mutual funds hsbc abstract

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MUTUAL FUNDS PROJECT ABSTRACT

A mutual fund is a professionally managed type of collective

investment scheme that pools money from many investors and invests typically in

investment securities (stocks, bonds, short-term money market instruments, other

mutual funds, other securities, and/or commodities such as precious metals)] The

mutual fund will have a fund manager that trades (buys and sells) the fund's

investments in accordance with the fund's investment objective. In the U.S., a fund

registered with the Securities and Exchange Commission (SEC) under both SEC and

Internal Revenue Service (IRS) rules must distribute nearly all of its net income and

net realized gains from the sale of securities (if any) to its investors at least annually.

Most funds are overseen by a board of directors or trustees (if the U.S. fund isorganized as a trust as they commonly are) which is charged with ensuring the fund is

managed appropriately by its investment adviser and other service organizations and

vendors, all in the best interests of the fund's investors.

Since 1940 in the U.S., with the passage of the Investment Company Act of

1940 (the '40 Act) and the Investment Advisers Act of 1940, there have been three

basic types of registered investment companies: open-end funds (or mutual funds),

unit investment trusts (UITs); and closed-end funds. Other types of funds that have

gained in popularity are exchange traded funds (ETFs) and hedge funds, discussed

below. Similar types of funds also operate in Canada, however, in the rest of the

world, mutual fund is used as a generic term for various types of collective

investment vehicles, such as unit trusts, open-ended investment companies (OEICs),

unitized insurance funds, undertakings for collective investments in transferable

securities (UCITS, pronounced "YOU-sits") and SICAVs (pronounced "SEE-cavs").

According to SEBI - Mutual Fund is defined as - A fund established in the

form of a trust to raise moneys through the sale of units to the public or a section of

the public under one or more schemes for investing in securities, including money

market instruments.

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http://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Precious_metalhttp://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Internal_Revenue_Servicehttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Trusteehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Advisers_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/OEIChttp://en.wikipedia.org/wiki/Unitised_insurance_fundhttp://en.wikipedia.org/wiki/UCITShttp://en.wikipedia.org/wiki/SICAVhttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Collective_investment_schemehttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Commodityhttp://en.wikipedia.org/wiki/Precious_metalhttp://en.wikipedia.org/wiki/Fund_managerhttp://en.wikipedia.org/wiki/Trade_(financial_instrument)http://en.wikipedia.org/wiki/Internal_Revenue_Servicehttp://en.wikipedia.org/wiki/Board_of_directorshttp://en.wikipedia.org/wiki/Trusteehttp://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Company_Act_of_1940http://en.wikipedia.org/wiki/Investment_Advisers_Act_of_1940http://en.wikipedia.org/wiki/Investment_companyhttp://en.wikipedia.org/wiki/Open-end_fundhttp://en.wikipedia.org/wiki/Unit_investment_trusthttp://en.wikipedia.org/wiki/Closed-end_fundhttp://en.wikipedia.org/wiki/Exchange-traded_fundhttp://en.wikipedia.org/wiki/Hedge_fundshttp://en.wikipedia.org/wiki/Canadahttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/OEIChttp://en.wikipedia.org/wiki/Unitised_insurance_fundhttp://en.wikipedia.org/wiki/UCITShttp://en.wikipedia.org/wiki/SICAV


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NEED OF THE STUDY

The basic purpose of the study is to give broad idea on Mutual Funds and

analyze various schemes to highlight the diversified investment that Mutual Fundoffers to its investors. Through this study one can understand how to invest in Mutual

Funds and turn the raw investment into ripen fruits by taking wise decisions, taking

the risk factors into account.

The Study presents basic concept and trends in the Mutual fund Industry.

The Study enables a fresh investor to understand easily the various benefits

offered by Mutual Funds and their working in the Market.

The Study provides a clear idea on growth of Mutual Funds from past to the

present scenario and its scope in the future.

The Study gives a brief idea on the Open- Ended Balanced Growth Schemes

of five major organizations.

At the end of the study, one can conclude what type of investments would be ideal

with reference to the risk taking abilities of the investors and which type of

investments would suit their financial needs and goals.

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OBJECTIVES OF THE STUDY

The Main objective of this project is to study and understand the concept of

Mutual Funds with special reference to HSBC Growth Funds.

To give a broad idea on basics, structure, constituents, characteristics,

advantages, disadvantages, types, and risk associated with Mutual Funds.

To give investor an idea on Mutual Funds and its working in the market with

illustrations.

To help the investors have an understanding of the Risks associated with

Mutual fund investment.

To analyze the different growth funds of HSBC and suggest the best funds for

investors to invest in.

To understand the recent trends in the world of Mutual Funds.

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SCOPE OF THE STUDY

The Study covers the basic meaning, concept, structure and the organization of the

Mutual Funds. The Study is restricted to explain only the returns provided by theMutual Funds from various schemes. Under this study investments relating to

HSBC Growth Funds are taken into account.

The theoretical part of the study includes the following concepts:-

Characteristics of Mutual Funds.

Advantages/ Disadvantages of Mutual Funds.

Net Asset Value (NAV).

Investment Process.

Risk return grid of Mutual Funds.

The tools used for graphical representation of data include Pie charts, Bar diagrams,

and other accessories

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Secondary Data:

Secondary data can be defined as - data collected by some one else for purpose other

than solving the problem being investigated. Secondary data is collected from

external sources which include information from published material of SEBI and

some of the information is collected online. The data sources also include various

books, magazines, newspapers, websites etc. The organization profile is collected

from the mutual fund website of HSBC and IIFL Ltd.

LIMITATIONS

The results obtained can not be generalized.

This survey became a qualitative survey rather than quantitative survey.

The study in other major aspects can give more accurate results.

The study is done only for a period of 45 days.

Secondary Data may not be authentic in all the cases.

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CHAPTER II - REVIEW OF LITERATURE

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CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their

contributions that are to be invested in accordance with a stated objective. The

ownership of the fund is thus joint or mutual; the fund belongs to all investors. A

single investors ownership of the fund is in the same proportion as the amount of the

contribution made by him or her bears to the total amount of the fund Mutual Funds

are trusts, which accept savings from investors and invest the same in diversified

financial instruments in terms of objectives set out in the trusts deed with the view to

reduce the risk and maximize the income and capital appreciation for distribution for

the members. A Mutual Fund is a corporation and the fund managers interest is to

professionally manage the funds provided by the investors and provide a return on

them after deducting reasonable management fees.

The objective sought to be achieved by Mutual Fund is to provide an opportunity for

lower income groups to acquire without much difficulty financial assets. They cater

mainly to the needs of the individual investor whose means are small and to manage

investors portfolio in a manner that provides a regular income, growth, safety,

liquidity and diversification opportunities.

DEFINITION:

Mutual funds are collective savings and investment vehicles where savings of small

(or sometimes big) investors are pooled together to invest for their mutual benefit and

returns distributed proportionately.

A mutual fund is an investment that pools your money with the money of an

unlimited number of other investors. In return, you and the other investors each own

shares of the fund.

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The fund's assets are invested according to an investment objective into the fund's

portfolio of investments. Aggressive growth funds seek long-term capital growth by

investing primarily in stocks of fast-growing smaller companies or market segments.

Aggressive growth funds are also called capital appreciation funds.

Why Select Mutual Fund?

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 doesnt 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 high risk since it is mostly

traded in the derivatives market which is considered very volatile.

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RETURN RISK MATRIX

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ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favorite investment vehicle, it is because of the

many advantages they have over other forms and the avenues of investing,

particularly for the investor who has limited resources available in terms of capital

and the ability to carry out detailed research and market monitoring. The following

are the major advantages offered by mutual funds to all investors:

1. Portfolio Diversification:

Each investor in the fund is a part owner of all the funds assets, thus enabling him to

hold a diversified investment portfolio even with a small amount of investment that

would otherwise require big capital.

2. Professional Management:

Even if an investor has a big amount of capital available to him, he benefits from the

professional management skills brought in by the fund in the management of the

investors portfolio. The investment management skills, along with the neededresearch into available investment options, ensure a much better return than what an

investor can manage on his own. Few investors have the skill and resources of their

own to succeed in todays fast moving, global and sophisticated markets.

3. Reduction/Diversification Of Risk:

When an investor invests directly, all the risk of potential loss is his own, whether he

places a deposit with a company or a bank, or he buys a share or debenture on his

own or in any other from. While investing in the pool of funds with investors, the

potential losses are also shared with other investors. The risk reduction is one of the

most important benefits of a collective investment vehicle like the mutual fund.

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4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all the

costs of investing such as brokerage or custody of securities. When going through a

fund, he has the benefit of economies of scale; the funds pay lesser costs because of

larger volumes, a benefit passed on to its investors.

5. Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and quickly sell.

When they invest in the units of a fund, they can generally cash their investments any

time, by selling their units to the fund if open-ended, or selling them in the market if

the fund is close-end. Liquidity of investment is clearly a big benefit.

6. Convenience And Flexibility:

Mutual fund management companies offer many investor services that a direct market

investor cannot get. Investors can easily transfer their holding from one scheme to the

other; get updated market information and so on.

7. Tax Benefits:

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

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

ended equity- oriented funds, income distributions for the year ending March 31,

2003, will be taxed at 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.

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8. Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

9. Well Regulated:

All Mutual Funds are registered with SEBI and they function within the provisions of

strict regulations designed to protect the interests of investors. The operations of

Mutual Funds are regularly monitored by SEBI.

10. Transparency:

You get regular information on the value of your investment in addition to disclosure

on the specific investments made by your scheme, the proportion invested in each

class of assets and the fund manager's investment strategy and outlook.

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4. The Wisdom of Professional Management:

That's right, this is not an advantage. The average mutual fund manager is no better at

picking stocks than the average nonprofessional, but charges fees.

5. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger

seat of somebody else's car.

6. Dilution:

Mutual funds generally have such small holdings of so many different stocks that

insanely great performance by a fund's top holdings still doesn't make much of a

difference in a mutual fund's total performance.

7. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who do

not make those costs clear to their clients.

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TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial

position, risk tolerance and return expectations etc. thus mutual funds has Variety of

flavors, Being a collection of many stocks, an investors can go for picking a mutual

fund might be easy. There are over hundreds of mutual funds scheme to choose from.

It is easier to think of mutual funds in categories, mentioned below:

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A). BY STRUCTURE

1. 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.

2. Close - Ended Schemes:

Closed-end fund has a stipulated maturity period which generally ranging from 3 to

15 years. The fund is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can

buy or sell the units of the scheme on the stock exchanges where they are listed. In

order to provide an exit route to the investors, some close-ended funds give an option

of selling back the units to the Mutual Fund through periodic repurchase at NAV

related prices. SEBI Regulations stipulate that at least one of the two exit routes is

provided to the investor.

3. 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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B). BY NATURE

1. 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 managers

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.

2. 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.

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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.

Short Term Plans (STPs):

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.

3. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in

both equities and fixed income securities, which are in line with pre-defined

investment objective of the scheme. These schemes aim to provide investors with the

best of both the worlds. Equity part provides growth and the debt part provides

stability in returns.

Further the mutual funds can be broadly classified on the basis of investment

parameter viz, Each category of funds is backed by an investment philosophy, which

is pre-defined in the objectives of the fund. The investor can align his own investment

needs with the funds objective and invest accordingly.

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C). BY INVESTMENT OBJECTIVE:

Growth Schemes:

Growth Schemes are also known as equity schemes. The aim of these schemes is to

provide capital appreciation over medium to long term. These schemes normally

invest a major part of their fund in equities and are willing to bear short-term decline

in value for possible future appreciation.

Income Schemes:

Income Schemes are also known as debt schemes. The aim of these schemes is to

provide regular and steady income to investors. These schemes generally invest in

fixed income securities such as bonds and corporate debentures. Capital appreciation

in such schemes may be limited.

Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically

distributing a part of the income and capital gains they earn. These schemes invest in

both shares and fixed income securities, in the proportion indicated in their offer

documents (normally 50:50).

Money Market Schemes:

Money Market Schemes aim to provide easy liquidity, preservation of capital and

moderate income. These schemes generally invest in safer, short-term instruments,

such as treasury bills, certificates of deposit, commercial paper and inter-bank call

money.

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Load Funds:

A Load Fund is one that charges a commission for entry or exit. That is, each time

you buy or sell units in the fund, a commission will be payable. Typically entry and

exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a

good performance history.

No-Load Funds:

A No-Load Fund is one that does not charge a commission for entry or exit. That is,

no commission is payable on purchase or sale of units in the fund. The advantage of a

no load fund is that the entire corpus is put to work.

OTHER SCHEMES:

Tax Saving Schemes:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from

time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity

Linked Savings Scheme (ELSS) are eligible for rebate.

Index Schemes:

Index schemes attempt to replicate the performance of a particular index such as the

BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those

stocks that constitute the index. The percentage of each stock to the total holding will

be identical to the stocks index weight age. And hence, the returns from such schemes

would be more or less equivalent to those of the Index.

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Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or

industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast

Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds

are dependent on the performance of the respective sectors/industries. While these

funds may give higher returns, they are more risky compared to diversified funds.

Investors need to keep a watch on the performance of those sectors/industries and

must exit at an appropriate time.

NET ASSET VALUE (NAV)

Since each owner is a part owner of a mutual fund, it is necessary to establish the

value of his part. In other words, each share or unit that an investor holds needs to be

assigned a value. Since the units held by investor evidence the ownership of the

funds assets, the value of the total assets of the fund when divided by the total

number of units issued by the mutual fund gives us the value of one unit. This is

generally called the Net Asset Value (NAV) of one unit or one share. The value of an

investors part ownership is thus determined by the NAV of the number of units held.

Calculation of NAV: If the value of a funds assets stands at Rs. 100 and it has 10

investors who have bought 10 units each, the total numbers of units issued are 100,

and the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3

units, the value of his ownership of the fund will be Rs. 30.00(1000/100*3). Note that

the value of the funds investments will keep fluctuating with the market-price

movements, causing the Net Asset Value also to fluctuate. For example, if the value

of our funds asset increased from Rs. 1000 to 1200, the value of our investors

holding of 3 units will now be (1200/100*3) Rs. 36. The investment value can go up

or down, depending on the markets value of the funds assets.

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2. PERIODIC FEES:

I) Management Fee:

Management fees are fees that are paid out of fund assets to the fund's investment

adviser for investment portfolio management, any other management fees payable to

the fund's investment adviser or its affiliates, and administrative fees payable to the

investment adviser that are not included in the "Other Expenses" category. They are

also called maintenance fees.

ii) Account Fee:

Account fees are fees that some funds separately impose on investors in connection

with the maintenance of their accounts. For example, some funds impose an account

maintenance fee on accounts whose value is less than a certain dollar amount.

3. OTHER OPERATING EXPENSES:

Transaction Costs:

These costs are incurred in the trading of the fund's assets. Funds with a highturnover

ratio, or investing in illiquid or exotic markets usually face higher transactioncosts.

Unlike the Total Expense Ratio these costs are usually not reported.

LOADS:

Definition of a load:

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or

sale of shares. A load is a type of Commission (remuneration). Depending on the type

of load a mutual fund exhibits, charges may be incurred at time of purchase, time of

sale, or a mix of both. The different types of loads are outlined below.

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Front-end load:

Also known as Sales Charge, this is a fee paid when shares are purchased. Also

known as a "front-end load," this fee typically goes to the brokers that sell the fund's

shares. Front-end loads reduce the amount of your investment. For example, let's say

you have Rs.10, 000 and want to invest it in a mutual fund with a 5% front-end load.

The Rs.500 sales load you must pay comes off the top, and the remaining Rs.9500

will be invested in the fund. According to NASD rules, a front-end load cannot be

higher than 8.5% of your invest.

Back-end load:

Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Also

known as a "back-end load," this fee typically goes to the brokers that sell the fund's

shares. The amount of this type of load will depend on how long the investor holds

his or her shares and typically decreases to zero if the investor holds his or her shares

long enough.

Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the fund.

Instead a back-end load may be charged if the shares purchased are sold within a

given time frame. The distinction between level loads and low loads as opposed to

back-end loads, is that this time frame where charges are levied is shorter.

No-load Fund:

As the name implies, this means that the fund does not charge any type of sales load.

But, as outlined above, not every type of shareholder fee is a "sales load." A no-load

fund may charge fees that are not sales loads, such as purchase fees, redemption fees,

exchange fees, and account fees.

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SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:

The first point to note before investing in a fund is to find out whether your objective

matches with the scheme. It is necessary, as any conflict would directly affect your

prospective returns. Similarly, you should pick schemes that meet your specific

needs. Examples: pension plans, childrens plans, sector-specific schemes, etc.

Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt

schemes, as they are relatively safer. Aggressive investors can go for equity

investments. Investors that are even more aggressive can try schemes that invest in

specific industry or sectors.

Fund Managers and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is

imperative that he manages it well. It is also essential that the fund house you choose

has excellent track record. It also should be professional and maintain high

transparency in operations. Look at the performance of the scheme against relevant

market benchmarks and its competitors. Look at the performance of a longer period,

as it will give you how the scheme fared in different market conditions.

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Cost factor:

Though the AMC fee is regulated, you should look at the expense ratio of the fund

before investing. This is because the money is deducted from your investments. A

higher entry load or exit load also will eat into your returns. A higher expense ratio

can be justified only by superlative returns. It is very crucial in a debt fund, as it will

devour a few percentages from your modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list

the years best performing mutual funds. Naturally, very eager investors will rush out

to purchase shares of last year's top performers. That's a big mistake. Remember,

changing market conditions make it rare that last year's top performer repeats that

ranking for the current year. Mutual fund investors would be well advised to consider

the fund prospectus, the fund manager, and the current market conditions. Never rely

on last year's top performers.

Types of Returns on Mutual Fund:

Income is earned from dividends on stocks and interest on bonds. A fund pays out

nearly all income it receives over the year to fund owners in the form of a

distribution.

If the fund sells securities that have increased in price, the fund has a capital gain.

Most funds also pass on these gains to investors in a distribution. If fund holdings

increase in price but are not sold by the fund manager, the fund's shares increase in

price. You can then sell your mutual fund shares for a profit.

Funds will also usually give you a choice either to receive a check for distributions

or to reinvest the earnings and get more shares.

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RISK FACTORS OF MUTUAL FUNDS:

1. 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 up to 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.

2. 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.

3. 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.

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4. Inflation Risk:

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 happen when inflation grows faster than the return on your

investment. A well-diversified portfolio with some investment in equities might help

mitigate this risk.

5. 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.

6. Political / Government Policy Risk:

Changes in government policy and political decision can change the investment

Environment. They can create a favourable environment for investment or vice versa.

7. 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.

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WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The

money is invested in various instruments depending on the objective of the scheme.

The income generated by selling securities or capital appreciation of these securities

is passed on to the investors in proportion to their investment in the scheme. The

investments are divided into units and the value of the units will be reflected in Net

Asset Value or NAV of the unit. NAV is the market value of the assets of the scheme

minus its liabilities. The per unit NAV is the net asset value of the scheme divided by

the number of units outstanding on the valuation date. Mutual fund companies

provide daily net asset value of their schemes to their investors. NAV is important, asit will determine the price at which you buy or redeem the units of a scheme.

Depending on the load structure of the scheme, you have to pay entry or exit load.

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STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In

India open and close-end funds operate under the same regulatory structure i.e. as unit

Trusts. A Mutual Fund in India is allowed to issue open-end and close-end schemes

under a common legal structure. The structure that is required to be followed by any

Mutual Fund in India is laid down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in

combination of another corporate body establishes a Mutual Fund. The sponsor of the

fund is akin to the promoter of a company as he gets the fund registered with SEBI.

The sponsor forms a trust and appoints a Board of Trustees. The sponsor also

appoints the Asset Management Company as fund managers.

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The sponsor either directly or acting through the trustees will also appoint a custodian

to hold funds assets. All these are made in accordance with the regulation and

guidelines of SEBI.

As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute

at least 40% of the net worth of the Asset Management Company and possesses a

sound financial track record over 5 years prior to registration.

Mutual Funds as Trusts:

A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund

sponsor acts as a settler of the Trust, contributing to its initial capital and appoints a

trustee to hold the assets of the trust for the benefit of the unit-holders, who are the

beneficiaries of the trust. The fund then invites investors to contribute their money in

common pool, by scribing to units issued by various schemes established by the

Trusts as evidence of their beneficial interest in the fund.

It should be understood that the fund should be just a pass through vehicle. Under

the Indian Trusts Act, the trust of the fund has no independent legal capacity itself,

rather it is the Trustee or the Trustees who have the legal capacity and therefore all

acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance

the investors or the unit-holders are the beneficial owners of the investment held by

the Trusts, even as these investments are held in the name of the Trustees on a day-to-

day basis. Being public trusts, Mutual Fund can invite any number of investors as

beneficial owners in their investment schemes.

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Trustees:

A Trust is created through a document called the Trust Deed that is executed by the

fund sponsor in favour of the trustees. The Trust- the Mutual Fund may be managed

by a board of trustees- a body of individuals, or a trust company- a corporate body.

Most of the funds in India are managed by Boards of Trustees. While the boards of

trustees are governed by the Indian Trusts Act, where the trusts are a corporate body,

it would also require to comply with the Companies Act, 1956. The Board or the

Trust company as an independent body, acts as a protector of the of the unit-holders

interests. The Trustees do not directly manage the portfolio of securities. For this

specialist function, the appoint an Asset Management Company. They ensure that the

Fund is managed by ht AMC as per the defined objectives and in accordance with the

trusts deeds and SEBI regulations.

The Asset Management Companies:

The role of an Asset Management Company (AMC) is to act as the investment

manager of the Trust under the board supervision and the guidance of the Trustees.

The AMC is required to be approved and registered with SEBI as an AMC. The AMCof a Mutual Fund must have a net worth of at least Rs. 10 Crores at all times.

Directors of the AMC, both independent and non- independent, should have adequate

professional expertise in financial services and should be individuals of high morale

standing, a condition also applicable to other key personnel of the AMC. The AMC

cannot act as a Trustee of any other Mutual Fund. Besides its role as a fund manager,

it may undertake specified activities such as advisory services and financial

consulting, provided these activities are run independent of one another and the

AMCs resources (such as personnel, systems etc.) are properly segregated by the

activity. The AMC must always act in the interest of the unit-holders and reports to

the trustees with respect to its activities.

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Custodian and Depositories:

Mutual Fund is in the business of buying and selling of securities in large volumes.

Handling these securities in terms of physical delivery and eventual safekeeping is a

specialized activity. The custodian is appointed by the Board of Trustees for

safekeeping of securities or participating in any clearance system through approved

depository companies on behalf of the Mutual Fund and it must fulfill its

responsibilities in accordance with its agreement with the Mutual Fund. The

custodian should be an entity independent of the sponsors and is required to be

registered with SEBI. With the introduction of the concept of dematerialization of

shares the dematerialized shares are kept with the Depository participant while the

custodian holds the physical securities. Thus, deliveries of a funds securities are

given or received by a custodian or a depository participant, at the instructions of the

AMC, although under the overall direction and responsibilities of the Trustees.

Bankers:

A Funds activities involve dealing in money on a continuous basis primarily with

respect to buying and selling units, paying for investment made, receiving the

proceeds from sale of the investments and discharging its obligations towards

operating expenses. Thus the Funds banker plays an important role to determine

quality of service that the fund gives in timely delivery of remittances etc.

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SEBI REGULATIONS:

As far as mutual funds are concerned, SEBI formulates policies and regulates the

mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds

sponsored by private sector entities were allowed to enter the capital market.

The regulations were fully revised in 1996 and have been amended thereafter from

time to time.

SEBI has also issued guidelines to the mutual funds from time to time to protect the

interests of investors.

All mutual funds whether promoted by public sector or private sector entities

including those promoted by foreign entities are governed by the same set of

Regulations. The risks associated with the schemes launched by the mutual funds

sponsored by these entities are of similar type. There is no distinction in regulatory

requirements for these mutual funds and all are subject to monitoring and inspections

by SEBI.

SEBI Regulations require that at least two thirds of the directors of trustee company

or board of trustees must be independent i.e. they should not be associated with the

sponsors.

Also, 50% of the directors of AMC must be independent. All mutual funds are

required to be registered with SEBI before they launch any scheme.

Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in

any scheme and that each scheme is subject to 20 : 25 condition [I.e. minimum 20

investors per scheme and one investor can hold more than 25% stake in the corpus in

that one scheme].

Also SEBI has permitted MFs to launch schemes overseas subject various

restrictions and also to launch schemes linked to Real Estate, Options and Futures,

Commodities, etc.

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ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association

in India was generated to function as a non-profit organisation. Association of Mutual

Funds in India (AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been

registered with Mutual Funds India has brought down the Indian Mutual Fund

Industry to a professional SEBI. Till date all the AMCs are that have launched mutual

fund schemes are its members. It functions under the supervision and guidelines of its

Board of Directors.

Association of and healthy market with ethical lines enhancing and maintaining

standards. It follows the principle of both protecting and promoting the interests of

mutual funds as well as their unit holders.

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The Objectives of Association of Mutual Funds in India:

The Association of Mutual Funds of India works with 30 registered AMCs of the

country. It has certain defined objectives which juxtaposes the guidelines of its Board

of Directors. The objectives are as follows:

This mutual fund association of India maintains high professional and ethical

standards in all areas of operation of the industry.

It also recommends and promotes the top class business practices and code of

conduct which is followed by members and related people engaged in the activities of

mutual fund and asset management. The agencies who are by any means connected or

involved in the field of capital markets and financial services also involved in this

code of conduct of the association.

AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual

fund industry.

Association of Mutual Fund of India do represent the Government of India, the

Reserve Bank of India and other related bodies on matters relating to the Mutual Fund

Industry.

It develops a team of well qualified and trained Agent distributors. It implements aprogramme of training and certification for all intermediaries and other engaged in

the mutual fund industry.

AMFI undertakes all India awareness programme for investors in order to promote

proper understanding of the concept and working of mutual funds.

At last but not the least association of mutual fund of India also disseminate

information on Mutual Fund Industry and undertakes studies and research either

directly or in association with other bodies.

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Conceptual background of the study:-

With a plethora of schemes to choose from, the retail investor faces problems in

selecting funds. Factors such as investment strategy and management style are

qualitative, but the funds record is an important indicator too. Though past

performance alone can not be indicative of future performance, it is, frankly, the only

quantitative way to judge how good a fund is at present.

Therefore, there is a need to correctly assess the past performance of different mutual

funds. Worldwide, good mutual fund companies over are known by their AMCs and

this fame is directly linked to their superior stock selection skills. For mutual funds to

grow, AMCs must be held accountable for their selection of stocks. In other words,

there must be some performance indicator that will reveal the quality of stock

selection of various AMCs.

Return alone should not be considered as the basis of measurement of the

performance of a mutual fund scheme, it should also include the risk taken by the

fund manager because different funds will have different levels of risk attached to

them. For evaluating the performance of selected Sectoral Mutual Fund schemes risk-

return relation models have been used like:

The Treynor Measure

The Sharpe Measure

Jenson Model

Fama Model

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The Treynor Measure

Developed by Jack Treynor, this performance measure evaluates funds on the basis of

Treynor's Index. This Index is a ratio of return generated by the fund over and aboverisk free rate of return (generally taken to be the return on securities backed by the

government, as there is no credit risk associated), during a given period and

systematic risk associated with it (beta). Symbolically, it can be represented as:

Treynor's Index (Ti) = (Ri - Rf)/Bi.

Where, Ri represents return on fund, Rf is risk free rate of return and Biis betaof the fund.

All risk-averse investors would like to maximize this value. While a high and positive

Treynor's Index shows a superior risk-adjusted performance of a fund, a low and

negative Treynor's Index is an indication of unfavorable performance.

The Sharpe Measure

In this model, performance of a fund is evaluated on the basis of Sharpe Ratio, which

is a ratio of returns generated by the fund over and above risk free rate of return and

the total risk associated with it. According to Sharpe, it is the total risk of the fund

that the investors are concerned about. So, the model evaluates funds on the basis of

reward per unit of total risk. Symbolically, it can be written as:

Sharpe Index (Si) = (Ri - Rf)/Si

Where, Si is standard deviation of the fund.

While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of

a fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

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Comparison of Sharpe and Treynor

Sharpe and Treynor measures are similar in a way, since they both divide the risk

premium by a numerical risk measure. The total risk is appropriate when we areevaluating the risk return relationship for well-diversified portfolios. On the other

hand, the systematic risk is the relevant measure of risk when we are evaluating less

than fully diversified portfolios or individual stocks. For a well-diversified portfolio

the total risk is equal to systematic risk. Rankings based on total risk (Sharpe

measure) and systematic risk (Treynor measure) should be identical for a well-

diversified portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly

diversified fund that ranks higher on Treynor measure, compared with another fund

that is highly diversified, will rank lower on Sharpe Measure.

Jenson Model

Jenson's model proposes another risk adjusted performance measure. This measure

was developed by Michael Jenson and is sometimes referred to as the Differential

Return Method. This measure involves evaluation of the returns that the fund has

generated vs. the returns actually expected out of the fund given the level of its

systematic risk. The surplus between the two returns is called Alpha, which measures

the performance of a fund compared with the actual returns over the period. Required

return of a fund at a given level of risk (Ri) can be calculated as:-

Ri = Rf + Bi (Rm - Rf)

Where, Rm is average market return during the given period. After calculating it,

alpha can be obtained by subtracting required return from the actual return of

the fund.

Higher alpha represents superior performance of the fund and vice versa. Limitation

of this model is that it considers only systematic risk not the entire risk associated

with the fund and an ordinary investor can not mitigate unsystematic risk, as his

knowledge of market is primitive.

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Fama Model

The Eugene Fama model is an extension of Jenson model. This model compares the

performance, measured in terms of returns, of a fund with the required returncommensurate with the total risk associated with it. The difference between these two

is taken as a measure of the performance of the fund and is called net selectivity.

The net selectivity represents the stock selection skill of the fund manager, as it is the

excess return over and above the return required to compensate for the total risk taken

by the fund manager. Higher value of which indicates that fund manager has earned

returns well above the return commensurate with the level of risk taken by him.

Required return can be calculated as:-

Ri = Rf + Si/Sm*(Rm - Rf)

Where, Sm is standard deviation of market returns. The net selectivity is then

calculated by subtracting this required return from the actual return of the fund.

Among the above performance measures, two models namely, Treynor measure and

Jenson model use systematic risk based on the premise that the unsystematic

risk is diversifiable. These models are suitable for large investors like institutional

investors with high risk taking capacities as they do not face paucity of funds and can

invest in a number of options to dilute some risks.

For them, a portfolio can be spread across a number of stocks and sectors. However,Sharpe measureandFama model that consider the entire risk associated with

fund are suitable for small investors, as the ordinary investor lacks the necessary

skill and resources to diversified.

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Moreover, the selection of the fund on the basis of superior stock selection ability of

the fund manager will also help in safeguarding the money invested to a great extent.

The investment in funds that have generated big returns at higher levels of risks

leaves the money all the more prone to risks of all kinds that may exceed the

individual investors' risk appetite.

BETA

Beta measures a stock's volatility, the degree to which its price fluctuates in relation

to the overall market. In other words, it gives a sense of the stock's market risk

compared to the greater market. Beta is used also to compare a stock's market risk to

that of other stocks. Investment analysts use the Greek letter '' to represent beta . This

measure is calculated using regression analysis. A beta of 1 indicates that the

security's price tends to move with the market. A beta greater than 1 indicates that the

security's price tends to be more volatile than the market, and a beta less than 1 means

it tends to be less volatile than the market.

=imr

i m

________________________

2

m

imr is correlation coefficient between market returns and fund returns.

i is standard deviation of fund returns.(Si)

m is standard deviation of market returns.(Sm)

2

m is market variance.

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Coefficient of Determination )(2

R --- a measure of reliability of Beta

Beta depends on the index used to calculate it. It can happen that the index bears no

correlation with the movements in the fund. Due to this reason, it is essential to take a

look at statistical value called Coefficient of Determination along with Beta. It shows

how reliable the beta number is. It varies between zero and one.

Value of 1 indicates perfect correlation with the indx. Thus, an If )( 2R =0.64 it

implies that 64% of the variation in the portfolio returns is due to variations in the

market returns. Mathematically it is the square of correlation coefficient(R).

)}(){(meanmean

yyxxn

R= -----------------------------------------------

22 )()(

meanmeanyyxx

Where X and Y are returns on the portfolio and returns on the market respectively.

Beta and )(2

R should thus be used together when examining a funds risk profile.

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NET ASSET VALUE (NAV)

NAV per unit of a scheme on a day is the net market value of the securities held by

the total no. of the units of the scheme on the particular day. It is actually the value ofof net asset per unit. Since the market value of securities changes everyday, NAV of

a fund also varies on a day to day basis. NAVs for open ended schemes are required

to be disclosed a daily basis (business day).

Net Assets of the scheme

NAV = ___________________

No. of units outstanding

Where,Numerator= Market value of investment + receivables + other Accrued Income +

Other Assets- Accrued Expenses-Other Payables-Other Liabilities.

Standard Deviation- a measure of Total Risk

Standard Deviation is the most common statistical measure of judging a funds

volatility and risk. It measures a funds total risk i.e. sum of systematic risk and

unsystematic risk. Mathematically it gives a quality rating of an avg. The SD of anavg. is the amt. By which the no. that go in to an avg. deviate from that avg. It tells us

how closely an avg. represents the underlying avg. But one thing to be kept in mind is

that a high Standard Deviation may be a measure of volatility, but it does not

necessarily mean that such a fund is worse than one with a low Standard Deviation. If

the first fund is a much higher performer than the second one, the deviation will not

matter much.

SD= 2)(1

meanixx

n

2)(meani

xx gives the square of the sum of differences of each value in the sample

from the mean of the sample of n element.

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CHAPTER III - INDUSTRY PROFILE

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Massachusetts Investors Trust (now MFS Investment Management) was founded on

March 21, 1924, and, after one year, it had 200 shareholders and $392,000 in assets.

The entire industry, which included a few closed-end funds, represented less than $10

million in 1924.

The stock market crash of 1929 hindered the growth of mutual funds. In response to

the stock market crash, Congress passed the Securities Act of 1933 and the Securities

Exchange Act of 1934. These laws require that a fund be registered with the U.S.

Securities and Exchange Commission (SEC) and provide prospective investors with a

prospectus that contains required disclosures about the fund, the securities

themselves, and fund manager. The Investment Company Act of 1940 sets forth the

guidelines with which all SEC-registered funds must comply.

With renewed confidence in the stock market, mutual funds began to blossom. By the

end of the 1960s, there were approximately 270 funds with $48 billion in assets. The

first retail index fund, First Index Investment Trust, was formed in 1976 and headed

by John Bogle, who conceptualized many of the key tenets of the industry in his

1951 senior thesis at Princeton University. It is now called the Vanguard 500 Index

Fund and is one of the world's largest mutual funds, with more than $100 billion in

assets.

A key factor in mutual-fund growth was the 1975 change in the Internal Revenue

Code allowing individuals to open individual retirement accounts (IRAs). Even

people already enrolled in corporate pension plans could contribute a limited amount

(at the time, up to $2,000 a year). Mutual funds are now popular in employer-

sponsored "defined-contribution" retirement plans such as (401(k)s) and 403(b)s as

well as IRAs including Roth IRAs.

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INDIAN SCENARIO

The mutual fund industry in India started in 1963 with the formation of Unit Trust of

India, at the initiative of the Government of India and Reserve Bank of India. The

history of mutual funds in India can be broadly divided into four distinct phases

First Phase 1964-87

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

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

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

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

regulatory and administrative control in place of RBI. The first scheme launched by

UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets

under management.

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

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

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

Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund

established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab

National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of

India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual

fund in June 1989 while GIC had set up its mutual fund in December 1990.

At the end of 1993, the mutual fund industry had assets under management of

Rs.47,004 crores.

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

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

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

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

which all mutual funds, except UTI were to be registered and governed. The erstwhile

Kothari Pioneer (now merged with Franklin Templeton) was the first private sector

mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

comprehensive and revised Mutual Fund Regulations in 1996. The industry now

functions under the SEBI (Mutual Fund) Regulations 1996.

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

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

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

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

under management was way ahead of other mutual funds.

Fourth Phase since February 2003

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

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

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

January 2003, representing broadly, the assets of US 64 scheme, assured return and

certain other schemes. The Specified Undertaking of Unit Trust of India, functioning

under an administrator and under the rules framed by Government of India and does

not come under the purview of the Mutual Fund Regulations.

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The second is the UTI Mutual Fund, 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 and growth.

The graph indicates the growth of assets over the years.

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CHAPTER IV - COMPANY PROFILE

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INDIA INFOLINE LIMITED

India Infoline is a one-stop financial services shop, most respected for quality of its

information, personalized service and cutting-edge technology.

Vision

Our vision is to be the most respected company in the financial services space.

India Infoline Group

The India Infoline group, comprising the holding company, India Infoline Limited

and its wholly-owned subsidiaries, include the entire financial services space with

offerings ranging from Equity research, Equities and derivatives trading,

Commodities trading, Portfolio Management Services, Mutual Funds, Life Insurance,

Fixed deposits, GoI bonds and other small savings instruments to loan products and

Investment banking.

India Infoline also owns and manages the websites www.indiainfoline.com and

www.5paisa.com. The company has a network of over 2100 business locations

(branches and sub-brokers) spread across more than 450 cities and towns. The group

caters to approximately a million customers.

Founded in 1995 by Mr. Nirmal Jain (Chairman and Managing Director) as an

independent business research and information provider, the company gradually

evolved into a one-stop financial services solutions provider.

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India Infoline received registration for a housing finance company from the National

Housing Bank and received the Fastest growing Equity Broking House - Large

firms in India by Dun & Bradstreet in 2009. It also received the Insurance broking

license from IRDA; received the venture capital license; received in principle

approval to sponsor a mutual fund; received Best broker- India award from Finance

Asia; Most Improved Brokerage- India award from Asia money.

COMPANY STRUCTURE

India Infoline Limited is listed on both the leading stock exchanges in India, viz. the

Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also

a member of both the exchanges. It is engaged in the businesses of Equities broking,

Wealth Advisory Services and Portfolio Management Services. It offers broking

services in the Cash and Derivatives segments of the NSE as well as the Cash

segment of the BSE. It is registered with NSDL as well as CDSL as a depository

participant, providing a one-stop solution for clients trading in the equities market. It

has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to

clients. These services are offered to clients as different schemes, which are based on

differing investment strategies made to reflect the varied risk-return preferences of

clients.

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India Infoline Media and Research Services Limited

The services represent a strong support that drives the broking, commodities, mutual

fund and portfolio management services businesses. It undertakes equities research

which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must

read for investors in Asia'. India Infoline's research is available not just over the

internet but also on international wire services like Bloomberg (Code: IILL),

Thomson First Call and Internet Securities where India Infoline is amongst the most

read Indian brokers.

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India Infoline Commodities Limited.

India Infoline Commodities Pvt Limited is engaged in the business of commodities

broking. Their experience in securities broking empowered them with the requisite

skills and technologies to allow them to offer commodities broking as a contra-

cyclical alternative to equities broking. It enjoys memberships with the MCX and

NCDEX, two leading Indian commodities exchanges, and recently acquired

membership of DGCX. It has a multi-channel delivery model, making it among the

select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India

Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited.

India Infoline Insurance Services Limited is a registered Corporate Agent with

the Insurance Regulatory and Development Authority (IRDA). It is the largest

Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is

India's largest private Life Insurance Company. India Infoline was the first

corporate agent to get licensed by IRDA in early 2001.

India Infoline Insurance Brokers Limited India Infoline Insurance Brokers

Limited is a newly formed subsidiary which will carry out the business of

Insurance broking.

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IIFL MANAGEMENT

THE MANAGEMENT TEAM

Mr. Nirmal Jain, Chairman & Managing Director

Nirmal Jain, MBA (IIM, Ahmadabad) and a Chartered and Cost Accountant, founded

Indias leading financial services company India Infoline Ltd. in 1995,

providing globally acclaimed financial services in equities and

commodities broking, life insurance and mutual funds distribution, among others.

Mr. R Venkataraman, Executive Director

R Venkataraman, co-promoter and Executive Director of India

Infoline Ltd., is a B. Tech (Electronics and Electrical Communications

Engineering, IIT Kharagpur) and an MBA (IIM Bangalore). He joined

the India Infoline board in July 1999.

THE BOARD OF DIRECTORS

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline

Ltd. comprises:

Mr. Nilesh Vikamsey, Independent Director

Mr. Vikamsey, Board member since February 2005 - a practicing Chartered

Accountant and partner (Khimji Kunverji & Co., Chartered

Accountants), a member firm of HLB International, headed the audit

department till 1990 and thereafter also handles financial services, consultancy,

investigations, mergers and acquisitions, valuations etc

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Mr Sat Pal Khattar, Non Executive Director

Mr Sat Pal Khattar, - Board member since April 2001 - Presidential Council of

Minority Rights member, Chairman of the Board of Trustee of

Singapore Business Federation, is also a life trustee of SINDA, a non

profit body, helping the under-privileged Indians in Singapore. He joined the India

Infoline board in April 2001.

Mr Kranti Sinha, Independent Director

Mr. Kranti Sinha Board member since January 2005 completed

his masters from the Agra University and started his career as a Class I

officer with Life Insurance Corporation of India.

Mr Arun K. Purvar, Independent Director

Mr. A.K. Purvar Board member since March 2008 completed his

Masters degree in commerce from Allahabad University in 1966 and a

diploma in Business Administration in 1967.

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PRODUCTS & SERVICES

Equities

India Infoline provided the prospect of researched investing to its clients, which was

hitherto restricted only to the institutions. Research for the retail investor did not exist

prior to India Infoline. India Infoline leveraged technology to bring the convenience

of trading to the investors location of preference (residence or office) through

computerized access. India Infoline made it possible for clients to view transaction

costs and ledger updates in real time. The Company is among the few financial

intermediaries in India to offer a complement of online and offline broking. The

Companies network of branches also allows customers to place orders on phone or

visit our branches for trading.

Commodities

India Infolines extension into commodities trading reconciles its strategic intent to

emerge as a one stop solutions financial intermediary. Its experience in securities

broking has empowered it with requisite skills and technologies. The Companies

commodities business provides a contra-cyclical alternative to equities broking. The

Company was among the first to offer the facility of commodities trading in Indias

young commodities market (the MCX commenced operations in 2003). Average

monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs

20.02 bn.

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Insurance

An entry into this segment helped complete the client's product basket; concurrently,

it graduated the Company into a one stop retail financial solutions provider. To ensure

maximum reach to customers across India, it has employed a multi pronged approach

and reaches out to customers via our Network, Direct and Affiliate channels. India

Infoline was the first corporate in India to get the agency license in early 2001.

Invest Online

India Infoline has made investing in Mutual funds and primary market so effortless.

Only registration is needed. No paperwork no queues and No registration

charges. India Infoline offers a host of mutual fund choices under one roof,

backed by in-depth research and advice from research house and tools configured

as investor friendly.

Wealth Management

The key to achieving a successful Investment Portfolio is to have a carefully planned

financial strategy based on a thorough understanding of the client's investment

needs and risk appetite. The IIFL Private Wealth Management Team of financial

experts will recommend an appropriate financial strategy to effectively meet

customers investment requirements.

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Asset Management

India Infoline is a leading pan-India mutual fund distribution house associated with

leading asset management companies. It operates primarily in the retail segment

leveraging its existing distribution network to reach prospective clients. It has

received the in-principle approval to set up a mutual fund.

Portfolio Management

IIFL Portfolio Management Service is a product wherein an equity investment

portfolio is created to suit the investment objectives of a client. India Infoline

invests the clients resources into stocks from different sectors, depending on

clients risk-return profile. This service is particularly advisable for investors who

cannot afford to give time or don't have that expertise for day-to-day

management of their equity portfolio.

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CHAPTER V

DATA ANALYSIS & INTERPRETATIONS

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HSBC IN INDIA

The anecdotes of the HSBC group in India can be traced back to October 1853 when

the mercantile bank of India, London, and china was founded in Bombay. Starting

with an authorized capital of Rs 5 Million, the Mercantile Bank soon opened offices

in London, Chennai, and Colombo, Kandy followed by Kolkata, Singapore, Hong

Kong and Shanghai by 1855.

The acquisition in 1959 by the Hong Kong and Shanghai Banking Corporation

Limited of the Mercantile Bank was a decisive factor in laying the foundation for

todays HSBC Group. Founded in 1865 to serve the needs of the Merchants of the

China coast and finance the growing trade between China Europe and the United

States, HSBC has been an international bank from its earliest days.

Through the 1990s, HSBC has vigorously developed its role as one of the leading

banking and financial services organizations in the world. Its strategy of managing for

value emphasis the groups unique balance of business and earnings between older,

mature economies and faster-growing emerging markets.

The organizations adaptability, resilience and commitment to its customers have

further enabled it to survive through turbulent times and prosper through good times

over the past 150 years.

HSBC as a Group it is into other fields. In India 2566o employees are working in 89

offices of HSBC Group.

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HSBC Group entities in India are as follows:

HSBC Asset Management (India) Private Limited

HSBC Electronic Data Processing (India) Private Limited

HSBC Insurance Brokers (India) Private Limited

HSBC Operations and Processing Enterprise (India) Private Limited

HSBC Software Development (India) Private Limited

HSBC Private equity management (Mauritius) Private Limited

HSBC Professional services (India) Private Limited

HSBC Securities and capital markets (India) Private Limited

HSBC The Hong Kong and Shanghai Banking Corporation Limited (HBAP)

HSBC EQUITY FUND

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Minimum redemption

amountRs 1,000 and multiples of Rs 1 thereof

Mode of holding Single, joint or Anyone or SurvivorNomination facility Available

Redemption

Within 10 working days of the receipt of the redemption

request at the Official Points of Acceptance of Transactionsof the Registrar and the AMC. The Fund would endeavour toeffect redemption payouts (net of applicable taxes) withinthree business days under normal circumstances

Asset allocation

65-100 per cent equity and equity related securities, 0-35 percent debt securities plus money market instruments(including cash and cash equivalents)

Dividend frequency

Declaration of dividend and its frequency will inter-aliadepend upon the distributable surplus.Dividend may be declared from time to time at the discretionof the Trustees.

Purchase/RedemptionsAll business daysNAV calculation All business daysFund manager Jitendra Sriram

HSBC OPPORTUNITIES FUND

Name of thescheme

HSBC Opportunities Fund

Investmentobjective

Seeks long term capital growth through investments across all market capitalisations,including small, mid and large cap stocks. It aims to be predominantly invested in equityand equity related securities. However it could move a significant portion of its assetstowards fixed income securities if the fund manager becomes negative on equitymarkets.

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Options Dividend (payout/reinvestment) and growthDate of allotment 24 February 2004

Minimumapplication

amountRs 10,000 per application

Minimumadditionalinvestment

Rs 1,000 and multiples of Rs 1 thereafter

Load structure(including SIP/STPwhere applicable)

Entry LoadNil

Exit Load1% - if redeemed / switched out* within 1 year from date of investment; Otherwise Nil.

* No Load in case of switches between equity Schemes of HSBC Mutual Fund. No loadin case of investments by Fund-of-Funds Scheme(s) except HSBC Dynamic Fund andHSBC Flexi Debt Fund. Bonus units and units issued on reinvestment of dividends shallnot be subject to exit load. The exit load set forth is subject to change at the discretion ofthe AMC and such changes shall be implemented prospectively.

Transparency

NAV will be determined on every business day. NAV of the scheme/option(s) shall bemade available at all Investor Service Centres of the AMC. The AMC shall have the NAVpublished in two daily newspapers and updated on the AMC's websitewww.assetmanagement.hsbc.com/in

Systematicinvestment plan

Monthly/Quarterly planMonthly - a minimum of 12 cheques of Rs 1,000 eachQuarterly - a minimum of 4 cheques of Rs 3,000 each

Systematicencashment plan

Monthly/Quarterly. NAV as on first business day of each month. Fixed amount or Capitalappreciation.

Cut-off timeSubscriptionRedemption

Switch inSwitch out

3.00 pm3.00 pm3.00 pm3.00 pm

Minimumredemption

amountRs 1,000 and multiples of Rs 1 thereof

Mode of holding Single, joint, Anyone or SurvivorNomination facilityAvailable to individuals for single/joint holding

Redemption

Within 10 working days of the receipt of the redemption request at the Official Points of

Acceptance of Transactions of the Registrar and the AMC. The Fund would endeavour toeffect redemption payouts (net of applicable taxes) within three business days undernormal circumstances

Asset allocation65-100 per cent equity and equity related securities, 0-35 per cent money marketinstruments (including cash, money at call)

Dividendfrequency

Declaration of dividend and its frequency will inter-alia depend upon the distributablesurplus.Dividend may be declared from time to time at the discretion of the Trustees.

Purchaseredemptions

All business days

NAV calculation All business daysFund manager Jitendra Sriram and Dhimant Shah

HSBC MIDCAP EQUITY FUND

Name of thescheme

HSBC Midcap Equity Fund

Investmentobjective

The Fund is an open-ended growth scheme seeking to generate long term capital growthfrom an actively managed portfolio of equity and equity related securities primarily beingmidcap stocks. However, it could move a portion of its assets towards fixed incomesecurities if the fund manager becomes cautious or negative on the Indian equitymarkets.

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Options Dividend (payout/reinvestment) and growthDate of allotment 19 May 2005

Minimumapplication

amountRs 10,000 per application

Minimumadditionalinvestment

Rs. 1000/- and multiples of Re. 1/- thereafter

Load structure(Including SIP/STPwhere applicable)

Entry LoadNil

Exit Load1% - if redeemed / switched out* within 1 year from date of investment; Otherwise Nil.

* No Load in case of switches between equity Schemes of HSBC Mutual Fund. No loadin case of investments by Fund-of-Funds Scheme(s) except HSBC Dynamic Fund andHSBC Flexi Debt Fund. Bonus units and units issued on reinvestment of dividends shallnot be subject to exit load. The exit load set forth is subject to change at the d

mutual funds hsbc abstract

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