PREFACE

MBA is a stepping-stone to the management carrier and to develop good manager it is n e c e s s a r y t h a t t h e t h e o r e t i c a l m u s t b e s u p p l e m e n t e d w i t h e x p o s u r e t o t h e r e a l environment. Theoretical knowledge just provides the base and its not sufficient to produce a good manager thats why practical knowledge is needed. Therefore the research product is an essential requirement for the student of MBA. This r e s e a r c h p r o j e c t n o t o n l y h e l p s t h e s t u d e n t t o u t i l i z e h i s skills properly learn field realities but also provides a chance to t h e o r g a n i z a t i o n t o fi n d o u t t a l e n t a mo n g t h e budding managers in the very beginning. In accordance with the requirement of MBA course I have summer training project on the topic Comparative Analysis of Mutual funds and Ulips. The main objective of there search project was to study the two instruments and make a detailed comparison of the two. For conducting the research project sample size of 50 customers of SBI MF and SBOP was selected. The information regarding the proje ct research was collected through the questionnaire formed by me which was filled by the customers there.

INDUSTRY PROFILE
The mutual fund industry is a lot like the film star of the finance business. Though it is perhaps the smallest segment of the industry, it is also the most glamorous in that it is a young industry where there are changes in the rules of the game every day, and there are constant shifts and up heavals. The mutual fund is structured around a fairly simple concept, the mitigation of risk through the spreading of investments across multiple entities, which is achieved by the pooling of a number of small investments into a large bucket. Yet it has been the subject of perhaps the most elaborate and prolonged regulatory effort in the history of the country.

A little history
The mutual fund industry started in India in a small way with the UTI Act creating what was effectively a small savings division within the RBI. Over a period of 25 years this grew fairly successfully and gave investors a good return, and therefore in 1989, as the next logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The initial years of the industry also saw the emerging years of the Indian equity market, when a number of mistakes were made and hence the mutual fund schemes, which invested in lesser-known stocks and at very high levels, became loss leaders for retail investors. From those days to today the retail investor, for whom the mutual fund is actually intended, has not yet returned to the industry in a big way. But to be fair, the industry too has focused on brining in the large investor, so that it can create a significant base corpus, which can make the retail investor feel more secure. The Indian MF industry has Rs 5.67 lakh crore of assets under management. As per data released by Association of Mutual Funds in India, the asset base of all mutual fund combined has risen by 7.32% in April, the first month of the current fiscal. As of now, there are 33 fund houses in the country including 16 joint ventures and 3 wholly owned foreign asset managers. According to a recent McKinsey report, the

total AUM of the Indian mutual fund industry could grow to $350-440 billion by 2012, expanding 33%annually. While the revenue and profit (PAT) pools of Indian AMCs are pegged at $542 million and $220 million respectively, it is at par with fund houses in developed economies. Operating profits for AMCs in India, as a percentage of average assets under management, were at 32 basis points in 200607,while the number was 12 bps in UK, 17 bps in Germany and 18 bps in the US, in the same time frame.

Major players in Indian mutual fund industry and their AUM

Mutual Fund Name ABN AMRO MF AIG Global MF SBI Mutual Fund Birla Mutual Fund BOB Mutual Fund Canara Robeco Mutual Fund DBS Chola Mutual Fund Dautscha Mutual Fund No. of Schemes 337 54 177 343 22 54 80 187 As on July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 Feb 29, 2008 Corpus 7803 3513 29151.00 37497.00 56.00 4576.00 1853.00 10792.00 19483.00

DSP Mamil Lynch Mutual 211 Fund Escorts Mutual fund Fidelity Mutual Fund Franklin Investments HDFC Mutual Fund HSBC Mutual Fund 371 221 26 39

Feb 29, 2008 Mar 31, 2008 July 31, 2008

177.00 7464.00 24441.00

Templeton 230

July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008

50752.00 16385.00 55161.00 7091.00 3054.00

ICICI Prudential Mutual Fund 431 ING Mutual Fund JP Morgan Mutual Fund 262 9

Kotak Mahindra Mutual Fund LIC Mutual Fund Lotus India Mutual Fund Reliance Mutual Fund Sahara Mutual Fund Tata Mutual Fund UTI Mutual Fund

185 112 216 345 45 389 315

July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008 July 31, 2008

18782.00 17499.00 7831.00 84564.00 175.00 20443.00 46120.00

HISTORY OF MUTUAL FUND

T h e mu t u a l fu n d i n d u s t r y i n I n d i a s t a r t e d i n 1 9 6 3 w i t h t h e f o r ma t i o n of Unit Trust of India, at the initiative of the

G o v e r n m e n t o f I n d i a a n d R e s e r v e B a n k . T h e h i s t o r y o f mutual funds in India can be broadly divided into four distinct phases : -

First Phase 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management. . Second Phase 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June1987 followed by Can bank Mutual Fund

(Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had setup its mutual fund in December 1990.A t t h e e n d o f 1 9 9 3 , t h e mutual fund industry had assets under management

o f Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, u n d e r w h i c h a l l mu t u a l f u n d s , e x c e p t U T I w e r e t o b e r e g i s t e r e d a n d g o v e r n e d . T h e erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

Fourth Phase since February 2003

I n F e b r u a r y 2 0 0 3 , fo l l o w i n g t h e r e p e a l o f t h e U n i t T r u s t o f I n d i a A c t 1 9 6 3 U T I w a s bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is r e g i s t e r e d w i t h S E B I a n d fu n c t i o n s u n d e r t h e M u t u a l F u n d R e g u l a t i o n s . W i t h t h e bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to t h e S E B I M u t u a l F u n d

R e g u l a t i o n s , a n d w i t h r e c e n t me r g e r s t a k i n g p l a c e a mo n g different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421 schemes.

GROWTH IN ASSETS UNDER MANAGEMENT

ECONOMIC ENVIRONMENT GROWTH IN ASSETS UNDER MANAGEMENT

While the Indian mutual fund industry has grown in size by about 320% from March,1993 (Rs. 470 billion) to December, 2004 (Rs. 1505 billion) in terms of AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152 billion in March 1999 to $148 billion as at March 2008. Though India is a minor player in the global mutual fund industry, its AUM as a proportion of the global AUM has steadily increased and has doubled over its levels in1999.T h e g r o w t h r a t e o f I n d i a n mu t u a l fu n d i n d u s t r y h a s b e e n i n c r e a s i n g fo r t h e l a s t fe w years. It was approximately 0.12% in the year of 1999 and it is noticed 0.25% in 2004 in terms of AUM as percentage of global AUM. Some facts for the growth of mutual funds in India 100% growth in the last 6 years. Number of foreign AMCs is in the queue to enter the Indian markets. Our saving rate is over 23%, highest in the world. Only channelizing these savings in mutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than 800. There is a big scope for expansion. Mutual fund can penetrate rurals 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.

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 the 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 start due to the stock market boom was prevailing. These banks d i d n o t r e a l l y u n d e r s t a n d t h e mu t u a l f u n d b u s i n e s s a n d t h e y j u s t v i e w e d i t a s 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 a difference 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. TECHNOLOGICAL ENVIRONMENT IMPACT OF TECHNOLOGY

Mutual fund, during the last one decade brought out s e v e r a l i n n o v a t i o n s i n t h e i r p r o d u c t s a n d i s o f fe r i n g v a l u e a d d e d s e r v i c e s t o t h e i r i n v e s t o r s . S o me o f t h e v a l u e added services that are being offered are: Electronic fund transfer facility. Investment and re-purchase facility through internet. Added features like accident insurance cover, mediclaim etc.

 Holding the investment in electronic form, doing away with the traditional form of unit certificates. Cheque writing facilities. Systematic withdrawal and deposit facility.

ONLINE MUTUAL FUND TRADING

The innovation the industry saw was in the field of distribution to make it more easily accessible to an ever increasing number of investors across the country. For the first time in India the mutual fund start using the automated trading, clearing and settlement s y s t e m o f s t o c k e x c h a n g e s fo r s a l e a n d r e p u r c h a s e o f o p e n - e n d e d d e - m a t e r i a l i z e d mutual fund units .Systematic Investment Plan (SIP) and Systematic Withdrawal Plan (SWP) were options introduced which have come in very handy for the investor to maximize their returns from their investments. SIP ensures that there is a regular investment that the investor makes on specified dates making his purchases to spread out reducing the effect of the short term volatility of markets. SWP was designed to ensure that investors who wanted a r e g u l a r i n c o m e o r c a s h f l o w fr o m t h e i r i n v e s t m e n t s w e r e a b l e t o d o s o w i t h a p r e defined automated form. Today the SW facility has come in handy for the investors to reduce their taxes.

LEGAL AND POLITICAL ENVIRONMENT ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in I n d i a w a s g e n e r a t e d t o fu n c t i o n a s a n o n - p r o f i t o r g a n i z a t i o n . A s s o c i a t i o n o f M u t u a l Funds in India (AMFI) was incorporated on 22nd August 1995.AMFI is an apex body of all Asset 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 board of directors. AMFI 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 interest of mutual funds as well as their unit holders. It has been a forum where mutual funds have been able to present their views, debate and participate in creating their own regulatory framework. The association was created originally as a body that would lobby with the regulator to ensure that the fund view point was heard. Today, it is usually the body that is consulted on matters long before regulations are framed, and it often initiates many regulatory

changes that preventmal practices that emerge from time to time. AMFI works through a number of committees, some of which are standing committees to address areas where there is a need for constant vigil and improvements and other which are a dhoc committees constituted to address specific issues. These committees consist of industry professionals from among the member mutual funds. There is now some thought that AMFI should become a self-regulatory organization since it has worked so effectively as an industry body.

OBJECTIVES
To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry. To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services. To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry. To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry. To develop a cadre of well trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry. To undertake nation wide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds. To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.

MEMBERS OF AMFI:
Bank Sponsored1.Joint Ventures - Predominantly Indian 1.Canara Robeco Asset Management Company Limited2 . S B I Funds

Management Private Limited 2 . O t h e r s

1.Baroda Pioneer Asset Management Company Limited2 . U T I A s s e t M a n a g e m e n t C o mp a n y L t d Institutions 1.LIC Mutual Fund Asset Management Company Limited.

Private Sector
1 . I n d i a n

1.Benchmark Asset Management Company Pvt. Ltd. 2.DBS Cholamandalam Asset Management Ltd. 3.Deutsche Asset Management (India) Pvt. Ltd. 4 . E d e l w e i s s A s s e t M a n a g e me n t L i m i t e d 5.Escorts Asset Management Limited 6.IDFC Asset Management Company Private Limited 7.JM Financial Asset Management Private Limited 8.Kotak Mahindra Asset Management CompanyLimited(KMAMCL) 9.Quantum Asset Management Co. Private Ltd. 10.Reliance Capital Asset Management Ltd. 11.Sahara Asset Management Company Private Limited 12.Tata Asset Management Limited 13.Taurus Asset Management Company Limited.

2.Foreign 1.AIG Global Asset Management Company (India) Pvt. Ltd. 2.FIL Fund Management Pr ivate Limited 3.Franklin Templeton Asset Management (India) Private Limited 4.Mirae Asset Global Investment Management (India) Pvt. Ltd.
3 . J o i n t V e n t u r e s P r e d o m i n a n t l y I n d i a n

1.Birla Sun Life Asset Management Company Limited 2.DSP Merrill Lynch Fund Managers Limited 3 . H D F C A s s e t M a n a g e me n t C o mp a n y L i mi t e d 4.ICICI Prudential Asset Mgmt.Company Limited 5.Sundaram BNP Paribas Asset Management Company Limited.

4.Joint Ventures - Predominantly Foreign

1.ABN AMRO Asset Management (India) Pvt. Ltd. 2.Bharti AXA Investment Managers Private Limited 3.HSBC Asset Management (India) Private Ltd. 4.ING Investment Management (India) Pvt. Ltd. 5 . J P M o r g a n A s s e t M a n a g e me n t I n d i a P v t . L t d . 6.Lotus India Asset Management Co. Private Ltd. 7.Morgan Stanley Investment Management Pvt. Ltd. 8.Principal Pnb Asset Management Co. Pvt. Ltd.

REGULATORY MEASURES BY SEBI

Like Banking & Insurance up to the nineties of the last century, Mutual Fund industry in India was set up and functioned exclusively in the state monopoly represented by the Unit Trust of India. This monopoly was diluted in the eighties by allowing nationalized banks and insurance companies (LIC & GIC) to set up their institutions under the Indian Trusts Act to transact mutual fund business, allowing the Indian investor the option to choose between different service providers. Unit Trust was a s t a t u t o r y c o r p o r a t i o n governed by its own incorporating act. There was no separate regulatory authority up to the time SEBI was made a statutory authority in 1992. but it was only in the year 1993,w h e n a g o v e r n m e n t t o o k a policy decision to deregulate Indian Economy from

government control and to transform it market oriented, that the industry was opened to c o mp e t i t i o n fr o m p r i v a t e a n d f o r e i g n p l a y e r s . B y t h e y e a r 2 0 0 0 t h e r e c a me t o b e established in the market 34 mutual funds offerings a variety of about 550 schemes. SECURITIES AND EXCHANGE BOARD OF INDIA (MUTUALFUNDS) REGULATIONS, 1996 The fa s t growing industry is regulated by Securities and

Exchange Board of India ( S E B I ) s i n c e i n c e p t i o n o f S E B I as a statutory body. AND SEBI initially formulated BOARD OF 1993

SECURITIES INDIA providing

EXCHANGE

(MUTUAL detailed procedure

F U N D S ) REGULATIONS, for establishment, of

registration, asset to be

constitution, management designed,

management company, about of

trustees,

schemes/products funds collected,

about

investment

general

obligation of MFs, about inspection, audit etc. based on e x p e r i e n c e g a i n e d a n d f e e d b a c k r e c e i v e d fr o m t h e m a r k e t S E B I r e v i s e d t h e g u i d e l i n e s o f 1 9 9 3 a n d i s s u e d fr e s h g u i d e l i n e s i n 1996 titled SECURITIES AND EXCHANGE BOARD OF I N D I A (MUTUAL FUNDS) REGULATIONS, 1996. The said regulations as amended from time to time are in force even today. The SEBI mutual fund regulations contain ten chapters and twelve schedules. Chapters containing material subjects relating to regulation and conduct of business by Mutual Funds.

REGISTRATION OF MUTUAL FUND:

Application for registration 1.An application for registration of a mutual fund shall be made to the Board in Form A by the sponsor. Application fee to accompany the application 2.Every application for registration under regulation 3 shall be accompanied by nonrefundable application fee as specified in the Second Schedule. Application to conform to the requirements 3.An application which is not complete in all respects shall be liable to be rejected: Provided that, before rejecting any such application, the applicant shall be given an opportunity to complete such formalities within such time as may be specified by the Board. Furnishing information 4.The Board may require the sponsor to furnish such further information or clarificationas may be required by it. Eligibility criteria 5.For the purpose of grant of a certificate of registration, the applicant has to fulfill the following, namely :

(a)the sponsor should have a sound track record and general reputation of fairness and integrity in all his business transactions. Explanation : For the purposes of this clause sound track record shall mean the sponsor should, (i )be carrying on business in financial services for a period of not less than five years; and (ii ) the net worth is positive in all the immediately preceding five years; and (iii )the networth in the immediately preceding year is more than the capital contribution of the sponsor in the asset management company; and (iv ) the sponsor has profits after providing for depreciation, interest and tax in three ou of the immediately preceding five years, including the fifth year; (b) in the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has been approved by the Board; (c ) the sponsor has contributed or contributes at least 40% to the net worth of the asset management company: Provided that any person who holds 40% or more of the net worth of an assetmanagement company shall be deemed to be a sponsor and will be required to fulfill the eligibility criteria specified in these regulations; (d )the sponsor or any of its directors or the principal officer to be employed by the mutual fund should not have been guilty of fraud or has not been convicted of an offence involving moral turpitude or has not been found guilty of any economic offence; (e)appointment of trustees to act as trustees for the mutual fund in accordance with the provisions of the regulations; (f )appointment of asset management company to manage the mutual fund and operate the scheme of such funds in accordance with the provisions of these regulations; (g )appointment of a custodian in order to keep custody of the securities

10or gold and gold related instruments and carry out the custodian activities as may be authorized by the trustees.

Consideration of application
8.The Board, may on receipt of all information decide the application. Grant of Certificate of Registration 9.The Board may register the mutual fund and grant a certificate in Form B on the applicant paying the registration fee as specified in Second Schedule.

Terms and conditions of registration

10.The registration granted to a mutual fund under regulation 9, shall be subject to the following terms and conditions: (a) the trustees, the sponsor, the asset management company and the custodian shall comply with the provisions of these regulations; (b) the mutual fund shall forthwith inform the Board, if any information or particulars previously submitted to the Board was misleading or false in any material respect; (c ) the mutual fund shall forthwith inform the Board, of any material change in the information or particulars previously furnished, which have a bearing on the registration granted by it; (d ) payment of fees as specified in the regulations and the Second Schedule.

Rejection of application
11. Where the sponsor does not satisfy the eligibility criteria mentioned in regulation 7,the Board may reject the application and inform the applicant of the same.

Payment of annual service fee:

12. A mutual fund shall pay before the 15th April each year a service fee as specified in the Second Schedule for every financial year from the year following the year of registration:

Provided
that the Board may, on being satisfied with the reasons for the delay permit the mutual fund to pay the service fee at any time before the expiry of two months from the commencement of the financial year to which such fee relates.

Failure to pay annual service fee

13.The Board may not permit a mutual fund who has not paid service fee to launch any scheme.

CONSTITUTION AND MANAGEMENT OF ASSET MANAGEMENT COMPANY AND CUSTODIAN

Application by an asset management company 14. (1) The application for the approval of the asset management company shall be made in Form D. (2) The provisions of regulations 5, 6 and 8 shall, so far as may be, apply to the application made under sub-regulation (1) as they apply to the application for registration of a mutual fund.

Appointment of an asset management company

15. (1) The sponsor or, if so authorised by the trust deed, the trustee, shall appoint an asset management company, which has been approved by the Board under subregulation(2) of regulation 21. (2)The appointment of an asset management company can be terminated by majority of the trustees or by seventy-five per cent of the unit holders of the scheme. (3) Any change in the appointment of the asset management company shall be subject to prior approval of the Board and the unit holders.

Eligibility criteria for appointment of asset management company

16. (1) For grant of approval of the asset management company the applicant has to fulfill the following :(a ) in case the asset management company is an existing asset management company it has a sound track record, general reputation and fairness in transactions.
Explanation:

For the purpose of this clause sound track record shall mean the net worth and the profitability of the asset management company; (a) the asset management company is a fit and proper person; (b) the directors of the asset management company are persons having adequate professional experience in finance and financial services related field and not found guilty of moral turpitude or convicted of any economic offence or violation of any securities laws; (c ) the key personnel of the asset management company have not been found guilty of moral turpitude or convicted of economic offence or violation of securities laws or worked for any asset management company or mutual fund or any intermediary during the period when its] registration has been suspended or cancelled at any time by the Board; (d ) the board of directors of such asset management company has at least fifty per cent directors, who are not associate of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees; (e) the Chairman of the asset management company is not a trustee of any mutual fund; (f ) the asset management company has a net worth of not less than rupees ten crores : Provided that an asset management company already granted approval under the provisions of Securities and Exchange Board of India (Mutual Funds) Regulations, 1993shall

within a period of twelve months from the date of notification of these regulations increase its net worth to rupees ten crores : Provided further that the period specified in the first proviso may be extended inappropriate cases by the Board up to three years for reasons to be recorded in writing : Provided further that no new schemes shall be allowed to be launched or managed by such asset management company till the net worth has been raised to rupees ten crores. Explanation: For the purposes of this clause, net worth means the aggregate of the paid up capital and free reserves of the asset management company after deducting therefrom miscellaneous expenditure to the extent not written off or adjusted or deferred revenue expenditure, intangible assets and accumulated losses. (2) The Board may, after considering an application with reference to the matters specified in sub-regulation (1), grant approval to the asset management company.

Terms and conditions to be complied with

17. The approval granted under sub-regulation (2) of regulation 21 shall be subject to the following conditions, namely: (a) any director of the asset management company shall not hold the office of the director in another asset management company unless such person is an independent director referred to in clause (d) of sub-regulation (1) of regulation 21 and approval of the Board of asset management company of which such person is a director, has been obtained; (b) the asset management company shall forthwith inform the Board of any material change in the information or particulars previously furnished, which have a bearing on the approval granted by it; (c ) no appointment of a director of an asset management company shall be made without prior approval of the trustees;

(d ) the asset management company undertakes to comply with these regulations; (e) no change in the controlling interest of the asset management company shall be made unless, (i ) prior approval of the trustees and the Board is obtained; (ii) a written communication about the proposed change is sent to each unit holder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the Head Office of the mutual fund is situated; and (iii ) the unit holders are given an option to exit on the prevailing Net Asset Value without any exit load;] (f ) the asset management company shall furnish such information and documents to the trustees as and when required by the trustees. Procedure where approval is not granted 18.Where an application made under regulation 19 for grant of approval does not satisfy the eligibility criteria laid down in regulation 21, the Board may reject the application.
Restrictions on business activities of the asset management company

19.The asset management company shall (1) not act as a trustee of any mutual fund; (2) not undertake any other business activities except activities in the nature of portfolio management services,] management and advisory services to offshore funds, pension funds, provident funds, venture capital funds, management of insurance funds, financial consultancy and exchange of research on commercial basis if any of such activities are not in conflict with the activities of the mutual fund : Provided that the asset management company may itself or through its subsidiaries undertake such activities if it satisfies the Board that the key personnel of the asset management company, the systems, back office, bank and securities accounts are segregated activity-wise and there exist systems to prohibit access to inside information of various activities :

Provided further that asset Management Company shall meet capital adequacy requirements, if any, separately for each such activity and obtain separate approval, if necessary under the relevant regulations. (3) The asset management company shall not invest in any of its schemes unless full disclosure of its intention to invest has been made in the offer documents in case of schemes launched after the notification of these regulations : Provided that an asset management company shall not be entitled to charge any fees on its investment in that scheme.

Asset management company and its obligations

20. (1) The asset management company shall take all reasonable steps and exercise due diligence to ensure that the investment of funds pertaining to any scheme is not contrary to the provisions of these regulations and the trust deed. (2) The asset management company shall exercise due diligence and care in all its investment decisions as would be exercised by other persons engaged in the same business. (3) The asset management company shall be responsible for the acts of commission or omission by its employees or the persons whose services have been procured by the asset management company. (4) The asset management company shall submit to the trustees quarterly reports of each year on its activities and the compliance with these regulations. (5) The trustees at the request of the asset management company may terminate the assignment of the asset management company at any time:

Provided that such termination shall become effective only after the trustees have accepted the termination of assignment and communicated their decision in writing to the asset management company.

(6) Not withstanding anything contained in any contract or agreement or termination, the asset management company or its directors or other officers shall not be absolved of liability to the mutual fund for their acts of commission or omission, while holding such position or office. (6A) The Chief Executive Officer (whatever his designation may be) of the asset management company shall ensure that the mutual fund complies with all the provisions of these regulations and the guidelines or circulars issued in relation thereto from time to time and that the investments made by the fund managers are in the interest of the unit holders and shall also be responsible for the overall risk management function of the mutual fund. Explanation For the purpose of this sub-regulation, the words these regulations shall mean and include the Securities and Exchange Board of India (Mutual Funds)Regulations, 1996 as amended from time to time. (6B)The fund managers (whatever the designation may be) shall ensure that the funds of the schemes are invested to achieve the objectives of the scheme and in the interest of the unit holders. (7) (a) An asset management company shall not through any broker associated with the sponsor, purchase or sell securities, which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes : Provided that for the purpose of this sub-regulation, the aggregate purchase and sale of securities shall exclude sale and distribution of units issued by the mutual fund : Provided further that the aforesaid limit of 5 per cent shall apply for a block of any three months. (b)An asset management company shall not purchase or sell securities through any broker [other than a broker referred to in clause (a) of sub-regulation (7) which is average of 5 per cent or more of the aggregate purchases and sale of securities made by the mutual fund in all its schemes, unless the asset management company has recorded in writing the justification for

exceeding the limit of 5 per cent and reports of all such investments are sent to the trustees on a quarterly basis : Provided that the aforesaid limit shall apply for a block of three months. (8) An asset management company shall not utilise the services of the sponsor or any of its associates, employees or their relatives, for the purpose of any securities transaction and distribution and sale of securities : Provided that an asset management company may utilise such services if disclosure to that effect is made to the unit holders and the brokerage or commission paid is also disclosed in the half-yearly annual accounts of the mutual fund :

Provided further that the mutual funds shall disclose at the time of declaring half yearly and yearly results : (i) Any underwriting obligations undertaken by the schemes of the mutual funds with respect to issue of securities associate companies, (ii) devolvement, if any, (iii) subscription by the schemes in the issues lead managed by associate companies, (iv) subscription to any issue of equity or debt on private placement basis where the sponsor or its associate companies have acted as arranger or manager. (9) The asset management company shall file with the trustees the details of transactions in securities by the key personnel of the asset management company in their own name or on behalf of the asset management company and shall also report to the Board, as and when required by the Board.

(10) In case the asset management company enters into any securities transactions with any of its associates a report to that effect shall be sent to the trustees at its next meeting. (11) In case any company has invested more than 5 per cent of the net asset value of a scheme, the investment made by that scheme or by any other scheme of the same mutual fund in that company or its subsidiaries shall be brought to the notice of the

trustees by the asset management company and be disclosed in the half-yearly and annual accounts of the respective schemes with justification for such investment provided the latter investment has been made within one year of the date of the former investment calculated on either side. (12) The asset management company shall file with the trustees and the Board (a) detailed bio-data of all its directors along with their interest in other companies within fifteen days of their appointment; (b)any change in the interests of directors every six months; and

(c ) a quarterly report to the trustees giving details and adequate justification about the purchase and sale of the securities of the group companies of the sponsor or the asset management company, as the case may be, by the mutual fund during the said quarter. (13) Each director of the asset management company shall file the details of his transactions of dealing in securities with the trustees on a quarterly basis in accordance with guidelines issued by the Board. (14) The asset management company shall not appoint any person as key personnel who has been found guilty of any economic offence or involved in violation of securities laws. (15) The asset management company shall appoint registrars and share transfer agents who are registered with the Board:

Provided if the work relating to the transfer of units is processed in-house, the charges at competitive market rates may be debited to the scheme and for rates higher than the competitive market rates, prior approval of the trustees shall be obtained and reasons for charging higher rates shall be disclosed in the annual accounts. (16) The asset management company shall abide by the Code of Conduct as specified in the Fifth Schedule.

Appointment of custodian
21. (1) The mutual fund shall appoint a Custodian to carry out the custodial services for the schemes of the fund and sent intimation of the same to the Board within fifteen days of the appointment of the Custodian: Provided that in case of a gold exchange traded fund scheme, the assets of the scheme being gold or gold related instruments may be kept in custody of a bank which is registered as a custodian with the Board.

(2) No custodian in which the sponsor or its associates hold 50 per cent or more of the voting rights of the share capital of the custodian or where 50 per cent or more of the directors of the custodian represent the interest of the sponsor or its associates shall act as custodian for a mutual fund constituted by the same sponsor or any of its associates or subsidiary company.

Agreement with custodian

22. The mutual fund shall enter into a custodian agreement with the custodian, which shall contain the clauses which are necessary for the efficient and orderly conduct of the affairs of the custodian: Provided that the agreement, the service contract, terms and appointment of the custodian shall be entered into with the prior approval of the trustees.

CHARACTERISTICS OF MUTUAL FUNDS

The ownership is in the hands of the investors who have pooled in their funds. It is managed by a team of investment professionals and other service providers. The pool of funds is invested in a portfolio of marketable investments. The investors share is denominated by units whose value is called as Net Asset Value (NAV) which changes everyday. The investment portfolio is created according to the stated investment objectives of the fund.

ADVANTAGES OF MUTUAL FUNDS

The advantages of mutual funds are given below: Portfolio Diversification Mutual funds invest in a number of companies. This diversification reduces the risk because it happens very rarely that all the stocks decline at the same time and in the same proportion. So this is the main advantage of mutual funds .

Professional Management
Mutual funds provide the services of experienced and skilled professionals, assisted b y i n v e s t m e n t r e s e a r c h t e a m t h a t a n a l y s i s t h e p e r f o r m a n c e a n d p r o s p e c t s o f companies and select the suitable investments to achieve the objectives of the scheme.

Low Costs
Mutual funds are a relatively less expensive way to invest as compare to directly investing in a capital markets because of less amount of brokerage and other fees.

Liquidity
T h i s i s t h e m a i n a d v a n t a g e o f mu t u a l fu n d , t h a t i s w h e n e v e r a n i n v e s t o r n e e d s money he can easily get redemption, which is not possible in most of other options of investment. In open-ended schemes of mutual fund, the investor gets the money back at net asset value and on the other hand in close-ended schemes the units can be sold in a stock exchange at a prevailing market price.

Transparency

In mutual fund, investors get full information of the value of their investment, the p r o p o r t i o n o f m o n e y i n v e s t e d i n e a c h c l a s s o f a s s e t s a n d t h e f u n d m a n a g e r s investment strategy

Flexibility
Flexibility is also the main advantage of mutual fund. Through this investors can systematically invest or withdraw funds according to their needs and convenience like regular investment plans, regular withdrawal plans, dividend reinvestment plans etc.

Convenient Administration
Investing in a mutual fund reduces paperwork and helps investors to avoid many problems like bad deliveries, delayed payments and follow up with brokers and companies. Mutual funds save time and make investing easy.

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.

Well Regulated
All mutual funds are registered with SEBI and they function with in the provisions of strict regulations designed to protect the interest of investors. The operations of mutual funds are regularly monitored by SEBI.

DISADVANTAGES OF MUTUAL FUNDS

Mutual funds have their following drawbacks:

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 mutual fund runs the risk of losing the money.

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 dont use a broker or other financial advisor, you will pay a sales commission if you buy shares in a Load Fund.

Taxes
During a typical year, most actively managed mutual funds sell anywhere from 20 to70 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 you reinvest the money you made.

Management Risk
When you invest in mutual fund, you depend on fund m a n a g e r t o m a k e t h e r i g h t decisions regarding the funds 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. O f c o u r s e , i f y o u i n v e s t i n i n d e x fu n d s , y o u fo r e g o m a n a g e me n t r i s k b e c a u s e t h e s e funds do not employ managers.

STRUCTURE OF MUTUAL FUND There are many entities involved and the diagram below illustrates the structure of mutual funds: -

Structure of Mutual Funds

SEBI
The regulation of mutual funds operating in India falls under the preview of authority of the Securities and Exchange Board of India (SEBI). Any person proposing to setup a mutual fund in India is required under the SEBI (Mutual Funds) Regulations, 1996to be registered with the SEBI.

Sponsor
The sponsor should contribute at least 40% to the net worth of the AMC. However, if a n y p e r s o n h o l d s 4 0 % o r mo r e o f t h e n e t w o r t h o f a n A M C shall be deemed to be a s p o n s o r a n d w i l l b e r e q u i r e d t o f u l f i l l t h e e l i g i b i l i t y c r i t e r i a i n t h e M u t u a l F u n d Regulations. The sponsor or any of its directors or the principal officer employed by the mutual fund should not be guilty of fraud or guilty of any economic offence.

Trustees

The mutual fund is required to have an independent Board of Trustees, i.e. two third o f t h e t r u s t e e s s h o u l d b e i n d e p e n d e n t p e r s o n s w h o a r e n o t a s s o c i a t e d w i t h t h e sponsors in any manner. An AMC or any of its officers or employees are not eligible to a c t a s a t r u s t e e o f a n y m u t u a l fu n d . T h e t r u s t e e s a r e r e s p o n s i b l e fo r - i n t e r a l i a ensuring that the AMC has all its systems in place, all key personnel, auditors, registrar etc. have been appointed prior to the launch of any scheme.

Asset Management Company

The sponsors or the trustees are required to appoint an AMC to manage the assets of the mutual fund. Under the mutual fund regulations, the applicant must satisfy certain eligibility criteria in order to qualify to register with SEBI as an AMC.1.The sponsor must have at least 40% stake in the AMC.2.The chairman of the AMC is not a trustee of any mutual fund.3.The AMC should have and must at all times maintain a minimum net worth of Cr.100 million.4 . T h e d i r e c t o r o f t h e A M C s h o u l d b e a p e r s o n h a v i n g a d e q u a t e p r o f e s s i o n a l experience. 5. The board of directors of such AMC has at least 50% directors who are not a s s o c i a t e o f o r a s s o c i a t e d i n a n y m a n n e r w i t h t h e s p o n s o r o r a n y o f i t s subsidiaries or the trustees. The Transfer Agents The transfer agent is contracted by the AMC and is responsible for maintaining the r e g i s t e r o f i n v e s t o r s / u n i t h o l d e r s a n d e v e r y d a y s e t t l e m e n t s o f p u r c h a s e s a n d r e d e mp t i o n o f u n i t s . T h e r o l e o f a t r a n s f e r a g e n t i s t o c o l l e c t d a t a fr o m d i s t r i b u t o r s relating to daily purchases and redemption of units.

Custodian
T h e m u t u a l fu n d i s r e q u i r e d , u n d e r t h e M u t u a l F u n d R e g u l a t i o n s , to appoint a c u s t o d i a n t o c a r r y o u t t h e c u s t o d i a l s e r v i c e s

for

the

schemes

of

the

fund.

Only

institutions

with

s u b s t a n t i a l o r g a n i z a t i o n a l s t r e n g t h , s e r v i c e c a p a b i l i t y i n t e r ms o f computerization and other infrastructure facilities are approved to act as custodians. The custodian must be totally delinked from the AMC and must be registered with SEBI.

Unit Holders
They are the parties to whom the mutual fund is sold. They are ultimate beneficiary of the income earned by the mutual funds.

TYPES OF MUTUAL FUND SCHEMES

In India, there are many companies, both public and private that are engaged in the trading of mutual funds. Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. Investment can be made either in the debt Securities or equity .

Systematic Investment Plan (SIP)

Systematic investment plan is like Recurring Deposit in which investor invests in the particular scheme on regular intervals. In the case it is convenient for salaried class and middle-income group. In this case on regular interval units of specified amount is created. An investor can make payment by regular payments by issuing cheques, postdated cheques, ECS, standing Mandate etc. SIP can be started in the any open ended f u n d i f t h e r e i s p r o v i s i o n o f i t . T h e r e a r e s o m e e n t r y a n d e x i t l o a d b a r r i e r s f o r discontinuation and redemption of the fund before the said period.

According to Structure

Open Ended Funds

An open ended 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 ended schemes is liquidity.

Close Ended Funds

A close ended fund has a stipulated maturity period which generally ranging from 3to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the same time of the initial public issue and thereafter they can buy and 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.

Interval Funds
Interval funds combine the features of open ended and close ended schemes. They are open for sales or redemption during pre-determined intervals at their NAV.

According to Investment Objective: Growth Funds

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 h a s b e e n p r o v e n t h a t r e t u r n s f r o m s t o c k s a r e m u c h b e t t e r t h a n t h e o t h e r i n v e s t m e n t s h a d o v e r t h e l o n g t e r m.

G r o w t h s c h e m e s a r e i d e a l f o r i n v e s t o r s having a long term outlook seeking growth over a period of time.

Income Funds
T h e a i m o f t h e i n c o me fu n d s i s t o p r o v i d e r e g u l a r a n d s t e a d y i n c o me t o i n v e s t o r s . S u c h s c h e m e s g e n e r a l l y i n v e s t i n f i x e d i n c o me s e c u r i t i e s s u c h a s bonds, corporate debentures and government securities. Income funds are ideal for capital stability and regular income.

Balanced Funds
T h e a i m o f b a l a n c e d fu n d s i s t o p r o v i d e b o t h g r o wt h a n d r e g u l a r i n c o me . Such schemes periodically distribute a part of their earning and invest both ine q u i t i e s and fi x e d i n c o me securities in the

p r o p o r t i o n i n d i c a t e d i n t h e i r o f f e r documents. In a rising stock market, the NAV of these schemes may not normally k e e p p a c e o r f a l l e q u a l l y w h e n t h e ma r k e t f a l l s . T h e s e a r e i d e a l fo r i n v e s t o r s looking for a combination of income and moderate growth.

Money Market Funds

The main aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safe 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.

Other Schemes Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of t h e Indian Income Tax laws as the government offers tax

incentives

f o r i n v e s t me n t i n s p e c i fi e d a v e n u e s . I n v e s t m e n t s

m a d e i n E q u i t y L i n k e d S a v i n g 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.

Special Schemes: Index Schemes

Index funds attempt to replicate the performance of a particular index such asthe BSE Sensex or the NSE 50.

Sector Specific Schemes

Sector 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.

Bond Schemes
It seeks investment in bonds, debentures and debt related instrument to generate regular income flow.

FREQUENTLY USED TERMS

Advisor - is employed by a mutual fund organization to give professional advice on the funds investments and to supervise the management of its asset. Diversification The policy of spreading investments among a range of different securities to reduce the risk.

Net Asset Value (NAV)- Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value of the scheme divided by the number of units outstanding on the Valuation Date.

Sales Price - I s t h e p r i c e y o u p a y w h e n y o u i n v e s t i n a s c h e me . A l s o c a l l e d O f f e r Price. It may include a sales load. Repurchase Price - is t h e p r i c e a t w h i c h a c l o s e - e n d e d s c h e me r e p u r c h a s e s i t s units and it may include a back-end load. This is also called Bid Price. Redemption Price - i s t h e p r i c e a t w h i c h o p e n - e n d e d s c h e me s r e p u r c h a s e t h e i r units and close-ended schemes redeem their units on maturity. Such prices are NAV related. Sales Load - is a charge collected by a scheme when it sells the units. Also called Front-end load. Schemes that do not charge a load are called No Load schemes.

ULIPS

PLATFORMS OF LIFE INSURANCEUNIT LINKED INSURANCE PLANS

W o r l d o v e r , i n s u r a n c e c o m e i n d i f fe r e n t fo r ms a n d s h a p e s . a l t h o u g h t h e g e n e r i c names may find similar ,the difference in product features makes one wonder about the basis on which these products are designed .With insurance market opened up , Indian customer has suddenly found himself in a market place where he is bombarded with a l o t o f j a r g o n a s well as marketing gimmicks with a very little knowledge of what is h a p p e n i n g . T h i s m o d u l e i s a i m e d a t c l a r i f y i n g t h e s e u n d e r l y i n g c o n c e p t s a n d simplifying the different products available in the market. W e h a v e m a n y p r o d u c t s l i k e E n d o w me n t , W h o l e l i f e , M o n e y b a c k e t c . A l l t h e s e products are based on following basic platforms or structures viz. Traditional Life Universal Life or Unit Linked Policies

3.1 TRADITIONAL LIFE AN OVERVIEW

The basic and widely used form of design is known as Traditional Life Platform. It is based on the concept of sharing . Each of the policy holder contributes his contribution(premium) into the common large fund is managed by the company on behalf of the policy holders.

Administration of that common fund in the interest of everybody was entrusted to the insurance company .It was the responsibility of the company to administer schemes for benefit of the policyholders. Policyholders played a very passive roll . In the course of time , the same concept of sharing and a common fund was extended to different areas like saving , investment etc.

3.1.1 FEATURES OF TL:

This is the simplest way of designing product as far as c o n c e r n e d . H e h a s n o other responsibility but to pay the premium regularly. Company is responsible for the protection as well as m a x i m i z a t i o n o f t h e policyholders funds. There is a common fund where in all the premiums paid a r e a c c u m u l a t e d . Expenses incurred as well as claims paid are then taken out of this fund. C o mp a n i e s c a r r y o u t t h e v a l u a t i o n o f t h e fu n d p e r i o d i c a l l y t o a s c e r t a i n t h e position. It is also a practice to increase the minimum possible guarantee under a p o l i c y e v e r y y e a r i n t h e fo r m o f d e c l a r i n g a n d a t t a c h i n g b o n u s e s t o t h e s u m assured on the basis of this valuation. Declaration of bonuses is not mandatory. B a s e d o n t h e e n d o b j e c t i v e , c o mp a n i e s m a y o f f e r d i f fe r e n t p l a n s l i k e s a v i n g plans, investment plans etc. (e.g. Endowment, SPWLIP)It helps to maintain a smooth growth and protects against the vagaries of the market. In other words it minimizes the risk of investments for an average individual. He shares his risk with a group of like-minded individuals.

ULIP is the Product Innovation of the conventional Insurance product. With the decline in the popularity of traditional Insurance products & changing Investor needs in terms of life protection, periodicity, returns & liquidity, it was need of the hour to have an Instrument that offers all these features bundled into one.