Fund

CONTENTS
CONTENTS Executive Summary 1 9 9

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. hough past performance alone cannot be indicative of future performance, it is, fran!ly, the only quantitative way to "udge how good a fund is at present. herefore, there is a need to correctly assess the past performance of different mutual funds. ......#4 HI$ %&' %F H( I)*I+) M, ,+- F,)* I)*,$ &'....................#. #. #. %pen/ended Funds............................................................................................01 2losed/ended Funds..........................................................................................01 Interval Funds.................................................................................................... 0# 3rowth Funds.................................................................................................... 0# Income Funds.................................................................................................... 0# 4alanced Funds.................................................................................................0# Money Mar!et Funds.........................................................................................0# -oad Funds........................................................................................................ 0# )o/-oad Funds..................................................................................................00 a5 $aving $chemes.........................................................................................00 Industry $pecific $chemes................................................................................ 00 Inde5 $chemes..................................................................................................00 $ectoral $chemes .............................................................................................00 Management6..................................................................................................... 31 3# $avings 7lans and Funds6 3# he Mar!et 8 rust and &each6.........................................................................3# Fund deployment6.............................................................................................. 30 Investment guidelines6.......................................................................................33 + 2onglomerate with a vision6........................................................................... 33 34 3lobal lin!s6 34
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3. &esearch strength6 3. $chemes offered6...............................................................................................3. $chemes of a Mutual Fund6...............................................................................39 &ules &egarding +dvertisement6.......................................................................39 3eneral %bligations6..........................................................................................39 7rocedure for +ction In 2ase %f *efault6.......................................................... 3: &estrictions on Investments6..............................................................................3: Fund sponsor6....................................................................................................3; Fund manager6...................................................................................................3; ype of fund.......................................................................................................41 ype of scheme................................................................................................. 41 Fees and charges.............................................................................................. 40 he public offering price ................................................................................... 40 a5 implications.................................................................................................40 $ervice levels.....................................................................................................43 7erformance and )+< ......................................................................................43

BY MARKET CAPITALISATION SHARPE RATIO CONCEPT O! !INANCIAL PLANNIN"

49 9 #$

H%= % I)<($ I) M, ,+- F,)*.............................................................. .#

+n investor, depending on the age, ris! ta!ing ability and time hori>on, should accordingly put his?her money in different asset classes in the proportion that suits their unique needs and requirements the best. ..........................................93 =ith the comple5ity and dynamism of the financial mar!ets increasing with the passage of time, there is a massive information overload for all investors. 4ig investors li!e FIIs have the time and e5pertise to manage such ris!s. 4ut for a retail investor, this can be highly intimidating. It is best to ascertain one@s own unique requirements based on the parameters discussed above, depending on which one can draw out an investment plan. ......................................................93

0

Stateme%t a&'ut t(e )r'&*em+
+ Mutual Fund is a trust that collects the savings of a number of investors who share a common financial goal and pools it together to create a larger resource of money. he money thus collected is invested by the fund manager in different types of securities depending upon the ob"ective of the scheme. hese could range from shares to debentures to money mar!et instruments. he securities could be further subdivided into technology securities, pharmaceutical securities, FM23 securities etc. he income earned through these investments and the capital appreciation reali>ed by the scheme are shared by its unit holders proportionately i.e. on the basis of the number of units owned by them Apro rataB. hus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost. +nybody with surplus money can invest, even as little as a few thousand rupees can be invested in Mutual Funds. (ach Mutual Fund scheme has a defined investment ob"ective and strategy. he team underta!es this in the most professional manner. Mar!ets for equity shares, debentures, bonds and other fi5ed income instrumentsC real estate, derivatives and other assets have reached their maturity and are driven by latest up/to/date information. + mutual fund is
3

thus the ideal investment vehicle for todayDs comple5 and modern financial scenario. 7rice changes in these assets are driven by global events occurring every day, in/fact every minute in faraway places. It will be very difficult, in/fact ne5t to impossible for an ordinary individual to have the !nowledge, s!ills, inclination and time to !eep trac! of events, understand their implications and act speedily. +n individual also finds it difficult to !eep trac! of ownership of his assets, investments, bro!erage dues and ban! transactions etc. + mutual fund is the answer to all these situations. It appoints professionally qualified and e5perienced staff that manages each of these functions on a full time basis. he costs of hiring these professionals per investor are very low, as the pool of money invested is large. In effect, the mutual fund vehicle e5ploits economies of scale in all three areas / research, investments and transaction processing. =hile the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 01 th century phenomenon. In fact, mutual funds gained popularity only after the $econd =orld =ar. 3lobally, there are thousands of firms offering tens of thousands of mutual funds with different investment ob"ectives. oday, mutual funds collectively manage almost as much as or more money as compared to ban!s.

,(y i- t(e )articu*ar t')ic c('-e%.
4eing the student of finance and from the family where dealing in money mar!et is the main business. My !een area of interest is to wor! on a pro"ect where I can highlight on a topic which can help the common people also to !now about something which is very difficult to digest for them on the front end. =hile tal!ing to many peoples in day to day life I come to !now that Mutual Funds are something about which the most of the peoples have perceptions that it is "ust li!e the same as dealing in $hares in which they can either earn or can lose their all amount. $o, I decided to ta!e up my pro"ect in the area where I can remove this perception of peoples that Mutual Funds and $hares are same. I had interviewed some people in and around *elhi city to !now more about the Mutual Funds from the consumerDs point of view. $pecial care was ta!en to include people from all income brac!ets. Many people had
4

no idea of Mutual Funds, which showed the low awareness level among the people of *elhi about the Mutual Funds. his stresses the need for better mar!eting

,(at c'%tri&uti'% /'u*0 t(e )r'1ect ma2e.
Mutual funds are financial intermediaries, which collect the savings of investors and invest them in a large and well/diversified portfolio of securities such as money mar!et instruments, corporate and government bonds and equity shares of "oint stoc! companies. MFDs can survive and thrive only if they can live upto the hopes and trusts of their individual members. his pro"ect deals with the structure of the Indian MF industry and itDs constituents. It also classifies the Mutual fund schemes and describes the ma"or players in the industry, with specific reference to 3%it Tru-t O4 I%0ia 53TI6 + Mutual Fund is a trust that collects the savings of a number of investors who share a common financial goal and pools it together to create a larger resource of money. he money thus collected is invested by the fund manager in different types of securities depending upon the ob"ective of the scheme. hese could range from shares to debentures to money mar!et instruments. he securities could be further subdivided into technology securities, pharmaceutical securities, FM23 securities etc. he income earned through these investments and the capital appreciation reali>ed by the scheme are shared by its unit holders proportionately i.e. on the basis of the number of units owned by them Apro rataB. In the end it is concluded and recommended that there is a need for 4etter mar!eting to increase awareness level, focus on building a relationship of trust and commitment with the investors, provide better rate of returns to the investors than offered by other investment options and providing better service to the investors =hile the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 01th century phenomenon. In fact, mutual funds gained popularity only after the $econd =orld =ar. 3lobally, there are thousands of firms offering tens of thousands of mutual funds with different investment ob"ectives. oday, mutual funds collectively manage almost as much as or more money as compared to ban!s.
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hus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost.

O&1ective a%0 -c')e '4 t(e -tu0y+
he Mutual Fund Industry is fast gaining popularity in todayDs unpredictable financial scenario. It is emerging as one of the most lucrative investment options. T(e )rimary '&1ective '4 t(e )r'1ect i- t' 7ai% 0etai*e0 i%-i7(t i%t' t(i- I%0u-try8 I have tried to systematically and ob"ectively loo! into all/important aspects. + combination of primary and secondary data has been used. he former, though limited, has helped us give first hand information on company and investor sentiments. he latter has been used to understand the theoretical aspects. $trategic importance has been given to both current and past trends and we have tried to correlate both in a manner to gain ma5imum insight. his document has been designed to serve a two/fold purpose. he first, which is also the main ob"ective of the pro"ect, is to reflect our understanding of this industry. he second is to provide the reader similar detailed !nowledge

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he prime ob"ective of the research was to determine the perception of the Indian investor towards Mutual funds and this is demonstrated in the later part of this report.

Limitations of the study:
he ma"or constraint faced by me in ma!ing the pro"ect was time. he time was not enough to !now in detail about the factors, to ma"or the performance of all mutual funds companies in the industry and to what e5tent each factor is responsible for the same. +lso in some cases the companies contacted, were not willing to provide adequate information about the Mutual funds schemes, this constraint led to inability to cover the whole data. =hich could give us clearer picture of the sub"ect. Most of the data about the companies are collected from the concerned 2ompanies =ebsite or directly through the 2oncerned 2ompanies, which can be manipulated or e5aggerated by the company A=indow dressingB. However, inspite of all these limitations and constraint, a humble attempt to present useful information and format with an analytical picture of the study with suggestions has been made.

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Met('0'*'7y+
Re-earc( i% t(i- )r'1ect /i** &e c'%0ucte0 /it( t(e (e*) '4 t(e 4'**'/i%7+ his research is e5ploratory in nature .I shall be collected data from various primary and secondary sources. he choice of sample scheme will be guided by the fact that a reasonable amount of information will available and representing true picture of Indian mutual fund industry. he methodology adopted for the completion of this pro"ect will be divided into four stages. T(e 4ir-t -ta7e included understanding the 2oncept, $tructure and policy Arelated to Mutual fundsB in the Indian mutual fund industry and $econdary data for this purpose will be collected through various boo!s on mutual funds, business newspapers, business maga>ines, trade "ournals, annual E quarterly performance reports of the concerned mutual funds companies and the =orld wide web Awww Information/ concerned websites mentioned in the 4ibliographyB. T(e -ec'%0 -ta7e included the input stage in which various types of information data would be collected related to various mutual funds. he data was collected through discussions E interviews with the representatives of the companies. he financial and other relevant data will be e5tracted from the performance and annual reports of the +sset management companies A+M2B concerned I% t(e t(ir0 -ta7e all the gathered data will be arranged and tabulated to arrive at the necessary conclusion. +ll the information was correlated into tabulation charts and in figures to ma!e the information easy to understand. 7rimary collection of data included preparation of tools li!e Fuestionnaires to evaluate various schemes mutual funds and to determine the perception of the Indian investor towards the mutual funds. he results and findings of primary data will be collected A$ample FuestionnaireB is given in the +nne5ureG. T(e *a-t -ta7e, i.e. the output stage included analy>ing of the processed information in to final findings and comparing the information with the data
H

of mutual fund companies and then arriving of final conclusions and policy recommendations to , I.

Executive Summary

Mutual funds are financial intermediaries, which collect the savings of investors and invest them in a large and well/diversified portfolio of securities such as money mar!et instruments, corporate and government bonds and equity shares of "oint stoc! companies. MFDs can survive and thrive only if they can live up to the hopes and trusts of their individual members. his pro"ect deals with the structure of the Indian MF industry and its constituents. It also classifies the Mutual fund schemes and describes the ma"or players in the industry, with specific reference to 3%it Tru-t '4 I%0ia 53TI6 his research is e5ploratory in nature. I collected data from various secondary sources. he choice of sample scheme was guided by the fact that a reasonable amount of information was available and representing true picture of Indian mutual fund industry.

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I met 0. people in and around *elhi city to !now more about the Mutual Funds from the consumerDs point of view. $pecial care was ta!en to include people from all income brac!ets. +bout #1 people had no idea of Mutual Funds, which showed the low awareness level among the people of *elhi about the Mutual Funds. his stresses the need for better mar!eting In India, the trend is that investors invest when there is a boom in the stoc! mar!et and withdraw their holdings in times of slump. his is absolutely contrary to how the system wor!s abroad as their investments ta!e place in the slump period when greater units can be purchased with same amount of money. =ithdrawals are correspondingly done in boom times as ma5imum return is achieved. his is the right strategy and Mutual Fund companies are trying to create this awareness among consumers. . In the end it is concluded and recommended that there is a need for 4etter mar!eting to increase awareness level, focus on building a relationship of trust and commitment with the investors, provide better rate of returns.

#1

O9ER9IE,

+ Mutual Fund is a trust that collects the savings of a number of investors who share a common financial goal and pools it together to create a larger resource of money. he money thus collected is invested by the fund manager in different types of securities depending upon the ob"ective of the scheme. hese could range from shares to debentures to money mar!et instruments. he securities could be further subdivided into technology securities, pharmaceutical securities, FM23 securities etc. he income earned through these investments and the capital appreciation reali>ed by the scheme are shared by its unit holders proportionately i.e. on the basis of the number of units owned by them Apro rataB. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed portfolio at a relatively low cost . +nybody with any surplus money that can be invested, even as little as a few thousand rupees can invest in Mutual Funds. (ach Mutual Fund scheme has a defined investment ob"ective and strategy. he team underta!es this in the most professional manner. Mar!ets for equity shares, debentures, bonds and other fi5ed income instrumentsC real estate, derivatives and other assets have reached their maturity and are driven by latest up/to/date information. + mutual fund is thus the ideal investment vehicle for todayDs comple5 and modern financial scenario. 7rice changes in these assets are driven by global events occurring every day, in/fact every minute in faraway places. It will be very difficult, in/fact ne5t to impossible for an ordinary individual to have the !nowledge, s!ills, inclination and time to !eep trac! of events, understand their implications
##

and act speedily. +n individual also finds it difficult to !eep trac! of ownership of his assets, investments, bro!erage dues and ban! transactions etc. + mutual fund is the answer to all these situations. It appoints professionally qualified and e5perienced staff that manages each of these functions on a full time basis. he costs of hiring these professionals per investor are very low, as the pool of money invested is large. In effect, the mutual fund vehicle e5ploits economies of scale in all three areas / research, investments and transaction processing. =hile the concept of individuals coming together to invest money collectively is not new, the mutual fund in its present form is a 01 th century phenomenon. In fact, mutual funds gained popularity only after the $econd =orld =ar. 3lobally, there are thousands of firms offering tens of thousands of mutual funds with different investment ob"ectives. oday, mutual funds collectively manage almost as much as or more money as compared to ban!s.

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H'/ Mutua* !u%0 I%0u-try ,'r2he wor!ing of Mutual Funds can be briefly stated in the form of the points below6 / • + draft offer document is prepared at the time of launching the fund. ypically, it pre specifies the investment ob"ectives of the fund, the ris! associated, the costs involved in the process and the broad rules for entry into and e5it from the fund and other areas of operation. In India, as in most countries, these sponsors need approval from a regulator, $(4I A$ecurities e5change 4oard of IndiaB in our case. $(4I loo!s at trac! records of the sponsor and its financial strength in granting approval to the fund for commencing operations. • + sponsor then hires an asset management company to invest the funds according to the investment ob"ective. • It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry wor! for the unit holders AsubscribersB of the fund.

In the Indian conte5t, the sponsors promote the +sset Management 2ompany also, in which it holds a ma"ority sta!e. In many cases a sponsor can hold a #11I sta!e in the +sset Management 2ompany A+M2B.

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IN:3STRY PRO!ILE
Mutua* !u%0 i%0u-try t'0ay; /it( a&'ut $4 )*ayer- a%0 m're t(a% 4ive (u%0re0 -c(eme-; i- '%e '4 t(e m'-t )re4erre0 i%ve-tme%t ave%ue- i% I%0ia8 H'/ever; /it( a )*et('ra '4 -c(eme- t' c(''-e 4r'm; t(e retai* i%ve-t'r 4ace- )r'&*em- i% -e*ecti%7 4u%0-8 !act'r-uc( a- i%ve-tme%t -trate7y a%0 ma%a7eme%t -ty*e are <ua*itative; &ut t(e 4u%0- rec'r0 i- a% im)'rta%t i%0icat'r t''8 T('u7( )a-t )er4'rma%ce a*'%e ca%%'t &e i%0icative '4 4uture )er4'rma%ce; it i-; 4ra%2*y; t(e '%*y <ua%titative /ay t' 1u07e ('/ 7''0 a 4u%0 i- at )re-e%t8 T(ere4're; t(ere i- a %ee0 t' c'rrect*y a--e-- t(e )a-t )er4'rma%ce '4 0i44ere%t mutua* 4u%0-8 =orldwide, good mutual fund companies over are !nown by their +M2s and this fame is directly lin!ed to their superior stoc! selection s!ills. For mutual funds to grow, +M2s must be held accountable for their selection of stoc!s. In other words, there must be some performance indicator that will reveal the quality of stoc! selection of various +M2s. %ne industry that has undergone the most dramatic transformation in the post/ liberali>ation era of the nineties is the financial services industry and in particular, the mutual funds industry. here has been a paradigm change in the quality and quantity of product and service offerings. , I remained the monopoly player in the mutual fund sector until #;H:, when public sector ban!s and insurance companies were permitted to enter the fray. Finally, in #;;3, the $ecurities and (5change 4oard of India A$(4IB came up with comprehensive mutual regulations, that permitted the private sector to start with mutual funds operations. were later replaced by the $(4I Mutual Fund &egulations, #;;9. hese

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HISTORY O! THE IN:IAN M3T3AL !3N: IN:3STRY

he mutual fund industry in India started in #;93 with the formation of ,nit rust of India, at the initiative of the 3overnment of India and &eserve 4an! the. he history of mutual funds in India can be broadly divided into four distinct phases !ir-t P(a-e = 19#4>?@
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,nit

rust of India A, IB was established on #;93 by an +ct of

7arliament. It was set up by the &eserve 4an! of India and functioned under the &egulatory and administrative control of the &eserve 4an! of India.
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In #;:H , I was de/lin!ed from the &4I and the Industrial *evelopment 4an! of India AI*4IB too! over the regulatory and administrative control in place of &4I.

#.

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he first scheme launched by , I was ,nit $cheme #;94. +t the end of #;HH , I had &s.9, :11 crores of assets under management.

Sec'%0 P(a-e = 19?@>199$ 5E%try '4 Pu&*ic Sect'r !u%0-6
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#;H: mar!ed the entry of non/ , I, public sector mutual funds set up by public sector ban!s and -ife Insurance 2orporation of India A-I2B and 3eneral Insurance 2orporation of India A3I2B. $4I Mutual Fund was the first non/ , I Mutual Fund established in June #;H: followed by 2an ban! Mutual Fund A*ec H:B, 7un"ab )ational 4an! Mutual Fund A+ug H;B, Indian 4an! Mutual Fund A)ov H;B, 4an! of India AJun ;1B, 4an! of 4aroda Mutual Fund A%ct ;0B. -I2 established its mutual fund in June #;H; while 3I2 had set up its mutual fund in *ecember #;;1. +t the end of #;;3, the mutual fund industry had assets under management of &s.4:, 114 crores.

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T(ir0 P(a-e = 199$>ABB$ 5E%try '4 Private Sect'r !u%0-6
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=ith the entry of private sector funds in #;;3, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. #;;3 was the year in which the first Mutual Fund &egulations came into being, under which all mutual funds, e5cept , I were to be registered and governed. he erstwhile July #;;3. Kothari 7ioneer Anow merged with Fran!lin

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empletonB was the first private sector mutual fund registered in he #;;3 $(4I AMutual FundB &egulations were substituted by a more comprehensive and revised Mutual Fund &egulations in #;;9.
#9

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he industry now functions under the $(4I AMutual FundB &egulations #;;9.
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+s at the end of January 0113, there were 33 mutual funds with total assets of &s. #,0#,H1. crores. other mutual funds. he ,nit rust of India with &s.44, .4# crores of assets under management was way ahead of

!'urt( P(a-e = -i%ce !e&ruary ABB$ In February 0113, following the repeal of the ,nit rust of India +ct #;93 , I was bifurcated into two separate entities.
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%ne is the $pecified ,nderta!ing of the ,nit

rust of India with

assets under management of &s.0;, H3. crores as at the end of January 0113, representing broadly, the assets of ,$ 94 scheme, assured return and certain other schemes. ,nderta!ing of ,nit he $pecified rust of India, functioning under an

administrator and under the rules framed by 3overnment of India and does not come under the purview of the Mutual Fund &egulations.
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he second is the , I Mutual Fund -td, sponsored by $4I, 7)4, 4%4 and -I2. It is registered with $(4I and functions under the Mutual Fund &egulations. =ith the bifurcation of the erstwhile , I which had in March 0111 more than &s.:9,111 crores of assets under management and with the setting up of a , I Mutual Fund, conforming to the $(4I Mutual Fund &egulations =ith recent mergers ta!ing place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. +s at the end of $eptember 0114, there were 0; funds, which manage assets of &s.#.3#1H crores under 40# schemes.

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ASSETS 3N:ER MANA"EMENT 5A3M6 (ave 7r'/% a- 4'**'/-+
AS ON $1-t MARCH #;:. #;H1 #;H. #;;1 #;;. 0111 0110 0113 0114 011. 0119 011: 011H 011; 01#1 3#/mar/## A3M 5R-8 Cr're-6 04.9: HH.31 #9;.;. 4...31 0,01;.9# #;,#31.;0 :0,;9:.#: :4,3#..3# :1,#;:.4# .H,;#H.00 :1,903..1 #13,4.0.;H ;1,.H:.11 #11,.;4.11 :;,494.11 03#H90.11

he graph indicates the growth of assets over the years.

#H

Mutual fund schemes may be classified on the basis of its structure and its investment ob"ective. his classification is shown below.
#;

Ty)e- O4 Mutua* !u%0-

4 a s e d o n $ tru c tu re 2 lo s e ( n d e d F u n d s In te rv a l F u n d s % pen ( nded Funds

4 a s e d o n I n v e s t m e n t % b " e c t iv e -oad Funds 3 ro w th F u n d s 4 a la n c e d F u n d s ) o -oad Funds In c o m e F u n d s M o n e y M a r! e t F u n d s

% th e r $ c h e m e s a 5 $ a v in g $ c h e m e s I n d u s t r y s p e c if i c $ c h e m e s $ p e c ia l $ c h e m e s In d e 5 $ c h e m e s $ e c to ra l $ c h e m e s

• O)e%>e%0e0 !u%0+n open/end fund is one that is available for subscription all through the year. hese do not have a fi5ed maturity. Investors can conveniently buy and sell units at )et +sset <alue AL)+<LB related prices. he !ey feature of open/end schemes is liquidity. • C*'-e0>e%0e0 !u%0+ closed/end fund has a stipulated maturity period which generally ranging from 3 to #. years. he fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stoc! e5changes where they are listed. In order to provide an e5it route to the investors, some close/ended funds give an option of selling bac! the units to the Mutual Fund through periodic repurchase at )+< related prices. $(4I &egulations stipulate that at least one of the two e5it routes is provided to the investor.

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• I%terva* !u%0Interval funds combine the features of open/ended and close/ended schemes. hey are open for sale or redemption during pre/determined intervals at )+< related prices. • "r'/t( !u%0he aim of growth funds is to provide capital appreciation over the medium to long/ term. $uch schemes normally invest a ma"ority of their corpus in equities. It has been proven that returns from stoc!s, have outperformed most other !ind of investments held over the long term. 3rowth schemes are ideal for investors having a long/term outloo! see!ing growth over a period of time. • I%c'me !u%0he aim of income funds is to provide regular and steady income to investors. $uch schemes generally invest in fi5ed income securities such as bonds, corporate debentures and 3overnment securities. Income Funds are ideal for capital stability and regular income. • Ba*a%ce0 !u%0he aim of balanced funds is to provide both growth and regular income. $uch schemes periodically distribute a part of their earning and invest both in equities and fi5ed income securities in the proportion indicated in their offer documents. In a rising stoc! mar!et, the )+< of these schemes may not normally !eep pace, or fall equally when the mar!et falls. hese are ideal for investors loo!ing for a combination of income and moderate growth. • M'%ey Mar2et !u%0he aim of money mar!et funds is to provide easy liquidity, preservation of capital and moderate income. hese schemes generally invest in safer short/term instruments such as treasury bills, certificates of deposit, commercial paper and inter/ban! call money. &eturns on these schemes may fluctuate depending upon the interest rates prevailing in the mar!et. hese are ideal for 2orporate and individual investors as a means to par! their surplus funds for short periods. • L'a0 !u%00#

+ -oad Fund is one that charges a commission for entry or e5it. hat is, each time you buy or sell units in the fund, a commission will be payable. ypically entry and e5it loads range from #I to 0I. It could be worth paying the load, if the fund has a good performance history. • N'>L'a0 !u%0+ )o/-oad Fund is one that does not charge a commission for entry or e5it. hat is, no commission is payable on purchase or sale of units in the fund. he advantage of a no load fund is that the entire corpus is put to wor!. • Tax Savi%7 Sc(emehese schemes offer ta5 rebates to the investors under specific provisions of the Indian Income a5 laws as the 3overnment offers ta5 incentives for investment in specified avenues. Investments made in (quity -in!ed $avings $chemes A(-$$B and 7ension $chemes are allowed as deduction u?s HH of the Income a5 +ct, #;9#. he +ct also provides opportunities to investors to save capital gains u?s .4(+ and .4(4 by investing in Mutual Funds, provided the capital asset has been sold prior to +pril #, 0111 and the amount is invested before $eptember 31, 0111. • I%0u-try S)eci4ic Sc(emeIndustry $pecific $chemes invest only in the industries specified in the offer document. he investment of these funds is limited to specific industries li!e Info ech, FM23, and 7harmaceuticals etc. • I%0ex Sc(emeInde5 Funds attempt to replicate the performance of a particular inde5 such as the 4$( $ense5 or the )$( .1 • Sect'ra* Sc(eme$ectoral Funds are those, which invest e5clusively in a specified industry or a group of industries or various segments such as @+@ 3roup shares or initial public offerings.

00

+lone , I with "ust one scheme in #;94 now competes with as many as 411 odd products and 34 players in the mar!et. In spite of the stiff competition and losing mar!et sh/are, , I still remains a formidable force to rec!on with. -ast si5 years have been the most turbulent as well as e5iting ones for the industry. )ew players have come in, while others have decided to close shop by either selling off or merging with others. Pr'0uct i%%'vati'% i- %'/ )a--C /it( t(e 7ame -(i4ti%7 t' )er4'rma%ce 0e*ivery i% 4u%0 ma%a7eme%t a- /e** a- -ervice. hose directly associated with the fund management industry li!e distributors, registrars and transfer agents, and even the regulators have become more mature and responsible. he industry is also having a profound impact on financial mar!ets. =hile , I has always been a dominant player on the bourses as well as the debt mar!ets, the new generations of private funds which have gained substantial mass are now seen fle5ing their muscles. Fund managers, by their selection criteria for stoc!s have forced corporate governance on the industry. 4y rewarding honest and transparent management with higher valuations, a system of ris!/reward has been created where the corporate sector is more transparent then before. Funds have shifted their focus to the recession free sectors li!e pharmaceuticals, FM23 and technology sector. Funds performances are improving. Funds collection, which averaged at less than &s#11bn per annum over five/year period spanning #;;3/;H doubled to &s0#1bn in #;;H/;;. In the current year mobili>ation till now have e5ceeded &s311bn. otal collection for the current financial year ending March 0111 is e5pected to reach &s4.1bn. =hat is particularly noteworthy is that bul! of the mobili>ation has been by the private sector mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of &s. :H#;.34 crore during the first nine months of the year as against a net inflow of &s.914.41 crore in the case of public sector funds. Mutual funds are now also competing with commercial ban!s in the race for retail investorDs savings and corporate float money. he power shift towards mutual funds has become obvious. he coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are reali>ing that investments in savings accounts are as good as loc!ing up their deposits in a closet. he fund mobili>ation trend by mutual funds in the current year
03

indicates that money is going to mutual funds in a big way. he collection in the first half of the financial year #;;;/0111 matches the whole of #;;H/;;. India is at the first stage of a revolution that has already pea!ed in the ,.$. he ,.$. boasts of an +sset base that is much higher than its ban! deposits. In India, mutual fund assets are not even #1I of the ban! deposits, but this trend is beginning to change. &ecent figures indicate that in the first quarter of the current fiscal year mutual fund assets went up by ##.I whereas ban! deposits rose by only #:I. A$ource6 hin! tan!, he Financial (5press $eptember ;;B his is forcing a large number of ban!s to adopt the concept of narrow ban!ing wherein the deposits are !ept in 3ilts and some other assets, which improves liquidity and reduces ris!. he basic fact lies that ban!s cannot be ignored and they will not close down completely. heir role as intermediaries cannot be ignored. It is "ust that Mutual Funds are going to change the way ban!s do business in the future. Ba%2- vD- Mutua* !u%0CHARACTERISTICS BANKS &eturns -ow +dministrative e5p. High &is! -ow Investment options -ess )etwor! High penetration -iquidity Fuality of assets Interest calculation 3uarantee

M3T3AL !3N:S 4etter

-ow Moderate More -ow improving +t a cost 4etter )ot transparent ransparent Minimum balance between #1th.(veryday E 31th. %f every month Ma5imum &s.# -ac on deposits )one able #.#

but

04

 Morgan Stanley Asset Management (I) Pvt. Ltd.
Morgan $tanley *ean =itter E 2o. is a preeminent global financial services firm that provides a wide range of services to ma"or corporations, governments, financial institutions and high/net/worth individuals worldwide. =ith appro5imately .1,111 employees in 04 countries, the Firm has a significant presence in every financial mar!et. Morgan $tanley *ean =itter AM$*=B Investment Management is the institutional asset management division of M$*= E 2o. M$*= Investment Management was established in #;:. to help governments, corporations, pension funds and non/profit organi>ations meet their long/term investment ob"ectives. M$*= Investment Management manages ,$M 3H. billion for institutional and individual investors. M$*= Investment Management manages three ma"or offshore India funds, the India Magnum Fund Atraded on the *ublin $toc! (5changeB, the India Investment +3 Alisted on the Nurich $toc! (5changeB and the India Investment Fund Atraded on the )ew 'or! $toc! (5changeB. he Morgan $tanley 3rowth Fund was launched in January #;;4 and garnered an initial corpus of &s. ;H# crores. M$3F is listed on the Mumbai, *elhi, 2alcutta, 2hennai and +hmedabad $toc! (5changes and is also traded on the )ational $toc! (5change. In #;;:, M$3F units were placed as eligible securities with the )ational $ecurities *epository -imited, which made it possible for unit holders to hold units in electronic?demateriali>ed form. )o. of schemes )o. of schemes including options (quity $chemes # # #

C'r)u- u%0er ma%a7eme%t ;H# 2rore as on Jun 31, #;;;

 DSP Merrill Lync Investment Managers

0.

*$7 Merrill -ynch +sset Management AIndiaB -td., Aa company registered under the 2ompanies +ct, #;.9B has been set up by *$7M- and M-+M, to act as the +sset Management 2ompany A+M2B to the Fund. he +M2 has been appointed as the Investment Manager to the fund, M-+M holds 41I of the paid up share capital of the +M2, while the balance 91I Aappro5imatelyB, is held by *$7M-. he Investment Manager was approved by $(4I to act as the +M2 for the Mutual Fund. Merrill -ynch Investment Managers investment philosophy is designed to see! consistent, long/term strategic performance results. Its disciplined value oriented approach to managing its clientDs portfolios has been with the primary ob"ective of see!ing consistent returns over a long period. *$7 Merrill -ynch +sset Management AIndiaB -td. has been changed its name to *$7 Merrill -ynch Investment ManagerDs -td. w.e.f. 01th July 0113. )o. of schemes )o. of schemes including options (quity $chemes *ebt $chemes $hort term debt $chemes (quity E *ebt 3ilt Fund H #3 3 0 0 0 4

C'r)u- u%0er ma%a7eme%t #340.10 2rore as on Jun 31, 0113

 !irla S"n Li#e Asset Management Com$any Ltd

4irla $un -ife +M2 -td. is a "oint venture between $un -ife +ssurance 2ompany of 2anada and the +ditya 4irla 3roup, one of Indian leading Industrial houses. $un -ife +ssurance 2ompany of 2anada is a leading financial services organi>ation, providing a diversified range of ris! management, wealth management and money management products for individuals and corporations worldwide. $un -ife commenced business in 2anada in #H:#, and is headquartered in oronto with ma"or operations in 2anada, ,nited $tates, ,nited Kingdom and +sia 7acific. $un -ife has consistently earned ratings that ran! among the best in the )orth +merican financial
09

services sector. It has a ma"or presence in the growing mutual fund mar!ets through MF$ Investment Management in the ,.$., and through $pectrum ,nited Mutual Funds in 2anada. It is also active in the unit trust business in the ,.K., and its near term plans include consideration of mutual fund offerings in the 7hilippines. he +ditya 4irla group is a multinational group consisting of the best !nown companies in India in a range of !ey sectors li!e e5tiles A3&+$IMB, &ayon AIndian &ayonB, +luminum AHI)*+-2%B, 7etroleum AM&7-B, Finance A43F-B, Fertili>ers AIndo/3ulfB. 4irla Mutual Fund offers investment $chemes which aim to cater to every need of the investor. *rawing on the e5pertise of a worldwide staff of over #1,111 people and a networ! of more than 9.,111 agents and distributors, $un -ife is committed to providing not "ust products and services, but solutions for clients financial and ris! management needs. )o. of schemes #1 )o. of schemes including options 01 (quity $chemes H *ebt $chemes 0 $hort term debt $chemes 0 (quity E *ebt 0 3ilt Fund 9 C'r)u- u%0er ma%a7eme%t 3:40 2rore as on Jun 31, 0113

 %ot ari Pioneer Asset Management Com$any Ltd.
Kothari 7ioneer Mutual Fund is sponsored by the Investment rust of India -td. of the H 2 Kothari 3roup and 7ioneer Investment Management Inc.A7IMB of he 7ioneer 3roup Inc., ,$+. Kothari 7ioneer is one of India s first mutual fund in the private sector. oday, it manages &s.0:11 crores in assets for over 9.1,111 investors across a range of growth, balanced, income, liquid and ta5 saving funds. he sponsors of the fund are 7ioneer Investment Management A7IMB, ,$+ and the Investment rust of India, who together bring more than #01 years of e5perience in financial services. 7IM currently manages over M04 billion in assets worldwide on behalf of individual and institutional investors. 4ased in 4oston, 7ioneer has financial services operations in 3ermany, Ireland, 7oland, 2>ech &epublic, India and &ussia. Its flagship fund, 7ioneer Fund, was founded in #;0H and is the fourth oldest mutual fund in the ,nited $tates. )o. of schemes 0# )o. of schemes including options 34
0:

(quity $chemes *ebt $chemes $hort/term debt $chemes (quity E *ebt Money Mar!et

#H #0 0 # #

C'r)u- u%0er ma%a7eme%t 0911 2rs. as on Jun 31, 0113

 S"n & ' C Asset Management (India) Pvt. Ltd.

$,) FE2 +sset Management AIndiaB 7vt. -td. is an equal "oint venture between Foreign E 2olonial (merging Mar!ets -td. ,.K. and $,) $ecurities AIndiaB 7vt. -td. Foreign E 2olonial, established in #H9H, is one of (urope s leading asset management groups. FE2 is a part of Hypo 4an!, one of 3ermany s oldest and largest ban!s and has been investing in the Indian stoc! mar!ets since #;;3. $$I- is an Indian subsidiary company of $un 3roup. Its activities consist of principal investment and investment management operations in emerging mar!ets and technologies as well as international commercial activities. $,) FE2 currently manages and advises India 7erformance Fund Aan offshore fundB, $,) FE2 <alue Fund Aa domestic fundB and FE2 sponsored Indian Investment 2ompany $I2+< AI)*I2%B. $,) FE2 launched its Indian operations by becoming the domestic advisor to F2(Ms I)*I2% fund. It has since then launched India 7erformance Fund, an offshore fund, in #;;9 and five domestic schemes / <alue Fund A#;;:B, Money <alue Fund A#;;HB, 4alanced Fund A#;;;B, (merging echnologies Fund A0113B, Monthly Income 7lan A0113B and &esurgent India (quity Fund A0113B. %ver the last . years, the 2ompany has built a strong trac! record of managing asset classes, equity and debt. oday, $un FE2 manages?advises a corpus of over &s.#111 crore A,$M031 mnB, of which over .1I is equity. his corpus is spread over H schemes, 9 domestic and 0 offshore. + team of .9 people spread over H location service almost H1,111 customers. )o. of schemes )o. of schemes including options (quity $chemes *ebt $chemes $hort term debt $chemes (quity E *ebt : #0 4 . 0 #
0H

Cor$"s "nder management 720 Crore as on May 3 , 2003

0;

(very year, millions of Indians entrust their savings to ,nit rust of India to build up a financially secure future. his faith and confidence of investors stem from , I@s commitment, as reflected in its long trac! record to ensure its investors, safety, liquidity and attractive yield on their investments. $et up in #;94, by an +ct of 7arliament, , I +ct #;93, , I has grown into one of the biggest players and carved out a special position in the Indian capital mar!et. oday, , I manages an aggregate portfolio of &s. :0,9;H 2rore as on 3#?#0?#;;; and services 4. million investor accounts under ;1 saving schemes catering to varying needs of different classes of investors. , I has a servicing and distribution networ! of .3 branch offices, 301 *istrict &epresentatives and about H:,111 agents. It provides a complete range of services to its investors, at a low gross cost of less than #.1# percent of invisible funds and does not charge any asset management fee. • Ma%a7eme%t+ C(airma% $hri M *amodaran Executive :irect'r- $hri K 3 <assal $hri + K ha!ur $hri M M Kapur $hri + ) 7alwan!ar $hri $ K 4asu *r 4asudeb $en $hri 4 3 *aga

31

• Savi%7- P*a%- a%0 !u%0-+ , I is a symbol of trust and confidence among Indian investors. In the last seven years, the number of schemes managed by , I increased from 3. to ;0, while the number of unit holding accounts recorded a sevenfold increase from 9. la!hs to over 4.1 la!hs. , I@s e5panding product range cover a broad spectrum of investment goals and includes open end and closed/end income and capital accumulation funds. +mong the most popular are ,nit $cheme #;94 and Master series equity schemes such as Mastershare, Masterplus, Master (quity 7lans, etc. , I also manages schemes aimed at meeting specific needs li!e ♦ -ow cost insurance cover A,-I7B ♦ Monthly income needs of retired persons and women. ♦ Income and liquidity needs of religious and charitable institutions and trusts. ♦ 4uilding up funds to meet cost of higher education and career plans for children. ♦ Future wealth and income needs of girl child and women. ♦ 4uilding savings to cover medical insurance at old age. ♦ =ealth accumulation to meet income needs after retirement. • T(e Mar2et = Tru-t a%0 Reac(+ Individual household investors account for ;;I of , I@s investor accounts and about 9.I of unit capital of , I schemes. 7roducts are distributed through a mar!eting force of about H:,111 commission/based canvassing agents trained to e5plain the products and provide related service support to investors. oday, these agents are supervised by 301 2hief &epresentatives who guide the investors, organi>e, train and motivate the agents in their respective areas of operation Aspecified districtsB.

3#

Investors under various schemes of , I are now serviced through .3 , I branches, 0#3 collection centers and offices of 9 &egistrar and ransfer +gencies appointed by , I. 4esides there are .0 franchises offices, which accept applications and distribute certificates to unit holders. , I has set up its own associate company, , I/Investor $ervices -imited A, II$-B, to meet the growing needs of unit holder servicing. , I is also currently implementing a technology upgradation program, involving networ!ing of on/line computer systems at , I@s offices, and offices of &egistrars and ransfer +gencies. his would enable , I to improve service quality significantly. , I publishes wee!ly?daily )+<s for all its listed schemes and offers a prospectus for every scheme. It also publishes half/yearly results for all schemes and releases information on portfolio as also largest shareholding for growth schemes and ,nit $cheme #;94. , I adheres to disclosure requirements specified by $(4I. • !u%0 0e)*'yme%t+ !"uity #nvesting$ More than fifty percent of total funds of , I $chemes are invested in equity. , I is the largest operator in the Indian equity mar!et with total investments worth &s 3.,11:.H3 crores at boo! value. Its various funds collectively hold stoc!s in more than #.11 Indian companies and account for over H percent of the mar!et capitali>ation of all listed scripts on the 4ombay $toc! (5change.
2orporate debt6

, I is one of the main providers of debt finance to the corporate sector. Investment in corporate debt instruments account for 3H percent of the total investible funds. 2redit mar!et operations cover a range of instruments including publicly issued and privately placed debentures, bonds and medium term notes. , I@s debt portfolio quality is represented by ;H percent performing assets.

30

, I is also one of the largest investors, among non/ban!ing institutions in the money mar!et. +bout ## percent of the total investible funds are accounted for by government paper and call deposits. • I%ve-tme%t 7ui0e*i%e-+ 2onsistent with the , I +ct, , I@s investment decisions are guided by investors@ interests. , I@s operations are guided by , I +ct, #;93 and , I@s investments are sub"ect to prudential e5posure norms and limits laid down by , I regulations. It cannot invest more than #1 percent of a particular scheme corpus in the equity of any one company. , I@s investment decisions are bac!ed by inputs from independent groupDs set/ up for equity research, investment appraisal and credit rating. • A C'%7*'merate /it( a vi-i'%+ +s a distinctive financial institution, , I manages funds raised through common investible vehicles and at the same time provides companies financial services, including underwriting. o create a diversified financial conglomerate and to meet investor@s varying needs under a common umbrella, , I has set up a number of associate companies in the field of ban!ing, securities trading, investor servicing, investment advice and training. ♦ , I 4an! -td A#;;4B//the first private sector ban! to be set up under &4I guidelines. ♦ , I $ecurities (5change -td A#;;4B//the first institutionally sponsored corporate stoc!/bro!ing firm. ♦ , I Investor $ervices -td A#;;3B//the first institutionally sponsored &egistrar and ransfer agency. ♦ , I Institute of 2apital Mar!ets A#;H;B//the first such institute in +sia, e5cluding Japan. o , I Investment +dvisory $ervices -td A#;HHB//the first Indian Investment +dvisor registered with $(2, ,$. 2onsistent with financial sector deregulation, , I has plans to enter insurance, pension fund and credit rating businesses.

33

• "*'&a* *i%2-+ , I pioneered the offshore fund investment in Indian securities. he India Fund launched in #;H9 as a closed/end fund, became a multi/class open/ ended fund in #;;4. hereafter, in #;HH , I floated the India 3rowth Fund, which is listed, on the )ew 'or! $toc! (5change. 4oth India Fund and India 3rowth Fund have increased their corpus through rights issues. 4esides the 2olumbus India Fund, launched in #;;4, , I launched the India +ccess Fund, an Indian Inde5 Fund Atrac!ing the )$( .1 inde5B in #;;9. %T# #nternational &imited is a #11I subsidiary of ,nit rust of India, registered in the island of 3uernsey. his company was set up with the primary ob"ective of administration and mar!eting of various offshore funds managed by , I as also to act as the management company for these funds as required by the 3uernsey -aw. , I International -td has an office in -ondon to mar!et , I@s offshore funds to institutional clients in ,K, (urope and ,$+. It is also responsible for developing new products as well as new business opportunities of , I. his office also loo!s after ongoing investor relations with foreign investors and has succeeded in greatly improving communication between , I and its clients and distributors abroad. , I International -td has played an important role in launching three new offshore funds of , I / the India I Fund -td, the India *ebt Fund -td and the India 7ublic sector Fund -td. o cater to various needs of )&I investors based in the 3ulf region, , I has a &epresentative office at *ubai. he representative office covers all the si5 322 countries vi>. ,+(, %man, Kuwait, $audi +rabia, Fatar and 4ahrain. he *ubai office of , I acts as a liaison office between our )&I investors in the 3ulf and , I offices all over India. 4esides providing information on current and new schemes of , I, it also co/ordinates with , I offices in India for all after/sale requests of unit holders?agents. In the recent past, , I has e5tended its support to the development of ,nit rusts in other developing countries, li!e $ri -an!a and (gypt. 4esides providing technical advice, , I also participated in the equity capital of the ,nit rust Management 2ompany of $ri -an!a.

34

• Re-earc( -tre%7t(+ , I has its own research set/up to deal with different areas. he areas of research analysis cover macro economy, capital mar!ets, financial sector and mutual funds. (quity &esearch and 2redit &ating groups also cover industry and corporate performance. , I Institute of 2apital Mar!ets conducts training programmes for the financial community and helps develop modern and scientific approach towards investment management. It also serves as a forum to discuss ideas and issues relevant to the capital mar!et besides publishing research papers relating to capital mar!et. • Sc(eme- '44ere0+ )o. of schemes )o. of schemes including options (quity $chemes *ebt $chemes (quity E *ebt Money Mar!et 3ilt Fund :0 ##. 3# 9; 3 # 0

C'r)u- u%0er ma%a7eme%t :0.11 2rore as on Jun 31, 0113

3.

• Sc(eme- '4 a Mutua* !u%0+  he asset management company shall launch no scheme unless the trustees approve such scheme and a copy of the offer document has been filed with the 4oard. (very mutual fund shall along with the offer document of each scheme pay filing fees. he offer document shall contain disclosures which are adequate in order to enable the investors to ma!e informed investment decision including the disclosure on ma5imum investments proposed to be made by the scheme in the listed securities of the group companies of the sponsor he mutual fund and asset Management 2ompany shall be liable to refund the application money to the applicants If the mutual fund fails to receive the minimum subscription amount referred to in clause AaB of sub/regulation A#B If the moneys received from the applicants for units are in e5cess of subscription as referred to in clause AbB of sub/regulation A#B. he asset management company shall issue to the applicant whose application has been accepted, unit certificates or a statement of accounts specifying the number of units allotted to the applicant as soon as possible but not later than si5 wee!s from the date of closure of the initial subscription list and or from the date of receipt of the request from the unit holders in any open ended scheme.

 

   

• Ru*e- Re7ar0i%7 A0verti-eme%t+ he offer document and advertisement materials shall not be misleading or contain any statement or opinion, which are incorrect or false.  Investment %b"ectives and <aluation 7olicies6  he price at which the units may be subscribed or sold and the price at which such units may at any time be repurchased by the mutual fund shall be made available to the investors.  • "e%era* O&*i7ati'%-+  (very asset management company for each scheme shall !eep and maintain proper boo!s of accounts, records and documents, for each scheme so as to e5plain its transactions and to disclose at any point of time the financial position of each scheme and in particular
39

give a true and fair view of the state of affairs of the fund and intimate to the 4oard the place where such boo!s of accounts, records and documents are maintained.  he financial year for all the schemes shall end as of March 3# of each year.  (very mutual fund shall have the annual statement of accounts audited by an auditor who is not in any way associated with the auditor of the asset management company. • Pr'ce0ure 4'r Acti'% I% Ca-e O4 :e4au*t+ %n and from the date of the suspension of the certificate or the approval, as the case may be, the mutual fund, trustees or asset management company, shall cease to carry on any activity as a mutual fund, trustee or asset management company, during the period of suspension, and shall be sub"ect to the directions of the 4oard with regard to any records, documents, or securities that may be in its custody or control, relating to its activities as mutual fund, trustees or asset management company. • Re-tricti'%- '% I%ve-tme%t-+  + mutual fund scheme shall not invest more than #.I of its )+< in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authori>ed to carry out such activity under the +ct. $uch investment limit may be e5tended to 01I of the )+< of the scheme with the prior approval of the 4oard of rustees and the 4oard of asset Management 2ompany.  + mutual fund scheme shall not invest more than #1I of its )+< in un rated debt instruments issued by a single issuer and the total investment in such instruments shall not e5ceed 0.I of the )+< of the scheme. +ll such investments shall be made with the prior approval of the 4oard of rustees and the 4oard of asset Management 2ompany.  )o mutual fund under all its schemes should own more than ten per cent of any company@s paid up capital carrying voting rights.  $uch transfers are done at the prevailing mar!et price for quoted instruments on spot basis.  he securities so transferred shall be in conformity with the investment ob"ective of the scheme to which such transfer has been made.  + scheme may invest in another scheme under the same asset management company or any other mutual fund without charging
3:

 

 



   





any fees, provided that aggregate inter scheme investment made by all schemes under the same management or in schemes under the management of any other asset management company shall not e5ceed .I of the net asset value of the mutual fund. he initial issue e5penses in respect of any scheme may not e5ceed si5 per cent of the funds raised under that scheme. (very mutual fund shall buy and sell securities on the basis of deliveries and shall in all cases of purchases, ta!e delivery of relative securities and in all cases of sale, deliver the securities and shall in no case put itself in a position whereby it has to ma!e short sale or carry forward transaction or engage in badla finance. (very mutual fund shall, get the securities purchased or transferred in the name of the mutual fund on account of the concerned scheme, wherever investments are intended to be of long/term nature. 7ending deployment of funds of a scheme in securities in terms of investment ob"ectives of the scheme a mutual fund can invest the funds of the scheme in short term deposits of scheduled commercial ban!s. )o mutual fund scheme shall ma!e any investment inC +ny unlisted security of an associate or group company of the sponsorC or +ny security issued by way of private placement by an associate or group company of the sponsorC or he listed securities of group companies of the sponsor which is in e5cess of 31I of the net assets Oof all the schemes of a mutual fundP )o mutual fund scheme shall invest more than #1 per cent of its )+< in the equity shares or equity related instruments of any company. 7rovided that, the limit of #1 per cent shall not be applicable for investments in inde5 fund or sector or industry specific scheme. + mutual fund scheme shall not invest more than .I of its )+< in the equity shares or equity related investments in case of open/ ended scheme and #1I of its )+< in case of close/ended scheme.

3H

Key E*eme%t• !u%0 -)'%-'r+ he $ponsor 2ompany establishes the mutual fund in the form of a trust and registers it with $(4I. he board of trustees holds the fund in trust for unit holders and ensures compliance with $(4I regulations, trust deed guidelines and the terms of the asset management agreement by the +M2. +s an investor one should chec! the sponsors trac! record. $crutiny of the fund sponsor@s trac! record may forewarn you against "olts li!e the 2&4 scandal. +part from a consistent trac! record, sponsors should have requisite e5perience and bac!ground in managing mutual funds. • !u%0 ma%a7er+ he fund manager is an employee of the asset management company who formulates the investment strategy and invests the funds. +s an investor in the fund one should / ,nderstand the investment philosophy of the fund manager. / 2hec! the returns he has generated on funds previously managed by him, and / Find out whether the fund manager has delivered on the investment ob"ectives of the funds he has managed in the past.
3;

• Ty)e '4 4u%0
18 O)e% e%0e0 4u%0-+ Investors under this scheme are free to "oin the fund or withdraw from the fund at any time after an initial loc!/in period. $uch funds announce sale and repurchase prices from time to time. In an open/ ended scheme, investors can resell units in the fund to the issuing mutual fund at the net asset value A)+<B of the units. his is because open/ended schemes are permitted to buy?sell their own units. A8 C*'-e e%0e0 4u%0-+ ,nli!e the open/ended schemes, close/ended schemes do not issue units for repurchase redemption on a periodic basis. Its units can be redeemed only on termination of the scheme, or through dealings in the secondary mar!et. In such schemes, the period of the scheme is specified at the outset. hey have a definite target amount for the funds and cannot sell more after initial offering. If the scheme is limited, investors can trade units on the bourses, "ust li!e equities and debentures.

• Ty)e '4 -c(eme
Mutual funds can offer different investment schemes. hese schemes can be classified as6 18 "r'/t( !u%0- I%ve-tme%t '&1ective+ 2apital appreciation of equity shares Investment avenue6 (quity shares of companies with high growth potential A8 I%c'me !u%0- I%ve-tme%t '&1ective+ 7roviding safety of investments and regular income Investment avenue6 4onds, debentures and other debt related instruments as well as equity shares of companies with high dividend payouts. here are 0 aspects of income funds vi>. low investment ris! with constant income and high investment ris! generating high income. $8 Ba*a%ce0 !u%0- I%ve-tme%t '&1ective+ Modest ris! of investment and reasonable rate of return Investment avenue6 Judicious mi5 of equity shares, preference shares as well as bonds, debentures and other debt related instruments 48 M'%ey Mar2et Mutua* !u%0- 5MMM!-6 I%ve-tme%t '&1ective+
41

o ta!e advantage of the volatility in interest rates in the money mar!et Investment +venue6 2ertificate of deposits A2*sB, call money mar!et, commercial papers. Investors who had earlier stayed away from the money mar!et can participate indirectly through MMMFs. 8 S)ecia*iEe0 !u%0- I%ve-tme%t O&1ective+ o ta!e advantage of conditions in a particular sector or a specific income producing security Investment +venue6 $peciali>ed investments in securities of companies in certain sectors or specific income producing securities #8 Levera7e0 !u%0- I%ve-tme%t '&1ective+ o increase the value of the portfolio and benefit the shareholders by gains e5ceeding the cost of borrowed funds Investment avenue6 $peculative and ris!y investments li!e short sales to ta!e advantage of declining mar!et. @8 I%0ex !u%0- I%ve-tme%t O&1ective+ o increase the value of the portfolio in line with the benchmar! inde5 Aie. 4$( $ense5, $E7 2)Q .1B Investment +venue6 Investments only in those shares that form a part of the benchmar! inde5, in e5actly the same proportion, so that the value of the inde5 fund varies in proportion with the benchmar! inde5.

4#

?8 He07e !u%0- I%ve-tme%t O&1ective+ o hedge ris!s in order to increase the value of the portfolio Investment +venue6 (mploy speculative trading principles / buy rising shares and sell shares whose prices are li!ely to fall. +s an investor you should invest in schemes, which meet your criteria in terms of you need for regular income, capital appreciation, and safety of principal.

• !ee- a%0 c(ar7e+M2s charge a fee for managing the funds. +s an investor in the fund we must be aware of the fees and charges of the +M2. wo schemes with more or less similar performances would generate different returns if one of the two schemes charges high fees.

• T(e )u&*ic '44eri%7 )rice
+ sales load represents the money received by the +M2 as compensation for distributing units. It helps the fund to meet its e5penses relating to sales literature, promotion, distribution, advertising and agent?bro!er commissions. he 7ublic offering 7rice A7%7B is the price at which an investor buys into the fund and is a function of both the )+< and sales load. For instance, if the Funds )+< is &s #0?/ and the applicable sales load is 9I the 7%7 is )+<? A#/$ales loadB R#0?A#/. 19B R #0.:: If the investor applied for &s #1,111 worth of units he would receive :H3.1H. units A#1,111?#0.::B. 'ou might be required to pay such load charges either at the time of buying the units or at the time of selling the units. +s an investor you should be aware of such entry. ?e5it loads as they could have a material impact on returns.

• Tax im)*icati'%Investors need to understand the ta5 implications before investing in the schemes, as one scheme may offer more attractive post/ta5 returns compared to its peers. +s ,nion budgets regularly offer ta5 benefits to mutual funds and mutual fund investors, you as an investor must review the ta5 implications of mutual fund investments.

40

• Service *eve*$ervice levels vary across funds. -evel of communication also varies across funds. =hile some disclose the fund portfolio annually, others disclose it quarterly, and some others disclose it monthly.

Per#ormance and NA(
(very fund is benchmar!ed against an inde5 li!e the 4$( $ense5, 2)Q $)7 .1, 4$( 011, etc. +s an investor you must trac! the funds performance against the benchmar! inde5. +lso it could be useful for the investor to compare its performance with other funds. ?e5it loads as they could have a material impact on returns.

43

S)OT ANAL*SIS O& M+T+AL &+NDS
Stre%7t(- '4 Mutua* !u%0- are+ #. he fund industry has introduced the best products and services, and delivered superlative performances. 0. It allows small investors to invest in mar!et cheaply and efficiently. 3. 'ou get to own several companies no matter how much you decide to invest. In other words you get instant SdiversificationD. 4. 'ou can easily ma!e monthly contributions. .. + professional manager is the one managing the money. heoretically because of his?her e5perience and !nowledge you should receive above average returns. 9. <ery high transparency, ris! of fraud is very less. :. For every !ind of profile Aie conservative, moderately aggressive, aggressiveB there are investment options available. ,ea2%e--e- '4 Mutua* !u%0- are+ #. 0. 3. fund. 4. .. (5pense ratio is charged separately ie you pay + large ma"ority of mutual fund companies donDt come management fee no matter if the fund ma!es you money or not. close to beating mar!et averages li!e the $E7 .11. -oad being charged for entry into and e5it from a -ac! of fle5ibility. -oad is charged irrespective of the performance of the particular fund is the biggest wea!ness of funds.

44

O))'rtu%itie- 4'r Mutua* !u%0-+ #. %nly ..I of Indian savings is invested in mutual funds. herefore there is a large potential for the fund industry to mobili>e the savings of people into investments in MFDs. 0. Mutual funds are currently not allowed to invest in real estate. MF ma!ing investments in property should be allowed. 3overnment is ma!ing necessary efforts. T(reat- t' t(e Mutua* !u%0-+ #. %ne of the biggest ills plaguing the fund industry today is called late trading. he deal is to offer preferential treatment to large investors by offering them bac!dated net asset values A)+<sB. 0. ,-I7 A,nit -in!ed Investment 7lanB/ if the time hori>on of the investor is more than #. years, ,-I7 becomes a threat to fund industry. +lso the bro!ers say Aban!sB get higher bro!erage if an investor invests in ,-I7 rather than MFD$. 3. 77F A7ublic 7rovident FundB is also a threat since it gives guaranteed return since no investment is ris! free. +nyone who invests in mutual funds runs the ris! of losing money. 4. &eal estate also poses a big threat for the industry since investor prefers investing in property rather than funds. .. 7ortfolio management has now been started by various institutions such a AKota! securitiesB, whereby a separate portfolio can be designed for an individual investor. Here an individual is saved if the fund manger does not ma!e right decision regarding fundDs portfolio.

4.

&inancial As$ects o# M"t"al &"nds,

Net A--et 9a*ue+
4efore venturing into the mar!et related functional aspects of Mutual funds, it is important to understand the evaluation criteria of these funds. Just as a business is evaluated by the level of its profits, a mutual fund is assessed on the basis of its Tnet asset valueU, as e5plained below. he net asset value of the fund is the cumulative mar!et value of the assets 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. his gives rise 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 )+< per unit as )+<, ignoring the Lper unitL. =e also abide by the same convention. Ca*cu*ati'% '4 NA9 he most important part of the calculation is the valuation of the assets owned by the fund. %nce it is calculated, the )+< is simply the net value of assets divided by the number of units outstanding. he detailed methodology for the calculation of the asset value is given below.
49

A--et va*ue i- e<ua* t' $um of mar!et value of shares?debentures V -iquid assets?cash held, if any V *ividends?interest accrued +mount due on unpaid assets (5penses accrued but not paid

A--et Ma%a7eme%t C'm)a%y 5AMC6+ +n +sset Management 2ompany or +M2 is the investment manager of the respective trust, which is entitled to invest in different securities on behalf of unit holders, in line with the ob"ectives of respective schemes. L'a0+ he charge collected by a Mutual Fund from an investor for selling the units or investing in it. E%try *'a0+ =hen a charge is collected at the time of entering into the scheme it is called an (ntry load or Front/end load or $ales load. Exit *'a0+ +n (5it load or 4ac!/end load or &epurchase load is a charge that is collected at the time of redeeming or for transfer between schemes AswitchB. he e5it load percentage is deducted from the )+< at the time of redemption or transfer between schemes. Sy-tematic I%ve-tme%t P*a%+
4:

he entry load .

percentage is added to the )+< at the time of allotment.

$ystematic Investment 7lan is normally offered by many open/ended mutual funds in order to encourage regular investments. his plan allows an investor to purchase additional units of the $cheme by investing fi5ed amount of rupees every month?quarter. he beauty of the plan is that as the mar!et falls the number of units purchased by the investor increases as the purchases are lin!ed to the )+<. his concept is called &upee 2ost +veraging. &upee 2ost +veraging does not guarantee a profit or protect against a loss. &upee 2ost +veraging can smooth out the mar!et@s ups and downs and reduce the ris! of investing in volatile mar!ets. Sy-tematic ,it(0ra/a* P*a%+ he unit holder may set up a $ystematic =ithdrawal 7lan on a monthly, quarterly or semi/annual or annual basis to redeem a fi5ed number of units PriceDEar%i%7- Rati'+ +bbreviated as 7?( &atio or 7?(. $ometimes referred to as the Lmultiple.L 2alculated by dividing the stoc!@s current price by the company@s current annual earnings per share, usually from the last four quarters A!nown as the railing 7?( &atioB, but sometimes from the estimates of the earnings e5pected in the ne5t four quarters Athe 7ro"ected 7?( ratioB, or from the sum of the last two actual quarters and the estimates of the ne5t two quarters. In and of itself, the 7?( &atio tells very little, but can be usefully compared to the 7?( &atios of other companies in the same industry, or to the mar!et in general, or to the company@s own historical 7?( &atios, in order to determine how much the mar!et is currently willing to pay for a share of the company@s earnings8

4H

BY MARKET CAPITALISATION Mar2et ca)ita*iEati'%+ $toc! Funds are often grouped by the si>e of the companies they invest in big, small or tiny. 4y si>e we mean a company@s value on the stoc! mar!et6 the number of shares it has outstanding multiplied by the share price. his is !nown as mar!et capitali>ation.  4ig companies tend to be less ris!y than small companies. 4ut smaller companies can often offer more growth potential. he best idea is probably to have a mi5 of funds that gives an e5posure to large/cap, midsi>e and small companies.  + fund@s mar!et capitali>ation will indicate whether the fund emphasi>es the stoc!s of blue/chip companies with large mar!et capitali>ations, emerging companies with small capitali>ations, or something in between. a6 Lar7e Ca) !u%0-+ -arge cap funds invest their assets primarily in companies, which have a si>able mar!et capitali>ation. *ifferent fund houses define W$i>able@ differently. his is usually mentioned in the fact sheets for the investor@s empleton defined benefit. For instance, in its I7% AFran!lin Fle5i 2apB,

large caps as companies with a mar!et capitali>ation in e5cess of &s #. bn A&s #,.11 croresB. 2ompanies below this threshold were categori>ed as mid?small caps.  Investing in large caps is a lower ris!/lower return proposition Avis/X/vis mid cap stoc!sB, because such companies are usually widely researched and information is widely available.  -arge/cap funds are less volatile than funds that invest in smaller companies. ,sually, that means we can e5pect smaller returns but stable returns.

4;

(.g.6 Kota! 31, H*F2 op 011 Fund, Fran!lin India 4luechip Fund, H$42 (quity Fund for instance, invest predominantly in large caps. &6 Mi0 Ca) !u%0-+ hese funds invest in companies that have a lower mar!et capitali>ation than the large caps. For instance, $undaram Mutual Fund defines mid caps as stoc!s with a mar!et capitali>ation of less than &s #H bn. However, this level varies from fund house to fund house. +s with large caps, 4$( A4$( Mid 2ap 011B and $E7 2)Q A$E7 2)Q Mid 2ap 011B have designed their own indices for mid cap stoc!s.  Investments in mid caps are a ris!ier proposition as compared to investments in large cap funds. In fact, a mid cap stoc! could well graduate to a large cap over the years giving the investor a significant return on his investment. (.g.6 Fran!lin India 7rima Fund, Kota! Mid/2ap, Magnum 3lobal Fund, $undaram $elect Mid 2ap fund are some e5amples of mid cap funds8 c6 Sma** Ca) !u%0-+ $mall cap funds invest in companies with a smaller mar!et capitali>ation. A$undaram $MI-(B / $undaram Mutual Fund defined small caps as stoc!s with a mar!et capitali>ation of less than &s 0 bn. investing in small cap funds is fraught with considerable ris!.  $mall cap companies in most cases are "ust evolving. +gain, as with mid caps, information on small caps is not easily available so these companies are under/researched or maybe not researched at all. $o we are contending with a relatively un!nown entity here.  However, the ris!/return trade/off is much higher vis/X/vis large caps and mid caps.  he volatility of the fund often depends on the aggressiveness of the manager. +ggressive small/cap
.1

managers will buy hot growth and technology companies, ta!ing high ris!s in hopes of high rewards. More conservative LvalueL managers will loo! for companies that have been beaten down temporarily by the stoc! mar!et. 2urrently this is a niche segment as there is no fund investing purely in small cap stoc!s. $undaram $MI-( is probably the first small cap fund of its !ind. 06 Mu*tiD!*exi>Ca) !u%0-+ Just about every second mutual fund I7% these days is a multi?fle5i cap fund.  he fund manager has the mandate to shift across mar!et capitali>ations depending on the growth opportunity.  his is generally dictated by the mar!et happenings i.e. which sector is driving growth at a given time or which mar!et segment Amar!et capitali>ationB is witnessing the latest rally.  4ut generally, there@s a ceiling on how far the fund manager can go in a particular mar!et segment or sector. his helps in !eeping the portfolio relatively diversified and mitigate ris!s. In terms of ris!/return trade/off, these funds are positioned between large caps and mid caps. $ome multi cap funds include / *$7 M- %pportunities, %pportunities and 7rincipal &esurgent India Fund. ata (quity

HO, TO IN9EST IN M3T3AL !3N:

.#

Ste) O%e > Identi#y t(e I%ve-tme%t %ee0-+ %ur financial goals will vary, based on the age, lifestyle, financial independence, family commitments, and level of income and e5penses among many other factors. herefore, the first step is to assess the needs. =e can begin by defining the investment ob"ectives and needs, which could be regular income, buying a home or finance a wedding or educate children etc. Ste) T/' > C oose t e rig t M"t"al &"nd, he important thing is to choose the right mutual fund scheme, which suits our requirements. he offer document of the scheme tells us its ob"ectives and provides supplementary details li!e the trac! record of other schemes managed by the same Fund Manager. $ome factors to evaluate before choosing a particular Mutual Fund are the trac! record of the performance of the fund over the last few years. %ther factors could be the portfolio allocation, the dividend yield and the degree of transparency etc. Ste) T(ree - Select t e ideal mi. o# Sc emes+ Investing in "ust one Mutual Fund scheme may not meet all the investment needs. =e may consider investing in a combination of schemes to achieve our specific goals. Ste) !'ur - Invest reg"larly, he best approach is to invest a fi5ed amount at specific intervals, say every month. 4y investing a fi5ed sum each month, we buy fewer units when the price is higher and more units when the price is low, thus bringing down the average cost per unit. his is called rupee cost averaging and is a disciplined investment strategy followed by investors all over the world. =e can also avail the systematic investment plan facility offered by many open/end funds. Ste) !ive> Start early, It is desirable to start investing early and stic! to a regular investment plan. If we start now, we will ma!e more than if we wait and invest later. he power of compounding lets us earn income on income and our money multiplies at a compounded rate of return.

.0

Ste) Six - T e #inal ste$, Finally we need to fill in the application forms of various mutual fund schemes and start investing. =e may reap the rewards in the years to come. Mutual Funds are suitable for every !ind of investor / whether starting a career or retiring, conservative or ris! ta!ing, growth oriented or income see!ing.

COMPARATI9E ANALYSIS O! M3T3AL !3N:S
.3

BETA + 4eta is a measure of ris! that, when applied to investment portfolios, provides useful statistical information. It compares a mutual fund@s volatility with that of a benchmar!. If the beta of the stoc! is #, it means that the returns in the stoc! are highly correlated to the benchmar! inde5. + fund with a beta greater than # is considered more volatile than the mar!etC and a fund with a beta less than # means less volatile.

COMPARATI9E ANALYSIS H:!C TOP ABB 1.;# PR3 ICICI "RO,TH 1.;H RELIANCE 9ISION 1.H;

4( +

3TI 1.;#

Comparison Chart
0.9 0.85 BETA 0.8 0.75 0.7 UTI HDFC CAPITAL BUILDER Funds RELIANCE GROWTH BETA



Most mainstream equity funds have 4etas in the range of .H. to #.1. Afairly close to the #.11 4eta represented by the mar!et in the
.4

aggregateB. (specially conservative stoc! funds may register 4etas as low as .:., meaning that in a /#1I mar!et decline, their values might be e5pected to fall /:..I. +ggressive funds with 4etas of #.0. might see their values fall by /#0..I.


=e can see that the betas of nearly all the funds are similar apart from the beta of 7ru/I2I2I 3rowth, which has a very high beta, which implies that the fund is very volatile. +n important point to be considered is that with different ob"ectives, the mid/cap and large cap betas also different. -arge cap betas are more towards mar!et beta which implies that these funds have been more stable unli!e mid cap betas which are more volatile



ALPHA +lpha is a financial term describing that part of an investor@s return that is due to the s!ills of the investment manager, as distinct from the return of the mar!et as a whole. +lpha can provide a deeper perspective on the performance of equity schemes to a mutual fund investor. =hile analy>ing performance, we would li!e to !now how much of the return was attributable to the mar!et as a whole, and how much due to the manager@s ability to select stoc!s. <alue +dded by Fund Manager Aor alphaB indicates the return that is not attributable to the mar!et, or in other words the added value the manager achieved over and above the result of the mar!et. COMPARATI9E ANALYSIS+ + fund manager who reduces ris!s by boo!ing profits has also to be careful in reinvesting. If the reinvesting is badly managed, the returns may not be superior. hen, despite a lower beta, the performance may be flat. he measure W+lpha@ indicates the value added by a fund manager.
..

+-7H+

3TI #.0H

H:!C TOP ABB #.:3

PR3 ICICI "RO,TH 1.9.

RELIANCE 9ISION 0.0:

Comparison Chart
3 2.5 ALPHA 2 1.5 1 0.5 0 UTI HDFC CAPITAL BUILDER Funds RELIANCE GROWTH ALPHA



+lpha can be seen as a measure of a fund manager@s performance. his is what the fund has earned over and above Aor underB what it was e5pected to earn. hus, this is the value added Aor subtractedB by the fund manager@s investment decisions8 In the large cap funds, it can be see that the alpha of the &eliance <ision is highest i.e 0.0:. his can be attributed to the high churning of funds done by the fund manager. he lowest alpha is of 7ru/I2I2I 3rowth being 1.9.C meanwhile the beta of this fund is the ma5imum. +gain, in the mid cap funds also the alpha of reliance growth is the ma5imum which can be attributed to the above reasons. +nother trend is that overall the alpha of mid/cap funds is higher as compared to large cap funds. %ne reason could also be that in this









.9

time period when the study was done, the mid cap funds were performing quite well as compared to large cap funds. SECTOR ALLOCATION he division of an investment portfolio among ma"or sectors usually to diversify the ris!. In this conte5t, two approaches can be followed6 To$-do/n a$$roac > Herein firstly the sectors are chosen, and thereafter/strong companies are chosen in these sectors. (.g. H$42 (quity !ottom-"$ a$$roac > Herein the investments are done in fundamentally sound companies. (.g. Fran!lin India 4luechip.




PORT!OLIO CONCENTRATION+ his refers to the concentration of the allocation in top few sectors. *epending on the ob"ective of the mutual fund, the fund could be concentrated or diversified. H*F2 (quity Fund is a very concentrated fund. Meanwhile &eliance 3rowth is a very diversified fund Funds e5posure to different !inds of sectors is another parameter on which the different mutual funds can be compared. Most funds have adequate e5posure to technology stoc!s. -ately most funds have increased their e5posure to ban!ing sector stoc!s. However reliance has a very different stoc! allocation investing in automobile and heavy engineering sectors.



STAN:AR: :E9IATION he total ris! of a given fund is measured in terms of standard deviation of returns of the fund. $tandard *eviation is a measure of scattering of the values about the average AmeanB value. It tells us how much the values have deviated from the mean of the values. It is calculated by using returns of the scheme i.e. the )et +sset <alue A)+<B, and is a measure of the dispersion of the scheme@s return around its average return.
.:

Comparison Chart
8 7.8 7.6 7.4 7.2 7 6.8 6.6 6.4 6.2 6 UTI HDFC CAPITAL BUILDER Funds RELIANCE GROWTH

S>D.

STANDARD DE IATION

COMPARATI9E ANALYSIS =hen used in relation to mutual funds, it tells about the volatility of the scheme. he higher is the value, the more volatile are the returns and vice versa.

3TI $ +)*+&* *(<I+ I%) 9.;#

H:!C TOP ABB :.0:

PR3 ICICI "RO,TH :.3.

RELIANCE 9ISION :.44

Mid 2ap Funds  he standard deviation is more in mid cap funds. his shows that mid cap funds are more volatile as compared to large cap funds.


In the large cap funds the highest standard deviation is of reliance vision, reliance vision falls in the category of high ris! and high return.

.H



Meanwhile the standard deviation of the Fran!lin India 4lue chip is the lowest, this fund is considered as one of the most stable returns giving fund. However in the mid cap fund the highest standard deviation is of Fran!lin India 7rima. his is because Fran!lin India prima has lately changed its sectoral composition, trying to ma!e it as an aggressive fund.



SHARPE RATIO $harpe ratio, wor!ed by )obel -aureate 4ill $harpe, tries to quantify how a fund performs relative to the ris! it ta!es. It is a ratio of returns generated by the fund over and above ris! free rate of return and the total ris! associated with it Astandard deviationB. $ymbolically it is written as6
SI =

( Ri − Rf )
σ

=here, $IR $harpe Inde5 &i R &eturn on the fund &f R ris! free rate of return Ae.g. a ;1 day /4illB
σ R $tandard *eviation

.;

Comparison Chart
0.6 0.58 0.56 0.54 0.52 0.5 0.48 0.46 UTI HDFC CAPITAL BUILDER Funds RELIANCE GROWTH S.R.

SHARPE RATIO

91

• &etail Investors prefer to invest in debt/based funds when they invest for short periods and are loo!ing for steady returns. %n the contrary, when they invest for long periods, they prefer to go for equity based funds as it is seen that in the long period, equity funds out/perform debt funds. his money is either from their capital gains or for some specific purpose in the future li!e their childDs education, marriage, purchase of house etc. • 4usiness Investors invest a lot in the end of June when Mutual Funds are close to declaring dividends. his is because this gets them the benefit of writing off their capital gains as follows 8 #. $ay the )+< per unit of the Mutual Fund is &s. 01.11 at time of purchase. 0. he business buys the Mutual Fund units at this price and dividends are declared say &s. 4.11 per unit. 3. hen after the cool off period when the Mutual Fund opens, the )+< per unit is &s. #9.11 per unit A&s. 01.11 8 &s. 4.11 dividend declaredB. 4. he business then sells off the units at &s. #9.11 per unit and claims capital looses to the tune of &s. 4.11 per unit, which can be used by them to write off their capital profits. .. his actually is not a capital loss as that amount has already been reimbursed to the unit holder in terms of dividends. • In India, the trend is that investors invest when there is a boom in the stoc! mar!et and withdraw their holdings in times of slump. his is absolutely contrary to how the system wor!s abroad as there investments ta!e place in the slump period when greater units can be purchased with same amount of money. =ithdrawals are correspondingly done in boom times as ma5imum return is achieved. his is the right strategy and Mutual Fund companies are trying to create this awareness among consumers.
9#

•

he outloo! for the Mutual Fund Industry as predicted by the representatives of the companies that I visited is very bright. hey all e5pect the mar!et to go up by *iwali AIndian festivalB and )ew 'ears and also e5pect consumer awareness and interest to improve. (fforts are being made by them to increase awareness and services offered by them. +ll this would result in ma"or increase in their collections and of the industry as a whole. +lso a large number of new companies and schemes are soon going to be launched which will increase the variety for consumers and also improve the quality of services offered due to the increase in competition.

90

CONCEPT O! !INANCIAL PLANNIN"
!i%a%cia* )*a%%i%7 i- a% exerci-e aime0 t' e%-ure avai*a&i*ity '4 ri7(t am'u%t '4 m'%ey at t(e ri7(t time t' meet t(e i%0ivi0ua*F- 4i%a%cia* 7'a*-8
 +n investor, depending on the age, ris! ta!ing ability and time

hori>on, should accordingly put his?her money in different asset classes in the proportion that suits their unique needs and requirements the best.
 =ith the comple5ity and dynamism of the financial mar!ets increasing

with the passage of time, there is a massive information overload for all investors. 4ig investors li!e FIIs have the time and e5pertise to manage such ris!s. 4ut for a retail investor, this can be highly intimidating. It is best to ascertain one@s own unique requirements based on the parameters discussed above, depending on which one can draw out an investment plan.

93

Ri-2 Pr'4i*i%7+
In this section we analy>ed the customerDs investment ob"ectives and preferred investment style. his includes6 #. 0. 3. o understand the basic ob"ectives of investment, the time hori>on Athe time period for which the customer wants to investB o e5plore the tolerance to volatility associated with various financial assets o understand the attitude of the customer to different ris! levels in various mar!et conditions. A&is! appetiteB/ +ggressive, Moderately aggressive, 2onservative. Finally after analy>ing the above parameters with the help of the personal financial review we quantified the ability of the customer to ta!e the investment ris! associated with the various financial assets. +fter this we made 0/3 dummy portfolios suggesting suitable portfolio mi5.

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Rec'mme%0ati'%-+
#B + few respondents due to confidentiality constraints did not disclose the average investment made. 0B he future investment in mutual funds depends heavily on the availability of funds. 3B It is seen from the analysis that most of the people in India specifically *elhi have no idea of Mutual Funds. his showed the low awareness level among the people of *elhi about the Mutual Funds therefore I recommend that there is need for better mar!eting of Mutual Funds and specifically target investors who invest in stoc! mar!ets and small investors who prefer ban!s for their investments and create awareness amongst them about investing in Mutual Funds. 4B It is recommended that the +sset Management 2ompanies A+M2B more specifically , I should come up with new Mutual Fund schemes which focus on -ecurity '4 m'%ey; &etter rate '4 retur%; *i<ui0ity; )r'4ita&i*ity. hey should concentrate more on building up investorDs confidence, as it is seen from the analysis that most of the investors are not confident of the safety and security of their investments in Mutual Funds especially after the , I $cam in India. .B It is strongly recommended that +sset Management 2ompanies AMF 2ompaniesB specifically , I provide reliable and more true and transparent information to the investors as the investor is ready to invest in Mutual Funds only if they are given more reliable information. It is also recommended that +sset Management 2ompanies AMF 2ompaniesB focus on building a relationship of trust and commitment with the investors. 9B +ll the people interviewed e5pected a rate of return of #:/#HI on their investments in Mutual Funds therefore if the +sset Management 2ompanies A+M2B more specifically , I are able to provide that return they can attract more investors. 7! In the near future, a large number of new companies and schemes are soon going to be launched which will increase the variety for investor and will lead to increase in competition. in the industry and his stresses the need to improve the quality of services offered and improve individual fund performance. HB he capital mar!et has been growing by leaps and bounds. hus the stoc! mar!et in India is on the right trac! and there will be ma"or improvements in the near future his e5pansion will act as an
9.

impediment to the small investors who either has the option to play the mar!et or to have the !nowledge to !eep pace with the corporate information of thousands of companies. heir mutual funds will form a favorable alternative provided there is transparency, reliability and authenticity in their functioning.

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