familiar with these investments, or perhaps even own some.

In any case, it‟s important that you know how these investments work

and how you can use them to your advantage.

23
The concept of mutual funds was introduced in India with the

formation of Unit Trust of India in 1963. The first scheme launched by

UTI was the infamous Unit Scheme 64 in 1964. UTI continued to be

the sole mutual fund until 1987, when some public sector banks and

Life Insurance Corporation of India set up mutual funds.

CONCEPT:-

 A mutual fund is a trust that pools the saving of a number of

investors who share a common financial goal.

 The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities.

 The income earned through these investment and the capital

appreciations realized are shared by its unit holders in

proportion to the number of units owned by them.

 Thus a mutual fund is the most suitable investment for the

common man as its offer an opportunity to invest in a

diversified, professionally managed basket of securities at a

relatively low cost.

24
 Mutual fund make it easy and less costly for investors to satisfy

their need for capital growth, income or income preservation

 Mutual fund bring diversification and professional money

management to the individual investor

 A mutual fund is a company that pools the money of many

investors – its shareholders – to invest in a variety of different

securities

25
 CHAPTER – 5

THE OBJECTIVES OF ASSOCIATION OF

MUTUAL FUND IN INDIA

26
 THE OBJECTIVES OF ASSOCIATION OF

MUTUAL FUND IN INDIA

The AMFI works with 30 registered AMCs of the country. It has

certain defined objectives which juxtaposes the guidelines of its

Board of Directors. The objectives are as follows:

This mutual fund association of India maintains a high professional

and ethical standard in all areas of operation of the industry. It also

recommends and promotes the top class business practices and

code of conduct which is followed by members and related people

engaged in the activities of mutual fund and asset management. The

agencies who are by any means connected or involved in the field of

capital markets and financial services also involved in this code of

conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in

the mutual fund industry. AMFI does represent the Government of

27
India, the Reserve Bank of India and other related bodies on matters

relating to the Mutual Fund Industry. It develops a team of well

qualified and trained Agent distributors. It implements a programme

of training and certification for all intermediaries and other engaged in

the mutual fund industry.

AMFI undertakes all India awareness programme for investors in

order to promote proper understanding of the concept and working of

mutual funds.

At last but not the least association of mutual fund of India also

disseminate information on Mutual Fund Industry and undertakes

studies and research either directly or in association with other

bodies.

Association of Mutual Funds in India (AMFI)

With the increase in mutual fund players in India, a need for

mutual fund association in India was generated to function as a non-

profit organization. Association of Mutual Funds in India (AMFI) was

incorporated on 22nd August, 1995.AMFI is an apex body of all Asset

28
Management Companies (AMC) which has been registered with

SEBI. Till date all the AMCs are that have launched mutual fund

schemes are its members. It functions under the supervision and

guidelines of its Board of Directors.

Association of Mutual Funds India has brought down the Indian

Mutual Fund Industry to a professional and healthy market with

ethical lines enhancing and maintaining standards. It follows the

principle of both protecting and promoting the interests of mutual

funds as well as their unit holders.

29
 CHAPTER – 6

BENEFITS OF MUTUAL FUNDS

30
 BENEFITS OF MUTUAL FUNDS

Investing in mutual has various benefits, which makes it an ideal

investment avenue. Following are some of the primary benefits:

1.Professional
1. investment management –

One of the primary benefits of mutual funds is that an investor

has access to professional management. A good investment

manager is certainly worth the fees you will pay. Good mutual

fund managers with an excellent research team can do a better

job of monitoring the companies they have chosen to invest in

than you can, unless you have time to spend on researching

the companies you select for your portfolio. That is because

Mutual funds hire full-time, high-level investment professionals.

Funds can afford to do so as they manage large pools of

money. The managers have real-time access to crucial market

information and are able to execute trades on the largest and

most cost-effective scale. When you buy a mutual fund, the

31
 primary asset you are buying is the manager, who will be

controlling which assets are chosen to meet the funds' stated

investment objectives.

2.

2.Diversification –

A crucial element in investing is asset allocation. It plays a very

big part in the success of any portfolio. However, small

investors do not have enough money to properly allocate their

assets. By pooling your funds with others, you can quickly

benefit from greater diversification. Mutual funds invest in a

broad range of securities. This limits investment risk by

reducing the effect of a possible decline in the value of any one

security. Mutual fund unit-holders can benefit from

diversification techniques usually available only to investors

wealthy enough to buy significant positions in a wide variety of

securities. Diversification involves holding a wide variety of

investments in a portfolio so as to mitigate risks. Mutual funds

usually spread investments across various industries and asset

classes, constrained only by the stated investment objective.

Thus, by investing in mutual fund, you can avail of the benefits

32
of diversification and asset allocation, without investing the

large amount of money that would be required to create an

individual portfolio.

3.Low Cost –

A mutual fund let's you participate in a diversified portfolio for as

little as Rs.5, 000, and sometimes less. And with a no-load

fund, you pay little or no sales charges to own them.

4.Convenience and Flexibility –

Investing in mutual funds has its own convenience. While you

own just one security rather than many, you still enjoy the

benefits of a diversified portfolio and a wide range of services.

Fund managers decide what securities to trade, collect the

interest payments and see that your dividends on portfolio

securities are received and your rights exercised. It also uses

the services of a high quality custodian and registrar. Another

big advantage is that you can move your funds easily from one

fund to another within a mutual fund family..

33
4.Liquidity - In open-ended schemes, you can get your money

back promptly at net asset value related prices from the mutual

fund itself.

5.Transparency - Regulations for mutual funds have made the

industry very transparent. You can track the investments that

have been made on your behalf and the specific investments

made by the mutual fund scheme to see where your money is

going. In addition to this, you get regular information on the

value of your investment.

6.Variety - There is no shortage of variety when investing in

mutual funds. You can find a mutual fund that matches just

about any investing strategy you select. There are funds that

focus on blue-chip stocks, technology stocks, bonds or a mix of

stocks and bonds. The greatest challenge can be sorting

through the variety and picking the best for you. Professional

Management Mutual funds employ experienced and skilled

professionals, who conduct investment research, and analyse

the performance and prospects of various instruments before

34
selecting a particular investment. Thus, by investing in mutual

funds, you can avail of the services of professional fund

managers, which would otherwise be costly for an individual

investor.

7.Liquidity

In an open-ended scheme, unit holders can redeem their units

from the fund house anytime, by paying a small fee called an

exit load, in some cases. Even with close-ended schemes, one

can sell the units on a stock exchange at the prevailing market

price. Besides, some close-ended and interval schemes allow

direct repurchase of units at NAV related prices from time to

time.

35
 CHAPTER – 7

TYPES OF MUTUAL FUNDS

36
 TYPES OF MUTUAL FUNDS

Mutual fund schemes may be classified on the basis of its structure

and its investment objective. Open-ended schemes

These funds do not have a fixed maturity and one can invest in such

funds on any working day, during business hours. Investors can buy

or sell units of open-ended schemes directly from the fund house at

NAV related prices.

1. Open-ended Funds

An open-end fund is one that is available for subscription all through

the year. These do not have a fixed maturity. Investors can

conveniently buy and sell units at Net Asset Value ("NAV") related

prices. The key feature of open-end schemes is liquidity.

37
Top five open-end schemes are:

Sundaram BNP Paribas Money Fund Super

15.0772
Institutional Growth

Templeton India Liquid Plus-Growth Plan 13.0721

HDFC Cash Management Fund - Savings Plan-

14.8842
Growth Option

SBI MICF CASH PLAN 16.0392

Fidelity MultiManager Cash Fund-Growth Option 10.3436

2. Close-ended schemes

Such funds have a fixed maturity period and are open for subscription

only for a specified period. After the expiry of this period, investors

can buy or sell the units on the stock exchanges where such funds

are listed. Some funds also have the option of periodic repurchase,

whereby investors can sell back their units to the fund at NAV related

prices.

38
A closed-end fund has a stipulated maturity period which generally

ranging from 3 to 15 years. The fund is open for subscription only

during a specified period. Investors can invest in the scheme at the

time of the initial public issue and thereafter they can buy or sell the

units of the scheme on the stock exchanges where they are listed. In

order to provide an exit route to the investors, some close-ended

funds give an option of selling back the units to the Mutual Fund

through periodic repurchase at NAV related prices. SEBI Regulations

stipulate that at least one of the two exit routes is provided to the

investor.

The top five close-ended funds are:

Prudential ICICI Fusion Fund-FII – Growth 9.05

Tata Equity Management Fund – Growth 10.2370

SBI Debt Fund Series-60 Days-1-Growth 10.0927

Sundaram BNP Paribas Fixed Term Plan Series

10.0737
VII Growth

Reliance Fixed Maturity Fund-Series-II-Annual

10.6576
Plan Series-1-Growth Option

39
 3. Interval schemes

Interval schemes are a combination of both open and close-ended

schemes. Investors can purchase or redeem their shares from the

fund house at pre-determined intervals at NAV related prices.

Interval funds combine the features of open-ended and close-ended

schemes. They are open for sale or redemption during pre-

determined intervals at NAV related prices.

4. Growth schemes

Such funds are aimed at capital appreciation over the medium to long

term. Usually, such funds invest a major portion of the portfolio in

equities.

The aim of growth funds is to provide capital appreciation over the

medium to long- term. Such schemes normally invest a majority of

their corpus in equities. It has been proven that returns from stocks,

have outperformed most other kind of investments held over the long

40
term. Growth schemes are ideal for investors having a long-term

outlook seeking growth over a period of time.

The top three worth considering funds are:

Reliance Diversified Power Sector Fund-Growth-

25.0016
Growth

Sundaram BNP Paribas India Leadership Fund-

23.1767
Growth

Magnum Equity Fund 25.84

5. Balanced schemes

Such funds have a balanced portfolio and invest in equity and

preference shares in addition to fixed income securities. The aim of

such funds is to provide both income and capital appreciation over a

long-term.

41
 6. Income schemes

These schemes invest primarily in fixed income instruments issued

by the government, banks, financial institutions and private

companies. The main objective of income schemes is preservation of

capital and to provide fixed income over the medium to long term.

The aim of income funds is to provide regular and steady income to

investors. Such schemes generally invest in fixed income securities

such as bonds, corporate debentures and Government securities.

Income Funds are ideal for capital stability and regular income.

The top three income funds are:

Reliance Income Fund-Retail Plan - Growth Plan

22.321
Growth Option

Sundaram BNP Paribas Bond Saver-Growth 22.0890

SBI Magnum Income Fund-Growth 19.1812

42
 7. Money market schemes

Money market schemes invest in short-term debt instruments, which

earn interest and have high liquidity. Though these are considered to

be the safest investment option, such funds are subject to fluctuations

in the rates of interest.

The aim of money market funds is to provide easy liquidity,

preservation of capital and moderate income. These schemes

generally invest in safer short-term instruments such as treasury bills,

certificates of deposit, commercial paper and inter-bank call money.

Returns on these schemes may fluctuate depending upon the interest

rates prevailing in the market. These are ideal for Corporate and

individual investors as a means to park their surplus funds for short

periods.

8. Tax saving schemes

Such schemes are aimed at offering tax rebates to investors under

specific provisions of the Income Tax Act, 1961. For instance,

investors of Equity Linked Savings Schemes (ELSS) and Pension

Schemes are applicable for deduction u/s 88 of the Income Tax Act,

1961.

43
These schemes offer tax rebates to the investors under specific

provisions of the Indian Income Tax laws as the Government offers

tax incentives for investment in specified avenues. Investments made

in Equity Linked Savings Schemes (ELSS) and Pension Schemes are

allowed as deduction u/s 88 of the Income Tax Act, 1961. The Act

also provides opportunities to investors to save capital gains u/s

54EA and 54EB by investing in Mutual Funds.

9. Index schemes

Such funds strive to mirror the performance of specific market

indices, such as the BSE SENSEX, CNX Nifty, etc which are called

the base index. Investments in such funds are made in the same

stocks as the base index and in similar proportion.

Index Funds attempt to replicate the performance of a particular index

such as the BSE Sensex or the NSE 50.

10. Sector-specific schemes

Such funds invest in a specific industry or sector. The investments

could be in a particular industry (Banking, Pharmaceuticals,

44
Infrastructure, etc) or a group of industries, or various segments (like

„A‟ Group shares).

11. Exchange-traded funds

Such funds are listed and traded on the stock exchange in a similar

manner as stocks. Such funds invest in a basket of stocks and aim at

replicating an index (S&P CNX Nifty, BSE Sensex) or a particular

industry (banking, information technology) or commodity (gold, crude

oil, petroleum).

12. Capital protection funds

These funds are designed to safeguard the capital invested therein,

by investing in suitable securities.

13. Balanced Funds

The aim of balanced funds is to provide both growth and regular

income. Such schemes periodically distribute a part of their earning

and invest both in equities and fixed income securities in the

proportion indicated in their offer documents. In a rising stock market,

the NAV of these schemes may not normally keep pace, or fall

45
equally when the market falls. These are ideal for investors looking

for a combination of income and moderate growth.

The top three balanced funds are:

SBI Magnum Balanced Fund – Growth 29.04

HDFC Balanced Fund-Growth Plan 27.061

FT India Balanced Fund-Growth Plan 26.7482

14. Load Funds

A Load Fund is one that charges a commission for entry or exit. That

is, each time you buy or sell units in the fund, a commission will be

payable. Typically entry and exit loads range from 1% to 2%. It could

be worth paying the load, if the fund has a good performance history.

15. No-Load Funds

A No-Load Fund is one that does not charge a commission for entry

or exit. That is, no commission is payable on purchase or sale of units

46
in the fund. The advantage of a no load fund is that the entire corpus

is put to work.

16. Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in

the offer document. The investment of these funds is limited to

specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

17. Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified

industry or a group of industries or various segments such as 'A'

Group shares or initial public offerings.

Various sectoral schemes are:

 Pharma sector schemes

 FMCG sector schemes

 Service sector schemes

 Infrastructural sector schemes

47
 Bank sector schemes

 Auto sector schemes, etc,

48
 CHAPTER – 8

PROCEDURE TO INVEST IN MUTUAL FUND

49
 PROCEDURE TO INVEST IN MUTUAL FUND

1. 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.

2. 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
50
of other schemes managed by the same Fund Manager. Some

factors to evaluate before choosing a particular Mutual Fund are the

track record of the performance of the fund over the last few years in

relation to the appropriate yardstick and similar funds in the same

category. Other factors could be the portfolio allocation, the dividend

yield and the degree of transparency as reflected in the frequency

and quality of their communications for selecting the right scheme as

per your specific requirements.

3. Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your

investment needs. You may consider investing in a combination of

schemes to achieve your specific goals.

51
 4. 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 averaging and is a disciplined investment strategy

followed by investors all over the world. You can also avail the

systematic investment plan facility offered by many open end funds.

5. 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.

6. The final step

All you need to do now is to click for online application forms of

various mutual fund schemes and start investing. You may reap the

rewards in the years to come. Mutual Funds are suitable for every

52
kind of investor - whether starting a career or retiring, conservative or

risk taking, growth oriented or income seeking.

53
 CHAPTER – 9

STRUCTURE OF THE INDIAN MUTUAL FUND

INDUSTRY

54
STRUCTURE OF THE INDIAN MUTUAL FUND

INDUSTRY

The Indian mutual fund industry is dominated by the Unit Trust of

India which has a total corpus of Rs700bn collected from more than

20 million investors. The UTI has many funds/schemes in all

categories i.e. equity, balanced, income etc with some being open-

ended and some being closed-ended. The Unit Scheme 1964

commonly referred to as US 64, which is a balanced fund, is the

biggest scheme with a corpus of about Rs200bn. UTI was floated by

financial institutions and is governed by a special act of Parliament.

Most of its investors believe that the UTI

is government owned and controlled, which, while legally incorrect, is

true for all practical purposes.

The second largest category of mutual funds is the ones floated by

nationalized banks. Canbank Asset Management floated by Canara

Bank and SBI Funds Management floated by the State Bank of India

55
are the largest of these. GIC AMC floated by General Insurance

Corporation and Jeevan Bima Sahayog AMC floated by the LIC are

some of the other prominent ones. The aggregate corpus of funds

managed by this category of AMCs is about Rs150bn.

The third largest categories of mutual funds are the ones floated by

the private sector and by foreign asset management companies. The

largest of these are Prudential ICICI AMC and Birla Sun Life AMC.

The aggregate corpus of assets managed by this category of AMCs

is in excess of Rs250bn.

56
 CHAPTER – 10

ADVANTAGES OF MUTUAL FUND

57
 ADVANTAGES OF MUTUAL FUND

1. Professional Management

The idea behind a mutual fund is that individual investors generally

lack the time, the inclination or the skills to manage their own

investment. Thus mutual funds hire professional managers to

manage the investments for the benefit of their investors in return for

a management fee.

The organization that manages the investment is the Asset

Management Company (AMC). Employees of the AMC who perform

this role of managing investments are the fund managers.

2. Diversification

The best mutual funds design their portfolios so individual

investments will react differently to the same economic conditions.

58
For example, economic conditions like a rise in interest rates may

cause certain securities in a diversified portfolio to decrease in value.

Other securities in the portfolio will respond to the same economic

conditions by increasing in value. When a portfolio is balanced in this

way, the value of the overall portfolio should gradually increase over

time, even if some securities lose value.

3. Convenient Administration

Investing in a Mutual Fund reduces paperwork and helps you avoid

many problems such as bad deliveries, delayed payments and follow

up with brokers and companies. Mutual Funds save your time and

make investing easy and convenient.

4. Low cost

Mutual fund expenses are often no more than 1.5 percent of your

investment. Expenses for Index Funds are less than that, because

index funds are not actively managed. Instead, they automatically buy

stock in companies that are listed on a specific index.

59
 5. Choice of Schemes

A mutual fund can, and typically does have several schemes to cater

to different investors preferences. The individual could choose to hire

a professional manager to manage his money as per his investment

and risk preferences. Such personal treatment often referred to as

Portfolio Management Scheme (PMS).

6. Legal Framework

Since the investors are often not so well qualified to invest, the

mutual fund business is highly regulated. Broadly the existing

regulations are:

1. Pre-requisitions to start a mutual fund;

2. Permissible schemes and investments;

3. Control over marketing process;

4. Checks and balances in the legal structure;

5. Valuation of securities;

6. Level of operational flexibility to the professional investors.

60
 7. Tax Benefits

Dividend income from mutual fund units will be exempt from income

tax with effect from July 1, 1999. Further, investors can get rebate

from tax under section 88 of Income Tax Act, 1961 by investing in

Equity Linked Saving Schemes of mutual funds. Further benefits are

also available under section 54EA and 54EB with regard to relief from

long term capital gains tax in certain specified schemes.

8. Return Potential

Mutual funds allow you to allocate investments assets across

different fund categories to achieve a variety of risk/reward objectives

thereby reducing overall portfolio risk. In other words, the right way to

benefit from Mutual funds is to balance the risk as well as the

potential to earn.

9. Liquidity

Open-end schemes offer liquidity through on-going sale and re-

purchase facility. Thus, the investor does not have to worry about

61
finding a buyer for his investment –a risk normally associated with

direct investment in the securities market.

10. Transparency

You get regular information on the value of your investment in

addition to disclosure on the specific investments made by your

scheme, the proportion invested in each class of assets and the fund

manager's investment strategy and outlook.

11. Flexibility

Through features such as regular investment plans, regular

withdrawal plans and dividend reinvestment plans, you can

systematically invest or withdraw funds according to your needs and

convenience.

12. Affordability

Investors individually may lack sufficient funds to invest in high-grade

stocks. A mutual fund because of its large corpus allows even a small

investor to take the benefit of its investment strategy.

62
 CHAPTER – 11

LIMITATIONS OF MUTUAL FUNDS

63
 LIMITATIONS OF MUTUAL FUNDS

1. No Guarantees

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. 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.

2. Fees and commissions

All funds charge administrative fees to cover their day-to-day

expenses. Some funds also charge sales commissions or "loads" to

compensate brokers, financial consultants, or financial planners.

Even if you don't use a broker or other financial adviser, you will pay

a sales commission if you buy shares in a Load Fund.

64
 3. Taxes

During a typical year, most actively managed mutual funds sell

anywhere from 20 to 70 percent 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.

4. Management risk

When you invest in a mutual fund, you depend on the fund's manager

to make the right decisions regarding the fund's portfolio. If the

manager does not perform 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.

5. Dilution

It's possible to have too much diversification. Because funds have

small holdings in so many different companies, high returns from a

few investments often don't make much difference on the overall

return. Dilution is also the result of a successful fund getting too big.

When money pours into funds that have had strong success, the

65
manager often has trouble finding a good investment for all the new

money.

66
 CHAPTER – 12

PLANS OF MUTUAL FUNDS

67
 PLANS OF MUTUAL FUNDS

There are two types of plans:-

1) Growth Plan

2) Dividend plan

1. Growth plan

A mutual fund whose aim is to achieve capital appreciation by

investing in growth stocks. They focus on companies that are

experiencing significant earnings or revenue growth, rather than

companies that pay out dividends. The hope is that these rapidly

growing companies will continue to increase in value, thereby

allowing the fund to reap the benefits of large capital gains. In

general, growth funds are more volatile than other types of funds,

rising more than other funds in bull markets and falling more in bear

markets.

68
Some growth plan schemes are:

Franklin India Prima Fund-Growth 161.99

Reliance Vision Fund-GROWTH PLAN-Growth

140.74
Option

HDFC Equity Fund-Growth Plan 116.694

2. Dividend Plan

Again dividend plan is sub divided into two parts:

Dividend reinvestment plan (DRIP)

An investment plan offered by some corporations enabling

shareholders to automatically reinvest cash dividends and capital

gains distributions, thereby accumulating more stock without paying

brokerage commissions. Many DRIPs also allow the investment of

additional cash from the shareholder, known as an optional cash

purchase. Unlike with a Direct Stock Purchase Plan, with a DRIP the

investor must purchase the first share in the company through a

brokerage. After that, the company will take whatever dividends it

69
would normally send as a check and instead it will reinvest them to

purchase more shares in the company for you, all without charging a

commission. The only drawback is that the investor has no control

over when his/her money from the dividends is used to purchase new

stock in the company, which means he/she might be buying new

shares at sub-optimal times. Also called Dividend Reinvestment

Programs.

Some dividend reinvestment schemes are:

Sundaram BNP Paribas Select Debt-Short-term

10.9334
Asset Plan-Weekly Dividend Reinvst

Reliance Short Term Fund-Dividend Re-

10.4327
investment Plan

Prudential ICICI Gilt Fund-Investment-Dividend 10.2819

70
Dividend payout plan

The ex-dividend date was created to allow all pending transactions to

be completed before the record date. If an investor does not own the

stock before the ex-dividend date, he or she will be ineligible for the

dividend payout. Further, for all pending transactions that have not

been completed by the ex-dividend date, the exchanges

automatically reduce the price of the stock by the amount of the

dividend. This is done because a dividend payout automatically

reduces the value of the company (it comes from the company's cash

reserves), and the investor would have to absorb that reduction in

value (because neither the buyer nor the seller are eligible for the

dividend).

Some dividend payout schemes are:

HDFC Equity Fund-Dividend Plan 34.841

Prudential ICICI Tax Plan-Dividend 24.05

Sundaram BNP Paribas S.M.I.L.E.Fund-Dividend 12.8372

71
 CHAPTER – 13

FUTURE OF MUTUAL FUNDS IN INDIA

72
 FUTURE OF MUTUAL FUNDS IN INDIA

By December 2004, Indian mutual fund industry reached Rs 1,50,537

crore. It is estimated that by 2010 March-end, the total assets of all

scheduled commercial banks should be Rs 40, 90,000 crore.

The annual composite rate of growth is expected 13.4% during the

rest of the decade. In the last 5 years we have seen annual growth

rate of 9%. According to the current growth rate, by year 2010,

mutual fund assets will be double.

73
Let us discuss with the following table:

Aggregate deposits of Scheduled Com Banks in India (Rs.Crore)

Ma
Month/Ye Mar- Mar- Mar-
Mar-02 Mar-03 r- Sep-04 4-Dec
ar 98 00 01
04

60541 85159 98914 11311 12808 15672 16225

Deposits -
0 3 1 88 53 51 79

Change

in % over 15 14 13 12 - 18 3

last yr

Source – RBI

74
Mutual Fund AUM‟s Growth

Month/Yea Mar- Mar- Mar- Mar- Mar- Mar- Sep-

4-Dec
r 98 00 01 02 03 04 04

6898 9371 8313 9401 7530 13762 15114 14930

MF AUM's
4 7 1 7 6 6 1 0

Change in

% over 26 13 12 25 45 9 1

last yr

Some facts for the growth of mutual funds in India

 100% growth in the last 6 years.

 Number of foreign AMC's are in the que to enter the Indian

markets like Fidelity Investments, US based, with over

US$1trillion assets under management worldwide.

 Our saving rate is over 23%, highest in the world. Only

channelizing these savings in mutual funds sector is required.

75
  We have approximately 29 mutual funds which is much less

than US having more than 800. There is a big scope for

expansion.

 'B' and 'C' class cities are growing rapidly. Today most of the

mutual funds are concentrating on the 'A' class cities. Soon

they will find scope in the growing cities.

 Mutual fund can penetrate rural like the Indian insurance

industry with simple and limited products.

 SEBI allowing the MF's to launch commodity mutual funds.

 Emphasis on better corporate governance.

 Trying to curb the late trading practices.

 Introduction of Financial Planners who can provide need based

advice.

Here's the standard suggestion that goes with the above analysis:

Determine one‟s risk level. Invest in a diversified basket of securities

that matches that risk level--some split of stocks and short-term

bonds. Either ignore the long-run historical data, or bet against it. In

76
theory it's possible to increase one‟s return by preferring those stocks

and markets that have been falling in value or doing worse than

average, the opposite of the conventional advice.

77
 CHAPTER – 14

RIGHTS OF A MUTUAL FUND UNIT HOLDER

78
RIGHTS OF A MUTUAL FUND UNIT HOLDER

A unit holder in a Mutual Fund scheme governed by the SEBI

(Mutual Funds) Regulations is entitled to:

1. Receive unit certificates or statements of accounts confirming

the title within 6 weeks from the date of closure of the

subscription or within 6 weeks from the date of request for a

unit certificate is received by the Mutual Fund.

2. Receive information about the investment policies, investment

objectives, financial position and general affairs of the scheme.

3. Receive dividend within 42 days of their declaration and receive

the redemption or repurchase proceeds within 10 days from the

date of redemption or repurchase.

4. Vote in accordance with the Regulations to:-

 Approve or disapprove any change in the fundamental

investment policies of the scheme, which are likely to modify

79
 the scheme or affect the interest of the unit holder. The

dissenting unit holder has a right to redeem the investment.

 Change the Asset Management Company.

 Wind up the schemes.

5. Inspect the documents of the Mutual Funds specified in the

scheme's offer document.

80
 CHAPTER – 15

RECENT TRENDS IN MUTUAL FUND

INDUSTRY

81
 RECENT TRENDS IN MUTUAL FUND

INDUSTRY

The most important trend in the mutual fund industry is the

aggressive expansion of the foreign owned mutual fund companies

and the decline of the companies floated by nationalized banks and

smaller private sector players. Many nationalized banks got into the

mutual fund business in the early nineties and got off to a good start

due to the stock market boom prevailing then. These banks did not

really understand the mutual fund business and they just viewed it as

another kind of banking activity.

Few hired specialized staff and generally chose to transfer staff from

the parent organizations. The performance of most of the schemes

floated by these funds was not good. Some schemes had offered

guaranteed returns and their parent organizations had to bail out

these AMCs by paying large amounts of money as the difference

82
between the guaranteed and actual returns. The service levels were

also very bad.

Most of these AMCs have not been able to retain staff, float new

schemes etc. and it is doubtful whether, barring a few exceptions,

they have serious plans of continuing the activity in a major way.

The experience of some of the AMCs floated by private sector Indian

companies was also very similar. They quickly realized that the AMC

business is a business, which makes money in the long term and

requires deep-pocketed support in the intermediate years. Some

have sold out to foreign owned companies, some have merged with

others and there is general restructuring going on.

The foreign owned companies have deep pockets and have come in

here with the expectation of a long haul. They can be credited with

introducing many new practices such as new product innovation,

sharp improvement in service standards and disclosure, usage of

technology, broker education and support etc. In fact, they have

forced the industry to upgrade itself and service levels of

organizations like UTI have improved dramatically in the last few

years in response to the competition provided by these.

83
THE THREE BASIC FEATURES OF MUTUAL FUNDS

a) All mutual funds charge expenses. Whether they be marketing,

management or brokerage fees, fund expenses are generally passed

back to the investors.

b) Investors exercise no control over what securities the fund buys or

sells.

c) The buying and selling of securities within the mutual fund portfolio

generates capital gains and losses which are passed back to

investors even if they have not sold any of their mutual fund shares.

84
 CHAPTER – 16

MUTUAL FUNDS IN INDIA

85
 MUTUAL FUNDS IN INDIA

A mutual fund is simply a financial intermediary that allows a group of

investors to pool their money together with a predetermined

investment objective. The mutual fund will have a fund manager who

is responsible for investing the pooled money into specific securities

(usually stocks or bonds). When one invests in a mutual fund, he is

buying shares (or portions) of the mutual fund and becoming a

shareholder of the fund.

The income earned through these investments and the capital

appreciations realized are shared by its unit holders in proportion to

the number of units owned by them. 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 basket of securities at

a relatively low cost. The flow chart below describes broadly the

working of a mutual fund.

86
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 funds 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 funds collectively manage

almost as much as or more money as compared to banks.

A draft offer document is to be prepared at the time of launching the

fund. Typically, it pre specifies the investment objectives of the

fund, the risk associated, the costs involved in the process and the

broad rules for entry into and exit from the fund and other areas of

operation.

In India, as in most countries, these sponsors need approval

from a regulator, SEBI (Securities exchange Board of India) in our

case. SEBI looks at track records of the sponsor and its financial

strength in granting approval to the fund for commencing operations.

A sponsor then hires an asset management company to invest the

funds according to the investment objective.

87
 CHAPTER – 17

SWOT OF THE ORGANISATION

88
 SWOT OF THE ORGANISATION

SWOT analysis of organizations to provide recommendations on their

performance and growth potential. It is a powerful tool for analyzing

both complex qualitative and quantitative facets of an investment

decision.

The results of this analysis have been fed into marketing and

organizational strategic plans and have been highly successful in

strategy formulation.

Through our SWOT analysis, our clients have been able to take

advantage of niche markets and focus on product innovation which

allows them to capture greater margins.Our SWOT analysis identifies

strengths and weaknesses and relates them with forward looking

opportunities and threats. This helps to identify company and industry

specific critical drivers and catalysts.

SWOT Analysis identifies your company‟s:

Strengths - to build on

Weaknesses - to cover

89
Opportunities - to capture

Threats - to defend against

SWOT Analysis

Strengths:

* Rich experience of the management.

* Good brand equity

* Giving the very good return from inception

* Stabilized and loyal clients.

* Well combination of new energetic and experienced employees.

* Wide variety of investment product to match with every level of

customer

* Giving the mutual fund exposure

Weakness:

* Insufficient office equipments.

* Not all employees have his/her cabin.

* Work place (back office) is quite congested.

* Not very popular in rural area

90
Opportunities:

* Stability through increased brand awareness, market penetration

and Service offerings

* Across all categories of financial services.

* Increase in customer‟s wallet share.

* Leveraging the latest technology for providing quality and client

centric Services.

Threats;

* Increasing interest rate scenario.

* Execution risk.

* Competition from local and multinational players.

* Rising inflation could reduce savings and investment

91
 CHAPTER – 18

PARTIES INVOLVED IN MUTUAL FUND

DEALINGS

92
 PARTIES INVOLVED IN MUTUAL FUND

DEALINGS

1. INVESTORS

Investors are the people who actually invest their money into the

market. Every investor, given his financial position and personal

disposition, has a certain inclination to take risk. The hypothesis is

that by taking an incremental risk, it would be possible for the investor

to earn an incremental return.

Mutual Fund is a kind of solution for investors who lack the time, the

inclination or the skills to actively manage their investment risk in

individual securities. Investing through a mutual fund would make

economic sense for an investor, if he fetches a return that is higher

than what he would otherwise have earned by investing directly

93
 2. TRUSTEES

Trustees are the people within a mutual fund organization who are

responsible for ensuring that investors‟ interests in a scheme are

properly taken care of. In return for their services, they are paid

trustee fees, which are normally charged to the scheme.

3. ASSET MANAGEMENT COMPANY

AMCs manage the investment portfolios of schemes. An AMC‟s

income comes from the management fees it charges the schemes it

manages. The management fee is calculated as a percentage of net

assets managed. An AMC has naturally to employ people and bear

all the establishment costs that are related to its activity out of its

management fee earned.

4. DISTRIBUTORS

Distributors earn a commission for bringing investors into the

schemes of a mutual fund. This commission is an expense for the

94
scheme, although there are occasions when an AMC may choose to

bear the cost, wholly or partly.

Depending on the financial and physical resources at their disposal,

the distributor could be; who have their own or franchised network

reaching out to investors all across the country; distributors who are

generally regional players with some reach within their region;

distributors who are small and marginal players with limited reach.

95
 CHAPTER – 19

RISKS IN MUTUAL FUNDS

96
 RISKS IN MUTUAL FUNDS

The basic objective of a mutual fund is to provide a diversified

portfolio so as to reduce risk in investments at a lower cost. The

mutual fund industry world wide is based on this premise. Investors

who take up mutual fund route for investments believe that there risk

in minimized at lower cost and they get an optimum portfolio of

securities that match there risk appetite. They are ignorant about the

diverse techniques and hedging products that can be used for

minimizing the market volatility and hence take the help of fund

managers. In today‟s world, almost everything has risk following is an

indicative list of risk factors in mutual funds:

1. Stock Market Risks –

Those mutual fund schemes which invest in equities are exposed to

uncertainties of the stock market. Share price move up and down

depending upon demand and supply conditions in the market and so

97
value of holdings of a mutual funds. Each risk that makes overall

market risky is discussed as follows:

A. Business Risk:

Performance of a particular stock would depend upon business

success of that company. We primarily bet on business success

possibilities while we invest in a specific stock. If company does not

achieve sales/profit targets or costs go out of control, the investor

would suffer.

B. Interest Rate Risk:

Interest rates determine weather the investors would prefer debt

market or equity market. Money flows determine level of index.

Recently, FEDERAL BANK OF USA increased interest rates in U S

and we had seen a big crash in market here primarily because of

exodus of FIIs.

C. Sentiments Risk:

Stock market moves on sentiments also. Death of politicians, change

in ruling party in governments, success or failure of diplomatic

98
discussions, monsoon, all and many more affect the stock market.

Mutual funds investments are susceptible to these risks.

D. Industry Risk:

Some industries get sudden boom or some get sudden shocks. Some

perform average consistently while some show extreme variations.

E. Political Risk:

Political decisions affect the market. Tax related, subsidy related

decisions, exim policies and regulatory environment have direct

bearing on the markets.

F. Scheme Risk-

There are certain risks inherent in mutual fund scheme. It depends

upon the nature of the scheme. For instance, in a pure growth

scheme, risk is greater. Debt schemes depend upon interest rate

movements. Returns from high risky scheme are expected more as

risk and return have direct relation with each other. More the risk,

more are the returns and vice versa.

99
 2. Investment Risks-

Whether the mutual fund makes profit or losses by investing in

various financial instruments depends upon the investment expertise

of the AMC. It depends upon the investment Approach, timing of

investments, Type of instruments, and research etc. If calls made by

the fund manager go wrong, the funds performance is affected. This

is investment risk

3. Investor Confidence Risks-

As markets crash or any wrong news comes, investors panic. They

tend to withdraw and redeem there units. This results in sudden

liquidity pressure on the fund and breaks desired diversification. Even

though fund managers do think a particular time as an appropriate

time to sell stocks, due to liquidity pressure, they have to sell it. This

results in loss booking. However, Indian investors had shown greater

maturity in may2006 crash. AUM of most mutual funds increased

instead of expected decrease.

100
 CHAPTER – 20

EVOLUTION OF MUTUAL FUNDS IN INDIA

101
 EVOLUTION OF MUTUAL FUNDS IN INDIA

Introduction:

The mutual fund industry in India started in 1963 with the formation

of Unit Trust of India, at the initiative of the Reserve Bank and the

Government of India. The objective then was to attract the small

investors and introduce them to market investments.

Unit trust of India was set up by an act of parliament. Detailed

debate had taken place in the parliament before this institution saw

the light of the day. Discussion in parliament….highlights.

On why should there be a mutual fund?

…..the objectives of establishing the unit trusts are many and

varied, but basically it is an attempt to mobilize the savings of the

small investors….

102
…..Investment in the securities market for a person who is not well

versed in the operations of the money and the equity markets is not

easy. Amongst the middle class there are few to watch the share

market or watch for investment opportunities. For one thing , the man

who knows something about this things has not got the money and

for another, the who knows nothing about this is afraid to invest in

securities not knowing whit will happen to his money. The share

market while it does play an important role in promoting investments

reduces or drives away any desire on the part of persons in the

middle and lower income groups to invest in securities because of the

scares that are created owing to the operations by what are called

bulls and bears .

…… apart from mobilizing the resources of the people and giving

an impetus to the industry, another useful purpose for which it is

going to perform in times of crisis is to give support to the faltering

stock exchange….

103
On why should it be in public sector?

……an institution which is not financially strong and accepted to

general public cannot hope to succeed or make any major

contribution to our economic growth and progress…

….a desire on the part of the people that the savings of the

community must be controlled by the state and not by the individuals.

…in view of the socialist economy which we are aiming at, in think it

is necessary that a trust like this should be instate sector. There are

many reasons for people to complain about the working of the state

sector enterprises –corruption, misadministration and all that. In spite

of that, I do not think in this country people have very great faith in

private sector banks and other investment institutions. Comparatively

speaking, i have a feeling that people have more assurance in the

banking and other investment institution if they are in the public

sector…

104
….after this moment gathers momentum and people develop

confidence, then perhaps there may be some justification for starting

more such trust in the public sector and some in the private sector.

105
 CHAPTER – 21

THE SPONSOR OF ASSOCIATION OF

MUTUAL FUNDS IN INDIA

106
 THE SPONSOR OF ASSOCIATION OF

MUTUAL FUNDS IN INDIA

1.Bank Sponsored

 SBI Fund Management Ltd.

 BOB Asset Management Co. Ltd.

 Canbank Investment Management Services Ltd.

 UTI Asset Management Company Pvt. Ltd.

2.Institutions

 GIC Asset Management Co. Ltd.

 Jeevan Bima Sahayog Asset Management Co. Ltd.

107
3.Private Sector

Indian:-

 BenchMark Asset Management Co. Pvt. Ltd.

 Cholamandalam Asset Management Co. Ltd.

 Credit Capital Asset Management Co. Ltd.

 Escorts Asset Management Ltd.

 JM Financial Mutual Fund

 Kotak Mahindra Asset Management Co. Ltd.

 Reliance Capital Asset Management Ltd.

 Sahara Asset Management Co. Pvt. Ltd

 Sundaram Asset Management Company Ltd.

 Tata Asset Management Private Ltd.

Predominantly India Joint Ventures:-

 Birla Sun Life Asset Management Co. Ltd.

 DSP Merrill Lynch Fund Managers Limited

 HDFC Asset Management Company Ltd.

108
Predominantly Foreign Joint Ventures:-

 ABN AMRO Asset Management (I) Ltd.

 Alliance Capital Asset Management (India) Pvt. Ltd.

 Deutsche Asset Management (India) Pvt. Ltd.

 Fidelity Fund Management Private Limited

 Franklin Templeton Asset Mgmt. (India) Pvt. Ltd.

 HSBC Asset Management (India) Private Ltd.

 ING Investment Management (India) Pvt. Ltd.

 Morgan Stanley Investment Management Pvt. Ltd.

 Principal Asset Management Co. Pvt. Ltd.

 Prudential ICICI Asset Management Co. Ltd.

 Standard Chartered Asset Mgmt Co. Pvt. Ltd.

109
 CHAPTER – 22

BASIC FEATURES OF MUTUAL FUNDS

110
 BASIC FEATURES OF MUTUAL FUNDS

THE THREE BASIC FEATURES OF MUTUAL FUNDS

a) All mutual funds charge expenses. Whether they be marketing,

management or brokerage fees, fund expenses are generally passed

back to the investors.

b) Investors exercise no control over what securities the fund buys or

sells.

c) The buying and selling of securities within the mutual fund portfolio

generates capital gains and losses which are passed back to

investors even if they have not sold any of their mutual fund shares.

111
 CHAPTER – 23

GOALS OF THE FUND

112
 GOALS OF THE FUND

Many funds are designed to invest in companies that meet specific

investor goals, like growth, value, dividend or income to name a few.

Only companies that meet certain criteria will be included in the fund.

For example, a growth fund looks for companies with significant,

untapped growth potential, whereas a value fund will look for

companies that are undervalued by the market as a way to increase

investor returns. Both of these types of funds are designed for long-

term capital appreciation. If you need the funds to generate income

either because you have retired, are saving to buy a house or are

unable to work, you need to look at funds that will not only grow over

time, but will also provide you with an income. For example, dividend

funds are designed to pay you dividends on a quarterly or annual

basis.

113
 CHAPTER – 24

RESULT AND ANALYSIS

114
 RESULT AND ANALYSIS

Result:-

From the above graph, it is clear, peoples are not aware about mutual

fund because they were not educated. According to business men,

72% people known what is mutual fund because they aware about

share market. According to government employees, 40% peoples

know what is mutual fund; they don‟t intrastate in share market.

115
Youngsters have so aware about mutual fund. 80% youngsters

known, what is mutual fund. Now, we talk about private employees,

maximum people known, what is mutual fund, it is 60%.

116
Result:

As shown above chart 60% business men want to invest money into

the mutual fund because they have interest in mutual fund, maximum

customers want to invest our money into the mutual fund because

their interest decreased in equity market they know that in this field,

risk is low compare to share market. 40% government employees

want to invest your money into the mutual fund, 56% youngsters and

40% private employees want to invest money into the mutual fund.

117
Result:

We know that mutual fund is not always risk free. According to the

customers who know what is mutual fund, they also know it is not

always risk free. Problem has that maximum people are not aware

about mutual fund.28% business men don‟t know, 60% government

employees, 20% youngsters and private employees don‟t know it is

risk free or not.

118
Result:

From the above graph, mostly customers want to invest your money

into the gold, they purchased gold, according to customers, price of

gold always increase and this is always profitable in future.

Youngsters and business men have interest in mutual fund; they like

to take risk because they know that, if risk is high then return may be

high. 28% business men,16% government employees, 40%

youngsters, 20% private employees like to invest money into the

mutual fund.

119
Result:

From the above graph, which is according to the primery data

collected, clearly shows that investors have two types mutual fund, it

is 18%. They want earn maximum profit from mutual fund. These

customer want to increase number of units and also invest other plan

like saving plan.

120
Result:

The result of the primary data shows that investors of reliance mutual

fund who invested in other mutual fund having the higher percentage

prudential ICICI Mutual fund but it may be right or wrong. As reliance

is the brand name in India, the company has good reputation in the

market, almost everyone heard about the reliance and their

companies. Brand management is also required to increase the

product perceived value to the customer. That‟s the reason behind

37% of the people choosing reliance.

121
Result:

From the above graph, which is according to the primary data

collection, clearly shows that the investors are satisfy with the

services providing by the reliance AMC. 37% belief on reliance

mutual fund. It is fine compare to other‟s.

122
Result:

74% customers of reliance are satisfied with the services provided by

Reliance Mutual fund and the rest 26% are not satisfied. Customers

of today are better educated, better informed, more discriminating,

more sophisticated and are more individualistic. What they value in a

mutual fund transaction has dramatically changed.

123
CHAPTER – 25

FINDING

124
 FINDING

 Business men want to invest money into the mutual fund

because they have interest in mutual fund, maximum

customers want to invest our money into the mutual fund

because their interest decreased in equity market they know

that in this field, risk is low compare to share market.

 Mutual fund is also the risky factor.

 People are investing their money in the Gold because there are

more return from that but now a days business men and the

youngsters are investing their money in to the mutual fund.

 Now a days reliance mutual fund has a high market than other

companies mutual fund.

 Most of the people are satisfied with the reliance mutual fund

because of the better services and returns.

125
 CHAPTER - 26

SUGGESTION & RECOMENDATION

126
 SUGGESTION & RECOMMENDATION

 Mutual Fund is not as risky as Share market or other

investment.

 People should invest more in the Mutual fund because they can

get proper returns from the mutual fund in future.

 Mutual fund is an important because the retire person can also

get the money in future for fulfill their own requirements.

127
CHAPTER – 27

CONCLUSION

128
 CONCLUSION

Many funds are designed to invest in companies that meet specific

investor goals, like growth, value, dividend or income to name a few.

If you need the funds to generate income either because you have

retired, are saving to buy a house or are unable to work, you need to

look at funds that will not only grow over time, but will also provide

you with an income.

So today the mutual fund is the most important investment for all the

people.

129
CHAPTER – 28

ANNEXTURE

130
 ANNEXTURE

Questionnaire for customer

Name: ______________________________________

Age: __________

Address: _____________________________________

Phone no. ___________________________________

Email._______________________________________

1. Do you know, what is mutual fund?

a) Yes b) no

2. Do you want to invest your money into the mutual fund?

a) Yes b) no

131
3. Is Mutual fund always risk free?

a) yes

b) No

c) I don‟t know

4. Do you want to invest your money into the given following

sector?

a) Mutual fund

b) Property

c) Gold

d) Shares

e) Insurance

132
5. If yes, Which AMC (asset Management Company) will

you prefer?

a) Reliance mutual fund

b) HDFC mutual fund

c) Birla sun life mutual fund

d) Kotak Mahindra mutual fund

e) other

6. How many AMC‟s mutual fund do you have?

a) One

b) Two

c) More than two

d) None

133
7. According to you which company has more demand in the

market?

a) Reliance mutual fund

b) HDFC mutual fund

c) Birla sun life mutual fund

d) Kotak Mahindra mutual fund

e) other

8. Which AMC provides better service?

a) Reliance mutual fund

b) HDFC mutual fund

c) Kotak Mahindra mutual fund

d) other

134
9. What is your view about reliance mutual fund?

A} yes b} no

__________________________________________________

__________________________________________________

________________________.

Signature__________________

135
 CHAPTER – 29

CASE STUDY- PENSION PLANS V/S

MUTUAL FUNDS

136
 CASE STUDY- PENSION PLANS V/S

MUTUAL FUNDS

As financial planners, we regularly receive queries on how to go

about planning for various life stages. Financial planning to take care

of the post-retirement years is always an important activity for

individuals. With respect to retirement planning, we recently received

a query from a client who wanted to know whether he would be better

off investing in a pension plan offered by a life insurance company or

investing in mutual funds. Given below is our analysis on the options

available to the investor.

Let us look at the given set of variables first.

 The client‟s age is 38 years and he would like to retire 22 years

hence i.e. at the age of 60 years

 The client would like to invest an amount of Rs 1,000,000 (Rs 1

m) each year for three years. In total, he will invest an amount

of Rs 3 m over 3 years.

137
  The client has been suggested a single premium plan of Rs 1 m

with additional „top-ups‟ worth Rs 1 m p.a. (per annum) for the

following two years. In all, the client would be paying Rs 3 m

over the 3-yr period.

 The client has a high-risk appetite and would like to remain

invested in equities throughout the tenure of the pension plan.

 The client has a well-diversified portfolio including mutual funds

and stocks.

Based on the information, we have worked out a likely retirement

solution for the investor.

Let us first take a look at how investments in the unit linked pension

plan (ULPP) pan out.

138
Pension plan: Preparing for the future

Investment One- Admn. Fund Investment Net

amt (Rs) time Charges Mngt Tenure maturity

charge (Rs)* Charges (Yrs) Value (Rs)

(%) (%)

1,000,000 2.50 180 0.80 22 18,400,000

1,000,000 2.50 180 0.80 21

1,000,000 1.00 180 0.80 20

*Administration charges are subject to 5.00% inflation per annum.

Investments in unit linked pension plan (ULPP)

If the client decides to buy the pension plan, then he would be paying

Rs 1,000,000 in the first year. Since this is a single premium plan,

one-time charges on the same are 2.50% (i.e. in the first year). In

other words, Rs 25,000 would be deducted from the client‟s single

premium amount and the remaining amount (i.e. Rs 975,000) would

be invested in the 100% equity ULPP option. This amount will remain

invested for the entire 22-yr tenure.

139
The charges for any additional top-ups in the second year too would

be to the tune of 2.50%. Similar to the first year, Rs 25,000 would be

deducted from the second year‟s top-up amount. So Rs 975,000

would be invested over 21 years.

One-time charges for any top-ups from the third year onwards fall to

1% for the year. Therefore, only Rs 10,000 (i.e. 1% of Rs 1,000,000)

would be deducted and the remaining amount would be invested. The

third year amount (Rs 990,000) will remain invested for a 20-yr period

(i.e. time to maturity).

Fund management charges (FMC) for managing equities in the given

ULPP are 0.80% p.a. Administration charges are assumed to be Rs

180 p.a. (increasing at an assumed inflation rate of 5.00%).

As can be seen from the table above, assuming a compounded

growth rate (CAGR) of 10% p.a. over a 22-Yr tenure, the client‟s

investments will grow to approximately Rs 18,400,000.

As against the ULPP given above, let us now analyse how

investments in a mutual fund would have worked out over a similar

tenure.

140
How do mutual funds fare?

Investment Entry load Fund Mngt Investment Net maturity

amt (Rs) (%) Charges (%)* Tenure (Yrs) Value (Rs)

1,000,000 2.25 2.00 22 15,240,000

1,000,000 2.25 2.00 21

1,000,000 2.25 2.00 20

*FMC is assumed to be 2.00% for the first 5 years, 1.75% for the next

5 years and 1.50% the remaining tenure.

Investments in a mutual fund

Similar to a ULPP, the client would invest Rs 1,000,000 p.a. for 3

years in a mutual fund scheme. However, unlike a one-time initial

charge associated with the ULPP above, mutual funds usually have

an entry/exit load on their schemes. Assuming an entry load of 2.25%

for each of his three annual investments (of Rs 1,000,000), the net

amount invested would be drawn down by Rs 22,500 (i.e. 2.25% of

Rs 1,000,000) each year for the initial three years.

We have also assumed a decreasing FMC on the mutual fund

schemes- the assumption here is it would be 2.00% for the first 5

141
years, 1.75% for the next 5 years and 1.50% for the remaining period

thereafter. The „decreasing FMC‟ assumption is based on the fact

that as the corpus for a mutual fund scheme grows over a period of

time, economies of scale come into play. This helps the mutual fund

spread its costs over a larger corpus, thereby reducing its overall cost

of managing the fund.

As with the ULPP, assuming a 10% rate of growth over a 22-yr

period, the mutual fund investments would have grown to

approximately Rs 15,240,000. The corpus generated by ULPP is

higher than the mutual fund corpus by Rs 3,160,000 (i.e. 20.73%).

The reason why ULPP scores over mutual funds is because of a low

FMC. The FMC on the ULPP under review is 0.80% throughout the

tenure as compared to the mutual fund FMC, which is in the 1.50%-

2.00% range. Over the long term, FMC makes a significant impact by

reducing the corpus available for investments. In other words, lower

the FMC, higher the investible surplus and vice-versa.

In our view therefore, the client would be better off investing his

money in the ULPP.

142
However, analysis on pension plans versus mutual funds would be

considered myopic if deliberated only from the expenses point of

view. There are some inherent advantages as well as disadvantages

that both ULPP and mutual fund investments offer.

1.Maturity proceeds

The maturity payout differs for ULPP as compared to mutual funds.

Only upto one-third of the maturity proceeds are allowed to be

withdrawn under the pension plan; the remaining two-third amount

has to be „compulsorily‟ invested in an annuity from a life insurance

company. The annuity helps generate an income stream for a time

period as specified by the individual. Conversely, in an open-ended

structure, equity funds allow the individual to withdraw the entire

corpus whenever he wants.

2.Diversification

Mutual funds offer the benefit of diversification across various

parameters like fund management style (aggressive vs. conservative)

and investment strategy (e.g. large-cap orientation, mid-cap

orientation, value style of fund management, growth style). This level

of diversification is not possible with the ULPP under consideration.

143
Also, in case an individual feels that a particular mutual fund has not

lived upto expectations, then he can redeem his investments in that

particular scheme and invest in another scheme that fits into his

criteria (i.e. modify his portfolio). The same is not entirely possible

with a ULPP- since the individual has already invested his entire

„available‟ savings into only one „plan‟.

3. Track record

Several equity funds have a track record to boast of. A good track

record helps individuals identify mutual funds that have performed

well across time horizons as well as market phases.

However, the same is not the case with unit linked insurance plans,

which are a recent phenomenon. While some of them may have done

well over the short time period that they have existed, we would like

to evaluate their performance over a longer time frame of at least 5

years before giving a conclusive view.

So what is the bottom line? As can be seen from our calculations and

analysis, the client is better off investing in the ULPP as opposed to

144
equity funds; but ofcourse one needs to keep in mind the inherent

disadvantages of ULIPs as mentioned above.

RECENT TRENDS

Mutual fund investors miss making big gains

Khyati Dharamsi & Vivek Kaul / DNA

Thursday, October 29, 2009 1:51 IST

*Best returns 1 – Corpus

Fund name year (Rs cr)

retur

n(%)

ICICI Prudential 150. 407.16*

Discovery 56

Taurus Infrastructure 149. 28.59

40

JM Multi Strategy 138. 52.29

83

145
Nifty Junior BeES 134. 43.34

71

DSP BR World Gold Reg 133. 1685.96

41

Sahara Banking and Fin 132. 3.87

Serv 08

Sund BNP Paribas 128. 296.75

S.M.I.L.E. 48

Mirae Asset India Opport 124. 159.24

69

DBS Chola Opport 121. 69.33

14

Birla Sun Life Mid Cap 121. 780.91

Plan A 12

Mumbai: Small is the new big.

At least, when it comes to equity mutual fund performance over the

Last one year.

146
Data from Value Research, as on October 27, show that the top 20

performer schemes gave an average return of 126.42% in the period.

But, interestingly, they held only 2.51% of the assets (or investor

money) parked in a total 430 equity mutual fund schemes.

That is, just Rs 4,836 crore out of Rs 192,574 crore, including tax-

saving plans and exchange traded funds.

Another way to look at it: The 20 funds that more than doubled

returns constitute only 0.77% of the total assets of the mutual fund

industry of Rs 627,999 crore (through 1,090 schemes) as on

September 30, 2009.

This is startling stats, and tells that mutual fund investors have

completely missed out on the best performing schemes.

Someone investing even in the 20th best scheme would have

doubled money -- made exactly 114.04% gains -- but in all, only Rs

143.8crore were put in by investors in the scheme.

147
The best returns were given by ICICI Prudential Discovery

(Institutional Plan) at 154% followed by the same fund's Regular Plan

which returned 150.56%.

No. 2 Taurus Infrastructure Fund knocked up a 147.35% gain.

ICICI Prudential Discovery has an asset base of just Rs 407.16 crore

(regular and institutional plan clubbed) and Taurus Infrastructure

Fund Rs 28.59crore.

The third best scheme, JM Multi Strategy Fund, returned 138.83%. Its

assets? Just Rs 52.29crore.

Of the 20 best performing open-ended equity schemes, only two had

an asset base of more than Rs 500crore -- DSP Black Rock World

Gold Fund (Rs 1,685.96crore) and Birla Sun life Mid-cap (A) (Rs

780.91crore).

But the World Gold Fund and the AIG World Gold Fund (corpus Rs

280.61crore) that also features in the top 20 schemes are not really

equity funds.

148
The Income Tax Act, 1961, defines an equity fund as that which

invests an average 65% of its assets in Indian equities over the last

twelve months.

These schemes are feeder schemes, which invest in international

funds that, in turn, invest in gold and other precious metals and

mining stocks.

What goes in favour of these schemes is the fact that they are small.

A small scheme needs fewer stocks to do well for the overall

performance of the scheme to improve, unlike a large scheme.

As assets under management increase, fund managers are left with

fewer options to invest. Also, as a mutual fund scheme becomes

successful, the fees it earns becomes more lucrative.

This is well put by Jason Zweig, the respected personal finance

writer, in his commentary to Benjamin Graham's all-time investment

classic, The Intelligent Investor: "As a fund grows, its fees become

more lucrative, making its managers reluctant to rock the boat. The

very risk that managers took to generate their initial high returns

could now drive the investors away and jeopardize all that fee

149
income. So the biggest funds resemble a herd of identical and

overfed sheep, all moving in sluggish lockstep, all saying "Baaaa" at

the same time."

The other question to ask is, why have investors missed out on the

rally in these small schemes?

If fund men are to believed it is primarily because distributors selling

these schemes to investors have gone missing.

"Initially, performance was being rewarded with inflows. But that is

not happening now because of many reasons," says an equity fund

manager with an international mutual fund house, hinting at the

change in the distributor commission payout method that has come

into effect since August 1, 2009.

Since August 1, schemes cannot charge an entry load from an

investor to pay commission to a distributor. It is now between the

investor and the distributor to decide how much commission is to be

paid.

150
More than half the top-20 schemes had assets under Rs 100crore.

Some had as low as Rs 3.87crore. The average assets held by the

top 20 equity schemes was Rs 241.82crore.

Waqar Naqvi, chief executive officer at Taurus Asset Management

Company, says the Taurus Infrastructure fund had around Rs

7.7crore in April 2009 and now it is Rs 28.59crore.

"So, we have got fresh flows. But retail participation is still missing. If

Sensex hits the 20,000 mark again retail investors would come in," he

said. "In August, September and October 2009, distributors have

been in hibernation that has of course been hitting us. But we are

drawing plans to take the performance to investors by rolling out

advertising campaigns, distributing booklets etc," Naqvi sad.

The industry that is grappling with missing flows and a new norm for

commission payouts, should adapt to the changes in a while say

officials.

151