mutual fund sarath

8/6/2019 Mutual Fund Sarath

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CASE STUDY: MUTUAL FUNDS IN INDIA

BY

NAIR SARATH GOVINDAN

DPGD/JL09/0909

FINANCE

WELINGKAR INSTITUTE OF MANAGEMENT AND RESEARCH STUDIES, MUMBAI

JUNE 2011



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Table of Content

Executive Summary........................................................................................................01

Introduction.....................................................................................................................03

Concept of Mutual Fund................................................................................................. 04

History of Mutual Fund in India..................................................................................... 05

How fund can earn money for you................................................................................. 08

Structure of Mutual Fund in India.................................................................................. 09

Risk Return Matrix......................................................................................................... 11

Different types of Mutual Fund in India.........................................................................12

Mutual Fund-Market trend in India................................................................................ 15

India Mutual Fund industry-Current status.....................................................................17

India Mutual Fund industry-Current status-Statistical Overview...................................20

Regulatory aspect of Mutual Fund..................................................................................26

Advantage and Disadvantage of Mutual Fund................................................................32

Classes of fund................................................................................................................35

Net Asset Value (NAV)..................................................................................................36

Mutual Fund industry unit holding pattern.....................................................................39

Development of fund - Debt and Equity.........................................................................42

Fund mobilized and total asset........................................................................................47

How to get registered as Mutual Fund............................................................................48

Procedure for change in controlling interest of Asset Management Company.............. 54

Registered Mutual Fund in India.................................................................................... 57

Members of SEBI advisory committee on Mutual Fund................................................65

Other important aspect of Mutual Fund-A guide line for investor................................. 66

Disclosure and reporting norms......................................................................................76

Loads, Fees and Expenses...............................................................................................80



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Dividend distribution procedure..................................................................................... 83

Risk factors in Mutual Fund........................................................................................... 85

Investment option in Mutual Fund..................................................................................87

Voice of the customer-DATA interpretation and analysis............................................. 88

Future of Mutual Fund in India.......................................................................................95

Mutual fund glossary...................................................................................................... 101

Conclusion...................................................................................................................... 111

Recommendation............................................................................................................ 112

Bibliography................................................................................................................... 113



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EXECUTIVE SUMMARY

There are a lot of investment avenues available today in the financial market for an investor

with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds

where there is low risk but low return. He may invest in Stock of companies where the risk is

high and the returns are also proportionately high. The recent trends in the Stock Market have

shown that an average retail investor always lost with periodic bearish tends. People began

opting for portfolio managers with expertise in stock markets who would invest on their

behalf. Thus we had wealth management services provided by many institutions. However

they proved too costly for a small investor. These investors have found a good shelter with the

mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational

companies coming into the country, bringing in their professional expertise in managing

funds worldwide. In the past few months there has been a consolidation phase going on in the

mutual fund industry in India. Now investors have a wide range of Schemes to choose fromdepending on their individual profiles.

My study gives an overview of mutual funds – definition, types, benefits, risks, limitations,

history of mutual funds in India, latest trends, global scenarios. I have analyzed a few

prominent mutual funds schemes and have given my findings.

NEED FOR THE STUDY

The main purpose of doing this project was to know about mutual fund and its functioning.

This helps to know in details about mutual fund industry right from its inception stage, growth

and future prospects.

It also helps in understanding different schemes of mutual funds. Because my study depends

upon prominent funds in India and their schemes like equity, income, balance as well as the

returns associated with those schemes.

The project study was done to ascertain the asset allocation, entry load, exit load, associated

with the mutual funds. Ultimately this would help in understanding the benefits of mutual

funds to investors.



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SCOPE OF THE STUDY

In my project the scope is limited to some prominent mutual funds in the mutual fund

industry. I analyzed the funds depending on their schemes like equity, income, balance. But

there is so many other schemes in mutual fund industry like specialized (banking,

infrastructure, pharmacy) funds, index funds etc.

My study is mainly concentrated on equity schemes, the returns, in income schemes the rating

of CRISIL, ICRA and other credit rating agencies.

OBJECTIVE

To give a brief idea about the benefits available from Mutual Fund investment

To give an idea of the types of schemes available.

To discuss about the market trends of Mutual Fund investment.

To study some of the mutual fund schemes and analyse them

Observe the fund management process of mutual funds

Explore the recent developments in the mutual funds in India

To give an idea about the regulations of mutual funds

METHODOLOGY

To achieve the objective of studying the stock market data has been collected.

Research methodology carried for this study can be two types

Primary

Secondary

PRIMARY:

The data, which has being collected for the first time and it is the original data.

In this project the primary data has been taken from general public and guide of the project.

SECONDARY:

The secondary information is mostly taken from websites, books, journals, etc.

LIMITATIONS

The time constraint was one of the major problems

The study is limited to the different schemes available under the mutual funds selected

The study is limited to selected mutual fund schemes.

The lack of information sources for the analysis part.



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INTRODUCTION

As you probably know, mutual funds have become extremely popular over the last 20 years.

What was once just another obscure financial instrument is now a part of our daily lives. One

half of the households in India, invest in mutual funds. That means that, in the India alone,

millions of rupees are invested in mutual funds.

In fact, to many people, investing means buying mutual funds. After all, it's common

knowledge that investing in mutual funds is (or at least should be) better than simply letting

your cash waste away in a savings account, but, for most people, that's where the

understanding of funds ends. It doesn't help that mutual fund salespeople speak a strange

language that is interspersed with jargon that many investors don't understand.

Originally, mutual funds were heralded as a way for the little guy to get a piece of the market.

Instead of spending all your free time buried in the financial journal, all you had to do was

buy a mutual fund and you'd be set on your way to financial freedom. As you might have

guessed, it's not that easy. Mutual funds are an excellent idea in theory, but, in reality, they

haven't always delivered. Not all mutual funds are created equal, and investing in mutual’s

isn't as easy as throwing your money at the first salesperson who solicits your business.

WHAT IS A MUTUAL FUND

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual

fund will have a fund manager who is responsible for investing the gathered money into

specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units

or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of

the fund.

Mutual funds are considered as one of the best available investments as compare to others

they are very cost efficient and also easy to invest in, thus by pooling money together in amutual fund, investors can purchase stocks or bonds with much lower trading costs than if

they tried to do it on their own. But the biggest advantage to mutual funds is diversification,

by minimizing risk & maximizing returns.

Every Mutual Fund is managed by a fund manager, who using his investment management

skills and necessary research works ensures much better return than what an investor can

manage on his own. The capital appreciation and other incomes earned from these

investments are passed on to the investors (also known as unit holders) in proportion of the

number of units they own.



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CONCEPT OF MUTUAL FUND

When an investor subscribes for the units of a mutual fund, he becomes part owner of the

assets of the fund in the same proportion as his contribution amount put up with the corpus

(the total amount of the fund). Mutual Fund investor is also known as a mutual fund

shareholder or a unit holder.

Any change in the value of the investments made into capital market instruments (such as

shares, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAV is

defined as the market value of the Mutual Fund scheme's assets net of its liabilities. NAV of a

scheme is calculated by dividing the market value of scheme's assets by the total number of

units issued to the investors.

For example:

If the market value of the assets of a fund is Rs. 100,000

The total number of units issued to the investors is equal to 10,000.

Then the NAV of this scheme = (A)/(B), i.e. 100,000/10,000 or 10.00

Now if an investor 'X' owns 5 units of this scheme

Then his total contribution to the fund is Rs. 50 (i.e. Number of units held multiplied by the

NAV of the scheme)



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HISTORY OF MUTUAL FUND IN INDIA

The origin of mutual fund industry in India is with the introduction of the concept of mutual

fund by UTI in the year 1963. Though the growth was slow, but it accelerated from the year

1987 when non-UTI players entered the industry.

In the past decade, Indian mutual fund industry had seen a dramatic improvements, both

quality wise as well as quantity wise. Before, the monopoly of the market had seen an ending

phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the

fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004, it reached the

height of 1,540 bn.

Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less

than the deposits of SBI alone, constitute less than 11% of the total deposits held by the

Indian banking industry.

The main reason of its poor growth is that the mutual fund industry in India is new in the

country. Large sections of Indian investors are yet to be intellectuated with the concept.

Hence, it is the prime responsibility of all mutual fund companies, to market the product

correctly abreast of selling.

The mutual fund industry can be broadly put into four phases according to the development of

the sector. Each phase is briefly described as under.

First Phase – 1964-87:

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up

by the Reserve Bank of India and functioned under the Regulatory and administrative

control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the

Industrial Development Bank of India (IDBI) took over the regulatory and administrative

control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the

end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds):

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector

banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of

India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June

1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund

(Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda



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Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up

its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets

under management of Rs.47,004 crores.

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

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the

year in which the first Mutual Fund Regulations came into being, under which all mutual

funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now

merged with Franklin Templeton) was the first private sector mutual fund registered in

July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive andrevised Mutual Fund Regulations in 1996. The industry now functions under the SEBI

(Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds

setting up funds in India and also the industry has witnessed several mergers and

acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of

Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541 crores of assets under

management was way ahead of other mutual funds.

Fourth Phase – since February 2003:

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was

bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of

India with assets under management of Rs.29,835 crores as at the end of January 2003,

representing broadly, the assets of US 64 scheme, assured return and certain other

schemes. The Specified Undertaking of Unit Trust of India, functioning under an

administrator and under the rules framed by Government of India and does not come under

the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is

registered with SEBI and functions under the Mutual Fund Regulations. With the

bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of

assets under management and with the setting up of a UTI Mutual Fund, conforming to the

SEBI Mutual Fund Regulations, and with recent mergers taking place among different

private sector funds, the mutual fund industry has entered its current phase of consolidation



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and growth. As at the end of September, 2004, there were 29 funds, which manage assets

of Rs.153108 crores under 421 schemes.

GROWTH IN ASSET UNDER MANAGEMENT (AUM)-GRAPHICAL

PRESENTATION

Note:

Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of

India effective from February 2003. The Assets under management of the Specified undertaking of the

Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from

February 2003 onwards.



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How Funds Can Earn Money for You?

You can earn money from your investment in three ways:

1. Dividend payments

A fund may earn income in the form of dividends and interest on the securities in its

portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed

expenses) it has earned in the form of dividends.

2 Capital Gains Distributions

The price of the securities a fund owns may increase. When a fund sells a security that has

increased in price, the fund has a capital gain. At the end of the year, most funds distribute

these capital gains (minus any capital losses) to investors.

3. Increased NAV

If the market value of a fund's portfolio increases after deduction of expenses and

liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV

reflects the higher value of your investment.

With respect to dividend payments and capital gains distributions, funds usually will give

you a choice: the fund can send you a check or other form of payment, or you can have

your dividends or distributions reinvested in the fund to buy more shares (often without

paying an additional sales load).



STRUCTURE OF MUTUA

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FUND IN INDIA



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Sponsor:

Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National

Bank, State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors

of UTI Mutual Funds. Housing Development Finance Corporation Limited (HDFC) and

Standard Life Investments Limited are the sponsors of HDFC mutual funds. The fund

sponsor raises money from public, who become fund shareholders. The pooled money is

invested in the securities.

Trustees:

Trustee ensures that all the legal requirements in connection with the operation and

functioning of the mutual fund are met. They also supervise activities of the AMC. It

safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI.

Mutual Fund:

Mutual fund is established under the Indian Trust Act to raise money through the sale of

units to the public for investment in the capital market. The fund so raised in handed over

to the asset management company for investment. Mutual fund is required to be registered

with SEBI.

Asset Management Company:

This entity is registered under companies act. Asset Management Company (AMC) is a set

of financial professionals who manage the fund. It takes decisions on when and where to

invest the money. AMC is thus charged with the responsibility of investing and managing

the investor’s resources.

Custodian:

A Custodian keeps safe custody of the investments (related documents of securities

invested). A custodian should be a registered entity with SEBI. If the promoter holds 50%

voting rights in the custodian company it can’t be appointed as custodian for the fund. This

is to avoid influence of the promoter on the custodian.

Transfer agent:

A transfer agent is a person who has been granted the certificate of registration to carry on

the business of transfer agent under SEBI regulation,1993. Transfer agent’s business

includes issuing and redeeming units of mutual fund, preparing transfer document and

maintaining updated investors record.



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RISK RETURN MATRIX

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vise versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investors opt for

bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest

in capital protected funds and the profit-bonds that give out more return which is slightly

higher as compared to the bank deposits but the risk involved also increases in the same

proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds

provide professional management, diversification, convenience and liquidity. That doesn’t

mean mutual fund investments risk free. This is because the money that is pooled in are not

invested only in debts funds which are less riskier but are also invested in the stock markets

which involves a higher risk but can expect higher returns. Hedge fund involves a very highrisk since it is mostly traded in the derivatives market which is considered very volatile.



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DIFFERENT TYPES OF MUTUAL FUNDS IN INDIA

People generally have a question in their mind,” why so many types of mutual funds schemes

in India”.

We have to understand that mutual fund is just the connecting bridge or a financial

intermediary that allows a group of investors to pool their money together with a

predetermined investment objective. And due to different investment objectives there are

different types of mutual funds.

1. OVERVIEW OF EXISTING SCHEMES EXISTED IN MUTUAL FUND

CATEGORY: BY STRUCTURE

A)OPEN - ENDED SCHEMES:

An open-end fund is one that is available for subscription all through the year. These do

not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value

("NAV") related prices. The key feature of open-end schemes is liquidity.

B) CLOSE - ENDED SCHEMES:

These schemes have a pre-specified maturity period. One can invest directly in the scheme

at the time of the initial issue. Depending on the structure of the scheme there are two exit

options available to an investor after the initial offer period closes. Investors can transact

(buy or sell) the units of the scheme on the stock exchanges where they are listed. The

market price at the stock exchanges could vary from the net asset value (NAV) of the

scheme on account of demand and supply situation, expectations of unitholder and other

market factors. Alternatively some close-ended schemes provide an additional option of

selling the units directly to the Mutual Fund through periodic repurchase at the schemes

NAV; however one cannot buy units and can only sell units during the liquidity window.

SEBI Regulations ensure that at least one of the two exit routes is provided to the investor.

C) INTERVAL SCHEMES:

Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV related prices.



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2. OVERVIEW OF EXISTING SCHEMES EXISTED IN MUTUAL FUND

CATEGORY: BY NATURE

A)EQUITY FUND:

These funds invest a maximum part of their corpus into equities holdings. The structure of

the fund may vary different for different schemes and the fund manager’s outlook on

different stocks. The Equity Funds are sub-classified depending upon their investment

objective, as follows:

Diversified Equity Funds

Mid-Cap Funds

Sector Specific Funds

Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the

risk-return matrix.

B) DEBT FUNDS:

The objective of these Funds is to invest in debt papers. Government authorities, private

companies, banks and financial institutions are some of the major issuers of debt papers.By investing in debt instruments, these funds ensure low risk and provide stable income to

the investors. Debt funds are further classified as:

GILT FUNDS: Invest their corpus in securities issued by Government, popularly

known as Government of India debt papers. These Funds carry zero Default risk but are

associated with Interest Rate risk. These schemes are safer as they invest in papers

backed by Government.

INCOME FUNDS: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

MIPS: Invests maximum of their total corpus in debt instruments while they take

minimum exposure in equities. It gets benefit of both equity and debt market. These

scheme ranks slightly high on the risk-return matrix when compared with other debt

schemes.



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SHORT TERM PLANS (STP): Meant for investment horizon for three to six months.

These funds primarily invest in short term papers like Certificate of Deposits (CDs) and

Commercial Papers (CPs). Some portion of the corpus is also invested in corporate

debentures.

LIQUID FUNDS: Also known as Money Market Schemes, These funds provides easy

liquidity and preservation of capital. These schemes invest in short-term instruments

like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant

for short-term cash management of corporate houses and are meant for an investment

horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are

considered to be the safest amongst all categories of mutual funds.



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Mutual fund - Market Trends

A lone UTI with just one scheme in 1964, now competes with as many as 400 odd products

and 34 players in the market. In spite of the stiff competition and losing market share, UTI

still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the industry. New

players have come in, while others have decided to close shop by either selling off or merging

with others. Product innovation is now passé with the game shifting to performance delivery

in fund management as well as service. Those directly associated with the fund

management industry like distributors, registrars and transfer agents, and even the regulators

have become more mature and responsible.

The industry is also having a profound impact on financial markets. While UTI has always

been a dominant player on the bourses as well as the debt markets, the new generation

of private funds which have gained substantial mass are now seen flexing their

muscles. Fund managers, by their selection criteria for stocks have forced corporate

governance on the industry. By rewarding honest and transparent management with higher

valuations, a system of risk-reward has been created where the corporate sector is more

transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and

technology sector. Funds performances are improving. Funds collection, which averaged at

less than Rs.100bn per annum over five-year period spanning 1993-98 doubled to Rs.210bn in

1998-99. In the current year mobilization till now have exceeded Rs.300bn. Total collection

for the current financial year ending March 2000 is expected to reach Rs.450bn.

What is particularly noteworthy is that bulk of the mobilization has been by the private sector

mutual funds rather than public sector mutual funds. Indeed private MFs saw a net inflow of

Rs.7819.34 crore during the first nine months of the year as against a net inflow of Rs.604.40

crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail investor’s

savings and corporate float money. The power shift towards mutual funds has become

obvious. The coming few years will show that the traditional saving avenues are losing out in

the current scenario. Many investors are realizing that investments in savings accounts are asgood as locking up their deposits in a closet. The fund mobilization trend by mutual funds in



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the current year indicates that money is going to mutual funds in a big way. The collection in

the first half of the financial year 1999-2000 matches the whole of 1998-99.

India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of

an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not

even 10% of the bank deposits, but this trend is beginning to change. Recent figures indicate

that in the first quarter of the current fiscal year mutual fund assets went up by 115% whereas

bank deposits rose by only 17%. (Source: Think tank, The Financial Express September, 99)

This is forcing a large number of banks to adopt the concept of narrow banking wherein the

deposits are kept in Gilts and some other assets which improves liquidity and reduces risk.

The basic fact lies that banks cannot be ignored and they will not close down completely.

Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going tochange the way banks do business in the future.



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INDIAN MUTUAL FUND INDUSTRY-CURRENT STATUS

CURRENT STATE

India has been amongst the fastest growing markets for mutual funds since 2004, witnessing a

CAGR of 29 percent in the five-year period from 2004 to 2008 as against the global average

of 4 percent. The increase in revenue and profitability, however, has not been commensurate

with the AUM growth in the last five years.

Low share of global assets under management, low penetration levels, limited share of mutual

funds in the household financial savings and the climbing growth rates in the last few yearsthat are amongst the highest in the world, all point to the future potential of the Indian mutual

fund industry.

CHALLENGES AND ISSUES

Low customer awareness levels and financial literacy pose the biggest challenge to

channelizing household savings into mutual funds. Further, fund houses have shown limitedfocus on increasing retail penetration and building retail AUM. Most AMCs and distributors

have a limited focus beyond the top 20 cities that is manifested in limited distribution

channels and investor servicing. The Indian mutual fund industry has largely been product-led

and not sufficiently customer focused with limited focus being accorded by players to

innovation and new product development. Further there is limited flexibility in fees and

pricing structures currently.

Distributors and the mutual fund houses have exhibited limited interest in continuously

engaging with customers post closure of sale as the commissions and incentives have been

largely in the form of upfront fees from product sales. Limited focus of the public sector

network including public sector banks, India Post etc on distribution of mutual funds has also

impeded the growth of the industry. Further multiple regulatory frameworks govern different

verticals within the financial services sector, such as differential policies pertaining

to the PAN card requirement, mode of payment (cash vs cheque), funds management by

insurance companies and commission structures, among others.



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Factors that are impediments to mutual fund investing are availability of a large number of

mutual funds schemes that makes investment decision complex and difficult, complicated

KYC norms that restrict potential investors, and quality of advice provided. After sales

service and ongoing follow up have been identified by customers as the key differentiators in

assessing the capabilities of distributors. Drivers for purchase of mutual funds include tax

benefits of mutual fund investments, consistency in fund performance and brand equity.

Simplification of processes such as the application and redemption process

could potentially increase the quantum of investments in mutual funds.

FUTURE OUTLOOK IN A DYNAMIC ENVIRONMENT

The industry AUM is likely to continue to grow in the range of 15 to 25 percent from the

period 2010 to 2015 based on the pace of economic growth. In the event of a quick economic

revival and positive reinforcement of growth drivers identified, Indian mutual fund industry

may grow at the rate of 22 to 25 percent in the period from 2010 to 2015, resulting in AUM of

INR 16,000 to 18,000 billion in 2015. In the event of a relatively slower economic revival

resulting in the identified growth drivers not reaching their full potential, Indian mutual fund

industry may grow in the range of 15 to 18 percent in the period from 2010 to 2015, resulting

in AUM of INR 15,000 to 17,000 billion in 2015.

Industry profitability may reduce further as revenues shrink and operating costs escalate.

Product innovation is expected to be limited. Market deepening and widening is expected

with the objective of increased retail penetration and participation in mutual funds. The

regulatory and compliance framework for mutual funds is likely to get aligned with the other

frameworks across the financial services sector.

ACTION PLAN FOR ACHIEVING TRANSFORMATIONAL GROWTH

There is a need for a collaborative effort across all key stakeholders to harness the future

growth potential and reach out to the customer.

Given that customer awareness is the pre-requisite for the achievement of the industry growth

potential, there is a need for planning, financing and executing initiatives aimed at increasing

financial literacy and enhancing investor education across the country through a sustainedcollaborative effort across all stakeholders that is expected to result in a massive increase in



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mutual fund penetration. AMCs should focus on product innovation and introduction of

flexibility in pricing.

Public sector thrust into mutual funds distribution and focus on strengthening presence

beyond Tier 2 cities will entail training of the public sector employee base through the “Train

the Trainer” approach, so that they may be inducted as trainers to support customer awareness

campaigns to be facilitated by CII, NISM and AMFI.

Opening up of the public sector branch network in Tier 3 and Tier 4 towns will include India

Post, Nationalised Banks, Regional Rural Banks and Cooperative Banks. This will also

require a boost to be provided to Investor Service Centres (ISCs) through R&T Agents should

be given a thrust.

Focus on increasing customer engagement pre and post completion of the investment will be

beneficial. CII and AMFI should help to steer the industry vision. The recognition of the

Association of Distributors by SEBI would also be beneficial for the long term wellbeing of

the industry.

It is proposed that harmonisation of policies across multiple regulatory frameworks in the

financial services sector must be taken up on high priority through constitution of a Steering

Committee under the aegis of the Ministry of Finance, comprising the Financial Services

Regulators for mutual funds and capital markets, pension, insurance, banking and other

verticals along with representation from the CBDT.

Given that the industry needs to collectively work towards riding over the dynamic and

relatively less favourable economic environment at present, the next phase for the industry is

likely to be characterised by a stronger focus on customer centricity, cost management and

robust governance and regulatory framework - all aimed at enabling the industry to achieve

sustained, profitable growth, going forward.



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THE INDIAN MUTUAL FUND INDUSTRY – THE CURRENT STATE –

STATISTICAL OVERVIEW

The Indian mutual fund industry has evolved from a single player monopoly in 1964 to a fast

growing, competitive market on the back of a strong regulatory framework.

AUM GROWTH

Note: As of 31 March for each year

Source: AMFI data

The Assets under Management (AUM) have grown at a rapid pace over the past few years, at

a CAGR of 35 percent for the five-year period from 31 March 2005 to 31 March 20091. Over

the 10-year period from 1999 to 2009 encompassing varied economic cycles, the industry

grew at 22 percent CAGR2. This growth was despite two falls in the AUM - the first being

after the year 2001 due to the dotcom bubble burst, and the second in 2008 consequent to the

global economic crisis (the first fall in AUM in March 2003 arising from the UTI split).

1,496

2,319

3,590

5,3854,933

-

1,000

2,000

3,000

4,000

5,000

6,000

2005 2006 2007 2008 2009

Growth in AUM in the Indian Mutual

(Average AUM in INR Billion)



Page 24 of 113

AUM BASE AND GROWTH RELATIVE TO THE GLOBAL INDUSTRY

India has been amongst the fastest growing markets for mutual funds since 2004; in the five-

year period from 2004 to 2008 (as of December) the Indian mutual fund industry grew at 29

percent CAGR as against the global average of 4 percent3. Over this period, the mutual fund

industry in mature markets like the US and France grew at 4 percent, while some of the

emerging markets viz. China and Brazil exceeded the growth witnessed in the Indian market.

However, despite clocking growth rates that are amongst the highest in the world, the Indian

mutual fund industry continues to be a very small market; comprising 0.32 percent share of

the global AUM of USD 18.97 trillion as of December 2008.

63%

21%

11% 10%

4% 4% 2% 3% 4%

29%

0%

10%

20%

30%

40%

50%

60%

70%

China Brazil Russia Japan France USA UK Europe World India



Page 25 of 113

AUM TO GDP RATIO

The ratio of AUM to India’s GDP, gradually increased from 6 percent in 2005 to 11 percent

in 2009. Despite this however, this continues to be significantly lower than the ratio in

developed countries, where the AUM accounts for 20-70 percent of the GDP.

SHARE OF MUTUAL FUND IN HOUSEHOLD FINANCIAL SAVING

6%

8%

10%

15%

11%

0%

2%

4%

6%

8%

10%

12%

14%

16%

2005 2006 2007 2008 2009

Mutual

Funds,

8%

Provident and

Pension Fund, 8%

Insurance Funds,

16%Bank Deposits, 54%

Currency,

11%

Claims on

Government, 3%



Page 26 of 113

Investment in mutual funds in India comprised 7.7 percent of the gross household financial

savings in FY 2008, a significant increase from 1.2 percent in FY 2004. The households in

India continue to hold 55 percent of their savings in fixed deposits with banks, 18 percent in

insurance and 10 percent in currency as of FY 2008.

In 2008, the UK had more than thrice the investments into mutual funds as a factor of total

household savings (26 percent), than India had in the same time period. As of December

2008, UK households held 61 percent of the total savings in bank deposits, 11.6 percent in

equities and 1 percent in bonds.

PROFITABILITY

1.2%0.4%

3.8%4.8%

7.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%7.0%

8.0%

9.0%

2004 2005 2006 2007 2008

Share of Mutual Funds in Households’ Gross Financial

Savings in India

0.24%0.25% 0.25%

0.17%

0.14%

0.00%

0.05%

0.10%

0.15%

0.20%

0.25%

0.30%

FY04 FY05 FY06 FY07 FY08



Page 27 of 113

The increase in revenue and profitability in the Indian mutual fund industry has not been

commensurate with the AUM growth in the last 5 years. The AUM grew at 35 percent CAGR

in the period from March 2005 to 2009, while the profitability of AMCs - which is defined as

PBT as a percentage of the AUM - declined from 24 bps in FY 2004 to 14 bps in FY 2008

During FY 2004 and FY 2008, the investment management fee as a percent of average AUM

was in the range of 55 to 58 bps (small increase to 64 bps in FY 2006) due to the industry

focus on the underlying asset mix comprising relatively low margin products being targeted at

the institutional segment.

The operating expenses, as a percentage of AUM, rose from 41 bps in FY 2004 to 113 bps in

FY 2008 largely due to the increased spend on marketing, distribution and administrative

expenses impacting AMC margins. Rising cost pressures and decline in profitability have

impacted the entry plans of global players eyeing an Indian presence.

The growth in AUM accompanied by a decline in profitability necessitates an analysis of the

underlying characteristics that have a bearing on the growth and profitability of the Indian

mutual fund industry.

GROWTH RATE ACROSS FUND CATEGORIES

30%

41%

22%

14%

0%

5%10%

15%

20%

25%

30%

35%

40%

45%

Equity Debt Balanced schemes Liquidity

Growth Rate (Five year CAGR) across Fund Categories

CAGR from FY 2005 to FY 2009



Page 28 of 113

PRODUCTS

The Indian mutual fund industry is in a relatively nascent stage in terms of its product

offerings, and tends to compete with products offered by the Government providing fixed

guaranteed returns. As of December 2008, the total number of mutual fund schemes was

1,002 in comparison to 10,349 funds in the US.

Debt products dominate the product mix and comprised 49 percent of the total industry AUM

as of FY 2009, while the equity and liquid funds comprised 26 percent and 22 percent

respectively. Open-ended funds comprised 99 percent of the total industry AUM as of March

2009.

As of December 2008, the US mutual fund market comprised money market funds, equity

funds, debt/bond funds and hybrid funds at 40, 39, 16 and 5 percent of the total AUM

respectively.

While traditional vanilla products dominate in India, new product categories viz. Exchange

Traded Funds (ETFs), Gold ETFs, Capital Protection and Overseas Funds have gradually

been gaining popularity. As of March 2009, India had a total of 16 ETFs (0.3 percent of total

AUM) while the US had a total of 728 ETFs as of December 2008.

MARKET SHARE OF MUTUAL FUND PLAYER IN INDIA AS ON MARCH 2009

Mutual

Funds, 8%

Provident and

Pension Fund,

8%

Insurance

Funds, 16%

Bank Deposits,

54%

Currency, 11%

Claims on

Government,

3%



Page 29 of 113

REGULATORY ASPECTS OF MUTUAL FUND

The Indian mutual fund industry in terms of regulatory framework is believed to match up to

the most developed markets globally. The regulator, Securities and Exchange Board of India

(SEBI), has consistently introduced several regulatory measures and amendments aimed at

protecting the interests of the small investor that augurs well for the long term growth of the

industry.

A. SCHEMES OF MUTUAL FUND:

The 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 Board.

Every mutual fund shall along with the offer document of each scheme pay filing fees.

The offer document shall contain disclosures which are adequate in order to enable the

investors to make informed investment decision including the disclosure on maximum

investments proposed to be made by the scheme in the listed securities of the group

companies of the sponsor.

No one shall issue any form of application for units of a mutual fund unless the form is

accompanied by the memorandum containing such information as may be specified by the

Board.

Every close ended scheme shall be listed in a recognized stock exchange within six months

from the closure of the subscription

The asset management company may at its option repurchase or reissue the repurchased

units of a close ended scheme.

A close-ended scheme shall be fully redeemed at the end of the maturity period. "Unless a

majority of the unit holders otherwise decide for its rollover by passing a resolution".

The mutual fund and asset management company shall be liable to refund the application

money to the applicants,-

I. If the mutual fund fails to receive the minimum subscription amount referred to in

clause (a) of sub-regulation (1);

II. If the moneys received from the applicants for units are in excess of subscription as

referred to in clause (b) of sub-regulation (1).



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The 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 six weeks 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.

B. RULES REGARDING ADVERTISEMENT:

The advertisement for each scheme shall disclose investment objective for each scheme.

An advertisement shall be truthful, fair and clear and shall not contain a statement, promise

or forecast which is untrue or misleading.

Advertisements shall not be so framed as to exploit the lack of experience or knowledge of

the investors.

All advertisements issued by a mutual fund or its sponsor or asset management company,

shall state "all investments in mutual funds and securities are subject to market risks and

the NAV of the schemes may go up or down depending upon the factors and forces

affecting the securities market".

The advertisement shall not compare one fund with another, implicitly or explicitly, unless

the comparison is fair and all information relevant to the comparison is included in the

advertisement.

The offer document and advertisement materials shall not be misleading or contain any

statement or opinion, which are incorrect or false.

C. INVESTMENT OBJECTIVES AND VALUATION POLICIES:

The moneys collected under any scheme of a mutual fund shall be invested only in

transferable securities in the money market or in the capital market or in privately placed

debentures or securitised debts.

Provided that moneys collected under any money market scheme of a mutual fund shall be

invested only in money market instruments in accordance with directions issued by the

Reserve Bank of India;



Page 31 of 113

The mutual fund shall not borrow except to meet temporary liquidity needs of the mutual

funds for the purpose of repurchase, redemption of units or payment of interest or dividend

to the unit holders.

The mutual fund shall not advance any loans for any purpose.

Every mutual fund shall compute and carry out valuation of its investments in its portfolio

and publish the same in accordance with the valuation norms specified in Eighth Schedule

Every mutual fund shall compute the Net Asset Value of each scheme by dividing the net

assets of the scheme by the number of units outstanding on the valuation date.

The Net Asset Value of the scheme shall be calculated and published at least in two daily

newspapers at intervals of not exceeding one week:

The 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.

D. GENERAL OBLIGATIONS:

Every asset management company for each scheme shall keep and maintain proper books

of accounts, records and documents, for each scheme so as to explain its transactions and

to disclose at any point of time the financial position of each scheme and in particular give

a true and fair view of the state of affairs of the fund and intimate to the Board the place

where such books of accounts, records and documents are maintained.

The financial year for all the schemes shall end as of March 31 of each year.

Every mutual fund or the asset management company shall prepare in respect of each

financial year an annual report and annual statement of accounts of the schemes and the

fund as specified in Eleventh Schedule.

Every 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.

E. PROCEDURE FOR ACTION IN CASE OF DEFAULT:

On 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 subject to the directions of the Board with regard to any records,



Page 32 of 113

documents, or securities that may be in its custody or control, relating to its activities as

mutual fund, trustees or asset management company.

F. RESTRICTIONS ON INVESTMENTS:

A mutual fund scheme shall not invest more than 15% of its NAV in debt instruments

issued by a single issuer, which are rated not below investment grade by a credit rating

agency authorized to carry out such activity under the Act. Such investment limit may be

extended to 20% of the NAV of the scheme with the prior approval of the Board of

Trustees and the Board of asset management company

A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt

instruments issued by a single issuer and the total investment in such instruments shall not

exceed 25% of the NAV of the scheme. All such investments shall be made with the prior

approval of the Board of Trustees and the Board of asset management company.

No mutual fund under all its schemes should own more than ten per cent of any company's

paid up capital carrying voting rights.

Transfers of investments from one scheme to another scheme in the same mutual fund shall

be allowed only if, -

Such transfers are done at the prevailing market price for quoted instruments on spot basis.

The securities so transferred shall be in conformity with the investment objective of the

scheme to which such transfer has been made.

A scheme may invest in another scheme under the same asset management company or

any other mutual fund without charging 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 exceed 5% of the net asset

value of the mutual fund.

The initial issue expenses in respect of any scheme may not exceed six per cent of the

funds raised under that scheme.

Every mutual fund shall buy and sell securities on the basis of deliveries and shall in all

cases of purchases, take 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 make short sale or

carry forward transaction or engage in badla finance.



Page 33 of 113

Every 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.

Pending deployment of funds of a scheme in securities in terms of investment objectives of

the scheme a mutual fund can invest the funds of the scheme in short term deposits of

scheduled commercial banks.

No mutual fund scheme shall make any investment in;

Any unlisted security of an associate or group company of the sponsor; or

Any security issued by way of private placement by an associate or group company of the

sponsor; or

The listed securities of group companies of the sponsor which is in excess of 30% of the

net assets [of all the schemes of a mutual fund]

No mutual fund scheme shall invest more than 10 per cent of its NAV in the equity shares

or equity related instruments of any company. Provided that, the limit of 10 per cent shall

not be applicable for investments in index fund or sector or industry specific scheme.

A mutual fund scheme shall not invest more than 5% of its NAV in the equity shares or

equity related investments in case of open-ended scheme and 10% of its NAV in case of

close-ended scheme.

G. DISCLOSURE OF NET ASSET VALUE (NAV)

The NAV of schemes shall be published on a daily basis by the Mutual Funds at least in

two daily newspapers

NAV and sale/repurchase price of all Mutual Fund schemes except for Fund of Fund

Schemes shall be updated on AMFI’s website and the Mutual Funds’ websites by 9 p.m. of

the same day

Fund of Fund Schemes shall have an extended time up to 10 a.m. the following business

day in this regard159 and the NAVs shall be published in newspapers with an asterisk to

indicate the one day time lag/or the actual time lag.

Delay beyond 10 a.m. of the following business day in case of Fund of Fund schemes and

9 p.m. on the same day for all other schemes shall be explained in writing to AMFI and the

Board and shall also be reported in the CTR in terms of number of days of non adherence

of time limit for uploading NAV on AMFI’s website and the reasons for the same.



Page 34 of 113

Corrective steps taken by AMC to reduce the number of occurrences shall also be

disclosed.

In case the NAVs are not available before the commencement of business hours on the

following day due to any reason, Mutual Funds shall issue a press release giving reasons

for the delay and explain when they would be able to publish the NAV

To ensure uniformity, Mutual Funds shall round off NAV up to four decimal places for

index funds and all types of debt & liquid/money market schemes.

For all equity oriented and balanced fund schemes, Mutual Funds shall round off NAVs up

to two decimal places. However, Mutual Funds can round off the NAVs up to more than

two decimal places in case of equity oriented and balanced fund schemes also, if they so

desire. Relevant disclosure in this regard shall be made in the SID/SAI.



Page 35 of 113

ADVANTAGES AND DISADVANTAGE OF MUTUAL FUNDS

ADVANTAGE

There are numerous benefits of investing in mutual funds and one of the key reasons for its

phenomenal success in the developed markets like US and UK is the range of benefits they

offer, which are unmatched by most other investment avenues. We have explained the key

benefits in this section. The benefits have been broadly split into universal benefits,

applicable to all schemes and benefits applicable specifically to open-ended schemes.

Universal Benefits

AFFORDABILITY

A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the

investment objective of the scheme. An investor can buy in to a portfolio of equities, which

would otherwise be extremely expensive. Each unit holder thus gets an exposure to such

portfolios with an investment as modest as Rs.500/-. This amount today would get you less

than quarter of an Infosys share! Thus it would be affordable for an investor to build a

portfolio of investments through a mutual fund rather than investing directly in the stock

market.

DIVERSIFICATION

The nuclear weapon in your arsenal for your fight against Risk. It simply means that you

must spread your investment across different securities (stocks, bonds, money market

instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information

technology etc.). This kind of a diversification may add to the stability of your returns, for

example during one period of time equities might underperform but bonds and money

market instruments might do well enough to offset the effect of a slump in the equity

markets. Similarly the information technology sector might be faring poorly but the auto

and textile sectors might do well and may protect your principal investment as well as help

you meet your return objectives.

VARIETY

Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two

ways: first, it offers different types of schemes to investors with different needs and risk

appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. For example, an investor can invest his money in a Growth



Page 36 of 113

Fund (equity scheme) and Income Fund (debt scheme) depending on his risk appetite and

thus create a balanced portfolio easily or simply just buy a Balanced Scheme.

PROFESSIONAL MANAGEMENT

Qualified investment professionals who seek to maximize returns and minimize risk

monitor investor's money. When you buy in to a mutual fund, you are handing your money

to an investment professional who has experience in making investment decisions. It is the

Fund Manager's job to (a) find the best securities for the fund, given the fund's stated

investment objectives; and (b) keep track of investments and changes in market conditions

and adjust the mix of the portfolio, as and when required.

TAX BENEFITS

Any income distributed after March 31, 2002 will be subject to tax in the assessment of all

Unit holders. However, as a measure of concession to Unit holders of open-ended equity-

oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a

concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction upto Rs. 9,000 from the

Total Income will be admissible in respect of income from investments specified in

Section 80L, including income from Units of the Mutual Fund. Units of the schemes are

not subject to Wealth-Tax and Gift-Tax.

REGULATIONS

Securities Exchange Board of India (“SEBI”), the mutual funds regulator has clearly

defined rules, which govern mutual funds. These rules relate to the formation,

administration and management of mutual funds and also prescribe disclosure and

accounting requirements. Such a high level of regulation seeks to protect the interest of

investors.

DISADVANTAGE

PROFESSIONAL MANAGEMENT

Some funds doesn’t perform in neither the market, as their management is not dynamic

enough to explore the available opportunity in the market, thus many investors debate over

whether or not the so-called professionals are any better than mutual fund or investorhimself, for picking up stocks.



Page 37 of 113

COSTS:

The biggest source of AMC income, is generally from the entry & exit load which they

charge from an investors, at the time of purchase. The mutual fund industries are thus

charging extra cost under layers of jargon.

DILUTION

Because funds have small holdings across different companies, high returns from a few

investments often don't make much difference on the overall return. Dilution is also the

result of a successful fund getting too big. When money pours into funds that have had

strong success, the manager often has trouble finding a good investment for all the new

money.

TAXES

When making decisions about your money, fund managers don't consider your personal tax

situation. For example, when a fund manager sells a security, a capital-gain tax is

triggered, which affects how profitable the individual is from the sale. It might have been

more advantageous for the individual to defer the capital gains liability.

No Guarantees

No investment is risk free. If the entire stock market declines in value, the value of mutual

fund shares will go down as well, no matter how balanced the portfolio. Investors

encounter fewer risks when they invest in mutual funds than when they buy and sell stocks

on their own. However, anyone who invests through a mutual fund runs the risk of losing

money.

Fees and commissions

All funds charge administrative fees to cover their day-to-day expenses. Some funds also

charge sales commissions or "loads" to compensate brokers, financial consultants, or

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

sales commission if you buy shares in a Load Fund.



Page 38 of 113

CLASSES OF FUND

Many mutual funds offer more than one class of shares. For example, you may have seen a

fund that offers "Class A" and "Class B" shares. Each class will invest in the same "pool" (or

investment portfolio) of securities and will have the same investment objectives and policies.

But each class will have different shareholder services and/or distribution arrangements with

different fees and expenses. As a result, each class will likely have different performance

results.

A multi-class structure offers investors the ability to select a fee and expense structure that is

most appropriate for their investment goals (including the time that they expect to remain

invested in the fund). Here are some key characteristics of the most common mutual fund

share classes offered to individual investors:

CLASS “A” SHARES —

Class A shares typically impose a front-end sales load. They also tend to have a lower 12b-1

fee and lower annual expenses than other mutual fund share classes. Be aware that some

mutual funds reduce the front-end load as the size of your investment increases. If you're

considering Class A shares, be sure to inquire about breakpoints.

CLASS “B” SHARES —

Class B shares typically do not have a front-end sales load. Instead, they may impose a

contingent deferred sales load and a 12b-1 fee (along with other annual expenses). Class B

shares also might convert automatically to a class with a lower 12b-1 fee if the investor holds

the shares long enough.

CLASS “C” SHARES —

Class C shares might have a 12b-1 fee, other annual expenses, and either a front- or back-end

sales load. But the front- or back-end load for Class C shares tends to be lower than for Class

A or Class B shares, respectively. Unlike Class B shares, Class C shares generally do not

convert to another class. Class C shares tend to have higher annual expenses than either Class

A or Class B shares.



Page 39 of 113

NET ASSET VALUE

Net asset value (NAV) represents a fund's per share market value. This is the price at which

investors buy ("bid price") fund shares from a fund company and sell them ("redemption

price") to a fund company. It is derived by dividing the total value of all the cash and

securities in a fund's portfolio, less any liabilities, by the number of shares outstanding. An

NAV computation is undertaken once at the end of each trading day based on the closing

market prices of the portfolio's securities.

Example 1

If a fund has assets of Rs.50 million and liabilities of Rs.10 million, it would have a NAV of

Rs.40 million.

This number is important to investors, because it is from NAV that the price per unit of a fund

is calculated. By dividing the NAV of a fund by the number of outstanding units, you are left

with the price per unit. In our example, if the fund had 4 million shares outstanding, the price-

per-share value would be Rs.40 million divided by 4 million, which equals Rs.10.

This pricing system for the trading of shares in a mutual fund differs significantly from that of

common stock issued by a company listed on a stock exchange. In this instance, a company

issues a finite number of shares through an initial public offering (IPO), and possibly

subsequent additional offerings, which then trade in the secondary market. In this market,

stock prices are set by market forces of supply and demand. The pricing system for stocks is

based solely on market sentiment.

Because mutual funds distribute virtually all their income and realized capital gains to fund

shareholders, a mutual fund's NAV is relatively unimportant in gauging a fund's performance,

which is best judged by its total return.

Example 2

Suppose there are three investors in a mutual fund – A, B and C.



Page 40 of 113

A invests Rs.20.

B invests Rs.30.

C invests Rs.50.

Suppose the Mutual Fund company decides to initially issue shares (units) at 1$ each.

Thus initial corpus of the Mutual Fund will be 20+30+50 = Rs100.

A will get 20 units.

B will get 30 units.

C will get 50 units.

Now suppose the fund manager invests Rs30 in Company 1, Rs.30 in Company 2 and Rs.40

in Company 3.

After one year

Value of investment in Company 1 = Rs.50



Thus total value of the mutual fund portfolio = 50+20+50 = Rs.120.

Now NAV (Net Asset Value) is calculated as

NAV per Share = Current value of Fund Portfolio / Number of Fund Units

= Rs.120 / 100 Shares = Rs.1.2

Thus after one year,

Value of A’s portfolio = NAV of each unit X Number of units held by A = 1.2 X 20 = Rs.24

Similarly

Value of B’s portfolio = Rs.36

Value of C’s portfolio = Rs.60



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As you can see from the above example, the ABSOLUTE GAIN made by each investor in the

mutual fund is proportional to the amount invested initially by him, but in terms of

PERCENTAGE all three have gained 20% returns in one year.

Note: NAV may not be a good indicator of a fund’s performance because it does not include

the effect of dividends distributed by it every year.

(In US, most mutual funds find it favorable to qualify as a “Regulated Investment Company”

under the Internal Revenue Code. This helps them to pass on their incomes and gains to

shareholders without having to pay taxes at fund level on dividend and capital gains from sell

of securities. Thus “double taxation” is avoided and taxation applies only at shareholder level.

To qualify as a “Regulated Investment Company”, the fund must pay out minimum 90% of itsgains and income during the tax year, to its shareholders.)

Whenever a fund distributes a dividend to its shareholders, its NAV goes down by the same

amount. Thus for someone not invested in the fund, the returns may appear lower, if only the

NAV appreciation is considered and distributions are not included in the calculations.



Page 42 of 113

MUTUAL FUNDS INDUSTRY UNIT HOLING PATTERN

From the data collected from the mutual funds, the following has been observed:-

As on March 31, 2010 there are a total number of 4.77 crores investors accounts (it is likely

that there may be more than one folio of an investor which might have been counted more

than once and actual number of investors would be less) holding units of Rs. 616,966.72

crores. Out of this total number of investors accounts, 4.63 crores are individual investors

accounts, accounting for 97.07% of the total number of investors accounts and contribute Rs.

2,45,390.28 crores which is 39.77% of the total net assets.

Corporate and institutions who form only 0.95% of the total number of investors accounts in

the mutual funds industry, contribute a sizeable amount of Rs. 337,812.58 crores which is

54.75% of the total net assets in the mutual funds industry.

The NRIs and FIIs constitute a very small percentage of investors accounts (1.98%) and

contribute Rs. 33,763.85 crores (5.47%) of net assets.

The details of unit holding pattern are given in the following table:

UNIT HOLDING PATTERN OF MUTUAL FUNDS INDUSTRY (as on March 31,2010)

CATEGORY

NUMBER OF

INVESTORS

ACCOUNTS

% TO TOTAL

INVESTORS

ACCOUNTS

NET ASSET

(Rs. Crore)

% TO

TOTAL

NET ASSET

Individuals 4,63,27,683 97.07% 2,45,390.28 39.77%

NRIs 9,43,482 1.98% 27,428.86 4.45%

FIIs 216 0.00% 6,335.00 1.03%

Corporates/ Institutions/

Others 4,52,330 0.95% 3,37,812.58 54.75%

TOTAL 4,77,23,711 100.00% 6,16,966.72 100.00%



Page 43 of 113

UNITHOLDING PATTERN – PRIVATE/PUBLIC SECTOR SPONSORED MUTUAL

FUNDS

From the analysis of data on unit holding pattern of Private Sector Mutual Funds and Public

Sector Sponsored Mutual Funds, the following observations are made:-

Out of a total of 4.77 crore investors accounts in the mutual funds industry, (it is likely that

there may be more than one folio of an investor which might have been counted more than

once and therefore actual number of investors may be less) 3.12 crore investors accounts i.e.

65.41% of the total investors accounts are in private sector mutual funds whereas the 1.65

crore investors accounts i.e. 34.59% are with the public sector sponsored mutual funds which

includes UTI Mutual Fund.

However, the private sector mutual funds manage 77.97% of the net assets whereas the public

sector sponsored mutual funds own only 22.03% of the assets.

Details of unit holding pattern of private sector and public sector sponsored mutual funds are

given in the following tables:

UNIT HOLDING PATTERN OF MUTUAL FUNDS INDUSTRY (as on March 31,2010)

CATEGORY

NUMBER OF

INVESTORS

% TO TOTAL

INVESTORS NET ASSET

% TO

TOTAL

ACCOUNTS ACCOUNTS (Rs. Crore) NET ASSET

Individuals 3,00,41,859 96.24% 1,91,172.34 39.74%

NRIs 7,87,791 2.52% 24,703.76 5.13%

FIIs 211 0.00% 6,204.35 1.29%

Corporates/

Institutions/ Others 3,85,856 1.24% 2,58,997.02 53.84%

TOTAL 3,12,15,717 100.00% 4,81,077.47 100.00%



Page 44 of 113

UNITHOLDING PATTERN OF PUBLIC SECTOR SPONSORED MFS (INCLUDING

UTI MF ) (as on March 31, 2010)

CATEGORY

NUMBER OF

INVESTORS

% TO TOTAL

INVESTORS NET ASSET

% TO

TOTAL

ACCOUNTS ACCOUNTS (Rs. Crore) NET ASSET

Individuals 1,62,85,824 98.65% 54,217.94 39.90%

NRIs 1,55,691 0.95% 2,725.10 2.00%

FIIs 5 0.00% 130.65 0.10%

Corporate/

Institutions/ Others 66,474 0.40% 78,815.56 58.00%TOTAL 1,65,07,994 100.00% 1,35,889.25 100.00%



Page 45 of 113

DEVELOPMENT OF FUND- DEBT AND EQUITY

Deployment of Debt Funds Monthly Report for ==>April 2011

Asset Type Sector Less than 90 days 90 days to 182 days 182 days to 1 year 1 year and above Total

Amount(in

Rs.

Crores)

% of

Debt

AUM

Amount(in

Rs.

Crores)

% of

Debt

AUM

Amount(in

Rs.

Crores)

% of

Debt

AUM

Amount(in

Rs.

Crores)

% of

Debt

AUM

Amount(in

Rs.

Crores)

% of

Debt

AUM

Mutual Fund ====> All Mutual Funds

Government

Securities 0.03 0.00% 5.10 0.00% 94.47 0.02% 3,589.22 0.64% 3,688.83 0.65%

Money Market Instruments (Other than corporate bonds)

Commercial

Paper

Real

Estate 0.00 0.00% - 0.00% 0.00 0.00% 0.00 0.00% 0.00 0.00%

NBFC 3 1,825.81 5.65% 3,924.31 0 .70% 2,761.01 0 .49% 9.03 0.00% 38,520.16 6.84%

Othe rs 39,966.78 7.10% 2,808.34 0 .50% 2,400.96 0 .43% 27.28 0 .00% 45,203.36 8.03%



Page 46 of 113

Bank

Certificates

of Deposit 2,19,311.34 38.94% 24,762.08 4.40% 70,006.87 12.43% 0.00 0.00% 3,14,080.30 55.76%

Treasury

Bills 7,621.35 1.35% 64.69 0.01% 119.77 0.02% 0.00 0.00% 7,805.81 1.39%

CBLO 34,417.56 6.11% - 0.00% 0.00 0.00% 0.00 0.00% 34,417.56 6.11%

Other Money

Market

Investments 9,682.63 1.72% - 0.00% 0.00 0.00% 0.00 0.00% 9,682.63 1.72%

Corporate Debt(Including Floating Rate Bonds, NCDs and Others)

Real

Estate 0.00 0.00% - 0.00% 482.91 0.09% 71.06 0.01% 553.97 0.10%

NBFC 4,617.90 0.82% 3,534.89 0.63% 2,429.97 0.43% 7,602.00 1.35% 18,184.77 3.23%

Others 9,778.58 1.74% 2,679.51 0.48% 3,622.82 0.64% 17,625.85 3.13% 33,706.76 5.98%

PSU Bonds /

Debt 9,318.21 1.65% 3,413.41 0.61% 1,644.32 0.29% 4,861.22 0.86% 19,237.15 3.42%

Equity

Linked

Debentures

/ Notes 123.10 0.02% 371.82 0.07% 17.08 0.00% 0.00 0.00% 512.00 0.09%



Page 47 of 113

Securitised Debt

Asset

Backed

Securities 66.91 0.01% 273.92 0.05% 307.26 0.05% 1,474.10 0.26% 2,122.19 0.38%

Mortgage

Backed

Securities 15.10 0.00% - 0.00% 0.70 0.00% 8.46 0.00% 24.26 0.00%

Single Sell

Downs /

Single Loan

Real

Estate 0.00 0.00% - 0.00% 396.13 0.07% 0.00 0.00% 396.13 0.07%

NBFC 125.15 0.02% 88.35 0.02% 604.44 0.11% 284.86 0.05% 1,102.81 0.20%

Others 754.64 0.13% 139.07 0.02% 506.90 0.09% 2,534.89 0.45% 3,935.51 0.70%

Bank FD 26,756.42 4.75% 195.63 0.03% 204.42 0.04% 0.00 0.00% 27,156.47 4.82%

Any Other

(Please

Specify) 2,923.48 0.52% 0.25 0.00% 0.00 0.00% 6.00 0.00% 2,929.73 0.52%

Total 3,97,305.01 70.54% 42,261.38 7.50% 85,600.04 15.20% 38,093.97 6.76% 5,63,260.39 100.00%



Page 48 of 113

Deployment of Equity Funds Monthly Report for ==>April 2011

Sector Classification (as per AMFI) and

Derivative Exposure Asset Under Management

Amount(in Rs.

Crores)

% of Equity

AUM

AUTO 8,298.35 4.04%

AUTO ANCILLARIES 4,150.45 2.02%

BANKS 36,178.50 17.62%

CEMENT 4,333.61 2.11%

CHEMICALS 1,108.01 0.54%

CONSTRUCTION 3,629.39 1.77%

CONSTRUCTION PROJECT 4,091.57 1.99%

CONSUMER DURABLES 1,410.79 0.69%

CONSUMER NON DURABLES 14,726.16 7.17%

DERIVATIVES 1,520.72 0.74%

DIVERSIFIED 443.00 0.22%

ENGINEERING 596.38 0.29%

FERROUS METALS 5,831.48 2.84%

FERTILISERS 2,544.30 1.24%

FINANCE 7,240.02 3.53%

GAS 4,832.16 2.35%

HARDWARE 428.08 0.21%

HEALTHCARE SERVICES 80.08 0.04%

HOTELS 482.88 0.24%

INDUSTRIAL CAPITAL GOODS 10,918.05 5.32%

INDUSTRIAL PRODUCTS 5,096.54 2.48%

MEDIA AND ENTERTAINMENT 3,867.37 1.88%

MINERALS/MINING 3,697.54 1.80%

NON - FERROUS METALS 3,660.54 1.78%

OIL 8,165.39 3.98%

OTHERS 2,313.80 1.13%



Page 50 of 113

FUND MOBILISED AND TOTAL ASSETS-PRIVATE, PUBLIC, AND UTI

Status of Mutual Funds for the period April 2011

(Figures in Rs. Crore)

Private

Sector

Mutual

Funds

Public Sector Mutual Funds Grand Total

A

UTI Others Sub-total A+B

(i) (ii) (i)+(ii)

B

Mobilisation of

Funds 628,601.09 73,641.57 72,750.02 146,391.59 774,992.68

Repurchase /

Redemption

Amt. 478,538.77 56,228.00 55,894.91 112,122.92 590,661.68

Net Inflow/

Outflow (-ve) of

funds 150,062.33 17,413.56 16,855.11 34,268.67 184,331.00

Cumulative

Position of net

assets as on Apr

30, 2011

638,839.84 70,156.21 76,378.04 146,534.25 785,374.09

81.34 8.93 9.73 18.66 100.00

Net assets of Rs.3883.24 crores pertaining to Funds of Funds Schemes for Apr' 2011 is not

included in the above data



Page 51 of 113

HOW TO GET REGISTERD AS MUTUAL FUND

SEBI will guide the applicant step by step after getting application for registration as a mutual

fund. Normally, all replies are sent within 21 working days from the date of getting each

communication from the applicant during the process of registration. Thus, the total time

period for registration depends on how fast the requirements are complied with by the

applicant.

Main requirements under SEBI (Mutual Funds) Regulations, 1996:

The following are the eligibility criteria for grant of a certificate of registration as per

regulation 7 of SEBI (Mutual Funds Regulations) 1996

For the purpose of grant of a certificate of registration, the applicant has to fulfil the

following, namely:-

a) The sponsor should have a sound track record and general reputation of fairness and integrity

in all his business transactions;

Explanation: For the purposes of this clause "sound track record" shall mean the sponsor

should,-

Be carrying on business in financial services for a period of not less than five years; and

The net worth is positive in all the immediately preceding five years; and

The net worth in the immediately preceding year is more than the capital contribution of

the sponsor in the asset management company; and

The sponsor has profits after providing for depreciation, interest and tax in three out of the

immediately preceding five years, including the fifth year.

b) In the case of an existing mutual fund, such fund is in the form of a trust and the trust deed has

been approved by the Board;

c) The sponsor has contributed or contributes atleast 40% to the net worth of the asset

management company;

Provided that any person who holds 40% or more of the net worth of an asset management

company shall be deemed to be a sponsor and will be required to fulfil the eligibility criteria

specified in these regulations;



Page 52 of 113

d) The sponsor or any of its directors or the principle officer to be employed by the mutual fund

should not have been guilty of fraud or has not been convicted of an offence involving moral

turpitude or has not been found guilty of any economic offence.

e) Appointment of trustees to act as trustees for the mutual fund in accordance with the

provisions of the regulations;

f) Appointment of asset management company to manage the mutual fund and operate the

scheme of such funds in accordance with the provisions of these regulations;

g) Appointment of a custodian in order to keep custody of the securities and carry out the

custodian activities as may be authorised by the trustees.

APPLICATION FOR REGISTRATION:

An applicant should apply for registration in form A prescribed under Schedule I of SEBI

(Mutual Funds) Regulations 1996. It may be noted here that as per the proviso to Reg. 7 (c)

of the Regulations, any person who holds 40% or more of the net worth of an asset

management company shall be deemed to be a sponsor and will be required to apply in

Form A.

While applying, please ensure that the main objects of the memorandum of the sponsor

company permit it to carry on mutual fund activities. An applicant should also submit the

following additional information for the sponsor as well as for the other shareholders in the

proposed asset management company.

1. A complete list of your group/associate companies registered with SEBI in any capacity, also

indicate the capacity in which they are registered and the SEBI Registration number. In case

of foreign sponsors, details of registration of sponsor/any of its associate / group companies

with any regulatory agency abroad You may also refer to SEBI (Mutual Funds) Regulations

for the definition of ‘associates’, ‘group’ and ‘control’.)

2. Whether any of the sponsor or its group/associate companies are listed in any of the

recognised stock exchange(s) in India. If so, please furnish the details.

3. Whether there have been any instances of violation of or non-adherence to any securities

related regulations and whether any action has been taken against you or any of your



Page 53 of 113

associate/group companies in this regard, by a regulatory agency in India or abroad; (please

provide the following information)

a. Top 10 monetary penalties in case of foreign entities and all monetary penalties in case of

Indian entities, imposed against the sponsor or any associate of the sponsor (for

irregularities/ violations in the financial services sector or for defaults in respect of

shareholders / debenture holders and depositors, by byany financial regulatory body or

government authority or settlement arrived with any financial regulatory body during the

last five years and details thereof. Penalties awarded for economic offences may be

disclosed only in case of sponsor.

b. Details of all cases of suspensions and cancellation of certificate of registration (for

irregularities/ violations in financial services sector or for defaults in respect of

shareholders, debenture holders and depositors) of the sponsor or any associate of the

sponsor shall be disclosed for the last 10 years.

All disclosures on penalties and action taken as per (a) and (b) above against foreign entities

may be limited to the jurisdiction of the country where the principal activities (in terms of

income/ revenue) of the sponsors/ associate companies are carried out or where the

headquarter is situated.

4. Declaration in terms of Regulation 7(d) of the Securities and Exchange Board of India(Mutual Funds) Regulations, 1996 that your sponsor company or any of your directors have

not been found guilty of fraud or have not been convicted of an offence involving moral

turpitude or have not been found guilty of any economic offence. If there are such cases, full

details should be provided.

5. Details of registration of your company/associate/group companies, which are registered/

required to be registered with Reserve Bank of India (RBI) as a Banking company or Non

Banking Finance Company or in any other capacity.

Details of disciplinary action taken by RBI against you or any of your group/associate

companies. Please also inform us in case there is any default in repayment of deposits by

you or any of your group / associate companies.

Details of the RBI approval, if any required, for the purpose of sponsoring a mutual fund.



Page 54 of 113

ONSITE DUE DILIGENCE OF SPONSOR BY SEBI:

SEBI may conduct an on-site due-diligence of the existing businesses of the sponsor to

study the following:

Existing infrastructure for client servicing, complaints handling;

Track record of complaint / grievance handling; and

Compliance philosophy and practice.

COMMUNICATION BY SEBI:

SEBI will examine the application and a communication will be sent to you about your

eligibility status. If you are found eligible, you will be required to undertake the following

steps within a period of 12 months from the date of communication, failing which you will

be required to submit a fresh application for registration:

1. INCORPORATION OF THE ASSET MANAGEMENT COMPANY AND THE

TRUSTEE COMPANY/BOARD OF TRUSTEES:

For this purpose, you may submit two copies of the completed Memorandum and Articles

of Association of the Asset Management Company and the Trustee Company for our

forwarding to the Registrar of Companies.

Please ensure that these documents contain a clause that “notwithstanding anything

mentioned in these documents, only those activities will be carried out which are permitted

under the SEBI (Mutual Funds) Regulations. All the provisions of the SEBI (Mutual

Funds) Regulations, 1996 and the Guidelines issued from time to time shall be applicable.”

Please also indicate the address of the ROC where these companies would be incorporated.

2. AUDITOR’S CERTIFICATE:

After incorporation of the AMC and the Trustee Company, please submit a certificate from

a Chartered Accountant certifying that:

The sponsor has contributed at least 40% to the net worth of the AMC (Regulation 7(c).

The AMC has a net worth of not less than Rupees Ten Crore (Rupees 100 min), as

required under regulation 21 (1) (f) of SEBI (Mutual Funds) Regulations, 1996 (the networth should be furnished in the following format):



Page 55 of 113

Particulars Amount (Rs)

Paid-up capital

Add: Free reserves of the companyLess: miscellaneous expenditure to the extent not written-off

Less: accumulated losses, if any

Less: intangible assets, if any

Total Net worth

3. Filing of executed copies of Trust Deed and Investment Management Agreement.

Please file executed copies of trust deed and Investment Management Agreement along

with a check list clearly mentioning where you have incorporated the clauses of contents of

the trust deed and Investment Management agreement as per third schedule and fourth

schedule of SEBI (Mutual Funds) Regulations.

4. Setting up of Infrastructure by the Applicant

After complying with the above requirements, a detailed note on the infrastructure

facilities available with the Asset Management Company should be sent to SEBI,

providing the following specific details:

Details of the office premises and address.

Organisation chart of the AMC, clearly specifying the responsibilities of various

personnel.

Profile of the key personnel including the fund managers and equity research

personnel.

Justification of adequacy of personnel in fund management, equity research and other

operational areas considering the expected size of mutual fund. At what stage, the

number of key personnel will be reviewed, should be indicated.

Systems support in terms of hardware and software.

Arrangement made for investor services.



Page 56 of 113

Establishing the financial viability of sponsoring a Mutual Fund giving details of

expected size of mutual fund over a period of time,

Internal systems and control procedures developed to check insider trading and front

running

Size of funds which the AMC feels competent to manage and the expertise available

with the sponsor/AMC etc.

Whether the compliance manual has been prepared to ensure that all provisions of SEBI

(Mutual Funds) Regulations and Guidelines are complied with. (All guidelines issued to

mutual funds are available on SEBI web site).

Submission of completed Form C and Form D, providing details of Trustee Company

and AMC, as given in First Schedule of SEBI (Mutual Funds) Regulations.

Bio-data of the directors of the trustee company and the AMC in the prescribed format

(Please refer to SEBI circular dated December 20, 2001 available on web site).

Bio data of key personnel in hard and soft copies (Please refer to SEBI circular dated

May 7,1997)

Any other information relevant for application for registration.

5. Grant of Certificate of Registration

Once all above requirements have been complied with and a requisite fee as per Second

Schedule of Regulations has been paid, SEBI will grant certification of registration as a

mutual fund and will approve AMC. SEBI may also conduct infrastructure inspection of

the applicant before grant of certificate of registration.

Further, it may be noted that in case no Mutual Fund scheme is launched within 12 months

from the date of registration, the registration granted would be treated as cancelled.



Page 57 of 113

PROCEDURE FOR CHANGE IN THE CONTROLLING INTEREST OF THE ASSET

MANAGEMENT COMPANY

Requirement of Regulations

According to Regulation 22(e) of SEBI (Mutual Funds) Regulations, 1996, no change in

the controlling interest of the asset management company can be made unless,

a. Prior approval of the trustees and the Board (i.e. SEBI) is obtained;

b. A written communication about the proposed change is sent to each unitholder and an

advertisement is given in one English daily newspaper having nationwide circulation

and in a newspaper published in the language of the region where the Head Office of

the mutual fund is situated; and

c. The unitholders are given an option to exit on the prevailing Net Asset Value

without any exit load.

All the conditions prescribed above are required to be complied with. It is advised that the

mutual funds should give at least 30 days time period to the unitholders to exercise the exit

option.

NEW SPONSORS

In case the applicant proposing to take the control of the mutual fund is not an existing

mutual fund registered with SEBI, it should apply to SEBI for registration under SEBI

(Mutual Funds) Regulations, 1996. The entire procedure for registration under SEBI

(Mutual Funds) Regulations, 1996 is given on the SEBI website under the heading "How

to get registered as a mutual fund" in the ‘Mutual Fund’ section.

UNDERTAKINGS BY NEW TRUSTEES/SPONSORS

In case of new sponsors or in case of taking over of the schemes by an existing mutual

fund, the undertakings on the following lines are required to be given in the interest of unit

holders:

a. Taking full responsibility of the management and the administration of the

schemes including the matters relating to the reconciliation of accounts (as if the

schemes had been floated by the new trustees on the date of taking over).



Page 58 of 113

b. Assumption of the trusteeship of the assets and liabilities of the schemes

including unclaimed dividends and unclaimed redemptions.

c. Assuming all responsibilities and obligations relating to the investor grievances, if any,

in respect of the schemes taken over, in accordance with and pursuant to the SEBI

(Mutual Funds) Regulations.

DISCLOSURES TO UNITHOLDERS

While seeking the approval of SEBI for change in the controlling interest of the asset

management company, the mutual fund handing over the control to another person, should

also file the draft letter to be sent to the unit holders.

The draft letter to the unit holders should include the following information –

a. The activities of the new sponsor and its financial performance as prescribed in the

standard offer document;

b. In case of taking over of the schemes by an existing mutual fund registered with SEBI,

the draft letter should also include the condensed financial information of all the

schemes in the format prescribed in the standard offer document;

c. The amount of unclaimed redemption and dividend and also the procedure for claiming

such amount by the unit holders.

COMMUNICATION BY SEBI

While approving the change in controlling interest of the AMC, SEBI may communicate

any further observations, as necessary.

REVISION OF OFFER DOCUMENTS

The information given in the offer documents of existing schemes shall be revised and

updated pursuant to the change in controlling interest of the mutual fund. Such addendum

shall also be filed with SEBI, as required under the SEBI (Mutual Funds) Regulations and

Guidelines.



Page 59 of 113

OTHER SITUATIONS

In case of any other situation like indirect control of the asset management company or

change in the promoters of the sponsor, etc, the mutual fund should provide full

information to SEBI for advice on the further course of action.

In case of any difficulty, SEBI will guide the applicant step by step after getting

application for change in the controlling interest of the asset management company.

Normally, all replies are sent within 21 working days from the date of getting each

communication from the applicant during the process of change in the controlling interest

of the asset management company.



Page 60 of 113

REGISTERED MUTUAL FUND IN INDIA

BELOW ARE THE NAME AND ADDRESS OF SEBI REGISTERED MUTUAL

FUNDS IN INDIA

SR.NO. NAME

REGISTRATIO

N NO.

REGISTRATIO

N DATE

1

AIG Global Investment Group

Mutual

MF/054/07/02 09.02.2007

Fund

FCH House, Ground Floor

Peninsula Corporate Park

Ganpatrao Kadam Marg

Lower Parel

Mumbai – 400 013

2

AEGON Mutual Fund

MF/059/08/04 25.09.2008

45, Maker Chambers VI,

Nariman Point,

Mumbai 400021

TEL : 66542614/15

Fax: 66542617

e-mail: [email protected]

3

Alliance Capital Mutual Fund,

MF/021/95/3 30.12.1994

Address for correspondence

C/o. AZB & Partners

Advocates & Solicitors,

Express Towers – 23rd Floor,

Nariman Point, Mumbai – 400 021

4

Axis Mutual Fund,

MF/061/09/01 04.09.2009

1st Floor, Axis House,

Bombay Dyeing Mills Compound,

Pandurang Budhkar Marg,

Worli, Mumbai 400025



Page 61 of 113

5

Benchmark Mutual Fund,

MF/045/01/6 12.6.2001

405, Raheja Chambers,

213, Free Press Journal Marg,

Nariman Point,

Mumbai - 400 021

6

Baroda Pioneer Mutual Fund

MF/018/94/2 21.11.1994501, Titanium, 5th floor,

Western Express Highway,

Goregaon (E), Mumbai 400 063.

7

Birla Sun life Mutual Fund

MF/020/94/8 23.12.1994

One India Bulls Centre, Tower-1,

17th Floor, Jupiter Mills Compound,

841, Senapati Bapat Marg,

Elphinstone Road, Mumbai- 400001

8

Bharti AXA Mutual Fund

MF/056/08/01 31.03.2008

51, 5th Floor,

Kalpataru Synergy, East Wing,

Vakola, Santacruz (E),

Mumbai 400 055.

9

BNP Paribas Mutual Fund

MF/049/04/01 27.05.20045th Floor, French Bank Building,

62, Homji Street, Fort,

Mumbai - 400 001-India

10

Canara Robeco Mutual Fund

MF/004/93/4 19.10.1993Construction House, 4th Floor,

5, Walchand Hirachand Marg,

Ballard Estate, Mumbai 400 001.

11

CRB Mutual Fund (Suspended)

MF/008/93/5 17.12.1993Daruwala Mansion, 3rd Floor,

90 Chandanwadi Cross Lane,

Mumbai 400 020.



Page 62 of 113

12

Daiwa Mutual Fund,

MF/060/09/01 10.02.20095th Floor, Harchandrai House,

81, Maharshi Karve Road,

Marine Lines, Mumbai – 400 002

13

Deutsche Mutual Fund

MF/047/02/10 28.10.20022nd Floor, 222, Kodak House,

Dr. D. N. Road,

Mumbai 400 001.

14

DSP BlackRock Mutual Fund,

MF/036/97/7 30.1.1997Tulsiani Chambers,

West Wing, 11th Floor,

Nariman Point,Mumbai 400 021.

15

Edelweiss Mutual Fund

MF/057/08/02 30.04.200814th Floor, Express Towers,

Nariman Point, Mumbai – 400 021

16

Escorts Mutual Fund,

MF/028/96/4 3.7.199611, Scindia House,

Connaught Circus,New Delhi 110 001.

17

Franklin Templeton Mutual Fund

MF/026/96/8 19.2.1996Level 4, Wockhardt Towers,

Bandra Kurla Complex,

Bandra (East),

18

Fidelity Mutual Fund

MF/050/05/01 17.02.20056th floor, Mafatlal Centre,

Nariman Point, Mumbai 400 021

19

Goldman Sachs Mutual Fund

MF/058/08/03 26.08.2008Rational House,

Appasaheb Marathe Marg,

Prabhadevi, Mumbai 400025

20

HDFC Mutual Fund,

MF/044/00/6 30.6.2000Ramon House, 3rd Floor,

169, Backbay Reclamation,

Churchgate, Mumbai 400 020.



Page 63 of 113

21

HSBC Mutual Fund,

MF/046/02/5 27.5.2002314 D N Road, Fort,

Mumbai 400 001.

22

ICICI Securities Fund,

MF/043/00/3 28.3.2000

ICICI Towers, 7th Floor,

North Block,

Bandra-Kurla Complex,Mumbai 400

051.

23

IIFL Mutual Fund

MF/067/11/2 23.3.2011IIFL Centre, 3rd Floor Annex,Kamala City, Senapati Bapat Marg,

Lower Parel, Mumbai-400013

24

Indiabulls Mutual Fund

MF/068/11/3 24.3.2011

One Indiabulls Centre, Tower 2,

Basement,

Jupiter Mills, Fitwala Road,

Near Sai Mandir, Opposite Deepak Talkies,

25

ING Mutual Fund,

MF/040/99/5 11.2.1999

Unit No. 101, 601/606, 6th Floor,

“Windsor”, Off. C.S.T. Road,

Vidyanagari Marg, Kalina, Santacruz

(East),

Mumbai – 400 098

26

ICICI Prudential Mutual Fund

MF/003/93/6 13.10.1993

2nd Floor, 302, Block B-2,

Nirlon Knowledge Park,

Western Express Highway,

Mumbai - 400063.



Page 64 of 113

27

IDBI Mutual Fund

MF/064/10/01 29.3.2010

IDBI Building, 2nd Floor,

Plot No.39-41, Sector – 11,

CBD Belapur,

Navi Mumbai 400 614.

28

IDFC Mutual Fund,

MF/042/00/3 13.3.2000

One IndiaBulls Centre,

841, Jupiter Mills Compound,

Senapati Bapat Marg,

Elphinstone Road (West), Mumbai –

400 013.

29

JM Financial Mutual Fund

MF/015/94/8 15.9.1994502, 5th Floor, ‘A’ Wing,

Laxmi Towers, Bandra Kurla Complex,

Mumbai – 400051

30

JP Morgan Mutual Fund

MF/053/07/01 08.02.2007Kalpatau Synergy, 3rd Floor

West Wing, Santacruz – East

Mumbai 400 055

31

Kotak Mahindra Mutual Fund,

MF/038/98/1 23.6.19985A, 5th Floor, Bakhtawar,

229, Nariman Point,

Mumbai – 400 021

32

KJMC Mutual Fund,

MF/041/99/4 28.4.1999

168, Atlanta,

16th Floor,

Nariman Point

Mumbai 400 021

33

LIC Mutual Fund

MF/012/94/5 9.5.1994

Industrial Assurance Bldg.,

4th Floor, Opp Churchgate Stn.,

Mumbai 400 020.



Page 66 of 113

41

Quantum Mutual Fund,

MF/051/05/02 02.12.2005

505, 5th Floor,

Regent Chambers,

Nariman Point,

Mumbai – 400021

42

Reliance Mutual Fund

MF/022/95/1 30.6.1995

One India Bulls Centre, Tower 1,

11th 7 12th Floor, Jupiter Mills

Compound,

841 Senapati Bapat Marg,

Elphinstone Road, Mumbai 400 001.

43

Religare Mutual Fund

MF/052/06/01 24.07.2006

3rd Floor, GYS Infinity,

Paranjpe “B” Scheme,

Subhash Road, Vile Parle (East),

Mumbai – 400 057.

44

Sahara Mutual Fund,

MF/030/96/0 1.10.1996

9th Floor, 97-98

Atlanta Building

Nariman Point

Mumbai – 400 021

45

SBI Mutual Fund

MF/009/93/3 23.12.1993191, Maker Towers "E"

Cuffe Parade

Mumbai 400005

46

Shriram Mutual Fund

MF/017/94/4 21.11.1994

106, Shiv Chambers, 1stFloor,

‘B’ Wing Sector - 11,

C.B.D.Belapur,

Navi Mumbai 400 614.

47

Sundaram Mutual Fund,

MF/034/97/2 3.1.199746, Whites Road,

Royapettah, Chennai 600 014.



Page 67 of 113

48

Taurus Mutual Fund

MF/002/93/ 21.9.1993

Ground Floor, AML Centre-1

8 Mahal Industrial EstateMahakali Caves Road

Andheri (E), Mumbai – 400093

49

Tata Mutual Fund,

MF/023/95/9 30.6.1995Mafatlal Center,

9th Floor, Nariman Point,

Mumbai 400 021.

50

Union KBC Mutual Fund

MF/066/11/1 23.3.2011

7th Floor, Piramal Tower,

Peninsula Corporate Park,

Ganpatrao Kadam Marg,

Lower Parel (West), Mumbai – 400013

51

UTI Mutual Fund

MF/048/03/1 14.01.2003

UTI Towers,

‘Gn’ Block, Bandra-Kurla Complex,Bandra (East),

Mumbai 400 051



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MEMBERS OF SEBI ADVISORY COMMITTEE ON MUTUAL FUNDS

SR.NO. NAME

DESIGNATION AND

ORGANISATION CAPACITY

1 Dr. S. A. Dave Ex Chairman, SEBI

Chairman,

Committee

2 Mr H N Sinor CEO, AMFI Member

3 Mr. Milind Barve MD, HDFC MF Member

4 Ms. Ashu Suyash MD & Country Head Member

5 Mr. V.P. Chaturvedi Ex-CEO, Tata MF Member

6

Mr. Charanjot Singh

Nanda ICAI Member

7 Mr. N. L. Bhatia President, Ghatkopar Investor Association Member

8 Mr. A. P. Bakliwal

President, Bombay Shareholder’s

Association Member

9 Dr. G.S. Sood Society for Consumer Association, Delhi Member

10 Mr S.H. Bhojani Law Firm Member

11 Dr. G. Sethu Trustee, BNP Paribas MF Member

12 Mr Debashis Basu Editor, Money Life Member

13 Mr. Dhirendra Kumar CEO, Value Research Member

14 Ms. Monika Halan Editor, Mint Money Member

Broad Terms of Reference of the Advisory Committee on Mutual Funds are as follows:

To advise SEBI on matters relating to regulation of mutual funds for ensuring

Investor protection.

To advise SEBI on issues related to development of mutual fund industry.

To advise SEBI on disclosure requirements.

To advise SEBI on measures required to be taken for change in the legal framework to

introduce simplification and transparency in the mutual fund regulations.



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OTHER IMPORTANT ASPECT OF MUTUAL FUND – A GUIDE LINE FOR

INVESTOR

What is a Load or no-load Fund?

A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time

one buys or sells units in the fund, a charge will be payable. This charge is used by the

mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10.

If the entry as well as exit load charged is 1%, then the investors who buy would be

required to pay Rs.10.10 and those who offer their units for repurchase to the mutual fund

will get only Rs.9.90 per unit. The investors should take the loads into consideration while

making investment as these affect their yields/returns. However, the investors should alsoconsider the performance track record and service standards of the mutual fund which are

more important. Efficient funds may give higher returns in spite of loads.

A no-load fund is one that does not charge for entry or exit. It means the investors can

enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of

units.

Can a mutual fund impose fresh load or increase the load beyond the level mentioned

in the offer documents?

Mutual funds cannot increase the load beyond the level mentioned in the offer document.

Any change in the load will be applicable only to prospective investments and not to the

original investments. In case of imposition of fresh loads or increase in existing loads, the

mutual funds are required to amend their offer documents so that the new investors are

aware of loads at the time of investments.

What is a sales or repurchase/redemption price?

The price or NAV a unitholder is charged while investing in an open-ended scheme is

called sales price. It may include sales load, if applicable.

Repurchase or redemption price is the price or NAV at which an open-ended scheme

purchases or redeems its units from the unitholders. It may include exit load, if applicable.



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What is an assured return scheme?

Assured return schemes are those schemes that assure a specific return to the unitholders

irrespective of performance of the scheme.

A scheme cannot promise returns unless such returns are fully guaranteed by the sponsor

or AMC and this is required to be disclosed in the offer document.

Investors should carefully read the offer document whether return is assured for the entire

period of the scheme or only for a certain period. Some schemes assure returns one year at

a time and they review and change it at the beginning of the next year.

Can a mutual fund change the asset allocation while deploying funds of investors?

Considering the market trends, any prudent fund managers can change the asset allocation

i.e. he can invest higher or lower percentage of the fund in equity or debt instruments

compared to what is disclosed in the offer document. It can be done on a short term basis

on defensive considerations i.e. to protect the NAV. Hence the fund managers are allowed

certain flexibility in altering the asset allocation considering the interest of the investors. In

case the mutual fund wants to change the asset allocation on a permanent basis, they are

required to inform the unitholders and giving them option to exit the scheme at prevailing

NAV without any load.

How to invest in a scheme of a mutual fund?

Mutual funds normally come out with an advertisement in newspapers publishing the date

of launch of the new schemes. Investors can also contact the agents and distributors of

mutual funds who are spread all over the country for necessary information and applicationforms. Forms can be deposited with mutual funds through the agents and distributors who

provide such services. Now a days, the post offices and banks also distribute the units of

mutual funds. However, the investors may please note that the mutual funds schemes being

marketed by banks and post offices should not be taken as their own schemes and no

assurance of returns is given by them. The only role of banks and post offices is to help in

distribution of mutual funds schemes to the investors.



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Investors should not be carried away by commission/gifts given by agents/distributors for

investing in a particular scheme. On the other hand they must consider the track record of

the mutual fund and should take objective decisions.

Can non-resident Indians (NRIs) invest in mutual funds?

Yes, non-resident Indians can also invest in mutual funds. Necessary details in this respect

are given in the offer documents of the schemes.

How much should one invest in debt or equity oriented schemes?

An investor should take into account his risk taking capacity, age factor, financial position,

etc. As already mentioned, the schemes invest in different type of securities as disclosed in

the offer documents and offer different returns and risks. Investors may also consult

financial experts before taking decisions. Agents and distributors may also help in this

regard.

How to fill up the application form of a mutual fund scheme?

An investor must mention clearly his name, address, number of units applied for and such

other information as required in the application form. He must give his bank account

number so as to avoid any fraudulent encashment of any cheque/draft issued by the mutual

fund at a later date for the purpose of dividend or repurchase. Any changes in the address,

bank account number, etc at a later date should be informed to the mutual fund

immediately.

What should an investor look into an offer document?

An abridged offer document, which contains very useful information, is required to be

given to the prospective investor by the mutual fund. The application form for subscription

to a scheme is an integral part of the offer document. SEBI has prescribed minimum

disclosures in the offer document. An investor, before investing in a scheme, should

carefully read the offer document. Due care must be given to portions relating to main

features of the scheme, risk factors, initial issue expenses and recurring expenses to be

charged to the scheme, entry or exit loads, sponsor’s track record, educational qualification

and work experience of key personnel including fund managers, performance of other



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schemes launched by the mutual fund in the past, pending litigations and penalties

imposed, etc.

When will the investor get certificate or statement of account after investing in a

mutual fund?

Mutual funds are required to despatch certificates or statements of accounts within six

weeks from the date of closure of the initial subscription of the scheme. In case of close-

ended schemes, the investors would get either a demat account statement or unit

certificates as these are traded in the stock exchanges. In case of open-ended schemes, a

statement of account is issued by the mutual fund within 30 days from the date of closure

of initial public offer of the scheme. The procedure of repurchase is mentioned in the offerdocument.

How long will it take for transfer of units after purchase from stock markets in case

of close-ended schemes?

According to SEBI Regulations, transfer of units is required to be done within thirty days

from the date of lodgement of certificates with the mutual fund.

As a unit holder, how much time will it take to receive dividends/repurchase

proceeds?

A mutual fund is required to despatch to the unit holders the dividend warrants within 30

days of the declaration of the dividend and the redemption or repurchase proceeds within

10 working days from the date of redemption or repurchase request made by the unit

holder.

In case of failures to despatch the redemption/repurchase proceeds within the stipulated

time period, Asset Management Company is liable to pay interest as specified by SEBI

from time to time (15% at present).

Can a mutual fund change the nature of the scheme from the one specified in the

offer document?

Yes. However, no change in the nature or terms of the scheme, known as fundamental

attributes of the scheme e.g.structure, investment pattern, etc. can be carried out unless a



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written communication is sent to each unitholder and an advertisement is given in one

English daily having nationwide circulation and in a newspaper published in the language

of the region where the head office of the mutual fund is situated. The unitholders have the

right to exit the scheme at the prevailing NAV without any exit load if they do not want to

continue with the scheme. The mutual funds are also required to follow similar procedure

while converting the scheme form close-ended to open-ended scheme and in case of

change in sponsor.

How will an investor come to know about the changes, if any, which may occur in the

mutual fund?

There may be changes from time to time in a mutual fund. The mutual funds are requiredto inform any material changes to their unitholders. Apart from it, many mutual funds send

quarterly newsletters to their investors.

At present, offer documents are required to be revised and updated at least once in two

years. In the meantime, new investors are informed about the material changes by way of

addendum to the offer document till the time offer document is revised and reprinted.

How to know the performance of a mutual fund scheme?

The performance of a scheme is reflected in its net asset value (NAV) which is disclosed

on daily basis in case of open-ended schemes and on weekly basis in case of close-ended

schemes. The NAVs of mutual funds are required to be published in newspapers. The

NAVs are also available on the web sites of mutual funds. All mutual funds are also

required to put their NAVs on the web site of Association of Mutual Funds in India

(AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds

at one place

The mutual funds are also required to publish their performance in the form of half-yearly

results which also include their returns/yields over a period of time i.e. last six months, 1

year, 3 years, 5 years and since inception of schemes. Investors can also look into other

details like percentage of expenses of total assets as these have an affect on the yield and

other useful information in the same half-yearly format.



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The mutual funds are also required to send annual report or abridged annual report to the

unitholders at the end of the year.

Various studies on mutual fund schemes including yields of different schemes are being

published by the financial newspapers on a weekly basis. Apart from these, many research

agencies also publish research reports on performance of mutual funds including the

ranking of various schemes in terms of their performance. Investors should study these

reports and keep themselves informed about the performance of various schemes of

different mutual funds.

Investors can compare the performance of their schemes with those of other mutual funds

under the same category. They can also compare the performance of equity orientedschemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc.

On the basis of performance of the mutual funds, the investors should decide when to enter

or exit from a mutual fund scheme.

How to know where the mutual fund scheme has invested money mobilised from the

investors?

The mutual funds are required to disclose full portfolios of all of their schemes on half-

yearly basis which are published in the newspapers. Some mutual funds send the portfolios

to their unitholders.

The scheme portfolio shows investment made in each security i.e. equity, debentures,

money market instruments, government securities, etc. and their quantity, market value and

% to NAV. These portfolio statements also required to disclose illiquid securities in the

portfolio, investment made in rated and unrated debt securities, non-performing assets

(NPAs), etc.

Some of the mutual funds send newsletters to the unitholders on quarterly basis which also

contain portfolios of the schemes.



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Is there any difference between investing in a mutual fund and in an initial public

offering (IPO) of a company?

Yes, there is a difference. IPOs of companies may open at lower or higher price than the

issue price depending on market sentiment and perception of investors. However, in the

case of mutual funds, the par value of the units may not rise or fall immediately after

allotment. A mutual fund scheme takes some time to make investment in securities. NAV

of the scheme depends on the value of securities in which the funds have been deployed.

If schemes in the same category of different mutual funds are available, should one

choose a scheme with lower NAV?

Some of the investors have the tendency to prefer a scheme that is available at lower NAV

compared to the one available at higher NAV. Sometimes, they prefer a new scheme which

is issuing units at Rs. 10 whereas the existing schemes in the same category are available at

much higher NAVs. Investors may please note that in case of mutual funds schemes, lower

or higher NAVs of similar type schemes of different mutual funds have no relevance. On

the other hand, investors should choose a scheme based on its merit considering

performance track record of the mutual fund, service standards, professional management,

etc. This is explained in an example given below.

Suppose scheme A is available at a NAV of Rs.15 and another scheme B at Rs.90. Both

schemes are diversified equity oriented schemes. Investor has put Rs. 9,000 in each of the

two schemes. He would get 600 units (9000/15) in scheme A and 100 units (9000/90) in

scheme B. Assuming that the markets go up by 10 per cent and both the schemes perform

equally good and it is reflected in their NAVs. NAV of scheme A would go up to Rs. 16.50

and that of scheme B to Rs. 99. Thus, the market value of investments would be Rs. 9,900(600* 16.50) in scheme A and it would be the same amount of Rs. 9900 in scheme B

(100*99). The investor would get the same return of 10% on his investment in each of the

schemes. Thus, lower or higher NAV of the schemes and allotment of higher or lower

number of units within the amount an investor is willing to invest, should not be the factors

for making investment decision. Likewise, if a new equity oriented scheme is being offered

at Rs.10 and an existing scheme is available for Rs. 90, should not be a factor for decision

making by the investor. Similar is the case with income or debt-oriented schemes.



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On the other hand, it is likely that the better managed scheme with higher NAV may give

higher returns compared to a scheme which is available at lower NAV but is not managed

efficiently. Similar is the case of fall in NAVs. Efficiently managed scheme at higher NAV

may not fall as much as inefficiently managed scheme with lower NAV. Therefore, the

investor should give more weightage to the professional management of a scheme instead

of lower NAV of any scheme. He may get much higher number of units at lower NAV, but

the scheme may not give higher returns if it is not managed efficiently.

How to choose a scheme for investment from a number of schemes available?

As already mentioned, the investors must read the offer document of the mutual fund

scheme very carefully. They may also look into the past track record of performance of thescheme or other schemes of the same mutual fund. They may also compare the

performance with other schemes having similar investment objectives. Though past

performance of a scheme is not an indicator of its future performance and good

performance in the past may or may not be sustained in the future, this is one of the

important factors for making investment decision. In case of debt oriented schemes, apart

from looking into past returns, the investors should also see the quality of debt instruments

which is reflected in their rating. A scheme with lower rate of return but having

investments in better rated instruments may be safer. Similarly, in equities schemes also,

investors may look for quality of portfolio. They may also seek advice of experts.

Are the companies having names like mutual benefit the same as mutual funds

schemes?

Investors should not assume some companies having the name "mutual benefit" as mutual

funds. These companies do not come under the purview of SEBI. On the other hand,mutual funds can mobilise funds from the investors by launching schemes only after

getting registered with SEBI as mutual funds.

Is the higher net worth of the sponsor a guarantee for better returns?

In the offer document of any mutual fund scheme, financial performance including the net

worth of the sponsor for a period of three years is required to be given. The only purpose is

that the investors should know the track record of the company which has sponsored the



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mutual fund. However, higher net worth of the sponsor does not mean that the scheme

would give better returns or the sponsor would compensate in case the NAV falls.

Where can an investor look out for information on mutual funds?

Almost all the mutual funds have their own web sites. Investors can also access the NAVs,

half-yearly results and portfolios of all mutual funds at the web site of Association of

mutual funds in India (AMFI) www.amfiindia.com. AMFI has also published useful

literature for the investors.

Investors can log on to the web site of SEBI www.sebi.gov.in and go to "Mutual Funds"

section for information on SEBI regulations and guidelines, data on mutual funds, draft

offer documents filed by mutual funds, addresses of mutual funds, etc. Also, in the annual

reports of SEBI available on the web site, a lot of information on mutual funds is given.

There are a number of other web sites which give a lot of information of various schemes

of mutual funds including yields over a period of time. Many newspapers also publish

useful information on mutual funds on daily and weekly basis. Investors may approach

their agents and distributors to guide them in this regard.

Can an investor appoint a nominee for his investment in units of a mutual fund?

Yes. The nomination can be made by individuals applying for / holding units on their own

behalf singly or jointly. Non-individuals including society, trust, body corporate,

partnership firm, Karta of Hindu Undivided Family, holder of Power of Attorney cannot

nominate.

If mutual fund scheme is wound up, what happens to money invested?

In case of winding up of a scheme, the mutual funds pay a sum based on prevailing NAV

after adjustment of expenses. Unitholders are entitled to receive a report on winding up

from the mutual funds which gives all necessary details.

How can the investors redress their complaints?

Investors would find the name of contact person in the offer document of the mutual fund

scheme whom they may approach in case of any query, complaints or grievances. Trustees



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of a mutual fund monitor the activities of the mutual fund. The names of the directors of

asset management company and trustees are also given in the offer documents. Investors

should approach the concerned Mutual Fund / Investor Service Centre of the Mutual Fund

with their complaints,

If the complaints remain unresolved, the investors may approach SEBI for facilitating

redressal of their complaints. On receipt of complaints, SEBI takes up the matter with the

concerned mutual fund and follows up with it regularly. Investors may send their

complaints to:

Securities and Exchange Board of India

Office of Investor Assistance and Education (OIAE)

Plot No.C4-A , “G” Block, 1st Floor,

Bandra-Kurla Complex,

Bandra (E), Mumbai – 400 051.

Phone: 26449199-88-77

What is the procedure for registering a mutual fund with SEBI ?

An applicant proposing to sponsor a mutual fund in India must submit an application in

Form A along with a fee of Rs.25,000. The application is examined and once the sponsor

satisfies certain conditions such as being in the financial services business and possessing

positive net worth for the last five years, having net profit in three out of the last five years

and possessing the general reputation of fairness and integrity in all business transactions,

it is required to complete the remaining formalities for setting up a mutual fund. These

include inter alia, executing the trust deed and investment management agreement, setting

up a trustee company/board of trustees comprising two- thirds independent trustees,

incorporating the asset management company (AMC), contributing to at least 40% of the

net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the

registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs

For details, see the SEBI (Mutual Funds) Regulations, 1996.



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DISCLOSURES & REPORTING NORMS

HALF YEARLY DISCLOSURE OF PORTFOLIOS

Mutual Funds shall send a complete statement of Scheme Portfolio to the unit holders

before the expiry of one month from the closure of each Half Year (i.e. March 31 and

September 30), if such statement is not published by way of advertisement

The Scheme Portfolio(s) shall also be disclosed on the Mutual Funds’ web sites before

the expiry of one month from the closure of each Half Year (i.e. March 31 and

September 30) and a copy of the same shall be filed with the Board along with the Half

Yearly Results.

Disclosure of derivatives in Half Yearly Portfolios

A format for the purpose of uniform disclosure of investments in derivative instruments

by Mutual Funds in half yearly portfolio disclosure, annual report or in any other

disclosures is prescribed.

Further, while listing net assets, the margin amounts paid should be reported separately

under cash or bank balances.

Unaudited Half Yearly Financials

The publication of the unaudited half-yearly results in news paper and websites shall be

made in the format prescribed in Twelfth Schedule in line with provisions of the

Regulations.

The half yearly results must be published before the expiry of one month from the close

of each half year. Copies of the advertisements carrying the results must be filed with

SEBI within 7 days from the date of publication.

Abridged Scheme wise Annual Report Format

The Abridged Scheme wise Annual Report may be mailed to the investors e-mail address

if so mandated by the investor and the Scheme wise Annual Report shall be displayed on

the website of the mutual fund. These websites should also be linked with AMFI website

so that the investors and analyst(s) can access the annual reports of all mutual funds at one



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place. However, as per the Regulations83, a copy of Scheme wise Annual Report shall be

also made available to unitholder(s) on payment of nominal fees.

DISCLOSURE OF LARGE UNIT HOLDINGS

The number of investors holding over 25 % of the NAV85 in a scheme and their total

holdings in percentage terms shall be disclosed in the Statement of Accounts issued

after the NFO and also in the Half Yearly and Annual Results.

Portfolio disclosure for debt oriented close-ended and interval schemes/plans

AMCs shall disclose the portfolio of such schemes in the prescribed format on a

monthly basis on their respective websites.

The said disclosure of the portfolio as on the last day of the month shall be made on or

before 3rd working day of succeeding month. For example, portfolio as of March 31,

2009 shall be disclosed by April 04, 2009 - April 3, 2009 being a non working day.

ANNUAL REPORT OF THE AMC

Annual report containing accounts of the asset management companies should be

displayed on the website of the mutual funds. It should also be mentioned in the annual

report of the mutual fund schemes that the unitholders, if they so desire, may request for

a copy of the annual report of the asset management company.

SUBMISSION OF BIO DATA OF KEY PERSONNEL

AMCs are required to submit the bio data of all key personnel to Trustees and the

Board. For this purpose, ‘key personnel’ would be the Chief Executive Officer (CEO),

fund manager(s), dealer(s) & heads of other departments of the AMC.

Disclosure of investor complaints with respect to Mutual Funds

Mutual Funds shall disclose93 on their websites, on the AMFI website as well as intheir Annual Reports, details of investor complaints received by them from all sources.



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The said details should be vetted and signed off by the Trustees of the concerned

Mutual Fund.

The Mutual Funds are advised to:

a. Upload the report for the year 2009-10 by June 30, 2010.

b. Upload the report for the following financial years within 2 months of the close of

the financial year.

C. Include the report in their annual reports, as part of the Report of the Trustees,

beginning with the annual report for the year 2009- 10.

BROKERAGE AND COMMISSION PAID TO ASSOCIATES

Regulations mandate payment of brokerage or commission if any, to the sponsor or any

of its associates, employees or their relatives.

Disclosures on brokerage and commission paid to associates/related parties/group

companies of sponsor/Asset Management Company in the unaudited half yearly

financial results, the abridged scheme wise annual report and the SAI, shall be made in

the format as prescribed.

DAILY TRANSACTION REPORT

All Mutual Funds shall submit details of transactions in secondary market on daily basis

in the prescribed format. Accordingly, Mutual Funds are advised to make necessary

arrangements with their custodians for the submission of reports on a daily basis. The

report is to be submitted to the Board in both hard as well as soft copy.

It must be ensured by the compliance officers of the custodians as well as that of Mutual

Funds that the information submitted is correct and reaches the Board by 3.00 p.m. on

the following working day.

RESPONSIBILITIES OF AMC(S) AND TRUSTEES

All information and documents relating to the compliance process shall be authenticated

and/or adopted by the Board of the AMC(s) to strengthen the compliance mechanism.

The Trustee(s) shall also review all information and documents received from theAMC(s) as required under the compliance process.



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AMC(s) shall develop a suitable Management Information System for reporting to the

Trustees. The report shall contain specific comments on all issues related to the

operation of the Mutual Fund as undertaken by the AMC including those provided in

the format for reporting by AMC to Trustees.

The half-yearly report on the activities of the mutual fund to be submitted by the

trustees to the Board under the Mutual Funds Regulations shall cover all issues

mentioned in the prescribed format as well as any other issue relevant to the operation

of the Mutual Fund. The Trustees may mention in their report, if they so desire, that

they have relied on the reports obtained from the independent auditor or internal/

statutory auditors or the Compliance Officer as the case may be. The report shall

mention that the Trustees have satisfied themselves about the adequacy of compliance

systems in the Mutual Fund.

AMC(s) and the Trustees shall update the reporting formats including relevant

provisions of amendments made to the Mutual Funds Regulations and/or guidelines

and/or circulars issued by the Board and shall specifically comment on their

compliance.



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LOADS, FEES AND EXPENSES

LIMITS ON FEES AND EXPENSES CHARGED TO SCHEMES

Mutual Funds may charge certain expenses to a scheme, as specified under Regulations.

Apart from the these expenses, any other expense as may be approved by SEBI under

clause (xiii) of Sub Regulation 52(4) can also be charged to the Mutual Fund schemes.

Other expenses directly attributable to a scheme may be charged with the approval of

trustees within the overall limits as provided in the Regulation 52(6).

The following expenses cannot be charged to the schemes of Mutual Funds:

a. Penalties and fines for infraction of laws.

b. Interest on delayed payment to the unit holders.

c. Legal, marketing, publication and other general expenses not attributable to any

scheme(s).

d. Fund Accounting Fees.

e. Expenses on investment management/general management.

f. Expenses on general administration, corporate advertising and infrastructure costs.

g. Depreciation on fixed assets and software development expenses.

h. Such other costs as may be prohibited by the Board.

The expenditure and/or fee payable by Mutual Funds to the Depositories may either be

capitalized or included as part of recurring expenditure within the limits prescribed

under Regulation 52(6) of the Mutual Funds Regulations.

Further, each item of expenditure accounting for more than 10% of total expenditure

shall be disclosed in the accounts or the notes thereto of the schemes.

Provision of charging of additional management fees by the Asset Management

Companies in case of schemes launched on no load basis.

a. AMC shall not collect any additional management fees referred to in Regulation.



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b. Mutual Fund Schemes to be launched including those for which observation letter

have been issued under Regulation would be required to carry out the changes in

SID and file the same with SEBI before the launch.

RESTRICTION ON PAYING BROKERAGE OR COMMISSION

In case of investments made by the Sponsor(s), no brokerage or commission shall be

paid.

RESTRICTION ON CHARGING SERVICE TAX

AMC(s) can charge Service Tax, as per applicable Taxation Laws, to the scheme(s)

within the limits prescribed under Regulations.

EMPOWERING INVESTORS THROUGH TRANSPARENCY IN PAYMENT OF

COMMISSION AND LOAD STRUCTURE

In order to empower investors in deciding the commission paid to distributors in

accordance with the level of service received, it has been mandated that:

a. There shall be no entry load for all Mutual Fund schemes.

b. The scheme application forms shall carry a suitable disclosure to the effect that the

upfront commission to distributors will be paid by the investor directly to the

distributor, based on his assessment of various factors including the service

rendered by the distributor.

c. Of the exit load or CDSC charged to the investor, a maximum of 1% of the

redemption proceeds shall be maintained in a separate account which can be used

by the AMC to pay commissions to the distributor and to take care of other

marketing and selling expenses. Any balance shall be credited to the scheme

immediately.



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d. The distributors should disclose all the commissions (in the form of trail

commission or any other mode) payable to them for the different competing

schemes of various Mutual Funds from amongst which the scheme is being

recommended to the investor.

No Load on Bonus Units and Units allotted on Reinvestment of Dividend

AMC(s) shall not charge entry and/or exit load on bonus units and units allotted on

reinvestment of dividend. Necessary disclosures in this regard shall be made in the SID

filed with the board.

EXIT LOAD PARITY

While charging exit loads, no distinction among unit holders should be made based on

the amount of subscription. While complying with the same, Mutual Funds should

ensure that “any imposition or enhancement in the load shall be applicable on

prospective investments only.

Further, the parity among all classes of unit holders in terms of charging exit load shall

be made applicable at the portfolio level.



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DIVIDEND DISTRIBUTION PROCEDURE

Regulations permit Mutual Funds to distribute returns including dividend. To introduce

uniform practices in dividend distribution, the following guidelines should be followed:

These guidelines are applicable to all Mutual Fund schemes/plans which intend to declare the

dividend irrespective of their dates of launch.

UNLISTED SCHEME(S)/ PLAN(S)

The Trustees shall decide the quantum of dividend and the record date in their meeting.

Dividend so decided, shall be paid, subject to availability of distributable surplus.

Record date shall be the date which will be considered for thepurpose of determining

the eligibility of investors whose names appear on the register of unit holders for

receiving dividends. The NAV shall be adjusted to the extent of dividend distribution

and statutory levy, if applicable, at the close of business hours on record date.

Within one calendar day of the decision of the Trustees with respect to the dividend to

be distributed, the AMC(s) shall issue a notice to the public communicating the decision

including the record date. The record date shall be five calendar days from the issue of

public notice.

Before the issue of such notice, no communication whatsoever indicating the probable

date of dividend declaration shall be issued by any Mutual Fund or its distributors of its

products.

Such notice shall be given in at least one English daily newspaper having nationwide

circulation as well as in a newspaper published in the language of the region where the

head office of the Mutual Fund is situated.

The notice shall, in font size 10, bold, categorically state that pursuant to dividend

distribution, NAV of the scheme would fall to the extent of payout and statutory levy (if

applicable).



Page 87 of 113

LIQUID / DEBT SCHEMES WITH FREQUENT DIVIDEND DISTRIBUTION

The requirement of giving notice is not mandatory for scheme(s)/ plan(s)/ option(s) with

dividend distribution frequency ranging from daily up to monthly distribution if

requisite disclosures in this regard are made in the SID.

LISTED SCHEMES/PLANS

Listed scheme(s)/ plan(s) shall follow the requirements stipulated in the Listing

Agreement for dividend declaration and distribution.

NON AVAILABILITY OF UNIT PREMIUM RESERVE FOR DIVIDEND

DISTRIBUTION

Regulations provide the accounting policies to be followed for determining distributable

surplus and accounting the sale and repurchase of units in the books of the Mutual

Fund. The format for Scheme Balance Sheet (including Abridged) provides for

disclosure of Unit Premium Reserve.

Unit Premium Reserve, which is part of the sales price of units that is not attributable to

realized gains, cannot be used to pay dividend. Therefore:-

a. When units of an open-ended scheme are sold, and sale price is higher than face

value of the unit, part of sale proceeds that represents unrealised gains shall be

credited to a separate account (Unit Premium Reserve) and shall be treated at par

with unit capital and the same shall not be utilized for the determination of

distributable surplus.

b. When units of an open-ended scheme are sold, and sale price is less than face value

of the unit, the difference between the sale price and face value shall be debited to

distributable reserves and the dividend can be declared only when distributable

reserves become positive after adjusting the amount debited to reserves as per

regulations.



Page 88 of 113

RISK FACTORS OF MUTUAL FUNDS

THE RISK-RETURN TRADE-OFF:

The most important relationship to understand is the risk-return trade-off. Higher the risk

greater the returns/loss and lower the risk lesser the returns/loss.

Hence it is upto you, the investor to decide how much risk you are willing to take. In order

to do this you must first be aware of the different types of risks involved with your

investment decision.

MARKET RISK

Sometimes prices and yields of all securities rise and fall. Broad outside influences

affecting the market in general lead to this. This is true, may it be big corporations or

smaller mid-sized companies. This is known as Market Risk. A Systematic Investment

Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might help

mitigate this risk.

CREDIT RISK:

The debt servicing ability (may it be interest payments or repayment of principal) of a

company through its cash flows determines the Credit Risk faced by you. This credit risk is

measured by independent rating agencies like CRISIL who rate companies and their paper.

A ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit

quality. A well-diversified portfolio might help mitigate this risk.

INFLATION RISK:

Things you hear people talk about:

"Rs. 100 today is worth more than Rs. 100 tomorrow."

"Remember the time when a bus ride costed 50 paise?"

"Mehangai Ka Jamana Hai."

The root cause, Inflation. Inflation is the loss of purchasing power over time. A lot of times

people make conservative investment decisions to protect their capital but end up with a

sum of money that can buy less than what the principal could at the time of the investment.

This happens when inflation grows faster than the return on your investment. A well-

diversified portfolio with some investment in equities might help mitigate this risk.



Page 89 of 113

INTEREST RATE RISK:

In a free market economy interest rates are difficult if not impossible to predict. Changes in

interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of

bonds fall and vice versa. Equity might be negatively affected as well in a rising interest

rate environment. A well-diversified portfolio might help mitigate this risk.

POLITICAL/GOVERNMENT POLICY RISK:

Changes in government policy and political decision can change the investment

environment. They can create a favorable environment for investment or vice versa.

LIQUIDITY RISK:

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased.

Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well

as internal risk controls that lean towards purchase of liquid securities.



Page 90 of 113

VARIOUS INVESTMENT OPTIONS IN MUTUAL FUNDS OFFER

To cater to different investment needs, Mutual Funds offer various investment options. Some

of the important investment options include:

GROWTH OPTION:

Dividend is not paid-out under a Growth Option and the investor realises only the capital

appreciation on the investment (by an increase in NAV).

DIVIDEND PAYOUT OPTION

Dividends are paid-out to investors under the Dividend Payout Option. However, the NAV

of the mutual fund scheme falls to the extent of the dividend payout.

DIVIDEND RE-INVESTMENT OPTION:

Here the dividend accrued on mutual funds is automatically re-invested in purchasing

additional units in open-ended funds. In most cases mutual funds offer the investor an

option of collecting dividends or re-investing the same.

RETIREMENT PENSION OPTION:

Some schemes are linked with retirement pension. Individuals participate in these optionsfor themselves, and corporates participate for their employees.

INSURANCE OPTION:

Certain Mutual Funds offer schemes that provide insurance cover to investors as an added

benefit.

SYSTEMATIC INVESTMENT PLAN (SIP):

Here the investor is given the option of preparing a pre-determined number of post-dated

cheques in favour of the fund. The investor is allotted units on a predetermined date

specified in the offer document at the applicable NAV.

SYSTEMATIC WITHDRAWAL PLAN (SWP):

As opposed to the Systematic Investment Plan, the Systematic Withdrawal Plan allows the

investor the facility to withdraw a pre-determined amount / units from his fund at a pre-

determined interval. The investor's units will be redeemed at the applicable NAV as on thatday.



Page 91 of 113

VOICE OF CUSTOMER – DATA INTERPRETATION AND ANALYSIS

The endeavour of mutual fund investments is to leverage professional and prudent fund

management techniques and thereby maximise returns for the investors while minimising risk.

While mutual funds are often the preferred avenue for investment over direct investments intothe capital markets by risk averse investors, customers have had widely varying experiences

with purchase of mutual funds. Thus, it is critical for the industry to understand the

perspectives of Indian investors so as to use their inputs to further enhance the customer

experience with mutual funds.

METHODOLOGY

To understand the voice of the Indian investors, survey was conducted across the city. As part

of this survey, facilitated interviews with a large representative sample of population from

diverse backgrounds (education, age, occupation and gender) to understand their preferences

and perspective on investment in mutual funds.

The survey revealed several interesting observations and resulted in a long customer’s wish-

list pointing to the expectations from the AMCs, distributors, service providers and regulators.

While a significant portion of customers are aware of and also invest in mutual funds, there

was a diverse set of views obtained, both negative and positive. This warrants a need to

immediately tackle some of the negative perceptions and capitalise on the positive ones.

IMPEDIMENTS TO MUTUAL FUND INVESTING

Customers believe that the mutual fund industry falls short of expectations in meeting their

needs at time of economic uncertainty and market volatility. The survey has highlighted

several reasons that respondents have cited for not buying mutual funds. Some of the

prominent challenges highlighted by the respondents have been listed below.

AVAILABILITY OF LARGE MUMBER OF MUTUAL FUNDS

The Indian investor witnessed significant rise in New Fund Offers (NFOs) over the last

two to three years from AMCs seeking to augment AUM and diversify product basket.

India has over 979 mutual fund schemes resulting in a total AUM of INR 4,173 billion as



Page 92 of 113

on 31 March 2009. The ratio of the assets per scheme is one of the highest in the world.

Given that there is a plethora of options with limited differentiation across mutual fund

schemes, the respondents perceive a difficulty in investing in mutual funds in the absence

of quality advice. Hence, AMCs need to design simple products that the target segment can

easily understand and also realign their product portfolio to merge/ close schemes with

overlapping objectives.

COMPLICATED KYC NORMS RESTRICT POTENTIAL INVESTORS

In addition to the PAN card requirement, for an investment amount of INR 50,000 and

above in mutual funds, the customers are required to procure KYC acknowledgement. This

requires submission of several documents and extensive paper-work. The respondents to

the survey expressed difficulty in understanding the complex terminology and the

paperwork involved in mutual fund investing.

PREFFERED CHANNEL FOR INVESTMENT

Banks and IFAs are the preferred channel for investing in mutual funds. Customers

expressed confidence in banks given the long standing relationship and the trust built with

the banks over the years. Similarly, the customers have become accustomed to dealing

with IFAs to seek independent advice on a wide range of investment and financial planning

issues. This comfort is expected to play a key role in according priority to the growth of the

IFA channel. IFAs have demonstrated flexibility in providing customised offerings to the

customers at the household level.

It is important to note that an overwhelming majority of the customers have not been

satisfied with the quality of advice being provided to them by the advisors. Some

customers are of the view that the IFAs are less qualified and do not adopt a holistic

approach to financial planning. In some cases, customers have reported instances of mis-

selling that has affected the performance of their portfolios significantly. Hence, it is

imperative for distributors to re-look at their strategy for financial planning and dispensing

advice to customers. After sales service and ongoing follow up have been identified by

customers as a key differentiator in assessing the capabilities of distributors.



Reason provided by surv

KYC documents,

17%

Complicated

application form,

10%

H

Page 93 of 113

y respondent for not investing in mutual f

Insufficient fund

for investment, 3%

Not adviced by

my financial

advisor, 3%

Other attravtive

investment

avenues, 17%

Compli

product

20

Too many

schemes, 23%

igh associate

risk, 7%

und

cated

feature,



Page 94 of 113

DRIVERS FOR INVESTMENT IN MUTUAL FUND

The factors that can incentivise potential customers to commence and gradually increase

their investment in mutual funds are discussed below.

TAX BENIFITS

The tax benefits associated with investment in mutual funds is the key drivers for

customers. Customers consider mutual funds as a medium of ensuring financial

independence and security. Since most mutual fund schemes carry easy liquidity options,

customers believe that mutual funds are a avenue of savings thereby eliminating the need

for borrowing money in case of financial exigencies. Liquidity for the future is deemed to

be of utmost importance in making any investment decision.

FUND PERFORMANCE AND BRAND EQUITY

Customers believe that fund performance is necessary but is not a sufficient condition to

drive their selection of mutual fund products. Selection of mutual funds by a customer is a

function of both the fund performance and brand equity of the fund house. Customers are

of the view that the key differentiator at the time of selection of a fund is the positive

outlook on performance even if the numbers do not reveal a spectacular historic

performance. The brand equity of a mutual fund includes factors like perception of the

brand capability drawn from its performance in other sectors.

INCREASE THE QUANTUM OF INVESTMENT

Customers obtain the requisite confidence in their investment process when distributors

explain the concepts and the meaning of key terms used in mutual fund application forms

in simple terms. Further, this reinforces confidence in the distributor’s capabilities and

quality of advice provided that facilitate the decision process for investment in a mutual

fund scheme. Customers also expressed the view that a single common application form

could be used for all mutual fund investments across multiple mutual fund houses.

Simplifying the process for redemption of funds was also identified as a means for further

increasing investments in mutual funds.



Channel preferred by sur

Reason provided by surv

purpose

Private sector

bank, 9%

Foreign bank, 1

Brand n

fund h

Self moniterin

the products

its returns, 1

Page 95 of 113

vey respondent for investing in mutual fu

y respondent on selection on mutual fund

Direct

investment, 2%

Internet, 12%

My local C

Accounta

Brokerage

9%

Independent

financial advisor,

24%

%

Public sector bank ,

14%

Recomedation by

advisor, 6% Other, 1%

Track-record

fund house, 1

Past perfo

of the prodame of the

ouse, 22%

g of

nd

%

Friends advice, 14%

d

for investment

harted

t, 17%

house,

of

7%

rmance

uct, 24%



Page 96 of 113

CUSTOMER WISH LIST FROM MUTUAL FUND, DISTRIBUTORS,

REGULATORS, AND GOVERMENT – “In the words of customer”

MUTUAL FUND PRODUCTS

I want protective products with guaranteed income and good absolute returns.

As a retired person, I want more debt funds options with a safe mechanism of regular

saving along with the varied pension options.

I want assured returns schemes that are a mix of risk-free and high-risk portfolio where I

can invest small sums of money.

I want a clear and easy explanation of various schemes.

FUND MANAGEMENT

I want to listen to fund managers’ views on outlook for various sectors, industry

performance, fund performance, etc.

AMCs should not depend on the Fund Manager but its process for the success of their

products.

INVESTOR SERVICING

I want easy access to the Fund House for direct subscription since I do not want to pay

entry load.

I want better service from the fund house in terms of NAV updates through weekly SMS

alerts so that I know the value of my investments.

I want all the services at my door step - right from getting help in filling in the application

form to depositing a cheque for my investments.

We want to interact with more knowledgeable people at the call centers to attend to our

complaints from a technical perspective, and not just to handle routine operational level

problems.

AMCs should send a report to me on my investment status and performance on a timely

and regular basis



Page 97 of 113

I believe agents commission should be linked to investor satisfaction and attractiveness of

the fund suggested, which should be payable in phases, depending upon the success of the

advice provided

Please reduce and simplify the documentation required and the processes involved and

help me to understand the purpose for which this will be used.

INVESTMETN ADVICE

Since I make my own investment decisions without relying on anyone’s advice, I want a

single platform for transacting and performance monitoring, to track my mutual fund

investments across various AMCs.

I want objective advice that’s best suited to my needs and which is not driven by

commissions received by my advisor.

As long as the fund house pays the commission to the advisor, there is always a conflict.

How can anyone provide unbiased advice if they are paid by the fund house for advising

me? This ensures that the advisor is acting in the favor of the fund house and is not driven

by my interests and needs.

TAX BENIFITS

Why am I required to pay Securities Transaction Tax?

Why should I be required to pay long-term capital gain tax on my debt funds when I am

not required to pay this on equity funds?

The Government must provide a favourable tax regime for Fund of Funds that implies

extending tax benefits to investors and also to the funds.

The Government must provide tax sops to encourage investment in equity (including

overseas equity) as a long term saving and to encourage investments in the infrastructure

sector (debt as well as equity); tax sops should also be extended to schemes investing in

these areas as well.



Page 98 of 113

FUTURE OF MUTUAL FUNDS IN INDIA

Although several macroeconomic and demographic factors affect the growth of the industry,

the key underlying driver for all the categories of funds is the key economic indicator – the

GDP growth rate. The growth drivers for customer segments have been listed in the table

below along with the expected impact of each on the AUM.

CUSTOMER

SEGMENT

KEY GROWTH DRIVER EXEMPTED IMPACT

Retail

Segment

Rising disposable incomes

and savings

Favourable demographics

such as increasing

proportion of working

population (20-59 years)

and increasing urbanisation

resulting in increased levels

of financial savviness

Innovations in distribution

Quality financial planning

Increase in disposable incomes and

household financial savings may result in

households seeking alternate avenues for

investments to yield higher returns with

reasonable risk

Favourable demographics like

urbanisation and a relatively young

population having an increased risk

appetite, are likely to save more and seek

to invest a higher proportion of those

savings in market-linked instruments

such as mutual funds

Distribution innovations are expected to

increased mutual fund penetration

specifically in Tier 2 and Tier 3 towns

thereby expanding the mutual fund

customer base

Improved awareness levels and enhanced

financial literacy is expected to aid the

understanding of mutual fund products

Appropriate asset allocation and potential

for wealth creation

Institutional Rising corporate earnings Increased demand for sophisticated



Page 99 of 113

Segment Maturing capital markets

Interest rate cycle

Call money market rates

Corporate debt and

commercial papers

treasury management products

A better economic situation in the

country is likely to ensure a steady fall in

the interest rates

Industry AUM is likely to continue to grow in the range of 15 to 25 percent from the

period 2010 to 2015

In the event of a quick economic revival and positive reinforcement of growth drivers

identified, It is of the view that Indian mutual fund industry may grow at the rate of 22-25

percent in the period from 2010 to 2015, resulting in AUM of INR 16,000 to 18,000 billion in

2015.

Key growth drivers for this scenario include:

Increased retail investor participation with a preference for mutual funds over other asset

classes perceived to be more risky. This could result in the fulfilment of growing financial

aspirations, enabled by rising disposable incomes and increased financial savings

Increase in institutional participation triggered by rising corporate revenues with increased

economic activity.

In the event of a relatively slower economic revival resulting in the identified growth

drivers not reaching their full potential, it is of the view that the Indian mutual fund

industry may grow in the range of 15-18 percent in the period from 2010 to 2015, resulting

in AUM of INR 15,000 to 17,000 billion in 2015.

Key factors driving the growth inspite of the slow revival of the economy include:

Incremental increase in retail investor participation owing to limited focus beyond Tier 2

towns and limited efforts to draw risk averse customers of traditional products under the

fold of mutual funds

Tightening of liquidity leading to better yields on instruments liquid funds invest in,

thereby driving investments from the institutional investors.



AUM growth from 2010 to

Favourable economic gro

Relatively lower growth sc

Industry profitability ma

escalate

Industry profitability is ex

focus on low margin produ

escalate due to the focus o

Decline in investment man

investments in debt produc

Increase in distribution cos

smaller towns

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2009

4,879 4,879

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

2009

4879 4879

Page 100 of 113

2015Projected

th scenario with quick economic revival

nario with slow economic revival

reduce further as revenues shrink and o

ected to gradually reduce as revenues of AM

ts to attract risk averse investors, and also a

penetrating retail population beyond Tier 2

gement fees is expected as risk averse custo

s

s as players attempt to set up their own bran

2012 2015

8,859

16,087

9,529

18,611

A

A

2012 2015

8568

15559

8766

17122

As

As

erating costs

Cs shrink due to

operating costs

ities.

mers prefer

h presence in

ssuming 22% CAGR

ssuming 25% CAGR

suming 15% CAGR

suming 18% CAGR



Page 101 of 113

Existing players are likely to review business strategy and explore exit/ mergers in case of

no significant competitive advantage, thereby resulting in industry consolidation

Competition is expected to intensify further with the entry of global players who are facing

stagnant growth in global markets. This is expected to result in a fall in market shares of

the Top 10 players and result in a further squeeze on margins

Co-existence of large players with diversified portfolios and some niche plays expected.

By December 2004, Indian mutual fund industry reached Rs 1,50,537 crore. It is estimated

that by 2010 March-end, the total assets of all scheduled commercial banks should be Rs

40,90,000 crore.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In

the last 5 years we have seen annual growth rate of 9%. According to the current growth

rate, by year 2010, mutual fund assets will be double.

MASSIVE EXPANSION IS EXPECTED IN MUTUAL FUND DISTRIBUTION

NETWORK

The public sector network of nationalised banks and post offices are likely to increase their

focus on the distribution of mutual funds

Entry of public sector banks as mutual fund manufacturer’s are expected to increase their

focus on mutual fund distribution

IFAs are expected to emerge as a dominant channel focused on increasing penetration, and

will therefore have to focus on initiatives to develop and support this channel (for example,

recruitment and training support)

IFA channels are expected to witness growth at a faster pace than banks

Private banks providing financial advice to HNIs expected to marginally increase their

market share

Distributors likely to explore the possibility of innovations such as a common online

platform and the usage of debit and credit cards for transactions

AMCs are expected to invest in channel innovation such as Mobile and Internet services.

Mobile telephony enabling mobile transactions for the purchase and sale of mutual funds

and SMS-based services is expected to revolutionise the industry.



Page 102 of 113

LIST OF ABBRIVATIONS

AMC Asset Management Company

AMFI Association of Mutual Funds in India

AML Association of Mutual Funds in India

AML Anti Money Laundering

AUM Assets Under Management

bps Basis Points

CAGR Compounded Annual Growth Rate

CBDT Central Board of Direct Taxes

CFT Combating Financing of Terrorism

CII Confederation of Indian Industry

CSO Central Statistical Organisation

ETF Exchange Traded Fund

FY Financial Year

GDP Gross Domestic Product

HNI High Net worth Individual

HRD Human Resource Development

ICI Investment Company Institute

IIMS Invest India Market Solutions

INR Indian Rupee

ISC Investor Service Centre

KYC Know Your Customer

MF Mutual Fund

NAV Net Asset Value

NFO New Fund Offer

NGO Non-Governmental Organisation

NISM National Institute of Securities Markets

NPS New Pension Scheme

PMLA Prevention of Money Laundering

PSU Public Sector Undertaking

PAN Permanent Account Number

PBT Profit Before Tax

R&T Registrar & Transfer Agent



Page 103 of 113

RBI Reserve Bank of India

REMF Real Estate Mutual Fund

SEBI Securities & Exchange Board of India

SIP Systematic Investment Plan

SMS Short Messaging Service

UK United Kingdom

ULIP Unit Linked Insurance Plan

USA United States of America

UTI Unit Trust of India



Page 104 of 113

MUTUAL FUND - GLOSSARY

Advisor

The organization employed by a mutual fund to give professional advice on the fund's

investments and to supervise the management of its assets.

Asked or Offering Price

The price at which a mutual fund's shares can be purchased. The asked or offering price

means the current net asset value (NAV) per share plus sales charge, if any. For a no-load

fund, the asked price is the same as the NAV.

Asset Allocation Fund

A fund that spreads its portfolio among a wide variety of investments, including domestic and

foreign stocks and bonds, government securities, gold bullion and real estate stocks. This

gives small investors far more diversification than they could get allocating money on their

own. Some of these funds keep the proportions allocated between different sectors relatively

constant, while others alter the mix as market conditions change.

Automatic Reinvestment

A service offered by most mutual funds whereby income dividends and capital gain

distributions are automatically invested into the fund by buying additional shares and thus

building up holdings through the effects of compounding.

Balanced Fund

A mutual fund that maintains a balanced portfolio, generally 60% bonds or preferred stocks

and 40% common stocks.

Bid or Sell Price

The price at which a mutual fund's shares are redeemed (bought back) by the fund. The bid or

redemption price means the current net asset value per share, less any redemption fee or back-

end load.



Page 105 of 113

Bond Fund

A mutual fund whose portfolio consists primarily of corporate, municipal or U.S. Government

bonds. These funds generally emphasize income rather than growth.

Bond Rating

System of evaluating the probability of whether a bond issuer will default. Standard and

Poor's Corp. and Moody's Investors Services, among other firms, analyze the financial

stability of both corporate and government bond issuers. Ratings range from AAA or Aaa

(extremely unlikely to default) to D (currently in default). Bonds rated BBB or below by S&P

or Baa or below by Moody's are not considered to be of investment grade. Mutual funds

generally restrict their bond purchases to issues of certain quality ratings, which are specified

in their prospectuses.

Capital Appreciation Fund

A mutual fund that seeks maximum capital appreciation through the use of investment

techniques involving greater than ordinary risk, such as borrowing money in order to provide

leverage, short-selling and high portfolio turnover.

Capital Gains Distributions

Payments (usually annually) to mutual fund shareholders of gains realized on the sale of

portfolio securities.

Capital Growth

A rise in market value of a mutual fund's securities, reflected in its net asset value per share.

This is a specific long-term objective of many mutual funds.

Certificate of Deposit

Interest-bearing, short-term debt instrument issued by banks and thrifts.

Closed-End Investment Company

An investment company that offers a limited number of shares. They are traded in the

securities markets, usually through brokers. Price is determined by supply and demand.



Page 107 of 113

Deferred Compensation Plan

A tax-sheltered investment plan to which employees of state and local governments can defer

a percentage of their salary.

Distributor

An individual or a corporation serving as principal underwriter of a mutual fund's shares,

buying shares directly from the fund, and reselling them to other investors.

Diversification

The policy of spreading investments among a range of different securities to reduce the risks

inherent in investing.

Rupee-Cost Averaging

The technique of investing a fixed sum at regular intervals regardless of stock market

movements. This reduces average share costs to the investor, who acquires more shares in

periods of lower securities prices and fewer shares in periods of high prices. In this way,

investing risk is spread over time.

Exchange Privilege (Or switching privilege)

The right to transfer investments from one fund into another, generally within the same fund

group, at nominal cost.

Ex-Dividend Date

The date on which a fund's Net Asset Value (NAV) will fall by an amount equal to the

dividend and/or capital gains distribution (although market movements may alter the fund's

closing NAV somewhat). Most publications which list closing NAVs place an "X" after a

fund’ name on its ex-dividend date.

Expense Ratio

The ratio of total expenses to net assets of the fund. Expenses include management fees,

12(b)1 charges, if any, the cost of shareholder mailings and other administrative expenses.



Page 108 of 113

The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size

rather than of its success in controlling expenses.

Fiscal Year

An accounting period consisting of 12 consecutive months.

Global Fund

A fund that invests in both Indian. and foreign securities.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of capital. It investsprincipally in common stocks with significant growth potential.

Income Dividend

Payment of interest and dividends earned on the fund's portfolio securities after operating

expenses are deducted.

Income Fund

A mutual fund that primarily seeks current income rather than growth of capital. It will tend

to invest in stocks and bonds that normally pay high dividends and interest.

Index Fund

A mutual fund that seeks to mirror general stock-market performance by matching its

portfolio to a broad-based index, most often the Standard & Poor's 500-stock index.

International Fund

A fund that invests in securities traded in markets outside India.

Load

A sales charge or commission assessed by certain mutual funds ("load funds,") to cover their

selling costs. The commission is generally stated as a portion of the fund's offering price,

usually on a sliding scale from one to 8.5%.



Page 109 of 113

Load Fund

A mutual fund that levies a sales charge up to 8.5%, which is included in the offering price of

its shares, and is sold by a broker or salesman. A front-end load is the fee charged when

buying into a fund; a back-end load is the fee charged when getting out of a fund.

Low-Load Fund

A mutual fund that charges a small sales commission, usually 3.5% or less, for the purchase

of its shares.

Management Fee

The amount a mutual fund pays to its investment adviser for services rendered, including

management of the fund's portfolio. In general, this fee ranges from .5% to 1% of the fund's

asset value.

Money Market Fund

A mutual fund that aims to pay money market interest rates. This is accomplished by

investing in safe, highly liquid securities, including bank certificates of deposit, commercial

paper, government securities and repurchase agreements. Money make these high interest

securities available to the average investor seeking immediate income and high investment

safety.

Mortgage-Backed Securities

Certificates backed by pooled mortgages (e.g., Freddie Mac or Ginnie Mae). Issuing agencies

buy mortgages from lending institutions and repackage them as securities that they sell to

investors. They are generally issued in denominations of Rs.25,000 or above. Yields, which

stem from interest and principal on underlying mortgages, are generally higher than those of

Treasury bonds that provide comparable liquidity and safety. A growing number of income

mutual funds concentrate their holdings in these securities.

Municipal Bond Fund

A mutual fund that invests in a broad range of short, intermediate or long-term tax-exempt

bonds issued by states, cities and other local governments. The interest obtained from these



Page 110 of 113

bonds is passed through to shareholders free of tax. The objective of these funds is current

tax-free income.

Mutual Fund

An open-end investment company that buys back or redeems its shares at current net asset

value. Most mutual funds continuously offer new shares to investors.

Net Asset Value Per Share

The current market worth of a mutual fund share. Calculated daily by taking the funds total

assets securities, cash and any accrued earnings deducting liabilities, and dividing the

remainder by the number of shares outstanding.

No-Load Fund

A commission-free mutual fund that sells its shares at net asset value, either directly to the

public or through an affiliated distributor, without the addition of a sales charge.

Option Income Fund

A fund that invests primarily in dividend-paying common stocks on which call options aretraded on national securities exchanges. These funds seek high current return consisting of

dividends, premiums from selling options, net short-term gains (including those from the

exercising of options) and any profits from closing purchase transactions.

Payable Date

The date on which distributions are paid to shareholders who do not want to reinvest them.

This date can be anywhere from one week to one month after the Record Date.

Payroll Deduction Plan

An arrangement between an employer and a mutual fund, authorized by the employee,

through which a specified sum is deducted from an employee's salary to buy shares in the

fund.



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Prospectus

An official document that each investment company must publish, describing the mutual fund

and offering its shares for sale. It contains information required by the Securities and

Exchange Commission.

Record Date

The date the fund determines who its shareholders are; "shareholders of record" who will

receive the fund's income dividend and/or net capital gains distribution. Frequently the

business day immediately prior to the Ex-Dividend Date.

Redemption Fee

A fee charged by a limited number of funds for redeeming, or buying back, fund shares.

Redemption Price

The price at which a mutual fund's shares are redeemed (bought back) by the less expensive

fund. The redemption price is usually equal to the current net asset value per share.

Regional Fund

A mutual fund that concentrates its investments within a specific geographic area, usually the

fund's local region. The objective is to take advantage of regional growth potential before the

national investment community does.

Reinvestment Date (Payable Date)

The date on which a share's dividend and/or capital gains will be reinvested (if requested) in

additional fund shares.

Reinvestment Privilege

A service that most mutual funds offer whereby a shareholder's income dividends and capital

gains distributions are automatically reinvested in additional shares.



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Sector Fund

A fund that operates several specialized industry sector portfolios under one umbrella.

Transfers between the various portfolios can usually be executed by telephone at little or no

cost.

Series Fund

A mutual fund whose prospectus allows for more than one portfolio. Portfolios may be

specialized (Sector Fund) or broad (growth stock, along with a money market portfolio).

Management can create additional portfolios as it sees fit.

Short Selling

The sale of a security which is not owned by the seller. The "short seller" borrows stock for

delivery to the buyer, and must eventually purchase the security for return to the lender.

Short-Term Municipal Bond Fund

A fund that invests in municipal bonds with maturities not exceeding two years. See

Municipal Bond Fund.

Simplified Employee Pension

An alternative to a Keogh plan that allows employers who have not established qualified

retirement plans to contribute to their employee’s Individual Retirement Accounts.

Specialty Fund

A mutual fund specializing in the securities of a particular industry or group of industries or

special types of securities.

Systematic Withdrawal Plans

Many mutual funds offer withdrawal programs whereby shareholders receive payments from

their investments. These payments are usually drawn from the fund’s dividend income and

capital gain distributions, if any, and from principal only when necessary.

Underwriter



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The organization that acts as the distributor of a mutual fund's shares to broker/dealers and the

public.

Variable Annuity

A type of insurance contract that guarantees future payments to the holder, or annuitant,

usually at retirement. The annuity's value varies with that of the underlying portfolio

securities, which may include mutual fund shares. All monies held in the annuity accumulate

tax-deferred.

Voluntary Plan

A flexible plan for capital accumulation, involving no specified time frame or total sum to be

invested.

Yield

Income or return received from an investment, usually expressed as a percentage of market

prices, over a designated period. For a mutual fund, yield is interest or dividend before any

gain or loss in the price per share.

Zero Coupon Bond

Bond sold at a fraction of its face value. It appreciates gradually, but no periodic interest

payments are made. Earnings accumulate until maturity, when the bond is redeemable at full

face value. Nonetheless, interest is taxable as it accrues. As a result, zero coupon bonds are

often used for IRAs, Keoghs and other tax-deferred retirement plans.



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CONCLUSION

There is a perceived need to review risk and performance analysis capabilities and governance

structures, to meet fiduciary responsibilities and the increasing demand for transparency.

AMCs therefore need to re-orient their business towards fulfilling customer needs. Ascustomers seek trusted advisors, the manufacturer-distributor-customer relationship is

expected to be centered not on the sale of products, but for collectively promoting the

financial success of customers across all facets of their professional and personal lives. This

requires creating a collaborative network of experts in funds management and financial

advice, innovative product offerings, efficient service delivery and supporting technology.

The mutual fund industry today needs to develop products to fulfill customer needs and help

mutual fund industry today needs to develop products to fulfill customer needs and help.

Given that the industry needs to collectively work towards riding over the dynamic and

relatively less favourable economic environment at present, the next phase for the industry is

likely to be characterised by a stronger focus on customer centricity. Other areas of focus are

likely to be cost management and enabling strong governance and regulatory framework - all

aimed at helping the industry achieve sustained, profitable growth, going forward.

“Brand” plays important role for the investment. People invest in those Companies

where they have faith or they are well known with them. There are many AMCs in

Mumbai but only some are performing well due to Brand awareness. Some AMCs are

not performing well although some of the schemes of them are giving good return

because of not awareness about Brand. Reliance, UTI, SBIMF, ICICI Prudential etc.

they are well known Brand, they are performing well and their Assets Under

Management is larger than others whose Brand name are not well known like Principle,

Sunderam, etc.

Distribution channels are also important for the investment in mutual fund. Financial

Advisors are the most preferred channel for the investment in mutual fund. They can

change investors’ mind from one investment option to others. Many of investors

directly invest their money through AMC because they do not have to pay entry load.

Only those people invest directly who know well about mutual fund and its operations

and those have time.



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RECOMMENDATION

The most vital problem spotted is of ignorance. Investors should be made aware of

the benefits. Nobody will invest until and unless he is fully convinced. Investors

should be made to realize that ignorance is no longer bliss and what they are losing

by not investing.

Mutual funds offer a lot of benefit which no other single option could offer. But most

of the people are not even aware of what actually a mutual fund is? They only see it

as just another investment option. So the advisors should try to change their

mindsets. The advisors should target for more and more young investors. Young

investors as well as persons at the height of their career would like to go for advisors

due to lack of expertise and time.

Mutual Fund Company needs to give the training of the Individual Financial

Advisors about the Fund/Scheme and its objective, because they are the main source

to influence the investors.

Before making any investment Financial Advisors should first enquire about the risk

tolerance of the investors/customers, their need and time (how long they want to

invest). By considering these three things they can take the customers into

consideration. Younger people aged under 35 will be a key new customer group into the future, so

making greater efforts with younger customers who show some interest in investing

should pay off.

Customers with graduate level education are easier to sell to and there is a large

untapped market there. To succeed however, advisors must provide sound advice and

high quality.



BIBLIOGRAPHY

Websites:

www.icicidirect.com

www.sebi.com

www.kpmg.com

mutual fund sarath

Documents