ITT Project Changing Trend of Investment Pattern in Different Asset Classes and Emergence of Mutual Funds Industry in India

Krishank Parekh (Group Leader) WRO 0274044 Pranav Lokegaonkar 0279962 Vidit Vithlani Kewal Malde Jay Hathi

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Center Name Charni Road, Batch Timing 8.00am to 12.00pm Batch Commencement Date 15/06/2009

Changing Trends of Investment Patterns in Different Asset Classes & Emergence of Mutual Funds Investment in India. INDEX No. Contents 1 2 3 4 5 6 7 8 9 10 Asset Classes In India Introduction To Mutual Funds Phases Of M.F. Market In India Types Of Mutual Funds Broad Classification of Mutual Fund Advantages and Disadvantages of Mutual Funds Strategies for Investing In Mutual Funds. Asset Diversification in Mutual Funds Future of Mutual Funds Asset Management Companies in India Page No. 3 5 8 12 14 31 35 37 39 42 Remar ks

Asset Classes In India An asset class is a bunch of securities that are similar in feature and also behave in a similar manner in the market. There are different asset classes that enable investors to create a well balanced portfolio. They can be classified as follows: Fixed Income Instruments Fixed income instruments are debt instruments issued by government bodies, banks, financial institutions, etc. Investors purchase a fixed income security in lieu of a payoff after a specified period of time i.e., its maturity. Investors receive their face value on maturity, as well as periodic interest payments. It is essentially akin to a loan made to these institutions. Fixed income instruments are relatively low on risk and generally offer a predictable and modest income flow; they are preferred for short and medium term investments. Fixed income securities include vehicles like fixed deposits, government bonds and certificate of deposits, as well as non-tradable securities like bank deposits.

Money Market Instruments. Money market instruments are characterized by their extremely short term period, high liquidity and relative safety. They are generally utilized as a short term means for lending and borrowing. Commercial papers and treasury bills are among the common money market securities. Their term could be for as short as a day! Equity Companies offer shares of their stocks for sale, in order to raise start-up capital or to accelerate company growth. In other words, you own a part of the company and have a right to benefit from its earnings. It is like being a part-owner of a business, gaining from its profits and without physical labour! Equity investors are essentially 'owners' and have a right to gain future profits. Returns from these shares depend on external factors like market conditions, political scenario, etc. and also internal factors like the company's performance, change in management structure, etc. Stocks or equities, as an investment vehicle may be risky as the stock market can be highly volatile. Gains can be enormous, so can be the losses. Equity is best for long-term investing as gains and losses get averaged out due to market conditions. This asset class is known to give the highest rate of return over time and also giving investors the benefit of liquidity. Equity based investments are essential to achieve major investment objectives as they offer the potential for growth and generally outrun inflation, providing investors with much-needed implicit return. However, dealing solely with equity can be highly volatile and more risky. Investing in mutual funds offers the most convenient way to participate in the growth of equity, while reducing / minimizing the risks associated with this asset class. Real Estate Of late, this asset class is gaining the attention of investors very fast, owing to the continuous and sustained rise of the real estate value (at least in India). Investments made in real estate including land / property (built / developing) as an investment vehicle fall into this category. Typically this would fall under physical

investments since you would own a tangible property for the money that you have put in. The last few years have been very effective for investments in this asset class. However, one needs to understand that investments in this asset class could prove to be very illiquid, which means you may not be able to use the money for anything else till you actually sell the property, which generally takes longer than selling a stock in the market! Commodities This is another mode of investing in a physical vehicle. Commodities include oil, metals (gold, copper, etc.), minerals, etc. Typically these are traded instruments and most investors use this to hedge rising costs of such commodities. Introduction to Mutual Funds Mutual fund is a trust that pools money from a group of investors (sharing common financial goals) and invest the money thus collected into asset classes that match the stated investment objectives of the scheme. Since the stated investment objective of a mutual fund scheme generally forms the basis for an investor's decision to contribute money to the pool, a mutual fund can not deviate from its stated objectives at any point of time. Every Mutual Fund is managed by a fund manager, who using his investment management skills and necessary research works ensures much better return than what an investor can manage on his own. The capital appreciation and other incomes earned from these investments are passed on to the investors (also known as unit holders) in proportion of the number of units they own.

When an investor subscribes for the units of a mutual fund, he becomes part owner of the assets of the fund in the same proportion as his contribution amount put up with the corpus (the total amount of the fund). Mutual Fund investor is also known as a mutual fund shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a scheme is calculated by dividing the market value of scheme's assets by the total number of units issued to the investors. For example: A. If the market value of the assets of a fund is Rs. 100,000 B. The total number of units issued to the investors is equal to 10,000. C. Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00 D. Now if an investor 'X' owns 5 units of this scheme E. Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the NAV of the scheme) Spurred on by the economic boom, entry of foreign asset management companies, favorable stock markets, and aggressive marketing by mutual funds, the asset management
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industry in India is witnessing rapid growth. The average Indian investor never had it this good and can now choose to invest in any of the 32 mutual funds that offer nearly 2,000 schemes. What is more, new market participants are further increasing the market size by offering innovative and differentiated products and tapping the untapped markets that were believed to be nonprofitable earlier (for example, rural markets). Most prominent examples of new products are gold traded funds, capital protection oriented schemes, and systematic investment plans, with monthly investment as low as Rs.100 ($2.5) per month. However, the limited participation of the rural sector is a crucial restraint to the industrys growth. Mutual funds are largely out of reach for the majority of rural population due to poor distribution, lack of investor awareness, and limited banking facilities. Furthermore, asset management companies are generally reluctant to invest in infrastructure in smaller towns due to lesser margins from rural business. "This apart, the biggest challenge faced by mutual funds today is hiring and retaining qualified and experienced professionals," notes the analyst of this research service. "However, with asset management companies collaborating with universities to nurture and develop talent, the impact of this restraint is expected to decline in the medium to long term."

PHASES of M.F. MARKET in INDIA The Evolution The formation of Unit Trust of India marked the evolution of the Indian mutual fund industry in the year 1963. The primary objective at that time was to attract the small investors and it was

made possible through the collective efforts of the Government of India and the Reserve Bank of India. The history of mutual fund industry in India can be better understood divided into following phases: Phase 1. Establishment and Growth of Unit Trust of India - 196487 Unit Trust of India enjoyed complete monopoly when it was established in the year 1963 by an act of Parliament. UTI was set up by the Reserve Bank of India and it continued to operate under the regulatory control of the RBI until the two were de-linked in 1978 and the entire control was tranferred in the hands of Industrial Development Bank of India (IDBI). UTI launched its first scheme in 1964, named as Unit Scheme 1964 (US-64), which attracted the largest number of investors in any single investment scheme over the years. UTI launched more innovative schemes in 1970s and 80s to suit the needs of different investors. It launched ULIP in 1971, six more schemes between 1981-84, Children's Gift Growth Fund and India Fund (India's first offshore fund) in 1986, Mastershare (India's first equity diversified scheme) in 1987 and Monthly Income Schemes (offering assured returns) during 1990s. By the end of 1987, UTI's assets under management grew ten times to Rs 6700 crores. Phase II. Entry of Public Sector Funds - 1987-1993 The Indian mutual fund industry witnessed a number of public sector players entering the market in the year 1987. In November 1987, SBI Mutual Funds from the State Bank of India became the first non-UTI mutual fund in India. SBI Mutual Fund was later followed by Canbank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund. By 1993, the assets under management of the industry increased seven times to Rs. 47,004 crores. However, UTI remained to be the leader with about 80% market share. 1992-93 Amount Mobilized Assets Under Mobilization as % of gross Domestic

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Managemen t UTI Public Sector Total 11,057 1,964 13,021 38,247 8,757 47,004

Savings 5.2% 0.9% 6.1%

Phase III. Emergence of Private Sector Funds - 1993-96 The permission given to private sector funds including foreign fund management companies (most of them entering through joint ventures with Indian promoters) to enter the mutual fund industry in 1993, provided a wide range of choice to investors and more competition in the industry. Private funds introduced innovative products, investment techniques and investor-servicing technology. By 1994-95, about 11 private sector funds had launched their schemes. Phase IV. Growth and SEBI Regulation - 1996-2004 The mutual fund industry witnessed robust growth and stricter regulation from the SEBI after the year 1996. The mobilization of funds and the number of players operating in the industry reached new heights as investors started showing more interest in mutual funds. Investors' interests were safeguarded by SEBI and the Government offered tax benefits to the investors in order to encourage them. SEBI (Mutual Funds) Regulations, 1996 was introduced by SEBI that set uniform standards for all mutual funds in India. The Union Budget in 1999 exempted all dividend incomes in the hands of investors from income tax. Various Investor Awareness Programs were launched during this phase, both by SEBI and AMFI, with an objective to educate investors and make them informed about the mutual fund industry. In February 2003, the UTI Act was repealed and UTI was stripped of its Special legal status as a trust formed by an Act of Parliament. The primary objective behind this was to bring all mutual fund players on the same level. UTI was re-organized into two parts: 1. The Specified Undertaking, 2. The UTI Mutual Fund
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Presently Unit Trust of India operates under the name of UTI Mutual Fund and its past schemes (like US-64, Assured Return Schemes) are being gradually wound up. However, UTI Mutual Fund is still the largest player in the industry. In 1999, there was a significant growth in mobilization of funds from investors and assets under management which is supported by the following data: GROSS FUND MOBILISATION (RS. CRORES) FROM 01-April98 01-April99 01-April00 01-April01 01-April02 01-Feb.03 01-April03 01-April04 01-April05 TO 31-March99 31-March00 31-March01 31-March02 31-Jan-03 31-March03 31-March04 31-March05 31-March06 UTI 11, 679 13, 536 12, 413 4,6 43 5,5 05 * PUB LIC SEC TOR 1,73 2 4,03 9 6,19 2 13,6 13 22,9 23 7,25 9* 68,5 58 1,03 ,246 1,83 ,446 PRIV ATE SECT OR 7,96 6 42,1 73 74,3 52 1,46, 267 2,20, 551 58,4 35 5,21, 632 7,36, 416 9,14, 712 TOTA L 21,3 77 59,7 48 92,9 57 1,64, 523 2,48, 979 65,6 94 5,90, 190 8,39, 662 10,9 8,15 8

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ASSETS UNDER MANAGEMENT (RS. CRORES) AS ON 31-March99 UTI 53,320 PUBLIC SECTOR 8,292 PRIVATE SECTOR 6,860 TOTA L 68,47 2

Phase V. Growth and Consolidation - 2004 Onwards The industry has also witnessed several mergers and acquisitions recently, examples of which are acquisition of schemes of Alliance Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB Mutual Fund by Principal Mutual Fund. Simultaneously, more international mutal fund players have entered India like Fidelity, Franklin Templeton Mutual Fund etc. There were 29 funds as at the end of March 2006. This is a continuing phase of growth of the industry through consolidation and entry of new international and private sector players.

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TYPES of MUTUAL FUNDS General Classification of Mutual Funds Open-end Funds | Closed-end Funds Open-end Funds Funds that can sell and purchase units at any point in time are classified as Open-end Funds. The fund size (corpus) of an openend fund is variable (keeps changing) because of continuous selling (to investors) and repurchases (from the investors) by the fund. An open-end fund is not required to keep selling new units to the investors at all times but is required to always repurchase, when an investor wants to sell his units. The NAV of an open-end fund is calculated every day. Closed-end Funds Funds that can sell a fixed number of units only during the New Fund Offer (NFO) period are known as Closed-end Funds. The corpus of a Closed-end Fund remains unchanged at all times. After the closure of the offer, buying and redemption of units by the investors directly from the Funds is not allowed. However, to protect the interests of the investors, SEBI provides investors with two avenues to liquidate their positions: 1. Closed-end Funds are listed on the stock exchanges where investors can buy/sell units from/to each other. The trading is generally done at a discount to the NAV of the scheme. The NAV of a closed-end fund is computed on a weekly basis (updated every Thursday). 2. Closed-end Funds may also offer "buy-back of units" to the unit holders. In this case, the corpus of the Fund and its outstanding units do get changed.

Load Funds | No-load Funds

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Load Funds Mutual Funds incur various expenses on marketing, distribution, advertising, portfolio churning, fund manager's salary etc. Many funds recover these expenses from the investors in the form of load. These funds are known as Load Funds. A load fund may impose following types of loads on the investors:

Entry Load - Also known as Front-end load, it refers to the load charged to an investor at the time of his entry into a scheme. Entry load is deducted from the investor's contribution amount to the fund. Exit Load - Also known as Back-end load, these charges are imposed on an investor when he redeems his units (exits from the scheme). Exit load is deducted from the redemption proceeds to an outgoing investor. Deferred Load - Deferred load is charged to the scheme over a period of time. Contingent Deferred Sales Charge (CDSC) - In some schemes, the percentage of exit load reduces as the investor stays longer with the fund. This type of load is known as Contingent Deferred Sales Charge.

No-load Funds All those funds that do not charge any of the above mentioned loads are known as No-load Funds. Tax-exempt Funds | Non-Tax-exempt Funds Tax-exempt Funds Funds that invest in securities free from tax are known as Taxexempt Funds. All open-end equity oriented funds are exempt from distribution tax (tax for distributing income to investors). Long term capital gains and dividend income in the hands of investors are tax-free. Non-Tax-exempt Funds Funds that invest in taxable securities are known as Non-Taxexempt Funds. In India, all funds, except open-end equity oriented funds are liable to pay tax on distribution income. Profits arising out of sale of units by an investor within 12 months of
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purchase are categorized as short-term capital gains, which are taxable. Sale of units of an equity oriented fund is subject to Securities Transaction Tax (STT). STT is deducted from the redemption proceeds to an investor.

BROAD CLASSIFICATION OF MUTUAL FUND

Equity Funds Equity funds are considered to be the more risky funds as compared to other fund types, but they also provide higher returns than other funds. It is advisable that an investor looking to invest in an equity fund should invest for long term i.e. for 3

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years or more. There are different types of equity funds each falling into different risk bracket. In the order of decreasing risk level, there are following types of equity funds:
1. Aggressive Growth Funds - In Aggressive Growth Funds, fund

managers aspire for maximum capital appreciation and invest in less researched shares of speculative nature. Because of these speculative investments Aggressive Growth Funds become more volatile and thus, are prone to higher risk than other equity funds. a. Growth Funds - Growth Funds also invest for capital appreciation (with time horizon of 3 to 5 years) but they are different from Aggressive Growth Funds in the sense that they invest in companies that are expected to outperform the market in the future. Without entirely adopting speculative strategies, Growth Funds invest in those companies that are expected to post above average earnings in the future. 2. Speciality Funds - Speciality Funds have stated criteria for investments and their portfolio comprises of only those companies that meet their criteria. Criteria for some speciality funds could be to invest/not to invest in particular regions/companies. Speciality funds are concentrated and thus, are comparatively riskier than diversified funds.. There are following types of speciality funds: a. Sector Funds: Equity funds that invest in a particular sector/industry of the market are known as Sector Funds. The exposure of these funds is limited to a particular sector (say Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving Consumer Goods) which is why they are more risky than equity funds that invest in multiple sectors. b. Foreign Securities Funds: Foreign Securities Equity Funds have the option to invest in one or more foreign companies. Foreign securities funds achieve international diversification and hence they are less risky than sector funds. However, foreign securities funds are exposed to foreign exchange rate risk and country risk.

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c. Mid-Cap or Small-Cap Funds: Funds that invest in

companies having lower market capitalization than large capitalization companies are called Mid-Cap or Small-Cap Funds. Market capitalization of Mid-Cap companies is less than that of big, blue chip companies (less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap companies have market capitalization of less than Rs. 500 crores. Market Capitalization of a company can be calculated by multiplying the market price of the company's share by the total number of its outstanding shares in the market. The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap Companies which gives rise to volatility in share prices of these companies and consequently, investment gets risky. d. Option Income Funds*: While not yet available in India, Option Income Funds write options on a large fraction of their portfolio. Proper use of options can help to reduce volatility, which is otherwise considered as a risky instrument. These funds invest in big, high dividend yielding companies, and then sell options against their stock positions, which generate stable income for investors. 3. Diversified Equity Funds - Except for a small portion of investment in liquid money market, diversified equity funds invest mainly in equities without any concentration on a particular sector(s). These funds are well diversified and reduce sector-specific or company-specific risk. However, like all other funds diversified equity funds too are exposed to equity market risk. One prominent type of diversified equity fund in India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum of 90% of investments by ELSS should be in equities at all times. ELSS investors are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time of filing the income tax return. ELSS usually has a lock-in period and in case of any redemption by the investor before the expiry of the lock-in period makes him liable to pay income tax on such

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income(s) for which he may have received any tax exemption(s) in the past. 4. Equity Index Funds - Equity Index Funds have the objective to match the performance of a specific stock market index. The portfolio of these funds comprises of the same companies that form the index and is constituted in the same proportion as the index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex) are less risky than equity index funds that follow narrow sectoral indices (like BSEBANKEX or CNX Bank Index etc). Narrow indices are less diversified and therefore, are more risky. 5. Value Funds - Value Funds invest in those companies that have sound fundamentals and whose share prices are currently under-valued. The portfolio of these funds comprises of shares that are trading at a low Price to Earning Ratio (Market Price per Share / Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio. Value Funds may select companies from diversified sectors and are exposed to lower risk level as compared to growth funds or speciality funds. Value stocks are generally from cyclical industries (such as cement, steel, sugar etc.) which make them volatile in the short-term. Therefore, it is advisable to invest in Value funds with a long-term time horizon as risk in the long term, to a large extent, is reduced. Equity Income or Dividend Yield Funds - The objective of Equity Income or Dividend Yield Equity Funds is to generate high recurring income and steady capital appreciation for investors by investing in those companies which issue high dividends (such as Power or Utility companies whose share prices fluctuate comparatively lesser than other companies' share prices). Equity Income or Dividend Yield Equity Funds are generally exposed to the lowest risk level as compared to other equity funds.

2. Debt / Income Funds Funds that invest in medium to long-term debt instruments issued by private companies, banks, financial institutions, governments and other entities belonging to various sectors (like infrastructure
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companies etc.) are known as Debt / Income Funds. Debt funds are low risk profile funds that seek to generate fixed current income (and not capital appreciation) to investors. In order to ensure regular income to investors, debt (or income) funds distribute large fraction of their surplus to investors. Although debt securities are generally less risky than equities, they are subject to credit risk (risk of default) by the issuer at the time of interest or principal payment. To minimize the risk of default, debt funds usually invest in securities from issuers who are rated by credit rating agencies and are considered to be of "Investment Grade". Debt funds that target high returns are more risky. Based on different investment objectives, there can be following types of debt funds:
a. Diversified Debt Funds - Debt funds that invest in all

securities issued by entities belonging to all sectors of the market are known as diversified debt funds. The best feature of diversified debt funds is that investments are properly diversified into all sectors which results in risk reduction. Any loss incurred, on account of default by a debt issuer, is shared by all investors which further reduces risk for an individual investor. b. Focused Debt Funds* - Unlike diversified debt funds, focused debt funds are narrow focus funds that are confined to investments in selective debt securities, issued by companies of a specific sector or industry or origin. Some examples of focused debt funds are sector, specialized and offshore debt funds, funds that invest only in Tax Free Infrastructure or Municipal Bonds. Because of their narrow orientation, focused debt funds are more risky as compared to diversified debt funds. Although not yet available in India, these funds are conceivable and may be offered to investors very soon. c. High Yield Debt funds - As we now understand that risk of default is present in all debt funds, and therefore, debt funds generally try to minimize the risk of default by investing in securities issued by only those borrowers who are considered to be of "investment grade". But, High Yield Debt Funds adopt a different strategy and prefer securities issued

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by those issuers who are considered to be of "below investment grade". The motive behind adopting this sort of risky strategy is to earn higher interest returns from these issuers. These funds are more volatile and bear higher default risk, although they may earn at times higher returns for investors. d. Assured Return Funds - Although it is not necessary that a fund will meet its objectives or provide assured returns to investors, but there can be funds that come with a lock-in period and offer assurance of annual returns to investors during the lock-in period. Any shortfall in returns is suffered by the sponsors or the Asset Management Companies (AMCs). These funds are generally debt funds and provide investors with a low-risk investment opportunity. However, the security of investments depends upon the net worth of the guarantor (whose name is specified in advance on the offer document). To safeguard the interests of investors, SEBI permits only those funds to offer assured return schemes whose sponsors have adequate net-worth to guarantee returns in the future. In the past, UTI had offered assured return schemes (i.e. Monthly Income Plans of UTI) that assured specified returns to investors in the future. UTI was not able to fulfill its promises and faced large shortfalls in returns. Eventually, government had to intervene and took over UTI's payment obligations on itself. Currently, no AMC in India offers assured return schemes to investors, though possible. Fixed Term Plan Series - Fixed Term Plan Series usually are closed-end schemes having short term maturity period (of less than one year) that offer a series of plans and issue units to investors at regular intervals. Unlike closed-end funds, fixed term plans are not listed on the exchanges. Fixed term plan series usually invest in debt / income schemes and target short-term investors. The objective of fixed term plan schemes is to gratify investors by generating some expected returns in a short period.

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3. Gilt Funds Also known as Government Securities in India, Gilt Funds invest in government papers (named dated securities) having medium to long term maturity period. Issued by the Government of India, these investments have little credit risk (risk of default) and provide safety of principal to the investors. However, like all debt funds, gilt funds too are exposed to interest rate risk. Interest rates and prices of debt securities are inversely related and any change in the interest rates results in a change in the NAV of debt/gilt funds in an opposite direction. 4. Money Market / Liquid Funds Money market / liquid funds invest in short-term (maturing within one year) interest bearing debt instruments. These securities are highly liquid and provide safety of investment, thus making money market / liquid funds the safest investment option when compared with other mutual fund types. However, even money market / liquid funds are exposed to the interest rate risk. The typical investment options for liquid funds include Treasury Bills (issued by governments), Commercial papers (issued by companies) and Certificates of Deposit (issued by banks). 5. Hybrid Funds As the name suggests, hybrid funds are those funds whose portfolio includes a blend of equities, debts and money market securities. Hybrid funds have an equal proportion of debt and equity in their portfolio. There are following types of hybrid funds in India:
a. Balanced Funds - The portfolio of balanced funds include

assets like debt securities, convertible securities, and equity and preference shares held in a relatively equal proportion. The objectives of balanced funds are to reward investors with a regular income, moderate capital appreciation and at the same time minimizing the risk of capital erosion. Balanced funds are appropriate for conservative investors having a long term investment horizon. b. Growth-and-Income Funds - Funds that combine features of growth funds and income funds are known as Growth-and-

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Income Funds. These funds invest in companies having potential for capital appreciation and those known for issuing high dividends. The level of risks involved in these funds is lower than growth funds and higher than income funds. c. Asset Allocation Funds - Mutual funds may invest in financial assets like equity, debt, money market or non-financial (physical) assets like real estate, commodities etc.. Asset allocation funds adopt a variable asset allocation strategy that allows fund managers to switch over from one asset class to another at any time depending upon their outlook for specific markets. In other words, fund managers may switch over to equity if they expect equity market to provide good returns and switch over to debt if they expect debt market to provide better returns. It should be noted that switching over from one asset class to another is a decision taken by the fund manager on the basis of his own judgment and understanding of specific markets, and therefore, the success of these funds depends upon the skill of a fund manager in anticipating market trends. 6. Commodity Funds Those funds that focus on investing in different commodities (like metals, food grains, crude oil etc.) or commodity companies or commodity futures contracts are termed as Commodity Funds. A commodity fund that invests in a single commodity or a group of commodities is a specialized commodity fund and a commodity fund that invests in all available commodities is a diversified commodity fund and bears less risk than a specialized commodity fund. "Precious Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold mines) are common examples of commodity funds. 7. Real Estate Funds Funds that invest directly in real estate or lend to real estate developers or invest in shares/securitized assets of housing finance companies, are known as Specialized Real Estate Funds. The objective of these funds may be to generate regular income for investors or capital appreciation.

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INVESTMENT IN REMFs High property prices make it difficult for small investors to invest in real estate directly But now, help is at hand. The market regulator, the Securities and Exchange Board of India (Sebi), recently spelled out norms for the launch of real estate mutual funds (REMFs) in India, which would invest in real estate directly, or indirectly (through assets associated with, or benefiting from, the real estate sector). REMFs would be like any mutual fund, but with real estate and related securities as underlying assets. Real estate, the largest asset class in the world, can serve as a hedge against other asset classes like debt or equity Including it in your portfolio reduces risk and helps achieve stable returns. Unlike other asset classes, real estate rarely earns negative returns, and does not suffer high volatility Over years, the value of real estate usually increases manifold. This also makes it a good hedge against inflation. Real estate is a good long-term investment. Its important to clarify the difference between real estate investment trusts (REITs) and REMFs. REITs are companies or trusts that own and often manage income-generating commercial real estate. Some REITs invest in loans and other obligations that are secured by real estate collateral. REITs invest in and manage malls and office complexes, which fetch them rental plus long-term capital appreciation, to be passed on to investors after deducting expenses. Each REIT may have its own rules and regulations, and fund specifications. REITs have been privately launched in India, and have cumulatively collected a few billion dollars. Most have a high initial investment Rs 25 lakh to Rs 1 crore, and are targeted at high net worth investors. REMFs, on the other hand, would invest in a mix of real estate projects (residential and commercial), real estate securities, and other securities including mortgage-backed securities, in addition to REIT-type investments. REMFs would follow standardized rules and be regulated by Sebi.
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They would be transparent, and would cater to small investors. They would fundamentally alter the investment scenario by presenting a viable new option to millions of retail customers. Their biggest advantage is that small investors can benefit, as they can buy units, instead of directly buying a flat or a plot of land. With REMFs, an investible surplus of even a few thousand rupees lets you participate in the real estate sector. REMFs are easier than direct investment in real estate. The latter requires research and groundwork, which requires time and expertise. Even if you raised money to buy real estate, you might run into complicationsidentifying a property, negotiating the deal, registration and tax, potential legal disputes, and so on. And another set of issues would await you at selling time. REMFs let you circumvent these hassles, and just reap the benefits. They greatly reduce the pain of investing in real estate, a sector that remains unorganized, unregulated and opaque in India, dominated as it is by builders and developers. 8. Exchange Traded Funds (ETF) Exchange Traded Funds provide investors with combined benefits of a closed-end and an open-end mutual fund. Exchange Traded Funds follow stock market indices and are traded on stock exchanges like a single stock at index linked prices. The biggest advantage offered by these funds is that they offer diversification, flexibility of holding a single share (tradable at index linked prices) at the same time. Recently introduced in India, these funds are quite popular abroad. Theyre flexible and low-cost, and their underlying portfolios are protected from the impact of investor trading, which makes them more tax-efficient than mutual funds. They are exchange traded funds, essentially a basket of securities traded on the American Stock Exchange that are structured as open-ended mutual funds to offer low-cost exposure to the stock market. The following are some of the advantages of ETFs:

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Unlike open-end mutual funds that can only be redeemed at the end of the day, ETFs are priced throughout the day and can be bought or sold just like a stock. You can choose a fund that either represents a broad-based market index, a specific industry sector, or an international sector. ETFs can be bought on margin. ETFs can be sold short. There are no sales loads with ETFs (but brokerage commissions do apply). ETFs provide a tax advantage not available with mutual funds: They transfer securities out to redeeming shareholders instead of selling the securities, thus minimizing taxable capital gains.

Nevertheless, investors are advised to look carefully before they invest in ETFs for several reasons. ETFs' cost advantage is not always as large as it might seem and their trading costs can quickly add up. And although ETFs are more flexible than mutual funds in many respects, investors must buy or redeem shares directly from the fund company in 50,000-share blocks. Even then the funds require in-kind transactions, which mean investors are paid in underlying stocks, not cash, when they redeem their shares. But by far the greatest disadvantage of ETFs is the commissions that must be paid to buy and sell them (just as in stock transactions). If you plan to invest regular sums of money, youll end up paying far more with an ETF than with many mutual funds. If you want to trade frequently you would be much better off from a cost perspective with a regular mutual fund than with an ETF. Another consideration and possible drawback of ETFs is that because theyre traded on the open exchange they dont necessarily track the net asset value of their holdings. An ETF, for example, might trade 2 percent below the value of the shares of the companies contained in it. In theory when such an imbalance occurs a third party might step in and buy or sell shares in large blocks (called "creation units") and redeem them for the

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underlying shares. Premiums and discounts could arise, especially for thinly traded funds. Simply put, exchange-traded funds are open-ended mutual funds that are listed and traded on a stock exchange. Most, but not all, exchange-traded funds are index-style investments. For those unfamiliar with the term, index investing is a technique that involves holding a basket of securities, identical in name and number, to an underlying benchmark or index. Also known as passive investing, index investing seeks to replicate rather than outperform an established benchmark. While used for about 30 years by professional investors, index investing made its debut on the retail market only a few years ago in the form of index mutual funds and index-linked GICs. As an investment tool, indexing has several pluses. The first has to do with performance: market indices are generally hard to beat with actively managed funds. In his study of Canadian equity funds from 1989 to 1998, Dr. Eric Kirzner of the University of Toronto Rotman School of Management found that actively managed funds outperformed the index only 37% of the time. Second, index investing is fairly cost-effective. Because index, or passive, investing simply holds the equivalent securities in name and proportion to the underlying index means there is less need for research, analysis and administration than with actively managed funds. This reduces management fees and expense ratios. Furthermore, because portfolio turnover is minimal or negligible, capital gains distributions are minimized, resulting in a more tax-favourable investment. There is one minor hitch, however. When the index takes a tumble, so too does your investment. But that should not deter investors from indexing because, according to Dr. Kirzner's research, historical trends show that markets have been rising about 70% of the time. Gold Exchange Traded Funds (Gold ETF) Gold is being increasingly recognized as an asset class worth for investment. Now, you can buy physical gold by investing in Gold Exchange Traded Funds (Gold ETF) launched by mutual funds. When you buy its units, you in a way buy gold worth that amount and deposit it with a custodian. Net Asset Value (NAV) of gold is
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decided by gold prices. Each unit represents one gram of gold. These funds have been listed on Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) and it is possible to buy and sell these units just like shares through a demat account. Gold exchange traded funds save charges on locker facilities and insurance. As far as extra expenses related to gold ETFs are concerned, it is not likely to exceed 2.25%. Recently launched funds are charging 1% extra charges. They are also exempted from wealth tax. Gold ETFs invest in imported gold having 99.9% purity. Recently, gold exchange traded funds have been launched by UTI Mutual Fund and Benchmark Mutual Fund in the market. Many other mutual fund companies have plans to launch similar funds in coming days. People who might have otherwise bought physical gold coins or bars, but wanted the same thing with more convenience, are buying physical gold by investing in gold ETF. Gold ETFs have performed well in the past four years in other countries. Until 2003, it was hardly recognized as an asset class. In the past four years, 700 tonne gold worth 13 billion dollars has been invested in gold ETFs. Earlier, pension funds, hedge funds etc. did not invest in gold and never even thought of investing in them as an asset class. Now with the launch of gold ETFs, more people have started investing in gold ETFs, which is being considered an efficient way to invest in gold. In fact, bullion traders who earlier kept physical gold have also shifted to gold exchange traded funds. India is the biggest gold market in the world. Last year, gold worth Rs 70,000 crore was traded in India. However, the demand is now shifting from jewelry towards investment. Five years ago, demand for jewelry was 90% and demand for gold as investment only 10% of the total trade. Investment in gold has picked up and has reached 30%. Gold worth Rs 20,000 crore per annum is being sold in the form of coins, biscuits or bars, while a lot of people are buying from banks. Banks have started selling gold in the past five years. Leading jewelers also sell pure gold. There is an investment demand of Rs 20,000 crore for gold. But when you go

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to a jeweler or a bank to buy gold coins, you have to pay 5-7% premium. When you go to a jeweler to sell the gold or to get it converted into jewelry, about 5-10% is cut from the total cost. Therefore, you never get the benefit of appreciation of gold. Now if you want to diversify your portfolio and want to invest in gold you can check out return figures. Gold has given 16% returns in the past five years. So why not invest in electronic form of gold. You should decide the level of exposure to gold in your portfolio on the basis of ones ability to take risk and in keeping with the financial planning. Gold traded funds have low volatility as compared to both equity and bond market. Despite low volatility, bond market has given returns at the rate of 16%. Rate of return from gold has exceeded rate of inflation. Therefore, gold should form about 25-30% of your fixed income portfolio. Increasing gold prices and falling raw material costs leading to margin expansion for miners. Rising gold prices are encouraging bigger gold producers to proceed with the development of new deposits and increase capital expenditure gold companies are beginning to re-deliver the operational leverage line the first quarter results season (2009), most of the companies performed in line with expectations while some of the smaller cap investors bullish on gold are seeking exposure through gold equities GFMS, the authoritative gold market consultancy highlights the move by central banks towards QE (quantitative easing) and the possibility of weakness in the US Dollar to be likely catalysts for further investment in gold. There appears to be much greater focus on margin expansion and gold companies are beginning to control their costs significantly. The big producers have been creating value by putting existing deposits that they have in their inventory into production and they have been growing themselves bigger by seeking mergers. Bigger companies are seen to be taking over near-development mines. This speaks of their confidence in the future of the sector. The general

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consensus that global output has peaked and will not grow for the foreseeable future bodes well for higher prices in the long-term. 9. Fund of Funds Mutual funds that do not invest in financial or physical assets, but do invest in other mutual fund schemes offered by different AMCs, are known as Fund of Funds. Fund of Funds maintain a portfolio comprising of units of other mutual fund schemes, just like conventional mutual funds maintain a portfolio comprising of equity/debt/money market instruments or non financial assets. Fund of Funds provide investors with an added advantage of diversifying into different mutual fund schemes with even a small amount of investment, which further helps in diversification of risks. However, the expenses of Fund of Funds are quite high on account of compounding expenses of investments into different mutual fund schemes. * Funds not yet available in India Details on FOF. As the performance of the FoFs depends on the performance of the underlying scheme so in order to exploit its true potential the fund manager has to be very astute while selecting the schemes across the fund houses. However, in India, fund houses have concentrated in investing in funds from their own stable, which has restricted their performance. Apart from Kotak Mutual Fund, Standard Chartered and Fidelity, all other fund houses offering FoF schemes are investing in the schemes from their own AMC. A FoF can invest in various ways for e.g a Multi-manager FoF invests in schemes of multiple mutual fund houses while a singlemanager FoF invests only in schemes of its own fund house. An asset-allocation FoF invests in equity schemes and debt schemes and a single asset-class FoF invests predominantly in a single asset class, i.e. either equity schemes or debt schemes. The FoF offered in India generally are asset-allocation FoFs and thus tend to be hybrid in nature. Fidelity recently launched a Multi-Manager Cash FoF investing only in liquid schemes of various mutual funds.
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FoFs provide a good investment option as it diversifies the risk across asset classes, fund manager styles and scheme portfolios. By investing in a FoF, one can invest in different schemes at the same time. The returns from different FoFs vary depending upon the underlying asset class. Investors who maintain a portfolio of mutual fund schemes and are unable to take informed decisions can take the advantage of a FoF. Performances of the Top 5 Fund of Funds are shown in table below:Scheme Name 182 Days 1 Year Fund of Funds Prudential ICICI Very 32.5435 59.2627 Aggressive Plan - Growth Kotak Equity FOF Growth 32.6208 56.5985 FT India Life Stage - 20s Plan 25.0304 44.7414 - Growth Prudential ICICI Aggressive 23.3982 43.5233 Plan - Growth FT India Dynamic PE Ratio 24.6564 42.5306 Fund Of Funds - Growth Risk Hierarchy of Different Mutual Funds Thus, different mutual fund schemes are exposed to different levels of risk and investors should know the level of risks associated with these schemes before investing. The graphical representation hereunder provides a clearer picture of the relationship between mutual funds and levels of risk associated with these funds:

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Advantages & Disadvantages of Mutual Funds Advantages of Mutual Funds There are several advantages of investing in a Mutual Fund and that is why more and more people are taking to it. Some of the major benefits of mutual funds in India are as follows:
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Diversification: The top Indian mutual funds create their portfolio designs in such a manner that the interested individuals who invest in mutual funds react differently even under similar economic conditions. This can be explained with an example. An increase in the rates of interest may lead to the diminishing of the asset value of securities in the portfolios. Again, an increase in the value may result to the appreciation in value of the other set of portfolio securities. Over time, a balance is created in the portfolio which leads to an overall increase of the portfolio, even if some security values diminish. Professional Management: A majority of the mutual funds in India employ the leading professionals in their investments management. These managers make decisions on what securities, the buying and selling of the funds will take place. Regulatory oversight: There are certain rules and regulations framed by the government which every Mutual fund are required to follow. This is to protect the investors from any fraudulent activities. Liquidity: Getting your money out from the mutual fund is no difficult task. All you have to do is just write a check, make a telephone call and you are done. Convenience: Mutual fund shares can be bought via phone, mail, or even over Internet. Low cost: The expenses of the Mutual fund seldom cross the 1.5 % mark of the investment you make. The Index Funds expenses are usually lesser. Instead, the company stocks are bought by them which are found on the specific index. Ease of process: Investing in a mutual fund is easy if you are a bank account holder and you posses a PAN card. All you will need to do is fill up the application form, attach the PAN card (for transactions over Rs 50,000), sign the cheque and your Mutual Fund investment is complete. Well regulated: The SEBI (Securities Exchange Board of India) regulates the India mutual funds for the security and convenience of the investors. SEBI ensures that a transparency is maintained by keeping a strict vigilance on the mutual funds. This keeps the investor informed and helps him/her to make his/her choice. To keep a track

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whether the investment in Mutual Fund is in line with the objective or not, SEBI demands the disclosure of portfolios once in every six months. Less Risk: Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities. Choice of Schemes : Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options Transparency: Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator. Flexibility: Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and viceversa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most openend schemes. Safety: Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.

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Disadvantages of Mutual Funds There are several shortcomings of Mutual Funds in India. Some of these Mutual drawbacks are as follows: No Guarantees: Every investment comes with some sort of risk. If the value of an entire stock market falls, it will directly affect the mutual fund shares as its values will also decline, irrespective of the portfolio balance. However, the risks involved in mutual funds are much lesser than buying and selling of stocks on your own. This is because when you are investing through a mutual fund you do not have this risk of money loss. Taxes: In a typical year, the mutual funds which are most efficiently managed have the capacity to sell anywhere from 20 - 70 % of their portfolio securities. If the money you invest in Mutual Fund earns a profit, you will be required to pay the taxes on the dividend received by you. You have to pay the taxes even if you make your money reinvest in Mutual Fund.

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Fees and Commissions: An administrative fee is required by all kinds of funds to meet the expenses. There are many funds which even charge commission on sales or "loads" to pay financial consultants, brokers, financial institutions or financial planners. If you buy stocks or shares from Load Fund, you have to pay a commission on sales irrespective of the fact that you are consulting a financial advisor or a broker. Risk Management: It depends on the right decision of the fund manager that you will get a satisfactory return or not. This is unlike Index Funds where there is no management risk involved because of the absence of managers. Costs Control Not in the Hands of an Investor: Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund. No Customized Portfolios: The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives. Difficulty in Selecting a Suitable Fund Scheme: Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.

Strategies for Investing In Mutual Funds.

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Before you can plan a mutual fund strategy, you need to have a clear picture in your mind of your goals as an investor. You also need to determine the amount of time you have to reach those goals. Investing is time-sensitive, so you will always need to factor time into any investing strategy. Today, with more than 10,000 mutual funds to choose from, you can be sure there is a fund (or several) with your name on it. However, rather than seeking a fund or even a fund category, you should first determine how your portfolio should be set up. It is always much easier to start at the top, with your overall asset allocation plan, and then fill in the pieces, or funds, later. Too many investors go right to the fund selection, chasing the top funds as listed in magazines only to get burned when last years winner becomes this years disaster. If you determine your overall investing position based on goals and timeframe, you can lay out a strategy. For example, a young couple, without children, who have a high combined income, can be aggressive in their choices. They may opt to put 80 percent of their investment dollars into riskier, aggressive funds and the remaining 20 percent into more conservative fund investments. They have time on their side and are not averse to taking some financial risk. Conversely, an older couple, nearing retirement, may opt for the reverse calculations, looking for 80 percent of their mutual fund investments to be in income-generating, safer funds. They want income soon and are not in a position to take risks. Of course, the above examples are broad generalizations. However, by creating your asset allocation blueprint you will then be able to select fund categories that fit appropriately and allow you to diversify. By diversifying across sectors, caps and fund categories, you lower your overall level of risk. In a sense, a good investor is doing at some level what a fund manager does by choosing diverse investments so that, if one does poorly, the others will more than make up for it. In the late 1990s the technology funds were the rage. If you were willing to take the risk and bank on tech sector funds (and knew when to get out), you could have made a lot of money. While no one sector is flying at that level today, you can take a more aggressive approach by looking at overseas markets and small cap, mid cap and emerging growth funds. In the more

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conservative portion of the portfolio, youll want funds with the large cap blue chip stocks, large cap value funds, income funds and bond funds. Generally, having five to eight funds in your fund portfolio should meet your investing needs. The key to your strategy is figuring out your timeframe, risk level and asset allocation first before looking at fund categories and finally plugging in the actual funds. Mutual fund advertisements tell you, usually in the finest of print "Past performance is no guarantee of future results." While that statement has always been true, now's a particularly good time to take heed. It's been an especially topsy-turvy time for fund managers and investors, which makes it that much harder to evaluate potential homes for your investment dollars. Which is not to say you should ignore a fund's recent performance if you want to add it to your portfolio. Just take it with a big ol' grain of sodium chloride. Once you have a particular fund in mind, check with a fund-rating agency to see how the fund compared with its peers over one-, three-, five- and 10-year periods. If its annual returns are not in the top half of all funds in its category over most, if not all, of those time periods, this investment is a nonstarter. Walk away. If it is in the top five decilestop 50 percent -- over all or most periods, look into it a little further. Also check to see how a fund stacks up in terms of volatility. Some funds skyrocket during one quarter, only to plummet during another; while others are steady-as-she-goes. While volatility isn't always a terrible thing -- some of that volatility is upward -- the best-performing funds over time tend to be those that post consistently solid returns relative to their volatility rank. Look, too, to see how long the fund manager has been on the job. After all, a 10-year track record isn't worth much if the manager has been making the investment decisions for only three of those years. The stock picker doesn't matter if you opt for an index fund, of course; and it matters less at big, process-oriented companies like Fidelity or American Funds. But a manager's tenure and performance are generally your best window into how a fund will behave in the future.
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Finally, don't overpay. Why pick a high-expense fund if there's a low-expense alternative that's just as good? And don't pay a sales charge, or load, to a broker if you've done the investment homework yourself. There are plenty of low-cost, no-load funds out there with aboveaverage returns and managers with long-term track records. You just have to look closely enough to find them. Asset Diversification in Mutual Funds Asset Diversification in Mutual Funds implies, formation of an investment portfolio which will entail various kinds of investments within the major asset classes namely stocks, bonds, and cash. A diversified portfolio can comprise of shares in various companies or a number of stock mutual funds, government and corporate bonds.A larger portfolio can be diversified by including investments from real estate asset class or other options. At the time of diversification, the client is given the option to make his or her choice between various subclasses of investments within each asset class. The shares of large and small companies are both equity investments. But the shares of small and large companies differ in terms of increase rate in values and entails different levels of investment risks. Two Important Reasons for Asset Diversification

To take the utmost and optimal advantage of various market conditions. To protect from various crises that might come up at any point of time.

Asset Diversification and Risk Asset diversification helps one protect his or her portfolio against the risks involved in investment matters. These are often recognized as risk-to-return profiles. Investment methods, if chosen in a group within subclasses or portfolio of investments, can reduce the risks in investment. The greater stability in the blue chips usually helps in the maintenance of the value of small scale company shares, even if that particular share does not

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witness a high income but the overall stock market is strong. The growth rate of the shares in a small company will balance the slower growth in the blue chips industry. Ways of Asset Diversification

Balance the growth investments with those that generate income. Make investments in both the large and small companies along with the well-established as well as the newly set up companies. Invest in the unrelated industries or in various corporate and government concerns. Invest in the mutual funds that undertake global investments. Invest in the funds which have high chances of witnessing a hike in the recent future.

Future of Mutual Funds Rumors Of The Death Of Mutual Funds Are Greatly exaggerated. Funds have grown and adapted over their 80-year history and
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continue to meet investors' needs for diversification and professional management. Better tools to analyze and select funds mean CPA/financial planners can make better use of them in client portfolios. Sec-Mandated Aftertax Reporting Rules Mean funds must report as a return what the investor actually takes home, not what the fund manager generates. This will make it easier for CPAs to compare funds because all will use the same reporting standards. IN Response To Demand, Most Mutual Funds Have increased their industry and sector fund offerings in areas such as energy, financial services, health care or technology. Exchange-traded funds also are a popular alternative for clients concerned about the tax consequences of mutual fund investing. And mutual fund companies also are making more hedge funds and funds-of-funds available. CPA/Financial Planners Have A Variety OF analytical tools they can use to make mutual fund recommendations. These include software, Internet databases and other online research tools that make it easier to compare and contrast funds, determine risk and provide in-depth information on a prospective purchase. For The Future, Congress Is Considering legislation that would eliminate the need for mutual funds to distribute capital gains annually. Shareholders would instead pay taxes on gains when they redeem their shares. And the SEC has issued new regulations requiring accuracy in fund naming--a fund must invest 80% of its assets in its namesake. Over the last several years, headlines in the business press proclaimed the coming demise of the mutual fund industry. The fees were too high, flexibility too low and shareholders had too little control over the tax consequences in traditional openended mutual funds. Exchange-traded funds (ETFs), hedge funds and separate accounts (which give investors direct access to money managers) were sounding the death knell for the 80-yearold mutual fund industry. But to paraphrase Mark Twain upon reading his obituary, reports of their death have been greatly exaggerated. Open-ended mutual funds still are around because they continue to serve investors' needs for diversification and professional investment management. They are growing because they can adapt to demands for improved products and because of newer, more sophisticated analytical tools available to the CPA/financial planners who recommend these funds. The new

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tools not only give investors a chance at better long-term performance, they also provide CPAs with an edge in using this investment product. The bottom line? If mutual funds haven't been part of your client's past, they certainly will be part of their future. Here is a review of the new analytical tools that can help CPAs pick the best funds for their clients as well as an update on the new services that make traditional mutual funds more attractive Future of Mutual Funds in India - An Overview Financial experts believe that the future of Mutual Funds in India will be very bright. It has been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs 40,90,000 crore, taking into account the total assets of the Indian commercial banks. The estimation was based on the December 2004 asset value of Rs 1,50,537 crore. In the coming 10 years the annual composite growth rate is expected to go up by 13.4%. Since the last 5 years, the growth rate was recorded as 9% annually. Based on the current rate of growth, it can be forecasted that the mutual fund assets will be double by 2010. Indian Mutual Funds Future - Growth Facts

In the past 6 years, Mutual Funds in India have recorded a growth of 100 %. In India, the rate of saving is 23 %. In the future, there lies a big scope for the Indian Mutual Funds industry to expand. Several asset management companies which are foreign based are now entering the Indian markets. A number of commodity Mutual Funds will be introduced in the future. The SEBI (Securities Exchange Board of India) has granted the permission for the same. More emphasis is put on the effective Mutual Funds governance. There is also enough scope for the Indian Mutual funds to enter into the semi-urban and rural areas. Financial planners will play a major role in the Mutual Funds market by providing people with proper financial planning.
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Future of Indian Mutual Funds- Conclusion Looking at the past developments and combining it with the current trends it can be concluded that the future of Mutual Funds in India has lot of positive things to offer to its investors.

Asset Management Companies: 1. Birla Sun Life Asset Management Company Limited

Birla Sun Life Mutual Fund follows a onservative long-term approach to investment, which is based on identifying companies
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that have good credit-worthiness and are fundamentally strong.It places a lot of emphasis on quality of management and risk control.This is done through extensive analysis that includes factory visits and field research. It has one of the largest team of research analysts in the industry. The company is one of India's leading, private mutual funds with a large customer base. It has been recognised nationally with coveted awards. 2. Franklin Templeton Investments

Franklin Templeton Investments is one of the largest financial services groups in the world based at San Mateo, California USA. The group has US$ 504.3 billion in assets under management globally (as of Apr 30, 2006). Franklin Templeton has offices in 33 locations across India and manages assets of Rs.19639.12 crores for around 13 lakh investors as of April 30, 2006. 3. HDFC Asset Management Company Limited (AMC) HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. In terms of the Investment Management Agreement, the Trustee has appointed the AMC to manage the Mutual Fund. As per the terms of the Investment Management Agreement, the AMC will conduct the operations of the Mutual Fund and manage assets of the schemes, including the schemes launched from time to time. 4. HSBC Asset Management (India) Private Limited

HSBC Asset Management (India) Private Limited is the Investment Manager to HSBC Mutual Fund, set up locally by the HSBC Group. HSBC Investments is the brand name adopted by HSBC Asset Management (India) Private Limited. The business is working on
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ambitious plans to position itself as one of the leading Private Sector Fund Managers in the Indian financial market - one of the most promising markets in Asia. It also aims to expand its customer base by extending its product range to include a wide variety of investment products and enhance its reputation in India of being a provider of international quality investment products and services. 5. SBI Mutual Fund

SBI Mutual Fund draws strength from India's premier and largest bank; the State Bank of India. Set up on July 1, 1955, the State Bank of India is the largest banking operation in the country. Through years of commitment to service and national development, SBI has grown into an instrument of social change. Today, it has 9,039 branches in India (excluding 4599 branches of banking subsidiaries) and 54 offices in 28 countries spread over all time zones. SBI entered into a Memorandum of Understanding with Socit Gnrale Asset Management (SGAM), which offers retail investors, corporate clients and institutional investors a wide range of investment products. SGAM is a dominant player in Global Mutual Fund arena with presence in over 20 countries spanning Europe, United Sates, and Asia, managing over 250 billion Euros in assets.

6. DSP Merrill Lynch Fund Managers DSP Merrill Lynch Fund Managers is the investment manager to DSP Merrill Lynch Mutual Fund. DSP Merrill Lynch Fund Managers philosophy is designed to seek consistent, long-term results. When you choose DSP Merrill Lynch Fund Managers, you get a research-based, methodical approach to investing. DSP Merrill Lynch Fund Managers aims at investment excellence, within the framework of transparent and rigorous risk controls.
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Our global reach helps us to leverage a world-wide network built on local experiences and resources, thereby adding value through our knowledge, intelligence and ideas. 7. UTI Mutual Fund UTI Mutual Funds investment philosophy is to deliver consistent and stable returns in the medium to long term with a fairly lower volatility of fund returns compared to the broad market. It believes in having a balanced and well-diversified portfolio for all the funds and a rigorous inhouse research based approach to all its investments. It is committed to adopt and maintain good fund management practices and a process based investment management. UTI Mutual Fund follows an investment approach of giving as equal an importance to asset allocation and sectoral allocation, as is given to security selection while managing any fund. It combines top-down and bottom-up approaches to enable the portfolios/funds to adapt to different market conditions so as to prevent missing an investment opportunity. 8. Tata Mutual Fund

Tata mutual fund, set up in 1995, is one of the leading private sector funds in the country and is promoted by the Tata group. The sponsors of the fund are Tata Sons Limited and Tata Investment Corporation Limited. Tata Asset Management Limited is the investment manager of the mutual fund. Tata Asset Management Ltd. is a part of the Tata group - one of India's largest and most respected industrial group. The Tata Group is one of India's best-known conglomerate in the private sector with a turnover of around US $ 14.25 billion (equivalent to 2.6 % of India's GDP). Long known for its adherence to business ethics, it is India's most respected private business group. With 220,000 employees across 91 companies, it is also India's largest employer in the private sector. Tata Asset Management Limited, has Rs. 16741.01 crores (as on February 28, 2007) of assets under management.
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9. Sundaram BNP Paribas Mutual Fund Sundaram BNP Paribas mutual fund is a joint venture between Sundaram Finance and French banking giant BNP Paribas. Sponsors of the fund are Sundaram Finance Limited and BNP Paribas Asset Management, which is the asset management arm of BNP Paribas. Sundaram Finance is one of India's largest non-banking companies with an asset base in excess of Rs 3,000 crore and annual revenues of over Rs350 crore. BNP Paribas is one of the largest European banks with a total asset base of 1.2 trillion and market capitalization of around 57 billion. Sundaram BNP Paribas Asset Management Company Limited is the fund manager to the mutual fund. BNP Paribas acquired a 49 per cent in the AMC in August, 2006, with Sundaram Finance holding the balance. Sundaram BNP Paribas Mutual has assets under management to the tune of more than USD 1 billion helps investors to reach their financial goals by delivering consistent performance through judicious investment practices.

10. Prudential ICICI Asset Management Company Prudential ICICI Asset Management Company, (49%:51%) a joint venture between Prudential Plc, UK's leading insurance company and ICICI Bank Ltd, India's premier financial institution. The joint venture was formed with the key objective of providing the Indian investor mutual fund products to suit a variety of investment needs. The AMC has already launched a range of products to suit different risk and maturity profiles. Click here to learn more about the products. Prudential ICICI Asset Management Company Limited has a networth of about Rs. 80.14 crore (1 crore = 10 million) as of March 31, 2004. Both Prudential and ICICI Bank Ltd have a strategic long-term commitment to the rapidly expanding financial services sector in India. 11. Reliance Mutual Fund

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Reliance Mutual Fund (RMF) has been established as a trust under the Indian Trusts Act, 1882 with Reliance Capital Limited (RCL), as the Settlor/Sponsor and Reliance Capital Trustee Co. Limited (RCTCL), as the Trustee. RMF has been registered with the Securities & Exchange Board of India (SEBI) vide registration number MF/022/95/1 dated June 30, 1995. The name of Reliance Capital Mutual Fund has been changed to Reliance Mutual Fund effective 11th. March 2004 vide SEBI's letter no. IMD/PSP/4958/2004 date 11th. March 2004. Reliance Mutual Fund was formed to launch various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

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