COMPARATIVE STUDY OF MUTUAL FUNDS

PREPARED BY

: -- MOUMITA DEY

CLASS

: -- LLM 2ND YEAR (BUSINESS LAW)

Academic year

:-- 2012-2013

UNDER GUIDANCE OF

: --

SYNOPSYS:
1. ABSTRACT 2. IMPORTANCE OF RESEARCH 3. SCOPE OF RESEARCH 4. LIMITATIONS 5. OBJECTIVES OF STUDY 6. HYPOTHESYS OF STUDY 7. RESEARCH METHODOLOGY 8. CHPTERISATION

i. CHAPTER I - MUTUAL FUND--- DEFINITION,CONCEPT, HISTORY, ORGANISATIONAL STRUCTURE ii. CHAPTER II TYPES OF MUTUAL FUND SCHEME & ADVANTAGES & DISADVANTAGES OF MUTUAL FUND iii. CHAPTER III- MUTUAL FUND COMPANIES IN INDIA-AN OVERVIEW & CURRENT SCENARIO iv. CHAPTER IV- PERFORMANCE, RISK FACTORS &FEES & FEES & EXPENSES OF MUTUAL FUND v. CHAPTER V COMPARISON BETWEEN VARIOUS MUTUAL FUNDS

8. CONCLUSION AND SUGESSTIONS 9. REFERENCES 10. ACKNOWLEDGEMENT

ABSTRACT
The rise in the level of capital market has manifested the importance Mutual Funds as investment medium. Mutual Funds are now are becoming a preferred investment destination for the investors as fund houses offer not only the expertise in managing funds but also a host of other services. Over the last five year period from Mar03 to Mar08, the money invested by FIIs was Rs.2,09,213cr into the stock market as compared to Rs.38,964cr by mutual funds, yet MFs collectively made an annualized return of 34% while it was 30% in case of FIIs. Total Assets Under Management(AUM) in India as of today is $92b. Volatile markets and year end accounting considerations have shaved 6% off in March, but much of that money should flow back in April. The next five years will see the Indian Asset Management business grow at least 33% annually says a study by McKinsey. Funds in the diversified equity category which has the largest number of funds(194) as well as the highest investor interest lost an average of 28.3% in Q4,2007-08 but gained an average of 21.4% over the four quarters. Equity funds are estimated to have had net inflows of Rs.7000cr for March 2008.More than 80% of equity funds managed to outperform Sensex in terms of returns over the last five years. Investors money inflow to mutual funds has sidelined for the time being but the overall long term fundamental outlook on the economy remains intact. To lower the impact of volatility one can stay invested in diversified equity funds over a longer period of time through the route of Systematic Investment Plan.

IMPORTANCE OF RESEARCH
The main purpose of doing this project was to know about mutual fund and its functioning. This helps to know in details about the mutual fund industry right from its inception stage , growth , and future prospects. It also helps in understanding different scheme of mutual funds.

Investment in mutual funds gives you exposure to equity and debt markets. These funds are marketed as a safe haven or as smart investment vehicles for novice investors. The middle-class Indian investor who plays hot tips for a quick buck at the bourses is the stuff of legends. The middle-class Indian investor who runs out of luck and loses not only his money but his peace of mind too is somewhat less famous by choice. Mutual funds, on the other hand, sell us middling miracles. Consequently proof enough for a research on Mutual Funds, which has exacting returns.

OBJECTIVE OF THE PROJECT

Objectives are the ends that states specifically how goal be achieved. Every study must have an objective for which all the efforts have been done. Without objective no research can be conducted and no result can be obtained. On the basis of objective all the research process is followed. Objectives are the main aspect of every study. The objective of the study gives direction to go through the research problem. It guides the researcher and keeps him on track. The objectives of my research are as follows:- To give a brief idea about benefits available from mutual fund investment To study some performance measure of mutual fund investment To give a brief idea about types of schemes available To give a brief idea about market trends of mutual fund industry To study some mutual fund companies in India To explore recent development of Mutual Funds in India. To know the risk and return associated with mutual fund To analyze concept and parameters of mutual fund

SCOPE OF THE PROJECT

The project covers the financial instruments mobilizing in the Indian Capital market in particular the Mutual Funds. The mutual funds analysed for their performance are determined over a period of 5 years fluctuations and returns. The project shelves some of the top asset management companies operating in India , segregated on the basis of their performance over a period of time. Scooping further the project inundates the success ratio of the funds administered by top AMCs. The scope stretches to make people aware about concept of mutual fund as well as to provide information about advantages and disadvantages of mutual fund

LIMITATIONS
A well managed portfolio of various individual scripts which is rare, would not help to draw a line of difference between portfolio managed through mutual funds and the former. The median used to choose the top AMCs and the mutual funds to be analysed is relative and personalized and need not be accepted industry wide. Inaccessibility to certain information and data relating to the project on account of it being confidential. Market volatility would affect individuals perception which would rather not be likely the way it is expressed, thus resulting in a very relative data. The lack of information sources for the analysis part. Though I tried to collect some primary data but they were too inadequate for the purposesof the study. Time and money are critical factors limiting this study. The data provided by the prospects may not be 100% correct as they too have their limitations

The study is limited to selected mutual fund schemes

RESEARCH METHODOLOGY
Research refers to search for knowledge. One can also define research as scientific and systematic search for pertinent information on a specific topic.it is an srt of scientific investigation.research methodology is the way to syatematically solve a problem. The methodology adopted in this study is explained below:

Type of research
The research is qualitative and descriptive in nature. Qualitative research is that research which talks about quality of the subject to be researched and descriptive research is one that describes thing as exist in present.

Method of research

A thorough study of literature on the mutual fund industry in India will be done. Different measures will be adopted to understand and evaluate the risks and returns of funds efficiently and effectively. An extensive study of various articles and publications of SEBI, AMFI and government of India and other agencies with respect to the demographics of the population of the country and their investing pattern will be a part of the methodology adopted. The project will be carried out mainly through two researches: The present study is empirical one and quantitative in approach. This study is based on primary as well as secondary data. The empirical data have been collected by conducting a survey by using an interview schedule. It was also thought proper that view perceptions of entrepreneurs, through structured questionnaires to suggest the suitable policy measures. So,

the researcher also interacted with the representatives of mutual fund companies for in depth discussions.

The interview schedule has been structured .For identifying the variables to be used in the interview schedule; the researcher conducted a trial interview. A rough draft of the interview schedule was prepared and was circulated among fellow researchers for critical evaluation. The draft was then revised in the light of their comments. Their suggestions were incorporated and the final draft is prepared.

It has equally focused on qualitative methods of research. Secondary and published documented data has been collected through various sources and analyzed accordingly. Secondary data were also collected from published and unpublished sources. They were collected from books, journals, reports and published documents

To make the study more meaningful and policy oriented available literature and studies have been consulted and reviewed.

HYPOTHESYS HYPOTHESIS The Hypothesis of the study involves Comparison between: 1.Kotak Opportunities fund.2.Reliance Equity Opportunities fund.3.Franklin India Flexi fund.4.HDFC Core & satellite fund.5.HSBC India Opportunities fund.The comparison between these schemes is made based on the following factorsA)Sharpes RatioB)Treynors RatioC) (Beta) co-efficient.D)Returns

Sources of data:

Primary sources I have used questionnaire as primary source for collecting data Secondary sources I had collected my secondary data from website , journals etc. Every investor requires a healthy return on his/her investments. But since the market is very volatile and due to lack of expertise they may fail to do so. So a study of these mutual funds will help one to equip with unwarranted knowledge about the elements that help trade between risk and return thereby improving effectiveness. A meticulous study on the scalability at which the mutual funds operate along with diagnosis of the market conditions would endure managing the investment portfolio efficiently. The study would also immunize on risks and foresee healthy returns; incidentally in worst of conditions it has given a return of 18 per cent.

CHAPTER 1 INTRODUCTION:
What are Mutual Funds?

Mutual funds is an investment vehicle that is made by pooling funds from investment in securities such as stocks, bonds, money market instruments and other similar assets. Mutual funds are operated by fund managers, who invest the fund's capital in attempt to produce capital gains. As the investment is made across a wide industries and sectors, the associated risk is reduced to minimum. Mutual fund is issued to an individual based on the capital invested. Investors of mutual funds are referred as unitholders. The profit or loss in the investment is equally shared by all the investors according to proportion of investment made. Mutual funds are launched in form of schemes with different investment objectives from time to time. A mutual fund scheme should be registered with Securities and Exchange Board of India (SEBI)

Mutual funds have been a significant source of investment in both government and corporate securities. It has been for decades the monopoly of the state with UTI being the key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign companies. Banks - mainly state-owned too have established Mutual Funds (MFs). Foreign

participation in mutual funds and asset management companies is permitted on a case by case basis.

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:

CONCEPT:

A mutual fund is a common pool of money into which investors place their contributionsthat are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or mutual; the fund belongs to all investors. A single investors ownership of the fund isin the same proportion as the amount of the contribution made by him or her bears to the totalamount of the fund.

Mutual Funds are trusts, which accept savings from investors and invest the same indiversified financial instruments in terms of objectives set out in the trusts deed with the view toreduce the risk and maximize the income and capital appreciation for distribution for themembers. A Mutual Fund is a corporation and the fund managers interest is to professionallymanage the funds provided by the investors and provide a return on them after deductingreasonable management fees.The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower income groups to acquire without much difficulty financial assets. They cater mainly tothe needs of the individual investor whose means are small and to manage investors portfolio in

amanner that provides a regular income, growth, safety, liquidity and diversificationopportuniti es A mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the money, which theyearned, is divided based on the number of units, which they hold.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 grewfairly 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. There aresome loads which add to the cost of mutual fund. Load is a type of commission depending on thetype of funds.Mutual funds are easy to buy and sell. You can either buy them directly from the fundcompany or through a third party. Before investing in any funds one should consider some factor like objective, risk, Fund Managers and scheme track record, Cost factor etc.There are many, many types of mutual funds. You can classify funds based Structure(open-ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth,income, money market) etc.A code of conduct and registration structure for mutual fund intermediaries, which weresubsequently mandated by SEBI. In addition, this year AMFI was involved in a number of developments and enhancements to the regulatory framework.
INTRODUCTION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an investor withan investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds wherethere is low risk but low return. He may invest in Stock of companies where the risk is high andthe returns are also proportionately high. The recent trends in the Stock Market have shown thatan average retail investor always lost with periodic bearish tends. People began opting for portfolio managers with expertise in stock markets who would invest on their behalf. Thus wehad wealth management services provided by many institutions. However they proved too costlyfor a small investor. These investors have found a good shelter with the mutual funds. IMPORTANT CHARACTERISTICS OF A MUTUAL FUND A Mutual Fund actually belongs to the investors who have pooled their Funds. The ownership of the mutual fund is in the hands of the Investors A Mutual Fund is managed by investment professional and other Service providers, who earns a fee for their services, from the fund The pool of Funds is invested in a portfolio of marketable investments. The value of the portfolio is updated every day.

The investors share in the fund is denominated by units. The valueof the units changes with change in the portfolio value, every day. Thevalue of one unit of investment is called net asset value (NAV). The investment portfolio of the mutual fund is created according to The statedInvestment objectives of the Fund

HISTORY OF MUTUAL FUNDS:

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases.

First Phase 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. 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 June 1987 followed by Canbank 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 set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of 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, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was 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 January 2003, 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 graph indicates the growth of assets under management over the years.GROWTH IN ASSETS UNDER MANAGEMENT (Source:www.amfiindia.com )

ORGANISATION OF A MUTUAL FUND:

There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

More About Mutual funds

According to SEBI "Mutual Fund" means a fund established in the form of a trust to raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, including money market instruments;" To the ordinary individual investor lacking expertise and specialized skill in dealing proficiently with the securities market a Mutual Fund is the most suitable investment forum as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. India has a burgeoning population of middle class now estimated around 300 million. A typical Indian middle class family can pool liquid savings ranging from Rs.2 to Rs.10 Lacs. Investment of this money in Banks keeps the fund liquid and safe, but with the falling rate of interest offered by Banks on Deposits, it is no longer attractive. At best a small part can be parked in bank deposits, but what are the other sources of remunerative investment possibilities open to the common man? Mutual Fund is the ready answer, as direct PMS investment is out of the scope of these individuals. Viewed in this sense India is globally one of the best markets for Mutual Fund Business, so also for Insurance business. This is the reason that foreign companies compete with one another in setting up insurance and mutual fund business shops in India. The sheer magnitude of the population of educated white-collar employees with raising incomes and a well-organized stock market at par with global standards, provide unlimited scope for development of financial services based on PMS like mutual fund and insurance. The alternative to mutual fund is direct investment by the investor in equities and bonds or corporate deposits. All investments whether in shares, debentures or deposits involve risk: share value may go down depending upon the performance of the company, the industry, state of capital markets and the economy. Generally, however, longer the term, lesser is the risk. Companies may default in payment of interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall short of the rate of inflation reducing the purchasing power. While risk cannot be eliminated, skillful management can minimise risk.

Mutual Funds help to reduce risk through diversification and professional management. The experience and expertise of Mutual Fund managers in selecting fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio that minimises risk and maximises returns.

CHAPTER 2

WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The money isinvested in various instruments depending on the objective of the scheme. The income generated by selling securities or capital appreciation of these securities is passed on to the investors in proportion to their investment in the scheme. The investments are divided into units and thevalue of the units will be reflected in Net Asset Value or NAV of the unit. NAV is the marketvalue 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. Mutual fundcompanies provide daily net asset value of their schemes to their investors. NAV is important, asit will determine the price at which you buy or redeem the units of a scheme. Depending on theload structure of the scheme, you have to pay entry or exit load.

Types of mutual fund schemes

The expertise and professional skill developed by different Mutual Funds in Portfolio Management can be better expressed by listing the different financial products they have developed to be offered to the investors:

Mutual funds

Classification

By Maturity peroid

By Investment Objective

Others

TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors,Being a collection of many stocks, an investors can go for picking a mutual fund might be easy.There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutualfunds in categories, mentioned below.

There are 3 principal types of mutual funds in the United States: open-end funds, unit investment trusts (UITs); and closed-end funds. Exchange-traded funds (ETFs) are open-end funds or unit investment trusts that trade on an exchange; they have gained in popularity recently. While the term "mutual fund" may refer to all three types of registered investment companies, it is more commonly used to refer exclusively to the open-end type Income Funds:The aim of income funds is to provide regular and steady income toinvestors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds areideal for capital stability and regular income Features : - The main features of the Income funds are: y

The investor is assured of regular income at periodic intervals, saysHalf- yearly or years and so on. y

The main objective of this type fund is to declare regular dividendsand not capital appreciation. y

The pattern of investment is oriented towards high and fixed incomeyielding securities like debentures, bonds etc. y

This is best suited to the old and retired people who may not have anyregular income. y

It concerns itself with short run gains only Growth Funds:The aim of growth funds is to provide capital appreciation over themedium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, haveoutperformed most other kind of investments held over the long term.Growth schemes are ideal for investors having a long-term outlook seekinggrowth over a period of time. Features

: - The main features of the Growth funds are: y

The Growth oriented fund aims at meeting the investors' needfor capital appreciation. y

The Investment strategy therefore, conforms to the Fundobjective by investing the fund predominantly on equities withhigh growth potential. y

The Fund tries to get capital appreciation by taking much risk and investing on risk bearing equities and high growth equityshares. y

The Fund may declare dividend, but its principal objective isonly capital appreciation. y

This is best suited to salaried and business people who havehigh risk bearing capacity and ability to defer liquidity. Theycan accumulate wealth for future needs.

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Balance Funds:The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning andinvest both in equities and fixed income securities in the proportionindicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the marketfalls. These are ideal for investors looking for a combination of income andmoderate growth.

Specialised Funds:-

Index schemes:-The primary purpose of an Index is to serve as a measure of the performance of the market as a whole, or a specific sector of the market. AnIndex also serves as a relevant benchmark to evaluate the performance of mutual funds. Some investors are interested in investing in the market ingeneral rather than investing in any specific fund. Such investors are happyto receive the returns posted by the markets. As it is not practical to invest ineach and every stock in the market in proportion to its size, these investorsare comfortable investing in a fund that they believe is a good representativeof the entire market. Index Funds are launched and managed for suchinvestors. An example to such a fund is the HDFC Index Fund.

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Tax Saving schemes: Investors (individuals and Hindu Undivided Families HUFs) are being encouraged to invest in equity markets through Equity Linked SavingsScheme (ELSS) by offering them a tax rebate. Units purchased cannot beassigned / transferred/ pledged / redeemed / switched out until completionof 3 years from the date of allotment of the respective Units.

Money Market Funds: The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generallyinvest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on theseschemes may fluctuate depending upon the interest rates prevailing in themarket. These are ideal for corporate and individual investors as a means to park their surplus funds for short periods.

Load Funds A Load Fund is one that charges a commission for entry or exit. Thatis, each time you buy or sell units in the fund, a commission will be payable.Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history.

No-Load Funds A No-Load Fund is one that does not charge a commission for entryor exit. That is, no commission is payable on purchase or sale of units in thefund. The advantage of a no load fund is that the entire corpus is put towork

1. Schemes according to Maturity Period:

A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period. Open-end funds
o

An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period

Open-end mutual funds must be willing to buy back their shares from their investors at the end of every business day at the net asset value computed that day. Most open-end funds also sell shares to the public every business day; these shares are also priced at net asset value. A professional investment manager oversees the portfolio, buying and selling securities as appropriate. The total investment in the fund will vary based on share purchases, share redemptions and fluctuation in market valuation. There is no legal limit on the number of shares that can be issued. Open-end funds are the most common type of mutual fund. At the end of 2011, there were 7,581 open-end mutual funds in the United States with combined assets of $11.6 trillion.

Exchange-traded funds
Main article: Exchange-traded fund

A relatively recent innovation, the exchange-traded fund or ETF is often structured as an openend investment company, though ETFs may also be structured as unit investment trusts, partnerships, investments trust, grantor trusts or bonds (as an exchange-traded note). ETFs combine characteristics of both closed-end funds and open-end funds. Like closed-end funds, ETFs are traded throughout the day on a stock exchange at a price determined by the market. However, as with open-end funds, investors normally receive a price that is close to net asset value. To keep the market price close to net asset value, ETFs issue and redeem large blocks of their shares with institutional investors.

Closed-end funds
o

Close-ended Fund/Scheme: A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units 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. These mutual funds schemes disclose NAV generally on weekly basis

Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who no longer wish to invest in the fund cannot sell their shares back to the fund (as they can with an open-end fund). Instead, they must sell their shares to another investor in the market; the price they receive may be significantly different from net asset value. It may be at a "premium" to net asset value (meaning that it is higher than net asset value) or, more commonly, at a "discount" to net asset value (meaning that it is lower than net asset value). A professional investment manager oversees the portfolio, buying and selling securities as appropriate. At the end of 2011, there were 634 closed-end funds in the United States with combined assets of $239 billion.[13]

Unit investment trusts Unit investment trusts or UITs issue shares to the public only once, when they are created. UITs generally have a limited life span, established at creation. Investors can redeem shares directly with the fund at any time (as with an open-end fund) or wait to redeem upon termination of the trust. Less commonly, they can sell their shares in the open market. Unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT and does not change. At the end of 2011, there were 6,022 UITs in the United States with combined assets of $60 billion.[13] 2. Schemes according to Investment Objective: A scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment objective. Such schemes may be open-ended or close-ended schemes as described earlier. Such schemes may be classified mainly as follows:
o

Growth / Equity Oriented Scheme: The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option,

capital appreciation, etc. and the investors may choose an option depending on their preferences. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a longterm outlook seeking appreciation over a period of time.
o

Income / Debt Oriented Scheme: The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

Balanced Fund: The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These are appropriate for investors looking for moderate growth. They generally invest 40-60% in equity and debt instruments. These funds are also affected because of fluctuations in share prices in the stock markets. However, NAVs of such funds are likely to be less volatile compared to pure equity funds.

3. Money Market or Liquid Fund:

These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. 4. Gilt Fund:

These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes. 5. Index Funds:

Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc. These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. 6. Sector specific funds/schemes:

These are the funds/schemes, which invest in the securities of only those sectors, or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. They may also seek advice of an expert. 7. Tax Saving Schemes:

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues. e.g. Equity Linked Savings Schemes (ELSS). Pension schemes launched by the mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-

dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme 8. Load or no-load Fund:

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. However, the investors should also consider the performance track record and service standards of the mutual fund, which are more important. Efficient funds may give higher returns in spite of loads. 9. No-load fund: is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units. 10. Monthly Income Plan: To generate regular income through investments in debt and money market instruments and also to generate long-term capital appreciation by investing a portion in equity related instruments. Fund Objective :-Investors seeking regular income through investments in fixed income securities so as to get monthly/quarterly/half yearly dividend. The secondary objective of the scheme is to generate long term capital appreciation by investing a portion of schemes assets in equity and equity related instruments. Suitable for investor with medium risk profile and seeking regular income. 11. FMPs ( Fixed Maturity Plans ): These are close-ended income schemes with a fixed

maturity date. The period could range from fifteen days to as long as two years or more. When the period comes to an end, the scheme matures and money is paid back. Like an income scheme, FMPs invest in fixed income instruments i.e. bonds, government securities, money market instruments etc. The tenure of these instruments depends on the tenure of the scheme.

FMPs effectively eliminate interest rate risk. This is done by employing a specific investment strategy. FMPs invest in instruments that mature at the same time their schemes come to an end. So a 90-day FMP will invest in instruments that mature within 90 days.

For all practical purposes, an FMP is an income scheme of a mutual fund. Hence, the tax incidence would be similar to that on traditional income schemes. The dividend from an FMP will be tax free in the hands of an individual investor. However, it would be subject to the dividend distribution tax.

Redemptions from investments held for less than a year will be short-term gains and added to the investor's income to be taxed at slab rates applicable. If such an investment were held for more than a year, the long-term gains would get taxed at 20 per cent with indexation or at 10 per cent without. These rates are subject to the surcharge and education cess as normally applicable. One can avail the benefit of double indexation and save tax on FMPs held for more than one year.

Different Modes of Receiving the Income Earned From Mutual Fund Investments

Mutual funds offer three methods of receiving income:

Growth plan:

In this plan, dividend is neither declared or paid out to the investor but is built into the value of the NAV. In other words, the NAV increases over time due to such incomes and the investor realizes only the capital appreciation on redemption of his investment.

Income funds:

In this plan, dividend are paid outs to the investor. In other words, the NAV only reflects the capital appreciation or depreciation in market price of the underlying portfolio.

Dividend re-investment plan:

In this case, dividend is declared but not paid out to the investor, instead, it is reinvested back into the scheme at the then prevailing NAV. In other words, the investor is given additional units and not cash as dividend.

Net asset value (NAV)

The net asset value of the fund is the cumulative market value of the asset fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives ride to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the per unit. We also abide by the same convention.

ADVANTAGES AND DISADVANTAGES Reduction Of Transaction Costs: What is true of risk as also true of the transaction costs. The investor bears all the costs of investing such as brokerage or custody of securities. When going through a fund, he has the benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit passed on to its investors. Liquidity: Often, investors hold shares or bonds they cannot directly, easily and quickly sell. Whenthey invest in the units of a fund, they can generally cash their investments any time, by sellingtheir units to the fund if open-ended, or selling them in the market if the fund is close-end.Liquidity of investment is clearly a big benefit. 6. Convenience And Flexibility: Mutual fund management companies offer many investor services that a direct marketinvestor cannot get. Investors can easily transfer their holding from one scheme to the other; getupdated market information and so on. 7. Tax Benefits: Any income distributed after March 31, 2002 will be subject to tax in the assessment of all Unit holders. However, as a measure of concession to Unit holders of open-ended equity-oriented funds, income distributions for the year ending March 31, 2003, will be taxed at aconcessional rate of 10.5%.In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from theTotal Income will be admissible in respect of income from investments specified in Section 80L,including income from Units of the Mutual Fund. Units of the schemes are not subject toWealth-Tax and Gift-Tax.

8.Choice of Schemes: Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. 16 9.Well Regulated: All Mutual Funds are registered with SEBI and they function within the provisions of strictregulations designed to protect the interests of investors. The operations of Mutual Funds areregularly monitored by SEBI. 10. Transparency: You get regular information on the value of your investment in addition to disclosure on thespecific investments made by your scheme, the proportion invested in each class of assetsand the fund manager's investment strategy and outlook. DISADVANTAGES OF INVESTING THROUGH MUTUALFUNDS: 1. No Control Over Costs: An investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. Fees are payable even if the value of his investments isdeclining. A mutual fund investor also pays fund distribution costs, which he would not incur indirect investing. However, this shortcoming only means that there is a cost to obtain the mutualfund services. 2.

No Tailor-Made Portfolio: Investors who invest on their own can build their own portfolios of shares and bonds andother securities. Investing through fund means he delegates this decision to the fund managers.The veryhigh-net-worth individuals or large corporate investors may find this to be a constraintin achieving their objectives. However, most mutual fund managers help investors overcome thisconstraint by offering families of funds- a large number of different schemeswithin their ownmanagement company. An investor can choose from different investment plans and constructs a portfolio to his choice. 17 3.Managing A Portfolio Of Funds: Availability of a large number of funds can actually mean too much choice for theinvestor. He may again need advice on how to select a fund to achieve his objectives, quitesimilar to the situation when he has individual shares or bonds to select. 4.The Wisdom Of Professional Management: That's right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees. 5. No Control: Unlike picking your own individual stocks, a mutual fund puts you in the passenger seatof somebody else's car 6.Dilution: Mutual funds generally have such small holdings of so many differ ent stocks thatinsanely great performance by a fund's top

holdings still doesn't make much of a difference in amutual fund's total performance. 7.Buried Costs: Many mutual funds specialize in burying their costs and in hiring salesmen who do notmake those costs clear to their clients
The Advantages of Investing in a Mutual Fund
The advantages of investing in a Mutual Fund extending PMS to the small investors are as under:

Professional Management- The investor avails of the services of experienced and skilled professionals who are backed by a dedicated investment research team, which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification- Mutual Funds invest in a number of companies across a broad crosssection of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration - Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential Over a medium to long-term - Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs - Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.

Liquidity- In open-ended schemes, you can get your money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase at NAV related prices which some close-ended and interval schemes offer you periodically.

Transparency- You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager's investment strategy and outlook.

Flexibility- Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Choice of Schemes- Mutual Funds offers a family of schemes to suit your varying needs over a lifetime.

Well Regulated- All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

Advantages of Mutual Funds:The advantages of investing in a Mutual Fund are: Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency

Flexibility

Disadvantages:

No Control over Cost No Tailor-made Portfolios Managing a Portfolio of Funds

Mutual funds have advantages compared to direct investing in individual securities.[3] These include:

Increased diversification Daily liquidity Professional investment management Ability to participate in investments that may be available only to larger investors Service and convenience Government oversight Ease of comparison

Mutual funds have disadvantages as well, which include[4]:

Fees Less control over timing of recognition of gains Less predictable income No opportunity to customize

CHAPTER 3

STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In Indiaopen and close-end funds operate under the same regulatory structure i.e. as unit Trusts. AMutual Fund in India is allowed to issue open-end and close-end schemes under a common legalstructure.

The structure that is required to be followed by any Mutual Fund in India is laid downunder SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or incombination of another corporate body establishes a Mutual Fund. The sponsor of the fund isakin to the promoter of a company as he gets the fund registered with SEBI. The sponsor forms atrust and appoints a Board of Trustees. The sponsor also appoints the Asset ManagementCompany as fund managers. The sponsor either directly or acting through the trustees will alsoappoint a custodian to hold funds assets. All these are made in accordance with the regulationand guidelines of SEBI.

As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute atleast 40% of the net worth of the Asset Management Company and possesses a sound financialtrack record over 5 years prior to registration

Overview of Indian Mutual Fund Industry

Assets under management

As of the end on 31 January 2008, the mutual fund industry had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making them an influential shareholder. Together with banks, insurance companies and FIIs- collectively called institutional investors- they have the ability to ask company managements some tough questions. Indias market for mutual

funds has generated substantial growth in assets under management over the past 10 years.

Money flows by type of fund

A detailed breakdown of the fund inflows over the past years 2005-2006 shows particularly strong inflows into equity funds, an indication that investors in India see strong growth potential for Indias domestic firms. Most of the money flowing into equity funds is from individual investors, and appears to include both funds owned by the wealthy, which tend to invest via the growing private banking channel, and funds from regular retail investors, who are growing in number in step with growth in the middle class.

Ownership of mutual fund shares

One notable characteristic of Indias mutual fund market is the high percentage of shares owned by corporations. According to the Association of Mutual Funds in India ( AMFI ) , Individual investors held slightly under 50% of mutual fund assets, and corporations held over 50% as of the end of march 2007. This high percentage of corporate ownership can be tracked back to tax reforms instituted in 1999 that lowered the tax rate on dividend and interest income from mutual funds, and made that rate lower than the corporate tax levied on income from securities held directly by corporations.

Although there is no official data regarding the type investor in each class, the typical pattern seems to be that individual investors primarily invest in equity funds, while corporate investors favor bond funds, particularly short-term money market products that provide a way for corp[orations to invest surplus cash.

MUTUAL FUND COMPANIES IN INDIA:

The concept of mutual funds in India dates back to the year 1963. The era between 1963and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn assetsunder management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By theend of the 80s decade, few other mutual fund companies in India took their position in mutualfund market.The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of IndiaMutual Fund.The succeeding decade showed a new horizon in Indian mutual fund industry. By the endo f 1 9 9 3 , t h e t o t a l A U M o f t h e i n d u s t r y w a s R s . 4 7 0 . 0 4 b n . T h e p r i v a t e s e c t o r f u n d s s t a r t e d penetrating the fund families. In the same year the first Mutual Fund Regulations came intoexistance with re-registering all mutual funds except UTI. The regulations were further given arevised shape in 1996.Kothari Pioneer was the first private sector mutual fund company in India which has nowmerged with Franklin Templeton. Just after ten years with private sector players penetration, thet o t a l assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.
Major Mutual Fund Companies in India

ABN AMRO Mutual Fund

Birla Sun Life Mutual Fund

Bank of Baroda Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

Prudential ICICI Mutual Fund

State Bank of India Mutual Fund

Tata Mutual Fund

Unit Trust of India Mutual Fund

Reliance Mutual Fund

Standard Chartered Mutual Fund

Franklin Templeton India Mutual Fund

Morgan Stanley Mutual Fund India

Escorts Mutual Fund

Alliance Capital Mutual Fund

Benchmark Mutual Fund

Canbank Mutual Fund

Chola Mutual Fund

LIC Mutual Fund

GIC Mutual Fund

ABN AMRO MUTUAL FUND ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee(India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

BIRLA SUN LIFE MUTUAL FUND Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed a AUM of Rs.10, 000 crores.

BANK OF BARODA MUTUAL FUND Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Assets Management Company Limited is the AUM of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC MUTUAL FUND HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

ING VYSYA MUTUAL FUND ING Yysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was on corporaed on April 6, 1998.

PRUDENTIAL ICICI MUTUAL FUND The mutual fund of ICICI is a joint venture with Prudential Plc. Of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13 October, 1993 with two sponsors, Prudential Plc. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22 June, 1993.

SAHARA MUTUAL FUND Sahara Mutual Fund was setup on July 18, 1996 with Sahara India financial Corporation Ltd. as the sponsor. Sahara Assets Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid up capital of the AMC stands at Rs.25.8 crore.

STATE BANK OF INDIA MUTUAL FUND State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs.225 crore approximately. Today it is the largest Bank sponsored Mutual Fund in India. They already launched 35 schemes out of which 15 have already yield handsome returns to investors. State Bank of India Mutual Fund has more than Rs.5, 500 crores as AUM. Now it has an investor base of over 8 lakhs spread over 18 schemes.

TATA MUTUAL FUND TATA Mutual Fund is a Trust under the Indian Trust Act, 1882. the sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. the investment manger is Tata management Limited is one of the fastest in the country with more than Rs.7,703 Crore(as on 2005) of AUM. KOTAK MAHINDRA ASSET MANAGEMENT COMPANY

Kotak Mahindra Asset Management Company is a subsidiary of KMBL. It is presently having more than 1, 99,818 investors in its various schemes. KMAMC stared its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to

investors with varying risk return profiles. It was the first company to launch to dedicated gilt scheme investing only in government securities.

UNIT TRUST OF INDIA MUTUAL FUND UTI Asset Management Company Private Limited, established in Jan 24, 2003 manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20, 000 crore. The sponsors of UTI Mutual Fund are Bank of Baroda, Punjab National Bank, State Bank of India, and Life Insurance Corporation of India. The schemes of UTI Mutual Fund are Liquid Funds, assets Management Funds, Index Funds and BalancedFunds.

RELIANCE MUTUAL FUND Reliance Mutual Fund was established as trust under Indian Trusts Act, 1882.The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of 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.

STANDARD CHARTERED MUTUAL FUND Standard Chartered Mutual Fund was setup on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd is the AMC which was incorporated with SEBI on December 20, 1999.

FRANKLIN TEMPLETON MUTUAL FUND The group, Franklin Templeton investment is a California based company with a global AUM of US $409.2(as on 2005). It is one of the largest financial service group in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end tax saving schemes, Open end income and liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

MORGAN STANLEY MUTUAL FUND Morgan Stanley is a world wide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley investment management was established in the year 1975. it provides customized asset management services and products to governments, corporations, pension funds and non profit organizations. Its services are also extending to high net worth individuals and retail investors. In India it is known as Morgan Stanley investment management Private Ltd. and its AMC is Morgan Stanley Mutual Fund. This is the first closed end diversified equity scheme serving the needs of Indian retail investors focusing on the long termcapital appreciation.

ESCORT MUTUAL FUNDS Escort Mutual Funds was set up on April 15th, 1996 with Escorts Finance Ltd. as its sponsor. The Trustee Company is Escorts Investments Trust Ltd.. its AMC was incorporated on Dec1st, 95 with the name Escorts Asset Management Ltd.

ALLAINCE CAPITAL MUTUAL FUND Allaince Capital Mutual Fund was set up on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Pvt. Ltd. with the corporate office in Mumbai.

BENCHMARK MUTUAL FUND Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the trustee Company. incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Assets Management Company Pvt. Ltd. is the AMC.

CAN BANK MUTUAL FUND Can Bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canara bank investment Management Service Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

CHOLA MUTUAL FUND

Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC MUTUAL FUND Life Insurance Corporation on India setup LIC Mutual Fund on 19th June 1989. It contributed Rs.2 crore towards the corpus of the Fund. LIC Mutual Fund was constituted as a trust in accordance with the provisions of the Indian trust Act, 1882. The Company started its bsiness on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd. as the Investment Managers for mutual fund.

GIC MUTUAL FUND GIC Mutual Fund, sponsored by General Insurance Corporation of India, a government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd, the New India Assurance Co. Ltd. the Oriental Insurance Co. Ltd and United India Insurance Co. Ltd and is constituted as a Trust in Accordance with the provisions of the Indian Trusts Act, 1882.

For the first time in the history of Indian mutual fund industry, Unit Trust of India MutualFund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund wasranked at the number one slot in terms of total assets.In the very next month, the UTIMF had regained its top position as the largest fund housein India. Now, according to the current pegging order and the data released by Association of M u t u a l F u n d s i n I n d i a ( A M F I ) , t h e R e l i a n c e M u t u a l F u n d , w i t h a J a n u a r y - e n d A U M o f R s 39,020 crore has become the largest mutual fund in IndiaO n the other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone to s e c o m d position. The Prudential ICICI MF has slipped to the third position with an AUM of Rs 34,746crore.It happened for the first time in last one year that a private sector mutual fund house has reachedto the top slot in terms of asset under management (AUM). In the last one year to January, AUMof the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.According to the data released by Association of Mutual Funds in India (AMFI), thecombined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billion inApril compared to Rs 4,932.86 billion in MarchReliance MF maintained its top position as the largest fund house in the country with Rs74.25 billion jump in AUM to Rs 883.87 billion at April-end.T h e s e c o n d - l a r g e s t f u n d h o u s e H D F C M F

g a i n e d R s 5 9 . 2 4 b i l l i o n i n i t s A U M a t R s 6 3 8 . 8 0 billion.ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion rerespectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at theend of April, while UTI MF had assets worth Rs 544.89 billion.T h e o t h e r f u n d h o u s e s w h i c h s a w a n i n c r e a s e i n t h e i r a v e r a g e A U M i n A p r i l i n c l u d e -Canara Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LICMF.

SEBI REGULATIONS : As far as mutual funds are concerned, SEBI formulates policies and regulates the mutualfunds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time totime. SEBI has also issued guidelines to the mutual funds from time to time to protect the interestsof investors. All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. The risksassociated with the schemes launched by the mutual funds sponsored by these entities are of similar type. There is no distinction in regulatory requirements for these mutual funds and allare subject to monitoring and inspections by SEBI. SEBI Regulations require that at least two thirds of the directors of trustee company or boardof trustees must be independent i.e. they should not be associated with the sponsors.

Also, 50% of the directors of AMC must be independent. All mutual funds are required to beregistered with SEBI before they launch any scheme. Further SEBI Regualtions, inter-alia, stipulate that MFs cannot gurarnatee returns in anyscheme and that each scheme is subject to 20 : 25 condition [I.e minimum 20 investors per scheme and one investor can hold more than 25% stake in the corpus in that one scheme]. Also SEBI has permitted MFs to launch schemes overseas subject various restrictions andalso to launch schemes linked to Real Estate, Options and Futures, Commodities, etc. 38

ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI): With the increase in mutual fund players in India, a need for mutual fund association inIndia was generated to function as a non-profit organisation. Association of Mutual Funds inIndia (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of all Asset Management Companies (AMC) which has beenregistered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are itsmembers. It functions under the supervision and guidelines of its Board of Directors.Association of Mutual Funds India has brought down the Indian Mutual Fund Industry toa professional and healthy market with ethical lines enhancing and maintaining standards. Itfollows the principle of both protecting and promoting the interests of mutual funds as well astheir unit holders. The Objectives of Association of Mutual Funds in India: The Association of Mutual Funds of India works with 30 registered AMCs of thecountry. It has certain defined objectives w hich juxtaposes the guidelines of its Board of Directors. The objectives are as follows: This mutual fund association of India maintains high professional and ethical standards inall areas of operation of the industry. It also recommends and promotes the top class business practices and code of conductwhich is followed by members and related people engaged in the activities of mutualfund and asset management. The agencies who are by any means connected or involvedin the field of capital markets and financial services also involved in this code of conductof the association. AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fundindustry.

 Association of Mutual Fund of India do represent the Government of India, the ReserveBank of India and other related bodies on matters relating to the Mutual Fund Industry. It develops a team of well qualified and trained Agent distributors. It implements a programme of training and certification for all intermediaries and other engaged in themutual fund industry. 39

AMFI undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. At last but not the least association of mutual fund of India also disseminate informationson Mutual Fund Industry and undertakes studies and research either directly or inassociation with other bodies. AMFI Publications: AMFI publish mainly two types of bulletin. One is on the monthly basis and the other isquarterly. These publications are of great support for the investors to get intimation of theknowhow of their parked money

restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes.The measure was taken to make mutual funds the key instrument for long-term saving.The more the variety offered, the quantitative will be investors.Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations inIndia managing 1,02,000 crores.At last to mention, as long as mutual fund companies are performing with lower risks andhigher profitability within a short span of time, more and more people will be inclined to investuntil and unless they are fully educated with the dos and donts of mutual funds.Mutual fund industry has seen a lot of changes in past few years with multinationalcompanies coming into the country, bringing in their professional expertise in managing fundsworldwide. In the past few months there has been a consolidation phase going on in the mutualfund industry in India. Now investors have a wide range of Schemes to choose from dependingon their individual profiles. 42

MUTUAL FUND COMPANIES IN INDIA: The concept of mutual funds in India dates back to the year 1963. The era between 1963and 1987 marked the existance of only one mutual fund company in India with Rs. 67bn assetsunder management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By theend of the 80s decade, few other mutual fund companies in India took their position in mutualfund market.The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of IndiaMutual Fund.The succeeding decade showed a new horizon in Indian mutual fund industry. By the endof 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating the fund families. In the same year the first Mutual Fund Regulations came intoexistance with re-registering all mutual funds except UTI. The regulations were further given arevised shape in 1996.Kothari Pioneer was the first private sector mutual fund company in India which has nowmerged with Franklin Templeton. Just after ten years with private sector players penetration, thetotal assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India. Major Mutual Fund Companies in India ABN AMRO Mutual Fund Birla Sun Life Mutual Fund Bank of Baroda Mutual Fund HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund Prudential ICICI Mutual Fund State Bank of India Mutual Fund

 Tata Mutual Fund Unit Trust of India Mutual Fund Reliance Mutual Fund Standard Chartered Mutual Fund Franklin Templeton India Mutual Fund Morgan Stanley Mutual Fund India Escorts Mutual Fund Alliance Capital Mutual Fund Benchmark Mutual Fund Canbank Mutual Fund Chola Mutual Fund LIC Mutual Fund GIC Mutual Fund 43

For the first time in the history of Indian mutual fund industry, Unit Trust of India MutualFund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund wasranked at the number one slot in terms of total assets.In the very next month, the UTIMF had regained its top position as the largest fund housein India. Now, according to the current pegging order and the data released by Association of Mutual Funds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs39,020 crore has become the largest mutual fund in IndiaOn the other hand, UTIMF, with an AUM of Rs 37,535 crore, has gone to secomd position. The Prudential ICICI MF has slipped to the third position with an AUM of Rs 34,746crore.It happened for the first time in last one year that a private sector mutual fund house has reachedto the top slot in terms of asset under management (AUM). In the last one year to January, AUMof the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.According to the data released by Association of Mutual Funds in India (AMFI), thecombined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billion inApril compared to Rs 4,932.86 billion in MarchReliance MF maintained its top position as the largest fund house in the country with Rs74.25 billion jump in AUM to Rs 883.87 billion at April-end.The second-largest fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs 638.80 billion.ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion rerespectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at theend of April, while UTI MF had assets worth Rs 544.89 billion.The other fund houses which saw an increase in their average AUM in April include-Canara Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LICMF.

CURRENT SCENARIO:

The fund industry has grown phenomenally over the past couple of years, and as on 31 January 2008, it had a debt and equity assets of Rs 5,50,157 crore. Its equity corpus of Rs 2,20,263 lakh crore accounts for over 3 per cent of the total market capitalization of BSE, at Rs 58 lakh crore. Its holding in Indian companies ranges between 1 per cent and almost 29 per cent, making them an influential shareholder. Together with banks, insurance companies and FIIscollectively called institutional investors- they have the ability to ask company managements some tough questions.

More significant than this stupendous growth has been the regulatory changes that the capital market watchdog, Securities and Exchange Board of India, introduced in the past two years. Outgoing Sebi Chairman M.Damodarans two year stint as chairman of Unit Trust of India helped him reform the industry by making it much more transparent than before. In the process, mutual funds have become a tad cheaper. Until 2007, for instance, initial issue expenses on close-ended funds, which could be as high as 6 per cent of the amount raised, could be amortized over the tenure of the fund. This basically meant that even if an investor put in Rs 1 lakh, effectively only Rs 94,000 got invested by the fund. The initial expenses of the fund include commissions paid to distributors and money spent on billboards for advertising the new offer. In 2006, the regulator had scrapped the amortization benefit for open-ended schemes. Not surprisingly, asset management companies started launching closed-ended funds. Of the 34 new fund offers in 2007, 24 were closedended. In January this year, SEBI said all closed-ended mutual fund schemes too will meet sales and marketing expenses from the entry load. This made it more transport for investors, because funds had to either hike their expense ratio (management fee and operating charges as a percentage of assets under management) or change higher entry load.
RECENT TRENDS IN MUTUAL FUND INDUSTRY : The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity.

Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between theguaranteed and actual returns. The service levels were also very bad.

Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in the long term and requires deep-pocketed support in the intermediate years.

Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

WHY SHOULD INVESTORS INVEST IN MUTUAL FUND? An investor avails of the service of experienced and skilled professionals who are backed by a dedicated of companies and selects suitable investments to achieve the objectives of the schemes.

Mutual funds invest in a number of companies across a broad cross- section of industries and sectors. This diversification reduces the risk because seldom do all the stocks decline at the same time and in the same proportion. The investors achieve this diversification through a mutual fund with far less money than you can do on our own.

Investing in a mutual fund reduces paperwork and helps an investor payments and unnecessary follow.

avoid many problems such as bad deliveries, delayed

EMERGING ISSUES IN MUTUAL FUND

Rating of Mutual Fund Schemes:

Total returns has been the criteria for measuring the performance of mutual fund. Therefore, CRISIL has development a composite performance ranking which measures performance for each of the open- ended schemes. According to CRISIL, this measures is applicable only to those schemes, which are at least two years old and disclose 100% of their portfolios.

Changes in Mutual Fund due to the Advent of Net:

As per SEBI regulations, bond funds and equity funds can charge a maximum of 2.25% and 2.5% as administrative fees, respectively. Mutual Funds could bring down their administrative costs to 0.75%, if trading is done online and consequently improves the return potential of their schemes. Mutual Funds could provide better advise or servise to their investors through the Net.

New Norms on NPA Classification:

The Malegan committee has made important recommendations regarding norms on classification of NPAs in debt securities and norms for valuation of liquid securities in a mutual fund schemes. The committee has recommended that debt securities held by mutual fund in their portfolio can be classified as NPA, if the principal or interest is not received for six months. The mutual funds will have to disclose the NPAs to unit holders in a half-yearly basis.

INFLUENCE OF TECHNOLOGY:

A majority of the mutual fund have their own websites providing basic information relating to the schemes. Mutual Fund have begun to use electronic fund transfer method top remit their dividends and redemption proceeds. However, the most significant influence of technology is seen in servicing investors. So technology can bridge the gap between investor education and products positioning.

PRODUCT INNOVATION:

Product innovation is an emerging feature in the mutual fund industry in India. Most of the products offered by mutual fund can be divided among three classes of cash funds, income funds and equity funds. The year 2002 was different in that the products offered were far more innovative. Templeton India launched a debt fund that would invest predominantly in floating rate bonds.

INDICES FOR MUTUAL FUNDS:

The AMFI has recently launched four indices for gilt funds and another set of indices for balanced funds, bond funds, monthly income plans and liquid funds. The indices, which have been developed and will be maintained by ICICI securities and finance companied and CRISIL.com, respectively, will be mandated for use by mutualfunds to enable the comparison of performance.

FUNDS OF FUNDS:

The SEBI may soon permit mutual funds to float a new category of funds called funds of funds, which will invest in other mutual fund schemes. These scheme will enable people to invest in different mutual funds schemes through a single find

MUTUAL FUND BEST PRCTICES

THE PRACTICE OF RESTFUL Risk- Reward Relationship: A clear and direct relationship of risk with reward has to be developed and the concept instilled in the mind of the investor, and this is the basis of all classification of Mutual Fund.

Ease of Business: The business of Mutual Fund is not an easy one. It is easy only for the ones who have either been in the business for a long time, or for the people, institutions which have been in the investment space for a long time and are willing to experiment and learn from their mistake, and can be flexible.

Service: The service provision ought to be flawless, for after all, Mutual Fund is a service, and the only way the number of customers can be increased and the existing ones retained is by providing a higher level of service, thereby increasing customer satisfaction.

Trust / Transparency: A high level of transparency has to be built into the system of processes and investments in Mutual Fund. This is of vital importance as the terms Transparency and Trust, in the case of Mutual Funds is synonyms. Trust in the firm would come only with transparency. And with Trust would come more business.

Fairness to Investors: This, of course, is an offshoot of the previous point that we made. No business can survive unless it is fair to the customer. However, what is important here is that it has to be made evidently clear that the firm is actually being fair to its customers. Modesty doesnt help, and this has to be told to your customers so that they actually notice. The objective of the investment have to be always kept in mind while marketing Mutual Fund, for if there is a deviation, its utility is lost, or the customers remain unsatisfied.

Liquidity: This has again and again highlighted, for it the basic premise that most investors invest in Mutual Fund only because of the high level of liquidity. There has to be a good market development for your issue, so that there is a ready market available for them.

Different AMCs in India

THINK INVESTMENTS. THINK KOTAK Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited Attending to trusteeship function. This function as per g uidelines can beassigned to separately established trust companies too. Trustees are required tosubmit a consolidated report six monthly to SEBI to ensure that the guidelinesare fully being complied with trusted are also required to submit an annualreport to the investors in the fund. FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY (AMC) AMC has to discharge mainly three functions

as under:I.Taking investment decisions and making inve

stments of the funds throughmarket dealer/brokers in the secondary market securities capital market or or directly in money market

the primary

instrumentsII.Realize fund position by taking account of all receivables and realizations,moving corporate

actions involving declaration of dividends,etc to compensateinvestors for their investments in units; andIII.Maintaining proper accounting and information for pricing the units and arrivingat net asset value (NAV), the information about the listed schemes and thetransactions of units in the secondary market. AMC has to feed back the trusteesabout its fund

management operations and has to maintain a perfect informationsystem

The Mutual Fund Industry in India has grown steadily over the last couple of years and is today managing assets in excess of Rs 5,50,000 crore meeting different investment needs of millions of retail and institutional clients across debt, equity and hybrid asset class.

Ownershi Incorpora As on 31st march 2008 ABN Fund AMRO Mutual 27/5/200 4 Benchmark Fund _ Private 0%, Mutual Private 75%, ted On p Foreign-

Domestic Sponsor

ABN AMRO Asset Management 25% (Asia) Ltd.

Niche Financial Services Private 100% Ltd Sun Life (India) AMC

Birla Mutual Fund

23/12/19 94 Foreign JV 50%, 50%

Investments Inc., Birla Global Finance Ltd

BOB Mutual Fund

30/10/19 92 15/12/19 Public 0%, 100% Bank of Baroda

Canbank Mutual Fund DBS Fund Chola Mutual

87

Public

0%,

100%

Canara Bank Cholamandalam DBS Finance

3/1/1997 28/10/20

Private

37.48%, 62.52%

Ltd. Deutsche Asset Management

Deutsche Mutual Fund

02

Private

100%,

0%

(Asia) Limited DSP Merrill Lynch Ltd, HMK

DSP

Merrill

Lynch 16/12/19 96 Foreign JV 40%, 60%

Investment Pvt. Ltd., ADIKO Investment Pvt. Ltd.

Mutual Fund

15/4/199 Escorts Mutual Fund 6 17/2/200 Fidelity Mutual Fund 5 19/2/199 Franklin 6 30/6/200 HDFC Mutual Fund 0 Private 0%, 100% HDF Corporation Ltd HSBC Securities and Capital HSBC Mutual Fund 7/2/2002 Private -100% Markets (India) Private Limited National Interfinance 11/2/199 ING Mutual Fund 9 Foreign JV 85.68%, 14.32% Nederlanden B.V (ING Foreign JV 75%, 25% Franklin Resources, Inc. Private 100%, 0% Private 0%, 100% Escorts Finance Ltd Fidelity Advisors Internal Investment

Group),ING Vysya Bank Ltd., Kirti Equities Pvt. Ltd.(Mehta J.M Financial Consultancy

JM Financial Mutual 15/9/199 Fund 4 23/6/199 Kotak Mutual Fund 8 19/6/198 LIC Mutual Fund 9 Public 0%, 100% Private 0%, 100% Private 0%, 100%

Services Private Ltd, J.M Share & Stock Brokers Ltd.

Kotak Mahindra Finance Ltd

Life Insurance Corporation of India

Morgan Mutual Fund

Stanley 5/11/199 3 Foreign JV 75%, 25%

Morgan Stanley Dean Witter & Company

25/11/19 Principal Mutual Fund Prudential Mutual Fund 94 Private 65%, 35% Principal Financial Services Inc.

ICICI 25/8/199 3 2/12/200 Foreign JV 55%, 45% Prudential plc, ICICI Bank Quantum Private 0%, 100% Limited Advisors Private

Quantum Mutual Fund

5 30/6/199

Reliance Mutual Fund

5 18/7/199

Private

0%,

100%

Reliance Capital Ltd

Sahara Mutual Fund

6 29/6/198

Private

0%

100%

Sahara Ind Fin. Corporation Ltd

SBI Mutual Fund

7 13/3/200

Public

37%,

63%

SBI, Societe Generale AM

Stan Chartered MF Sundaram Fund

Foreign JV

75%,

25%

Standard Chartered Bank

Mutual 24/8/199 6 30/6/199 Private 0%, 100% Sundaram Finance Ltd Tata InvestCorp Ltd, Tata Sons Foreign JV 0%, 100% Ltd

Tata Mutual Fund

5 20/8/199

Taurus Mutual Fund UTI UTI Mutual Fund

3 1/2/1964 1/2/2003

Private Public Public

0%, 100% 0%,

100% 0% 100%

HB Portfolio Ltd UTI SBI, LIC, PNB, Bank of Baroda

As can be seen below there is a study done by value research which gives the top 5 fund houses. The table places RELIANCE as numero uno, the AMC crossing 100000 crore as assets under management. The second position is garnered by ICICI PRUDENTIAL whose infrastructure funds has performed over exceedingly well inspite of the fact that it is a sectorial fund. The third, fourth and fifth places have been captured by TATA,BIRLA and HSBC mutual fund houses respectively.

Top 5 Fund Houses Fund House No. of top rated Total rated funds Reliance Mutual Fund ICICI Prudential 21 Mutual Fund Tata Fund Birla Sunlife 18 39 Mutual 14 30 38 10 funds 17

Mutual Fund HSBC fund Source: Value Research Mutual 6 13

Structure of Mutual Fund

Sponsor: Sponsor is the person who acting alone or in combination withanother body corporate establishes a mutual fund. Sponsor must contributeat least 40% of the networth of the Investment Managed and meet theeligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the MutualFund. SEBIAMCFund Manager Mutual FundSchemesInvestor Sponsor Trustee O perationsMarket/Sales Market/SalesDistributor

15

Trust: The Sponsor constitutes the Mutual Fund as a trust in accordance withthe provisions of the Indian Trusts Act, 1882. The trust deed is registeredunder the Indian Registration Act, 1908.

Trustee:Trustee is usually a company (corporate body) or a Board of Trustees(body of individuals). The main responsibility of the Trustee is to safeguardthe interest of the unit holders and inter alia ensure that the AMC functionsin the interest of investors and in accordance with the Securities andExchange Board of India (Mutual Funds) Regulations, 1996, the provisionsof the Trust Deed and the O ffer Documents of the respective Schemes. Atleast 2/3rd directors of the Trustee are independent directors who are notassociated with the Sponsor in any manner.

Asset Management Company (AMC):The Trustee as the Investment Manager of the Mutual Fund appointsthe AMC. The AMC is required to be approved by the Securities andExchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independentdirectors who are not associated with the

Sponsor in any manner. The AMCmust have a networth of at least 10 crore at all times.

16

Registrar and Transfer Agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes theapplication form, redemption requests and dispatches account statements tothe unit holders. The Registrar and Transfer agent also handlescommunications with investors and updates investor records.

ORGANISATION AND MANAGEMENT OF MUTUAL FUNDS:In India Mutual Fund usually formed as trusts, three parties are generally involved viz.

Settler of the trust or the sponsoring organization. The trust formed under the Indian trust act, 1982 or the trust companyregistered under the Indian companies act, 1956 Fund mangers or The merchant-banking unit Custodians. MUTUAL FUNDS TRUST:Mutual fund trust is created by the sponsors under the Indian trust act, 1982 Which is the main body in the creation of Mutual Fund trustThe main functions of Mutual Fund trust are as follows: Planning and formulating Mutual Funds schemes.

Seeking SEBIs approval and authorization to these schemes. Marketing the schemes for public subscription.11

THINK INVESTMENTS. THINK KOTAK Seeking RBI approval in case NRIs subscription to Mutual Fund is Invited Attending to trusteeship function. This function as per guid elines can beassigned to separately established trust companies too. Trustees are required tosubmit a consolidated report six monthly to SEBI to ensure that the guidelinesare fully being complied with trusted are also required to submit an annualreport to the investors in the fund.

FUND MANAGERS (OR) THE ASSES MANAGEMENT COMPANY (AMC) AMC has to discharge mainly three functions as under:I.Taking investment decisions and making invest ments of the funds throughmarket dealer/brokers in the secondary market securities or directly in the primary capital market or money market instrumentsII.Realize fund position by taking account of all receivables and realizations,moving corporate actions involving declaration of dividends,etc to compensateinvestors for their investments in units; andIII.Maintaining proper accounting and information for pricing the units and arrivingat net asset value (NAV), the information about the listed schemes and thetransactions of units in the secondary market. AMC has to feed back the trusteesabout its fund management operations and has to maintain a perfect informationsystem.12

THINK INVESTMENTS. THINK KOTAK CUSTODIANS OF MUTUAL FUNDS:Mutual funds run by the subsidiaries of the nationalized banks had their respectivesponsor banks as custodians

like canara bank, SBI, PNB, etc. Foreign banks withhigher degree of automation in handling the securities have assumed the role of custodians for mutual funds. With the establishment of stock Holding Corporationof India the work of custodian for mutual funds is now being handled by it for various mutual funds. Besides, industrial investment trust company acts as sub-custodian for stock Holding Corporation of India for domestic schemes of UTI,BOI MF, LIC MF, etc Fee structure:Custodian charges range between 0.15% to 0.20% on the net value of thecustomers holding for custodian services space is one important factor which hasfixed cost element. RESPONSIBILITY OF CUSTODIANS: Receipt and delivery of securities Holding of securities. Collecting income Holding and processing cost

Corporate actions etc FUNCTIONS OF CUSTOMERS Safe custody Trade settlement Corporate action Transfer agents RATE OF RETURN ON MUTUAL FUNDS:An investor in mutual fund earns return from two sources: Income from dividend paid by the mutual fund. Capital gains arising out of selling the units at a price higher than theacquisition price Formation and regulations: 1.Mutual funds are to be established in the form of trusts under the

Indian trustsact and are to be operated by separate asset management companies (AMC s)2.AMCs shall have a minimum Net worth of Rs. 5 crores; 3.AMCs and Trustees of Mutual Funds are to be two separate legal entities andthat an AMC or its affiliate cannot act as a manager in any other fund;4.Mutual funds dealing exclusively with money market instruments are to beregulated by the Reserve Bank Of India5.Mutual fund dealing primarily in the capital market and also partly moneymarket instruments are to be regulated by the Securities Exchange Board Of India (SEBI) 6.All schemes floated by Mutual funds are to be registered with SEBI Schemes:1.Mutual funds are allowed to start and operate both closed-end and open-endschemes;14

THINK INVESTMENTS. THINK KOTAK 2.Each closed-end schemes must have a Minimum corpus (pooling up) of Rs 20crore; 3.Each open-end scheme must have a Minimum corpus of Rs 50 crore 4.In the case of a Closed End scheme if the Minimum amount of Rs 20 croreor 60% of the target amount, which ever is higher is not raised then the entiresubscription has to be refunded to the investors;5.In the case of an Open-Ended schemes, if the Minimum amount of Rs 50 croreor 60 percent of the targeted amount, which ever is higher, is no raised then theentire subscription has to be refunded to the investors. Investment norms:1.No mutual fund, under all its schemes can own more than five percent of anycompanys paid up capital carrying voting rights;2.No mutual fund, under all its schemes taken together can invest more than 10 percent of its funds in shares or debentures or other instruments of any singlecompany;3.No mutual fund, under all its schemes

taken together can invest more than 15 percent of its fund in the shares and debentures of any specific industry, exceptthose schemes which are specifically floated for investment in one or morespecified industries in respect to which a declaration has been made in the offer letter.4.No individual scheme of mutual funds can invest more than five percent of itscorpus in any one companys share;5.Mutual funds can invest only in transferable securities either in the money or inthe capital market. Privately placed debentures, securitized debt, and other unquoted debt, and other unquoted debt instruments holding cannot exceed 10 percent in the case of growth funds and 40 percent in the case of income funds.15

THINK INVESTMENTS. THINK KOTAK Distribution: Mutual funds are required to distribute at least 90 percent of their profits annually inany given year. Besides these, there are guidelines governing the operations of mutualfunds in dealing with shares and also seeking to ensure greater investor protectionthrough detailed disclosure and reporting by the mutual funds. SEBI has also beengranted with powers to over see the constitution as well as the operations of mutualfunds, including a

common advertising code. Besides, SEBI can impose penalties onMutual funds after due investigation for their failure to comply with the guidelines

MUTUAL FUND INVESTING STRATEGIES: 1. Systematic Investment Plans (SIPs) These are best suited for young people who have started their careers and need to buildtheir wealth. SIPs entail an investor to invest a fixed sum of money at regular intervalsin the Mutual fund scheme the investor has chosen, an investor opting for SIP in xyzMutual Fund scheme will need to invest a certain sum on money everymonth/quarter/half-year in the scheme. 2. Systematic Withdrawal Plans (SWPs) These plans are best suited for people nearing retirement. In these plans, an investor invests in a mutual fund scheme and is allowed to withdraw a fixed sum of money atregular intervals to take care of his expenses 3. Systematic Transfer Plans (STPs) 20

THINK INVESTMENTS. THINK KOTAK They allow the investor to transfer on a periodic basis a specified amount from onescheme to another within the same fund family meaning two schemes belonging tothe same mutual fund. A transfer will be treated as redemption of units from the schemefrom which the transfer is made. Such redemption or investment will be at theapplicable NAV. This service allows the investor to manage his investments actively toachieve his objectives. Many funds do not even charge any transaction fees for hisservice an added advantage for the active investor

CHAPTER 4

SELECTION PARAMETERS FOR MUTUAL FUND

Your objective: The first point to note before investing in a fund is to find out whether your objectivematches with the scheme. It is necessary, as any conflict would directly affect your prospectivereturns. Similarly, you should pick schemes that meet your specific needs. Examples: pension plans, childrens plans, sector-specific schemes, etc. Your risk capacity and capability: This dictates the choice of schemes. Those with no risk tolerance should go for debtschemes, as they are relatively safer. Aggressive investors can go for equity investments.In vestors that are even more aggressive can try schemes that invest in specific industry or sectors. Fund Managers and scheme track record: Since you are giving your hard earned money to someone to manage it, it is imperativethat he manages it well. It is also essential that the fund house you choose has excellent track record. It also should be professional and maintain high transparency in operations. Look at the performance of the scheme against relevant market benchmarks and its competitors. Look at the performance of a longer period, as it will give you how the scheme fared in different marketconditions. Cost factor: Though the AMC fee is regulated, you should look at the expense ratio of the fund beforeinvesting. This is because the money is deducted from your investments. A higher entry load or exit load also will eat into your returns. A higher expense ratio can be justified only bysuperlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your modest returns. 29

Also, Morningstar rates mutual funds. Each year end, many financial publications list theyear's best performing mutual funds. Naturally, very eager investors will rush out to purchaseshares of last year's top performers. That's a big mistake. Remember, changing market conditionsmake it rare that last year's top performer repeats that ranking for the current year. Mutual fundinvestors would be well advised to consider the fund prospectus, the fund manager, and thecurrent market conditions. Never rely on last year's top performers. Types of Returns on Mutual Fund: There are three ways, where the total returns provided by mutual funds can be enjoyed byinvestors: Income is earned from dividends on stocks and interest on bonds. A fund pays out nearlyall income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Mostfunds also pass on these gains to investors in a distribution.If fund holdings increase in price but are not sold by the fund manager, the fund's shares increasein price. You can then sell your mutual fund shares for a profit. Funds will also usually give youa choice either to receive a check for distributions or to reinvest the earnings and get moreshares

PERFORMANCE MEASURES OF MUTUAL FUNDS

Mutual Fund industry today, with about 34 players and more than five hundred schemes, is one of the most preferred investment avenues in India. However, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. Factors such as investment strategy and management style are qualitative, but the funds record is an important indicator too. Though past performance alone cannot be indicative of future

performance, it is, frankly, the only quantitative way to judge how good a fund is at present. Therefore, there is a need to correctly assess the past performance of different mutual funds. Worldwide, good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. For mutual funds to grow, AMCs must be held accountable for their selection of stocks. In other words, there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. Risk associated with a fund, in a general, can be defined as variability or fluctuations in the returns generated by it. The higher the fluctuations in the returns of a fund during a given period, higher will be the risk associated with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces. First, general market fluctuations, which affect all the securities present in the market, called market risk or systematic risk and second, fluctuations due to specific securities present in the portfolio of the fund, called unsystematic risk. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations in the NAV of the fund vis--vis market. The more responsive the NAV of a mutual fund is to the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a mutual fund with the returns in the market. While unsystematic risk can be diversified through investments in a number of instruments, systematic risk can not. By using the risk return relationship, we try to assess the competitive strength of the mutual funds vis--vis one another in a better way. In order to determine the risk-adjusted returns of investment portfolios, several eminent authors have worked since 1960s to develop composite performance indices to evaluate a portfolio by comparing alternative portfolios within a particular risk class. The most important and widely used measures of performance are: The Treynor Measure

 The Sharpe Measure Jenson Model Fama Model

The Treynor Measure Developed by Jack Treynor, this performance measure evaluates funds on the basis of Treynor's Index. This Index is a ratio of return generated by the fund over and above risk free rate of return (generally taken to be the return on securities backed by the government, as there is no credit risk associated), during a given period and systematic risk associated with it (beta). Symbolically, it can be represented as: Treynor's Index (Ti) = (Ri - Rf)/Bi. Where, Ri represents return on fund, Rf is risk free rate of return and Bi is beta of the fund. All risk-averse investors would like to maximize this value. While a high and positive Treynor's Index shows a superior risk-adjusted performance of a fund, a low and negative Treynor's Index is an indication of unfavorable performance. The Sharpe Measure In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which is a ratio of returns generated by the fund over and above risk free rate of return and the total risk associated with it. According to Sharpe, it is the total risk of the fund that the investors are concerned about. So, the model evaluates funds on the basis of reward per unit of total risk. Symbolically, it can be written as: Sharpe Index (Si) = (Ri - Rf)/Si Where, Si is standard deviation of the fund. While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

Comparison of Sharpe and Treynor Sharpe and Treynor measures are similar in a way, since they both divide the risk premium by a numerical risk measure. The total risk is appropriate when we are evaluating the risk return relationship for well-diversified portfolios. On the other hand, the systematic risk is the relevant measure of risk when we are evaluating less than fully diversified portfolios or individual stocks. For a well-diversified portfolio the total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure) and systematic risk (Treynor measure) should be identical for a well-diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified fund that ranks higher on Treynor measure, compared with another fund that is highly diversified, will rank lower on Sharpe Measure. Jenson Model Jenson's model proposes another risk adjusted performance measure. This measure was developed by Michael Jenson and is sometimes referred to as the Differential Return Method. This measure involves evaluation of the returns that the fund has generated vs. the returns actually expected out of the fund given the level of its systematic risk. The surplus between the two returns is called Alpha, which measures the performance of a fund compared with the actual returns over the period. Required return of a fund at a given level of risk (Bi) can be calculated as: Ri = Rf + Bi (Rm - Rf) Where, Rm is average market return during the given period. After calculating it, alpha can be obtained by subtracting required return from the actual return of the fund. Higher alpha represents superior performance of the fund and vice versa. Limitation of this model is that it considers only systematic risk not the entire risk associated with the fund and an ordinary investor cannot mitigate unsystematic risk, as his knowledge of market is primitive.

Fama Model

The Eugene Fama model is an extension of Jenson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total risk associated with it. The difference between these two is taken as a measure of the performance of the fund and is called net selectivity. The net selectivity represents the stock selection skill of the fund manager, as it is the excess return over and above the return required to compensate for the total risk taken by the fund manager. Higher value of which indicates that fund manager has earned returns well above the return commensurate with the level of risk taken by him. Required return can be calculated as: Ri = Rf + Si/Sm*(Rm - Rf) Where, Sm is standard deviation of market returns. The net selectivity is then calculated by subtracting this required return from the actual return of the fund. Among the above performance measures, two models namely, Treynor measure and Jenson model use systematic risk based on the premise that the unsystematic risk is diversifiable. These models are suitable for large investors like institutional investors with high risk taking capacities as they do not face paucity of funds and can invest in a number of options to dilute some risks. For them, a portfolio can be spread across a number of stocks and sectors. However, Sharpe measure and Fama model that consider the entire risk associated with fund are suitable for small investors, as the ordinary investor lacks the necessary skill and resources to diversified. Moreover, the selection of the fund on the basis of superior stock selection ability of the fund manager will also help in safeguarding the money invested to a great extent. The investment in funds that have generated big returns at higher levels of risks leaves the money all the more prone to risks of all kinds that may exceed the individual investors' risk appetite.

RISK FACTORS

All investments involve some form of risk. Even an insured bank account is subject to the possibility that inflation will rise faster than your earnings, leaving you with less real purchasing power than when you started (Rs. 1000 gets you less than it got your father when he was your age). The discussion on investment objectives would not be complete without a discussion on the risks that investing in a mutual fund entails. At the cornerstone of investing is the basic principle that the greater the risk you take, the greater the potential reward. Remember that the value of all financial investments will fluctuate. Typically, risk is defined as short-term price variability. But on a long-term basis, risk is the possibility that your accumulated real capital will be insufficient to meet your financial goals. And if you want to reach your financial goals, you must start with an honest appraisal of your own personal comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct "investment personality" for each investor. Some investors can accept short-term volatility with ease, others with near panic. So whether you consider your investment temperament to be conservative, moderate or aggressive, you need to focus on how comfortable or uncomfortable you will be as the value of your investment moves up or down.

Managing risks

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

Diversification

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

Types of risks:

Consider these common types of risk and evaluate them against potential rewards when you select an investment.

Market Risk At times the prices or yields of all the securities in a particular market rise or fall due to broad outside influences. When this happens, the stock prices of both, an outstanding, highly profitable company and a fledgling corporation may be affected. This change in price is due to "market risk. Inflation Risk Sometimes referred to as "loss of purchasing power." Whenever inflation sprints forward faster than the earnings on your investment, you run the risk that you'll actually be able to buy less, not more. Inflation risk also occurs when prices rise faster than your returns. Credit Risk In short, how stable is the company or entity to which you lend your money when you invest? How certain are you that it will be able to pay the interest you are promised, or repay your principal when the investment matures? Interest Rate Risk Changing interest rates affect both equities and bonds in many ways. Investors are reminded that "predicting" which way rates will go is rarely successful. A diversified portfolio can help in offsetting these changes. Effect of loss of key professionals and inability to adapt business to the rapid technological change

An industries' key asset is often the personnel who run the business i.e. intellectual properties of the key employees of the respective companies. Given the ever-changing complexion of few industries and the high obsolescence levels, availability of qualified, trained and motivated personnel is very critical for the success of industries in few sectors. It is, therefore, necessary to attract key personnel and also to retain them to meet the changing environment and challenges the sector offers. Failure or inability to attract/retain such qualified key personnel may impact the prospects of the companies in the particular sector in which the fund invests. Exchange Risks A number of companies generate revenues in foreign currencies and may have investments or expenses also denominated in foreign currencies. Changes in exchange rates may, therefore, have a positive or negative impact on companies which in turn would have an effect on the investment of the fund. Investment Risks The sectoral fund schemes, investments will be predominantly in equities of select companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the equity performance of such companies and may be more volatile than a more diversified portfolio of equities. Changes in the Government Policy Changes in Government policy especially in regard to the tax benefits may impact the business prospects of the companies leading to an impact on the investments made by the fund.

Why Select Mutual Fund? The risk return trade-off indicates that if investor is willing to take higher risk thencorrespondingly he can expect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. For example, if an investors opt for bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest

incapital protected funds and the profit-bonds that give out more return which is slightly higher ascompared to the bank deposits but the risk involved also increases in the same proportion.Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and liquidity. That doesnt meanmutual fund investments risk free.This is because the money that is pooled in are not invested only in debts funds which areless riskier but are also invested in the stock markets which involves a higher risk but can expecthigher returns. Hedge fund involves a very high risk since it is mostly traded in the derivativesmarket which is considered very volatile.

Measuring Risks:

Risk Measure

Implication

Impact On Investor

High average maturity and More sensitive to interest Higher volatility in returns modified duration rate changes

Low average maturity and Less sensitive to interest Lower volatility in returns modified duration rate changes Lower yield with lower risk

Greater allocation to high Low risk default credit rated instruments Greater allocation to low Higher risk of default rated instruments

Higher

yield

but

with

greater risk

MUTUAL FUND FEES AND EXPENSES

Mutual fund fees and expenses are charges that may be incurred by investors who holdmutual funds. Running a mutual fund involves costs, including shareholder transaction costs,investment advisory fees, and marketing and distribution expenses. Funds pass along these coststo investors in a number of ways.

1.TRANSACTION FEES
i)

Purchase Fee:
It is a type of fee that some funds charge their shareholders when they buy shares.Unlike a frontend sales load, a purchase fee is paid to the fund (not to a broker ) and istypically imposed to defray some of the fund's costs associated with the purchase.
ii)

Redemption Fee:
It is another type of fee that some funds charge their shareholders when they sellor redeem shares. Unlike a deferred sales load, a redemption fee is paid to the fund (notto a broker ) and is typically used to defray fund costs associated with a shareholder'sredemption.
iii)

Exchange Fee:
Exchange fee that some funds impose on shareholders if they exchange (transfer)to another fund within the samefund group or "family of funds."

2.PERIODIC FEES
i)

Management Fee:
Management fees are fees that are paid out of fund assets to the fund's investmentadviser for investment portfolio management, any other management fees payable to thef u n d ' s i n v e s t m e n t a d v i s e r o r i t s a f f i l i a t e s , a n d a d m i n i s t r a t i v e f e e s p a y a b l e t o t h e investment adviser that are not included in the "Other Expenses" category. They are alsocalled
maintenance fees

.
26

ii)

Account Fee:

Account fees are fees that some funds separately impose on investor s i n connection with the maintenance of their accounts. For example, some funds impose anaccount maintenance fee on accounts whose value is less than a certain dollar amount.

3.OTHER OPERATING EXPENSESTransaction Costs:

These costs are incurred in the trading of the fund's assets. Funds with a highturnover ratio, or investing in illiquid or exotic markets usually face higher transactioncosts. Unlike theTotal Expense Ratio these costs are usually not reported.

LOADS
Definition of a load

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale of shares. A load is a type of Commission (remuneration). Depending on the type of load a mutualfund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of both. Thedifferent types of loads are outlined below.

Front-end load:
Also known as
Sales Charge

, this is a fee paid when shares are purchased. Also known asa "front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-endloads reduce the amount of your investment. For example, let's say you have Rs.10,000 and wantt o i n v e s t i t i n a mutual fund with a 5% front-end load. The Rs.500 sales load you must p a y comes off the top, and the remaining Rs.9500 will be invested in the fund. According to NASD rules, a front-end load cannot be higher than 8.5% of your investment.
27

Back-end load:
Also known as
Deferred Sales Charge

, t h i s i s a f e e p a i d w h e n s h a r e s a r e s o l d . A l s o known as a "back-end load," this fee typically goes to the brokers that sell the fund's shares. Theamount of this type of load will depend on how long the investor holds his or her shares andtypically decreases to zero if the investor holds his or her shares long enough.

Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the fund.Instead a back-end load may be charged if the shares purchased are sold within a given timeframe. The distinction between level loads and low loads as opposed to back-end loads, is thatthis time frame where charges are levied is shorter.

No-load Fund:
As the name implies, this means that the fund does not charge any type of sales load. But,as outlined above, not every type of shareholder fee is a "sales load." A no-load fund may chargefees that are not sales loads, such as purchase fees, redemption fees, exchange fees, and accountfees

Future Outlook
The mutual fund industry has seen a vibrant shift from a small size industry with few players to a colossus with many players. The industry has given good returns with minimum returns and have gained long term faith of the investors. India in its growing stage is providing fillip to the mutual fund industry in India. Long ter perspective is necessary for any investor to get safe returns. In the diagram below we can see that staying invested was the key in 2007. A lot of ups and downs was experienced by the sensex and helped it attain the historical mark of 21000 in 2008.

CHAPTER 5

12.Reliance Fixed Horizon FundI: (A closed ended Scheme) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio. 13. Reliance Fixed Horizon Fund II: (A closed ended Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio. 14. Reliance Fixed Horizon Fund III: (A Close-ended Income Scheme.) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio. 15.Reliance Fixed Tenor Fund : (A Close-ended Scheme) The primary investment objective of the Plan is to seek togenerate regular returns and growth of capital by investing in a diversified portfolio. 16.Reliance Fixed Horizon Fund -Plan C : (A closed ended Scheme.) The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio. 17. Reliance Fixed Horizon Fund - IV: (A Close-ended Income Scheme.) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio. 53

18.Reliance Fixed Horizon Fund - V: (A Close-ended Income Scheme.) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio of:Central and State Government securities andOther fixed income/ debt securities normally maturing in line with the time profile of thescheme with the objective of limiting interest rate volatility

19. Reliance Fixed Horizon Fund VI : (A Close-ended Income Scheme) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio of: -Central and State Government securities andOther fixed income/ debt securities normally maturing in line with the time profile of theseries with the objective of limiting interest rate volatility 20. Reliance Fixed Horizon Fund VII : (A Close-ended Income Scheme.) The primary investment objective of the scheme isto seek to generate regular returns and growth of capital by investing in a diversified portfolio of: -Central and State Government securities andOther fixed income/ debt securities normally maturing in line with the time profile of theseries with the objective of limiting interest rate volatility. C).SECTOR SPECIFIC SCHEMES: These are the funds/schemes which invest in the securities of specified sectors or industries e.g. Pharmaceuticals, Software, FMCG, Petroleum stocks, etc. The returns in thesefunds are dependent on the performance of the respective sectors/industries. While these fundsmay give higher returns, they are more risky compared to diversified funds. 54

1. Reliance Banking Fund : Reliance Mutual Fund has an Open-Ended Banking Sector Scheme which has the primary investment objective to generate continuous returns by actively investing in equity /equity related or fixed income securities of banks. 2. Reliance Diversified Power Sector Fund : Reliance Diversified Power Sector Scheme is an Open-ended Power Sector Scheme.The primary investment objective of the Scheme is to seek to generate consistent returns byactively investing in equity / equity related or fixed income securities of Power and other associated companies.

3. Reliance Pharma Fund : Reliance Pharma Fund is an Open-ended Pharma Sector Scheme. The primaryinvestment objective of the Scheme is to generate consistent returns by investing in equity /equity related or fixed income securities of Pharma and other associated companies. 4. Reliance Media & Entertainment Fund : Reliance Media & Entertainment Fund is an Open-ended Media & Entertainmentsector scheme.The the primary investment objective of the Scheme is to generate consistent returns by investing in equity / equity related or fixed income securities of media & entertainmentand other associated companies. D).RELIANCE GOLD EXCHANGE TRADED FUND: (An open-ended Gold Exchange Traded Fund) The investment objective is to seek to providereturns that closely correspond to returns provided by price of gold through investment in physical Gold (and Gold related securities as permitted by Regulators from time to time).However, the performance of the scheme may differ from that of the domestic prices of Gold dueto expenses and or other related factors

UNIT TRUST OF INDIA MUTUAL FUND ' Unit Trust of India was created by the UTI Act passed by the Parliament in 1963. For more than two decades it remained the sole vehicle for investment in the capital market by theIndian citizens. In mid- 1980s public sector banks were allowed to open mutual funds. The realvibrancy and competition in the MF industry came with the setting up of the Regulator SEBI andits laying down the MF Regulations in 1993.UTI maintained its preeminent place till 2001,when a massive decline in the market indices and negative investor sentiments after KetanParekh scam created doubts about the capacity of UTI to meet its obligations to the investors.This was further compounded by two factors; namely, its flagship and largest scheme US 64 wassold and re-purchased not at intrinsic NAV but at artificial price and its Assured Return Schemeshad promised returns as high as 18% over a period going up to two decades.In order to distance Government from running a mutual fund the ownership wastransferred to four institutions; namely SBI, LIC, BOB and PNB, each owning 25%. UTI lost itsmarket dominance rapidly and by end of 2005,when the new share-holders actually paid theconsideration money to Government its market share had come down to close to 10%.A new board was constituted and a new management inducted. Systematic study of its problems role and functions was carried out with the help

of a reputed international consultant.Once again UTI has emerged as a serious player in the industry. Some of the funds have wonfamous awards, including the Best Infra Fund globally from Lipper. UTI has been able to benchmark its employee compensation to the best in the market.Besides running domestic MF Schemes UTI AMC is also a registered portfolio manager under the SEBI (Portfolio Managers) Regulations.

This company runs two successful funds with large international investors being active participants. UTI has also launched a Private Equity Infrastructure Fund along with HSH NordBank of Germany and Shinsei Bank of Japan Vision: To be the most Preferred Mutual Fund. Mission: The most trusted brand, admired by all stakeholders. The largest and most efficient money manager with global presence The best in class customer service provider The most preferred employer The most innovative and best wealth creator A socially responsible organisation known for best corporate governance Assets Under Management: UTI Asset Management Co. Ltd Sponsor: State Bank of India

 Bank of Baroda Punjab National Bank Life Insurance Corporation of India Trustee: UTI Trustee Co. Limited. Reliability UTIMF has consistently reset and upgraded transparency standards. All the branches,UFCs and registrar offices are connected on a robust IT network to ensure cost-effective quick and efficient service. All these have evolved UTIMF to position as a dynamic, responsive,restructured, efficient and transparent entity, fully compliant with SEBI regulations

SCHEMES A).EQUITY FUND1.UTI Energy Fund (Open Ended Fund): Investment will be made in stocks of those companies engaged in the following are: a) Petro sector - oil and gas products & processing b) All types of Power generation companies. c) Companies related to storage of energy. d) Companies manufacturing energy development equipment related ( like petro and power ) e) Consultancy & Finance Companies 2.

UTI Transportation And Logistics Fund (Auto Sector Fund) (Open EndedFund): Investment Objective is capital appreciation through investments in stocks of thecompanies engaged in the transportation and logistics sector. At least 90% of the funds will be invested in equity and equity related instruments. Atleast 80% of the funds will beinvested in equity and equity related instruments of the companies principally engaged in providing transportation services, companies principally engaged in the design, manufacture,distribution, or sale of transportation equipment and companies in the logistics sector. Upto10% of the funds will be invested in cash/money market instruments. 3.UTI Banking Sector Fund (Open Ended Fund): An open-ended equity fund with the objective to provide capital appreciation throughinvestments in the stocks of the companies/institutions engaged in the banking and financialservices activities. 4.UTI Infrastructure Fund (Open Ended Fund): An open-ended equity fund with the objective to provide Capital appreciation throughinvesting in the stocks of the companies engaged in the sectors like Metals, Building 58

materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocksof the companies which form part of Infrastructure Industries 5.UTI Equity Tax Savings Plan (Open Ended Fund): An open-ended equity fund investing a minimum of 80% in equity and equity relatedinstruments. It aims at enabling members to avail tax rebate under Section 80C of the IT Actand provide them with the benefits of growth. 6.UTI Growth Sector Fund Pharma (Open Ended Fund): An open-ended fund which exclusively invests in the equities of the Pharma &Healthcare sector companies. This fund is one of the growth sector funds aiming to invest incompanies engaged in business of manufacturing and marketing of bulk drug, formulationsand healthcare products and services. 7.UTI Growth Sector Fund Services (Open Ended Fund): An open-ended fund which invests in the equities of the Services Sector companies of the country. One of the growth sector funds aiming to provide growth of capital over a periodof time as well as to make income distribution by investing the funds in stocks of companiesengaged in service sector such as banking, finance, insurance, education, training, telecom,travel, entertainment, hotels, etc. 8.UTI Growth Sector Fund Software (Open Ended Fund):

An open-ended fund which invests exclusively in the equities of the Software Sector companies. One of the growth sectors funds aiming to invest in equity shares of companies belonging to information technology sector to provide returns to investors through capitalgrowth as well as through regular income distribution 9.UTI Master Equity Plan Unit Scheme (Close Ended Fund): The scheme primarily aims at securing for the investors capital appreciation byinvesting the funds of the scheme in equity shares of companies with good growth prospects. 59

10. UTI Master Plus Unit Scheme (Open Ended Fund): An open-ended equity fund with an objective of longterm capital appreciationthrough investments in equities and equity related instruments, convertible deben tures,derivatives in India and also in overseas markets. 11.UTI Master Value Fund (Open Ended Fund): An open-ended equity fund investing in stocks which are currently undervalued totheir future earning potential and carry medium risk profile to provide 'Capital Appreciation'. 12.UTI Equity Fund (Open Ended Fund): UTI Equity Fund is open-ended equity scheme with an objective of investing at least80% of its funds in equity and equity related instrument with medium to high risk profile andupto 20% in debt and money market instruments with low to medium risk profile. 13.UTI Top 100 Fund (Open Ended Fund): An open-ended equity fund for investment in equity shares, convertible & non-convertible debentures and other capital and money market instruments with a provision toinvest upto 50% of its corpus in PSU's equities and equity related products. The fund aims to provide unit holders capital appreciation & income distribution. 14.UTI Mastershare Unit Scheme (Open Ended Fund): An Open-end equity fund aiming to provide benefit of capital appreciation andincome distribution through investment in equity. 15.UTI Mid Cap Fund (Open Ended Fund): An open-ended equity fund with the objective to provide 'Capital appreciation' byinvesting primarily in mid cap stocks. 16.UTI MNC Fund (Open Ended Fund):

An open-ended equity fund with the objective to invest predominantly in the equityshares of multinational companies in diverse sectors such as FMCG, Pharmaceutical,Engineering etc. 17. UTI Dividend Yield Fund (Open Ended Fund): It aims to provide medium to long term capital gains and/or dividend distribution byinvesting predominantly in equity and equity related instruments which offer high dividendyield. 18.UTI Opportunities Fund (Open Ended Fund): This scheme seeks to generate capital appreciation and/or income distribution byinvesting the funds of the scheme in equity shares and equity-related instruments. The focusof the scheme is to capitalise on opportunities arising in the market by responding to thedynamically changing Indian economy by moving its investments amongst different sectorsas prevailing trends change. 19.UTI Leadership Equity Fund (Open Ended Fund): This scheme seeks to generate capital appreciation and / or income distribution byinvesting the funds in stocks that are "Leaders" in their respective industries / sectors / sub-sector. 20.UTI Contra Fund (Open Ended Fund): An open ended equity scheme with the objective to provide long term capitalappreciation/dividend distribution through investments in listed equities & equity relatedinstruments. The fund offers an opportunity to benefit from the impact of nonrationalinvestors' behaviour by focussing on stocks that are currently undervalued because of emotional & behavioural patterns present in the stock market. 61

21.UTI SPREAD Fund (Open Ended Fund): The investment objective of the scheme is to provide capital appreciation anddividend distribution through arbitrage opportunities arising out of price differences betweenthe cash and derivative market by investing predominantly in equity & equity relatedsecurities, derivatives and the balance portion in debt securities. However, there can be noassurance that the investment objective of the scheme will be realised. 22.UTI Wealth Builder Fund (Close Ended Fund): The objective of the scheme is to achieve long term capital appreciation by investing predominantly in a diversified portfolio of equity and equity related instruments. 23.UTI Long Term Advantage Fund - Series I (Close Ended Fund):

The investment objective of the scheme is to provide medium to long term capitalappreciation along with income tax benefit. 24.UTI India Lifestyle Fund (Close Ended Fund): The investment objective of the scheme is to provide long term Capital appreciationand / or income distribution from a diversified portfolio of equity and equity relatedinstruments of companies that are expected to benefit from changing Indian demographics,Indian Lifestyle and rising consumption pattern. However, there can be no assurance that theinvestment objective of the scheme will be achieved. A).INDEX FUND:1.UTI Master Index Fund (Open Ended Fund): UTI MIF is an open-ended passive fund with the primary investment objective to investin securities of companies comprising the BSE sensex in the same weightage as thesecompanies have in BSE sensex. The fund strives to minimise performance difference withthe sensex by keeping the tracking error to the minimum. 62

2.UTI Gold Exchange Traded Fund (Open Ended Fund): To endeavour to provide returns that, before expenses, closely track the performance andyield of Gold. However the performance of the scheme may differ from that of theunderlying asset due to racking error. There can be no assurance or guarantee that theinvestment objective of UTI-Gold ETF will be achieved. 3.UTI Sunder (Open Ended Fund): To provide investment returns that, before expenses, closely correspond to the performance and yield of the basket of securities underlying the S & P CNX Nifty Index. C).ASSETS FUNDUTI Variable Investment Scheme: UTI VIS-ILP is an open ended scheme with the objective of providing the investors witha product that would enable them to diversify their risks through a suitable allocation between debt and equity asset classes and thereby generate superior risk-adjusted returnsthrough a dynamic asset allocation process. D).BALANCED FUND:1.UTI Mahila Unit Scheme (Open Ended Fund): To invest in a portfolio of equity/equity related securities and debt and money marketinstruments with a view to generate reasonable income with moderate capital appreciation.The asset allocation will be Debt : Minimum 70%, Maximum 100% Equity : Minimum 0%,Maximum 30%. 2.UTI Balanced Fund (Open Ended Fund):

An open-ended balanced fund investing between 40% to 75% in equity /equity relatedsecurities and the balance in debt (fixed income securities) with a view to generate regular income together with capital appreciation 3.UTI Retirement Benefit Pension Fund (Open Ended Fund): The objective of the scheme is to provide pension to investors particularly self-employed persons after they attain the age of 58 years, in the form of periodical cash flowupto the extent of repurchase value of their holding through a systematic withdrawal plan. 4.UTI Unit Link Insurance Plan (Open Ended Fund): To provide return through growth in the NAV or through dividend distribution andreinvestment thereof 5.UTI CCP (Children Career Plan) Advantage Fund (Open Ended Fund): An open ended balanced fund with 70-100% investment in Equity. Investment can bemade in the name of the children upto the age of 15 years so as to provide them, after theyattain the age of 18 years, a means to receive scholarship to meet the cost of higher education/ or help them in setting up a profession, practice or business or enabling them to set up ahome or finance, the cost of other social obligations. 6. UTI Charitable, Religious Trust And Registered Society (Open EndedFund): Open-ended debt oriented Income scheme with an objective of investing not morethan 30% of the funds in equity related instruments and the balance in debt and moneymarket instruments with low to medium risk profile. The scheme is catering to theInvestment needs of Charitable, Religious and Educational Trusts as well as Registeredsocieties with the goal of providing regular income. E).INCOME FUND (DEBT FUND)1.UTI Bond Fund (Open Ended Fund): Open-end 100% pure debt fund, which invests in rated corporate debt papers andgovernment securities with relatively low risk and easy liquidity. 64

2.UTI Floating Rate Fund STP (Open Ended Fund): To generate regular income through investment in a portfolio comprisingsubstantially of floating rate debt / money market instruments and fixed rate debt / moneymarket instruments. 3.UTI Gilt Advantage Fund LTP(Open Ended Fund): To generate credit risk-free return through investments in sovereign securities issuedthe Central and / or a State Government.

4.UTI Gilt Advantage Fund STP (Open Ended Fund): To generate credit risk-free return through investment in sovereign securities issuedthe Central and / or a State Government. 5.UTI G-SEC STP (Open Ended Fund): An open-end Gilt-Fund with the objective to invest only in Central

Governmentsecurities including call money, treasury bills and repos of varying maturities with a view togenerate credit risk free return with a stated objective of maintaining the average maturity of the portfolio at less than 3 years. 6.UTI G-Sec-Investment Plan (Open Ended Fund): An open-end Gilt-Fund with the objective to Invests only in Central governmentsecurities including call money, treasury bills and repos of varying maturities with a view togeneratie credit risk free return. While selecting the maturity profile of the investment ingovernment securities the need for maximisation of the returns and meeting of the liquidityrequirements of the scheme is kept in view. 7.UTI Treasury Advantage Fund (Open Ended Fund): It aims to generate attractive returns consistent with capital preservation and liquidity 65

8.UTI Monthly Income Scheme (Open Ended Fund): This is an open-end debt oriented scheme with no assured returns. The scheme aimsat distributing income, if any, periodically. 9.UTI Mis Advantage Plan (Open Ended Fund): Endeavours to make periodic income distribution to unitholders through investmentsin fixed income securities and equity & equity related instruments. 10.UTI Short Term Income Fund (Open Ended Fund): The Scheme seeks to generate steady & reasonable income with low risk & high levelof liquidity from a portfolio of money market securities & high quality debt. 11.UTI Capital Protection Oriented Scheme (Open Ended Fund): The investment objective of the scheme is to endeavour to protect the capital byinvesting in high quality fixed income securities as the primary objective and generate capitalappreciation by investing in equity and equity related instruments as secondary objective. F).

LIQUID FUND (

DEBT FUND)

1.UTI Liquid Cash Plan (Open Ended Fund): The scheme seeks to generate steady & reasonable income with low risk & high levelof liquidity from a portfolio of money market securities & high quality debt. 2.UTI Money Market Fund (Open Ended Fund): An open-ended pure debt liquid plan seeking to provide highest possible currentincome by investing in a diversified portfolio of short-term money market securities.

IV. Reliance Mutual Fund

The Reliance Mutual Fund is one of the most popular and leading mutual fund in India. The Fund is owned by Anil Dhirubhai Ambani Group and with respect to net worth it ranks among the top three of all the private financial service providers in India. It is an ISO 9001:2000 certified company, which offers innovative mutual fund products to a wide pool of customers. The Reliance mutual fund products are available in hundred and fifteen cities across India. It is one of the fastest growing mutual fund in India and the main reason of its popularity is that it has a wide portfolio of products that meets the requirements of each and every type of investors. The Reliance Mutual Fund is headed by Mr. Vikrant Gugnani - the CEO of the company.

Details of Reliance Mutual Fund:

The

schemes of Reliance Mutual Fund are being managed by Reliance Capital Asset Management Ltd, which is a subsidiary of Reliance. Reliance Capital Ltd holds 93.37% of the paid-up capital of the Reliance Capital Asset Management Ltd. The value of the cumulative assets that are being managed (also called Assets Under Management (AUM)) amounted to Rs. 80,779 crores, as on Dec 31st 2007. The investor base of Reliance Mutual Fund is over 43.67 lakh. Equity/Growth Schemes: The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a major part of their corpus in equities. Such funds have comparatively high risks. These schemes provide different options to the investors like dividend option, capital appreciation, etc. and the investors may choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

Reliance Equity Fund Growth

(3-Star Fund ICRA Online MF Rank3 Year-March 2009) FUND FACTS Objectives of the Fund
The primary investment objective of the scheme is to seek to generate capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities of top 100 companies by market capitalization & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities. Fund features

V. HDFC Mutual Fund

HDFC Mutual Fund is governed by HDFC Asset Management Company Limited (AMC). The HDFC mutual fund was approved by SEBI in June 2000. Equity Funds, Balanced Funds, and Debt Funds are the mutual fund schemes offered by HDFC Mutual Fund. An Overview of HDFC Mutual FundHDFC Mutual Fund has witnessed significant growth in the past few years. It is regulated by HDFC Asset Management Company Limited (AMC) which works as an Asset Management Company (AMC) for HDFC Mutual Fund. HDFC Asset Management Company Limited (AMC) is a Joint Venture concern between the largescale housing finance company HDFC and British investment firm Standard Life Investments Limited. The HDFC Asset Management Company Limited conducts the activities carried out by the HDFC Mutual Fund and manages the assets of various mutual fund schemes. The August 2006 report states that the fund has assets of Rs. 25,892 crores under Asset Management Company (AMC). HDFC Asset Management Company Limited (AMC) entered into an agreement with Zurich Insurance Company (ZIC) with the aim to develop the asset management business in India in the year 2003. Following to this, all the mutual fund schemes of Zurich Mutual Fund in India got transferred to HDFC Mutual Fund and gained the

name of HDFC schemes. Details of HDFC Mutual FundHDFC Asset Management Company Ltd (AMC) was set up on December 10, 1999 under the Companies Act, 1956. It got the approval to function as an Asset Management Company for the HDFC Mutual Fund by SEBI on June 30, 2000. AMC was appointed in order manage the HDFC Mutual Fund. The registered office of HDFC Asset Management Company Limited (AMC) is located at Ramon House, 3rd Floor, H.T. Parekh Marg, 169, Backbay Reclamation, Churchgate, Mumbai - 400 020. Schemes of HDFC Mutual FundHDFC Equity Fund HDFC Prudence Fund HDFC Capital Builder Fund HDFC Tax Saver HDFC Top 200 Fund HDFC High Interest Fund HDFC Cash Management Fund HDFC Sovereign Gilt Fund Equity Funds, Balanced Funds, and Debt Funds are the broad categories of mutual fund schemes offered by HDFC Mutual Fund.

HDFC EQUITY FUND GROWTH

(3-STAR FUND ICRA Online MF Rank3 Year-March 2009)

FUND FACTS
OBJECTIVE Aims at providing capital appreciation through investments predominantly in equity oriented securities FUND FEATURES

1. Overall both funds have disclosed negative returns, but in comparison to the Sensex returns they performed fairly well :

SD of Reliance equity growth fund is lower to the HDFC equity growth fund supports lower level of risk hence found more stable, where as SD of Sensex is high in both cases indicates they have not performed as per benchmark index. 2. Beta (_) of both funds is less than 1 means the funds are less volatile than the Index. Where as, HDFC equity growth fund is more volatile 0.628 in comparison to Reliance equity growth fund 0.5618. Funds with beta close to 1 means the funds performance

closely match the benchmark index. 3. Treynors Performance Index (Sp): the relationship between a given market return and the funds return is given by the characteristic line. It measures the fund performance with the market performance. The slope of the line reflects the volatility of a funds return. A steep slope indicates the fund is very sensitive to the market performance and less inclination indicates lower sensitivity. The result revealed that the investor would prefer HDFC growth fund because it offers negative but better returns (-0.18) in comparison to Reliance growth fund (-0.246) for the same level of risk exposer. 4. Sharpes Performance Index- It measures the risk premium of the portfolio relative to the total amount of risk in the portfolio. This risk premium is the difference between the portfolios average rate of return and the riskless rate of return. This index assigns the highest value to assets that have best risk adjusted average rate of return. The larger the Sp, better the fund has performed. HDFC growth fund ranked as better fund because its index (-0.185) is lower than Reliance growth fund (-0.2416). Although the SD is higher in comparison to the Reliance growth fund but HDFC growth fund better performed by using sharps measure.

Outcomes:
Mutual Fund Company must possess the following points: a) Professional Management AMC must be managed by the Professional who should research, selects, and monitors the performance of the securities the fund purchases. b) Diversification Diversification is an investing strategy that can be neatly summed up as "Don't put all your eggs in one basket." Spreading your investments

across a wide range of companies and industry sectors can help lower your risk if a company or sector fails. Some investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds. c) Affordability Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both. d) Liquidity Mutual fund investors can readily redeem their shares at the current NAV plus any fees and charges assessed on redemption at any time. e) Past performance influences the future performance of the funds. f) Performance of the funds can be drastically improved by the better incentives to the fund manager. g) High rate of domestic savings and a fast developing liberalizing economy can elevate the growth of MF Sector in our country. FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA Financial experts believe that the future of Mutual Funds in India will be very bright. Ithas been estimated that by March-end of 2010, the mutual fund industry of India will reach Rs40,90,000 crore, taking into account the total assets of the Indian commercial banks. In thecoming 10 years the annual composite growth rate is expected to go up by 13.4%. 100% growth in the last 6 years. Number of foreign AMC's are in the queue to enter the Indian markets like FidelityInvestments, US based, with over US$1trillion assets under management worldwide. Our saving rate is over 23%, highest in the world. Only channelizing these savings inmutual funds sector is required. We have approximately 29 mutual funds which is much less than US having more than800. There is a big scope for expansion.

 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds areconcentrating on the 'A' class cities. Soon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance industry with simple andlimited 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.Looking at the past developments and combining it with the current trends it can beconcluded that the future of Mutual Funds in India has lot of positive things to offer to itsinvestors. 75

MF JARGON Net Asset Value(NAV) Net Asset Value is themarket valueof 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 onthe Valuation Date . Sale Price Sale price is the price you pay when youinvestin a scheme. Also called Offer Price. Itmay include a sales load. Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. This is also called Bid Price. Redemption Price

It is the price at which open-ended schemes repurchase their units and close-endedschemes redeem their units on maturity. Such prices are NAV related. Sales Load It is a charge collected by a scheme when it sells the units. Also called as Front-endload. Schemes that do not charge a load are called No Load schemes. Repurchase or Back-end Load It is a charge collected by a scheme when it buys back the units from the unit holders. 76

CONCLUSION Mutual Funds now represent perhaps most appropriate investment opportunity for mostinvestors. As financial markets become more sophisticated and complex, investors need afinancia l intermediary who provides the required knowledge and professional expertise onsuccessful investing. As the investor always try to maximize the returns and minimize the risk.Mutual fund satisfies these requirements by providing attractive returns with affordable risks.The fund industry has already overtaken the banking industry, more funds being under mutualfund management than deposited with banks. With the emergence of tough competition in thissector mutual funds are launching a variety of schemes which caters to the requirement of the particular class of investors. Risk takers for getting capital appreciation should invest in growth,equity schemes. Investors who are in need of regular income should invest in income plans.The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also to helped grow these investments.This has also instilled greater confidence among fund investors who are investing moreinto the market through the MF route than ever before.Reliance India mutual funds provide major benefits to a common man who wants tomake his life better than previous.India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, themutual fund industry as a whole gets less than 2 per cent of household savings against the 46 per cent that go into bank deposits. Some fund managers say this only indicates the sector's potential."If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possibleover the next few years

The most important trend in the mutual fund industry is the aggressive expansion of theforeign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players.Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC MutualFund and Birla Sun Life Mutual Fund are the top five mutual fund company in India.Reliance mutual funding is considered to be most reliable mutual funds in India. Peoplewant to invest in this institution because they know that this institution will never dissatisfy themat any cost. You should always keep this into your mind that if particular mutual funding schemeis on larger scale then next time, you might not get the same results so being a careful investor y o u s h o u l d t a k e y o u r m a j o r s t e p d i l i g e n t l y o t h e r w i s e y o u w i l l b e u n a b l e t o o b t a i n t h e h i g h returns.

restrictions into the market, introduction of open-ended funds, and p a v i n g t h e g a t e w a y f o r mutual funds to launch pension schemes.The measure was taken to make mutual funds the key instrument for long-term saving.The more the variety offered, the quantitative will be investors.Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations inIndia managing 1,02,000 crores.At last to mention, as long as mutual fund companies are performing with lower risks andhigher profitability within a short span of time, more and more people will be inclined to investuntil and unless they are fully educated with the dos and donts of mutual funds.M u t u a l f u n d i n d u s t r y h a s s e e n a l o t o f c h a n g e s i n p a s t f e w y e a r s w i t h m u l t i n a t i o n a l companies coming into the country, bringing in their professional expertise in managing fundsworldwide. In the past few months there has been a consolidation phase going on in the mutualfund industry in India. Now investors have a wide range of Schemes to choose from dependingon their individual profiles.

The advantages of mutual fund are professional management, diversification, economiesof scale, simplicity, and liquidity.T h e d i s a d v a n t a g e s o f m u t u a l f u n d a r e h i g h c o s t s , o v e r d i v e r s i f i c a t i o n , p o s s i b l e t a x consequences, and the inability of management to guarantee a superior return.The biggest problems with mutual funds are their costs and fees it include Purchase fee,Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs.