final project report on mutual fund

7/28/2019 Final Project Report on Mutual Fund

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PRESTIGE INSTITUTE OF MANAGEMENT

AND RESEARCH, INDORE

SUMMER TRAINING PROJECT REPORTON

STUDY ON MUTUAL FUND

From Religare Securities Ltd., Indore

Submitted for the partial fulfilment of the DegreeOf Master in Business Administration

(Batch: 2011-13)

Faculty Guide: Submitted By:

Prof. Deepak Jaroliya Rajni Pasrija

MBA 3rd

SEM (Core)

Scholar No.


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CERTIFICATE


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DECLARATION

I hereby declare that this report is on STUDY ON MUTUAL FUND at Religare

securities ltd, Indore. Has been written and prepared by me during the academic

year 2011-2013. This project was done under the guidance and supervision of

Prof. Deepak Jaroliya, faculty PIMR Indore and Mohd. Quazi Shohib khan,

Branch Manager at Religare Securities ltd. Indore in partial fulfilment of Degree

of Master of Business Administration of Prestige Institute of Management And

Research, Indore.

I also declare that this project is result of my own effort and has not been submitted

to any other institution for award of any degree or diploma.

Rajni Pasrija

Place: Indore


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CERTIFICATE FROM THE FACULTY GUIDE

This is to certify that the project work entitledSTUDY OF MUTUAL FUND is a piece ofwork done by RAJNI PASRIJA , student of Prestige Institue Of Management And Research ,

under myguidance and supervision for the partial fulfillment of the coursePost Graduation Programme Management,Prestige Institute of Management And Research.

As per my knowledge her work is original and genuine.

Prof. Deepak Jaroliya


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ACKNOWLEDGEMENT

It is said, the most important single word is WE and the zero important single

word is I. This is true even in todays modern era. It is absolutely impossible for

a single individual to complete the assigned job without help and assistance fromothers.

It is my greatest pleasure to acknowledge sincere gratitude towards to Mr. VikrantDale and Mohd. Quazi Shoeib Khan from the Religare for giving me anopportunity to work with Religare as an intern and helping me with almost all the

problems I encountered during the completion of this project work.

I would also like to express my sincere gratitude for Mohd. Shahid Khan andother employees who mentored me on various aspects of Derivatives, as aneffective tool for investment during the course of my training and also helped mein completing this project.

I am also thankful to all of my friends for their help in completing this projectwork. Finally, I am thankful to my entire family members for their great supportand encouragement.

Under Religare Securities Ltd., Indore. I have learnt about the company, its

structure, operations, and the online trading system along with products and

services it offers to its customers. It provided me a platform to have a look of

corporate culture and the experience of working in office. The experience that I

have gained over month & a half training is impeccable. It will definitely help me

in future to take any sort of business assignment.

With Warm Regards

Rajni Pasrija


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CONTENT PAGE

1. INTRODUCTION TO ORGANISATION2.

ORGANISATION STUCTURE3.FINANCIAL PERFORMANCE4.PERSONNEL5.PRODUCT AND SERVICES6.MARKETING7.STRENGTH AND WEAKNESS OF COMPANY8.ANNEXURES MUTUAL FUND

INTRODUCTION TO MUTUAL FUND HISTORY OF INDIAN MUTUAL FUND INDUSTRY MUTUAL FUND STRUCTURE MUTUAL FUND OPERATION MUTUAL FUND CLASSIFICATION RISK HIERARCHY OF MUTUAL FUND COMPARISON OF MUTUAL FUND ADVANTAGES OF MUTUAL FUND DISADVANTAGES OF MUTUAL FUND RISK INVOLVED IN MUTUAL FUND NET ASSET VALUE BASIC CONCEPTS OF LOAD FACTORS AFFECTING MUTUAL FUND FUTURE OF MUTUAL FUND MARKETING CHALLENGES TO MUTUAL FUND INDUSTRY

9.GLOSSARY10.REFERENCES AND BIBLIOGRAPHY


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1. INTRODUCTIONName

Religare is a Latin word that translates as 'to bind together'. This name has been chosen to reflectthe integrated nature of the financial services the company offers.

Symbol

The Religare name is paired with the symbol of a four-leaf clover. Traditionally, it is consideredgood fortune to find a four-leaf clover as there is only one four-leaf clover for every 10,000three-leaf clovers found. For us, each leaf of the clover has a special meaning. It is a symbol

of Hope. Trust. Care. Good Fortune. For the world, it is the symbol of Religare.

The first leaf of the clover represents Hope. The aspirations to succeed. The dream ofbecoming. Of new possibilities. It is the beginning of every step and the foundation on which aperson reaches for the stars.

The second leafof the clover represents Trust. The ability to place ones own faith in another.To have a relationship as partners in a team. To accomplish a given goal with the balance thatbrings satisfaction to all, not in the binding, but in the bond that is built.

The third leafof the clover represents Care. The secret ingredient that is the cement in everyrelationship. The truth of feeling that underlines sincerity and the triumph of diligence in everyaspect. From it springs true warmth of service and the ability to adapt to evolving environmentswith consideration to all.

The fourth and final leafof the clover represents Good Fortune. Signifying that rare abilityto meld opportunity and planning with circumstance to generate those often looked forremunerative moments of success.

Hope. Trust. Care. Good Fortune. All elements perfectly combine in the emblematic and

rare, four-leaf clover to visually symbolize the values that bind together and form the

core of the Religare vision.


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RELIGARE ENTERPRISES LIMITED

Religare, a Ranbaxy promoter group company, is one of Indias largest and fastest growing

integrated financial services institutions. The company offers a large and diverse bouquet of

services ranging from equities, commodities, insurance broking, to wealth advisory, portfolio

management services, personal finance services, Investment banking and institutional broking

services.

The services are broadly clubbed across three key business verticals- Retail, Wealth management

and the Institutional spectrum. Religare Enterprises Limited is the holding company for all its

businesses, structured and being operated through various subsidiaries.

Religares retail network spreads across the length and breadth of the country with its presence

through more than 900 locations across more than 300 cities and towns. Having spread itself

fairly well across the country and with the promise of not resting on its laurels, it has also

aggressively started eyeing global geographies

Religare is lead by a highly regarded management team that has invested crores of rupees into a

world class Infrastructure that provides there clients with real-time service & 24/7 access to all

information and products. Their flagship Religare Professional Networkoffers real-time prices,

detailed data and news, intelligent analytics, and electronic trading capabilities, right at your

fingertips. This powerful technology is complemented by there knowledgeable and customer

focused Relationship Manager.

Religare offers a full range of financial services and products ranging from Equities to Mutual

Funds to enhance your wealth and hence, achieve your financial goals. Religares Client

Relationship Managers are available to you to help with your financial planning and investment

needs. To provide the highest possible quality of service, Religare provides full access to all our

products and services through multi-channels.


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Religare is a full service investment firm offering clients access to a tremendous range of

financial services from 150 locations across 180 cities. We have a strong team of over 750 Client

Relationship Managers focused on serving your unique needs. Our world-class infrastructure,

built with tens of cores of investment, provides our clients with real-time service, multi-channel

& 24/7 accesses to all information and products. As weve expanded and developed to serve theneeds of all kinds of investors, weve been guided by one underlying philosophy: You come

first.

VISION

To build Religare as a globally trusted brand in the financial services domain and present it as

the Investment Gateway of India

MISSION

Providing financial care driven by the core values of diligence and transparency.

BRAND ESSENCE

Ethical and dynamic processes for wealth creation drive Religare


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GROUP DIVISIONS


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RELIGARE SECURITIES LIMITED

Religare Securities Limited was incorporated on July 1992 as Fortis Securities Limited at NewDelhi under the Companies Act, 1956 with Registration No. IN 301774. The name of the

Company was changed to Religare Securities Limited in the year 2006 due to change in the main

objects of the Company from Hospital Services to Investment & Financial Services business.

Company was promoted by Ranbaxy Promoters Group Companies headquarters are co-located

in Mumbai and Delhi, allowing it to access the two most important regions for Indian financial

markets, the Western region including Mumbai, rest of Maharashtra and Gujarat; and the

Northern region, including the National Capital Territory of Delhi, nearby cities, parts of

Haryana, Uttar Pradesh and Punjab; and access the highly skilled and educated workforce in

these cities. The Marketing and Sales efforts are headquartered out of Mumbai; with a regional

headquarter in Delhi; and its back office, risk management, internal finances etc. are

headquartered out of Delhi, allowing our Company to scale these processes efficiently for the

nationwide network.

Religare Securities Limited (RSL) is a leading equity and securities firm in India. The company

currently handles almost 4-5% of the total volumes traded on NSE and in the realm of online

trading and investments it currently holds a share of close to 8% of the market, as per some

recent published reports. The major activities and offerings of the company today are Equity

broking, Depository participant services, Portfolio Management Services, Institutional Brokerage

& Research, Investment Banking and Corporate Finance. To broaden the gamut of services

offered to its investors, the company has also recently unveiled a new avatar of its online

investment portal armed with a host of revolutionary features.

RSL is a member of the National Stock Exchange of India, Bombay Stock Exchange of India,

Depository Participant with National Securities Depository Limited and Central Depository

Services (I) Limited, and SEBI approved Portfolio Manager.

Religare has been constantly innovating in terms of product and services and to offer such

incisive services to specific user segments it has also started the NRI, FII, HNI and Corporate

Servicing groups. These groups take all the portfolio investment decisions depending upon a

clients risk / return Religare has a very credible research and analysis division, which not onlycaters to the need of our institutional clients but also gives their valuable inputs to investment

dealers.


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Religare is also giving in house depository services to its clients and is one of the leading

depository service providers in the country.

In a span of less than five years of its retail operations, RSL has recorded a healthy growth rate

both in business volumes and profitability, which is clearly significant from the growth of its

footprints across India.

KEY EVENTS & MILESTONES

1994 RSL received membership of the NSE as stock broker

2000 RSL received membership of the Futures and Options segment of the NSE RSL receivedregistration as Depository Participant with NSDL

2002 RSL received registration as Portfolio Manager from SEBI

2003 RSL received registration as Depository Participant with CDSL.

2004 RSL received membership of the BSE as stock broker

2006 Establishment of representative office in London. RCL received membership of NMCE.RIBL received licence from IRDA to act as composite broker. Joint venture agreement withAegon International N.V. for carrying on the business of mutual fund asset management.RSLreceived registration as Merchant Banker in Category - I from SEBI.

2007 -RSL received membership of derivative segment of the BSE as trading-cum-clearing

member


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2. ORGANISATION STRUCTURE

MD & CEO

RETAIL HEAD

AREA MANAGER(INDORE)

BRANCH MANAGER

AREA MANAGER(BHOPAL)

BRANCH MANAGER

AREA MANAGER(GWALIOR)

BRANCH MANAGER

INSTITUTION CUSTODIAN


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3. FINANCIAL PERFORMANCE

Balance Sheet of Religare Enterprises

------------------- in Rs. Cr. -------------------

Mar '11 Mar '10 Mar '09 Mar '08 M

12 mths 12 mths 12 mths 12 mths 12

Sources Of Funds

Total Share Capital 176.43 152.81 101.29 76.08 64

Equity Share Capital 139.43 127.81 76.29 76.08 64

Share Application Money 0.00 0.18 1,800.16 0.00 0.

Preference Share Capital 37.00 25.00 25.00 0.00 0.

Reserves 3,014.85 2,408.07 617.19 405.24 22

Revaluation Reserves 0.00 0.00 0.00 0.00 0.

Networth 3,191.28 2,561.06 2,518.64 481.32 28

Secured Loans 0.00 0.00 0.00 0.00 0.

Unsecured Loans 9.84 22.22 0.00 75.40 3.

Total Debt 9.84 22.22 0.00 75.40 3.

Total Liabilities 3,201.12 2,583.28 2,518.64 556.72 29


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Mar '11 Mar '10 Mar '09 Mar '08 M

12 mths 12 mths 12 mths 12 mths 12

Application Of Funds

Gross Block 32.53 25.67 3.73 0.56 0.

Less: Accum. Depreciation 8.63 4.54 0.36 0.05 0.

Net Block 23.90 21.13 3.37 0.51 0.

Capital Work in Progress 1.83 0.00 0.01 0.07 0.

Investments 3,093.51 2,653.85 2,023.55 545.28 28

Inventories 0.00 0.00 0.00 0.00 0.

Sundry Debtors 20.79 8.31 0.92 0.06 0.

Cash and Bank Balance 53.29 25.81 0.36 1.07 3.

Total Current Assets 74.08 34.12 1.28 1.13 3.

Loans and Advances 62.88 51.19 22.69 19.59 4.

Fixed Deposits 0.00 2.54 472.84 0.70 0.

Total CA, Loans & Advances 136.96 87.85 496.81 21.42 7.

Deffered Credit 0.00 0.00 0.00 0.00 0.

Current Liabilities 30.33 177.52 3.97 1.70 3.

Provisions 24.76 2.02 1.13 8.87 2.

Total CL & Provisions 55.09 179.54 5.10 10.57 5.

Net Current Assets 81.87 -91.69 491.71 10.85 1.

Miscellaneous Expenses 0.00 0.00 0.00 0.00 0.


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Total Assets 3,201.11 2,583.29 2,518.64 556.71 29

Contingent Liabilities 712.18 380.01 585.01 92.03 30

Book Value (Rs) 226.22 198.40 90.90 63.26 44


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4. PERSONNEL

4.1 -RECRUITMENT PROCESS

Creating and managing an effective human capital supply-chain system Fulfilling targeted recruiting campaigns and search projects Locating, accessing and utilizing "flexible" professionals and associates to support defined

projects/functions and production cycles

Accelerated growth, major technological or process changes and acquisitions which in someway affect their current or future talent needs

H/R outsourcing, payroll administration, benefits administration, workers compadministration, unemployment administration.

4.2 PERSONNEL POLICIES

4.2.1 Brand and Corporate Communication Policy4.2.2 Vendor / Agency Management Policy4.2.3 Dress Code Policy

4.2.4 Notice Period Buyout Policy4.2.5 Attendance Policy


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4.3 TRAINING AND DEVELOPMENT

Key Focus Areas

The Learning and Development Center of Excellencefocuses on 2key areas

1.Behavioral skills development

Programs are based along a learning continuum mapped to role skill complexity.

Behavioral Skills Development Programs are categorized into two parts :Organization Role Based: To build the behavioral skills that employees are required to displayfor that role to be able to perform effectively

Skill/ Need Based: To build the skills that are specific only to a particular role and need to bedeveloped to ensure enhanced productivity in those roles

2.Product/Functionaltraining

E-Learning caters to the crucial need of these employees to be thorough with their productknowledge in order to:Build greater credibility in the eyes of the client

Stay ahead of the competition in the market

Influence higher sales thereby achieving greater targets

Be able to cross sell products

Product/ Functional Training at Religare is deployed through the means of E-Learning at the :ReligareAcademyIt is the online portal accessible by all regular employees.Product/Functional Training through E-Learning caters to the crucial need of these employees tobe thorough with their product knowledge in order to do their job better and add to the overallprofit of the businessThere are certain courses which are mandatory to a particular business andothers which are good to study for knowledge enhancement and cross-selling.

Mandatory Courses

These courses are mandatory to be finished by employees during their probation period

Other Courses

These courses are meant to enhance product knowledge of employees for businesses other thantheir core business


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They will enable employees to have greater knowledge, see the bigger picture and be able cross-sell products

They can be completed over a due course of time

4.4 WELFARE ACTIVITIES

4.4.1 Corporate Social Responsibility

Religare runs an Investor Awareness Program which, through a number of awareness andeducation led initiatives, helps people understand the economy and the financial markets.

Religare also partners the Save LIFE Foundation, a non- profit NGO that focuses on bystandercare for road accident victims in India, the Akshaya Patra Foundation, a school meal program tofacilitate the education of underprivileged children in India, and the SOS Childrens Villages ofIndia which provides care to orphaned children.

4.4.2 Initiatives

Partnership with Save LIFE Foundation:Partnered with the Save LIFE Foundation (SLF) a non- profit, non-governmental organizationthat focuses on bystander care for road accident victims in India. Our support will enable SLF toprepare professionally designed training material for distribution and enhance their primaryresearch capabilities.

Sponsorship of Family Home at SOS Children''s Village:Approximately 5000 children die every day in India, due to lack of amenities or nutrition. To

tackle this problem Religare has partnered with SOS Childrens Villages of India which sets uphomes that look after orphaned children. Each village has homes with 8-10 children who staythere till they complete their education.

Association with Give India:We''ve begun an employee initiative with the Give India Foundation, where employees donate apart of their salaries to their pet causes.

Part of the Akshaya Patra Movement:Joined hands with the Akshaya Patra movement, a pioneering school meal program that provides

unlimited, nutritious, hygienically cooked hot noon meals in government schools andgovernment run day-care centers (anganwadis). Religare has agreed to sponsor 1,000 children fora period of one year.


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4.4.3 EVENTS

Fund Raiser for Ladakh Flash Floods:We had partnered with NDTV to raise funds for victims of flash floods in Ladakh. The ReligareArt Gallery hosted a charity photography exhibition to show solidarity with families affected by

the tragedy.

Save the Environment Week at SOS Children's Village:In August 2010, we organized a ''Save the Environment'' week for British School children at theSOS Children''s Village. The week began with the 6 children attending an introductory session atReligare premises as part of their community service week. From day 2, the children spent 2hours a day with over 20 children from the Village to spread awareness on environmental issues.Activities undertaken by the children ranged from poster making, quizzes and a skit.

The Delhi Half Marathon:Ran the Airtel Delhi Half Marathon 2010 in the Corporate Challenge segment, supporting

Sukarya, an NGO that works in rural health care and women empowerment in the Delhi NCRregion.

Painting Competition for Children from SOS Village:On Children''s Day 2009, we held a painting competition at the Religare Art Gallery inConnaught Place for children from the SOS Village. The theme was "I Aspire To Be" and thechildren warmed to the theme. Anjolie Ela Menon, the acclaimed artist, judged the competitionand presented a certificate of participation to each child.
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5. PRODUCTS AND SERVICES OFFERED

EQUITY TRADING COMMODITY TRADING DERIVTIVES TRADING PERSONAL LOANS LOANS AGAINST SHARES MUTUAL FUNDS INSURANCE SAVING PRODUCTS PORTFOLIO MANAGENMENT SERVICES OPPORTUNTIES FOR INVESTMENT IN ASSET CLASSES SUCH AS, art, fund, film

fund, real estate,etc. STRUCTURED PRODUCTS INTERNATIONAL EQUITIES


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6MARKETING

6.1COMPETITORS

1. Reliance Mutual Funds2. HDFC3. Fidelity4. Franklin Templeton5. ABN Amro6. AIG7. Bank of Baroda8. Birla Sun Life9. Canara Bank

10. DBS Chola Mandalam AMC11. DSP Merrill Lynch12. Deutsche Bank13. Escorts Mutual14. HSBC15. ICICI Prudential16. ING17. JM Financial18. JP Morgan19. Kotak Mahindra20. LIC

21. Lotus India22. Morgan Stanley23. Principal24. Quantum25. State Bank of India (SBI)26. Sahara Mutual Funds27. Standard Chartered28. Sundaram BNP Paribas29. Tata30. Taurus Mutual Funds31. UTI

32. Benchmark Funds
http://www.reliancemutual.com/http://www.hdfcfund.com/http://www.fidelity.co.in/http://www.franklintempletonindia.com/http://www.assetmanagement.abnamro.co.in/http://www.aiggig.co.in/http://www.bobmf.com/http://www.birlasunlife.com/http://www.canbankmutual.com/http://www.dbscholamutualfund.com/http://www.dspmlmutualfund.com/http://www.dws-india.com/http://www.escortsmutual.com/http://www.hsbcinvestments.co.in/http://www.icicipruamc.com/http://www.ingvysyamf.com/http://www.jmfinancialmf.com/http://www.jpmorganmf.com/http://www.kotakmutual.com/http://www.licmutual.com/http://www.lotusindiaamc.com/http://www.msgfindia.com/http://www.principalindia.com/http://www.quantumamc.com/http://www.sbimf.com/http://vangal.wordpress.com/2007/10/29/list-of-mutual-fund-companies-in-india/http/www.saharamutual.comhttp://www.standardcharteredmf.com/http://www.sundarambnpparibas.in/http://www.tatamutualfund.com/http://www.taurusmutualfund.com/http://www.utimf.com/http://www.benchmarkfunds.com/http://www.benchmarkfunds.com/http://www.utimf.com/http://www.taurusmutualfund.com/http://www.tatamutualfund.com/http://www.sundarambnpparibas.in/http://www.standardcharteredmf.com/http://vangal.wordpress.com/2007/10/29/list-of-mutual-fund-companies-in-india/http/www.saharamutual.comhttp://www.sbimf.com/http://www.quantumamc.com/http://www.principalindia.com/http://www.msgfindia.com/http://www.lotusindiaamc.com/http://www.licmutual.com/http://www.kotakmutual.com/http://www.jpmorganmf.com/http://www.jmfinancialmf.com/http://www.ingvysyamf.com/http://www.icicipruamc.com/http://www.hsbcinvestments.co.in/http://www.escortsmutual.com/http://www.dws-india.com/http://www.dspmlmutualfund.com/http://www.dbscholamutualfund.com/http://www.canbankmutual.com/http://www.birlasunlife.com/http://www.bobmf.com/http://www.aiggig.co.in/http://www.assetmanagement.abnamro.co.in/http://www.franklintempletonindia.com/http://www.fidelity.co.in/http://www.hdfcfund.com/http://www.reliancemutual.com/


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6.2 MARKET SHARE-

Religare Enterprises eyes 5% market share this year said Shachindra Nath, Group CEO,

Religare Enterprises In an exclusive interview with CNBC-TV18

6.3AREAS OF OPERATION


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7.STRENGTH AND WEAKNESS OF THE ORGANISATION

SWOT ANALYSIS

STRENGTH

PROMOTED BY FINANCIAL INSTITUTIONRELIGARE is promoted by all the major financial institution in India, i.e.

Industrial Development Bank of India Life Insurance Corporation of India Oriental Insurance Co. Ltd. Industrial Credit and Investment Corporation of India New India Insurance Corporation Ltd. National Insurance Corporation Ltd.

LARGEST DEPOSITPORY PARTICIPANTRELIGARE is at the good position as depositor participant in all over India.

BACK OFFICE SERVERFor perfection in work RELIGARE has back office server facility where all the branches

of RELIGARE meet their necessary requirements before any information takes place

with the NSDL.

EXPERIENCEStock Holding is the oldest organization in custodian business all over India and it has

more than 10 years of experience in the field. It has professional on its board to look afterthe business and meet its current and future requirements in the market.

WEAKNESSES

SOME BRANCHES ARE NOT CONNECTED THROUGH VSATRELIGARE is the largest branch network depository participant in the custodian market

but till now some few of the branches are not yet connected through VSAT.

LESS ADVERTISEMENT SPILLSRELIGARE has less advertisement spill compare to its main competitors like KotakSecurities, HDFC, IDBI Bank and ICICI Bank. These are also producing the facilities of

banking services and other related services to the customers.


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OPPORTUNITIES

LARGE RURAL/SEMI-URBAN AREAS ARE STILL UNEXPLOREDRELIGARE has a growing structure of its branch network but still our rural and urban

areas are not covered in the process whereby the common man participates the growth of

the economy. Therefore it has become necessary to the growth of the economy. Therefore

it has become necessary to give attention to our rural and semi-urban sectors

immediately.

SELL-N-CASHSell-n- Cash is totally a new concept of RELIGARE where an investor can present his

share to knell in the market and can take payment within 48 hours without delays.

MUTUAL FUNDS MARKETINGMarketing and Distribution of Mutual Fund is providing the facility to the customer who

do have the time and the expertise and who are averse to risk.

INSURANCE MARKETINGMarketing of Insurance services recently started by RELIGARE is also a great

opportunity available for its growth. This field can enhance great opportunities and can

alleviate their position in the market.

THREAT

CHARGES ARE HIGHERIndian Customers have less money at their disposal. Since RELIGARE is the No.1 in the

Custodial Sector in the market and for providing the best services, it has higher charges

detrimental for Small Investors.

TIE UP WITH EXTERNAL AGENCYNow a days tie-ups, M& A are a regular phenomenon in the market to beat the

competition and create a place for itself. The merger and tie-ups of financial corporations

poses a bigger threat to RELIGARE.


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8. ANNEXURES- MUTUAL FUND

A.INTRODUCTION TO MUTUAL FUND

A mutual fund is a professionally managed type of collective investment scheme that poolsmoney from many investors and invests it in stocks, bonds, short-term money marketinstruments and other securities. Mutual funds have a fund manager who invests the money onbehalf of the investors by buying / selling stocks, bonds etc. Currently, the worldwide value ofall mutual funds totals more than $US 26 trillion.

Mutual funds can fit well into either your long- or short-term investment strategy, but the successCOof your plan depends on the type of fund you choose. Because all funds invest in securitiesmarkets, it is crucial to maintain realistic expectations about the performance of those marketsand choose funds best suited to your needs.

There are various investment avenues available to an investor such as real estate, bank deposits,post office deposits, shares, debentures, bonds etc. A mutual fund is one more type of investmentavenue available to investors.

Mutual fund invests their money in various assets based on the objective of the scheme. Aninvestor enters into a contract with the management company by buying the units of mutual fund.Money is invested into variety of securities depending on the objectives of the scheme one select.

Characteristics of a Mutual Fund

Investors own the mutual fund units. Professional managers manage the portfolio of schemes for a fee. Investor's money is collectively invested in a portfolio of marketable securities based on

the investment objective.

Value of portfolio is calculated as Net Asset Value (NAV). NAV changes on every business day according to the Changes in the market value of

investments

Value of the portfolio and investors' holdings, alters with change in market value ofinvestments


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B.History of the Indian Mutual Fund Industry

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

First Phase1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by theReserve Bank of India and functioned under the Regulatory and administrative control of theReserve Bank of India . In 1978 UTI was de-linked from the RBI and the IndustrialDevelopment Bank of India (IDBI) took over the regulatory and administrative control in placeof RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI hadRs.6,700 crores of assets under management

Second Phase1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks andLife 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 byCanbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian BankMutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LICestablished its mutual fund in June 1989 while GIC had set up its mutual fund in December1990.

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 crores.

Third Phase1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the Indian mutual fundindustry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year inwhich the first Mutual Fund Regulations came into being, under which all mutual funds, exceptUTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged withFranklin 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 (MutualFund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds settingup funds in India and also the industry has witnessed several mergers and acquisitions. As at theend of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. TheUnit Trust of India with Rs.44,541 crores of assets under management was way ahead of othermutual funds.


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Fourth Phasesince February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcatedinto two separate entities. One is the Specified Undertaking of the Unit Trust of India with assetsunder 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 ofUnit Trust of India, functioning under an administrator and under the rules framed byGovernment 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 registeredwith SEBI and functions under the Mutual Fund Regulations. With the bifurcation of theerstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under managementand with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual FundRegulations, and with recent mergers taking place among different private sector funds, themutual fund industry has entered its current phase of consolidation and growth. As at the end ofSeptember, 2004, there were 29 funds, which manage assets of Rs.153108 crores under 421

schemes


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C. MUTUAL FUND STRUCTURE

The above diagram gives an idea on the structure of an Indian mutual fund.

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. Sponsor

appoints trustees.

Trustees: Two third of the trustees are independent professionals who own the fund and supervisesthe activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules

of the regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved

by SEBI.


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AMC: 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. It doesnt own the money. AMC is only a

fee-for-service provider.

The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud.

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 cant be appointed as custodian for the fund. This is to avoid

influence of the promoter on the custodian. It may also provide fund accounting services and

transfer agent services. JP Morgan Chase is one of the leading custodians.

Transfer Agents:Transfer Agent Company interfaces with the customers, issue a funds units, help

investors while redeeming units. Provides balance statements and fund performance fact sheets to

the investors. CAMS is a leading Transfer Agent in India.


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D. MUTUAL FUND OPERATION.


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E. MUTUAL FUND CLASSIFICATION

Types of Mutual Funds Schemes in IndiaWide 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.

Overview of existing schemes existed in mutual fund category:

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:

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. Themarket 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.

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.

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


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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.

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 ondifferent 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 knownas 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 takeminimum 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 easyliquidity and preservation of capital. These schemes invest in short-term instrumentslike 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.

BY INVESTMENT OBJECTIVE

Growth Schemes: Growth Schemes are also known as equity schemes. The aim ofthese 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.


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Income Schemes:Income Schemes are also known as debt schemes. The aim of theseschemes 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 byperiodically 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.

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 willbe identical to the stocks index weightage. And hence, the returns from such schemes

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

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 andmust exit at an appropriate time


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F. RISK HIERARCHY OF VARIOUS MUTUAL FUND


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G. COMPARISON OF MUTUAL FUND SCHEMES:


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H.ADVANTAGES OF MUTUAL FUND:

Mutual funds make saving and investing simple, accessible, and affordable. The advantages ofmutual funds include professional management, diversification, variety, liquidity, affordability,

convenience, and ease of recordkeepingas well as strict government regulation and fulldisclosure.

Professional Management: Even under the best of market conditions, it takes an astute,experienced investor to choose investments correctly, and a further commitment of time tocontinually monitor those investments. With mutual funds, experienced professionals manage aportfolio of securities for you full-time, and decide which securities to buy and sell based onextensive research. A fund is usually managed by an individual or a team choosing investmentsthat best match the funds objectives. As economic conditions change, the managers often adjustthe mix of the funds investments to ensure it continues to meet the funds objectives.

Diversification: Successful investors know that diversifying their investments can help reducethe adverse impact of a single investment. Mutual funds introduce diversifi cation to yourinvestment portfolio automatically by holding a wide variety of securities. Moreover, since youpool your assets with those of other investors, a mutual fund allows you to obtain a morediversified portfolio than you would probably be able to comfortably manage on your ownandat a fraction of the cost. In short, funds allow you the opportunity to invest in many markets andsectors. Thats the key benefit ofdiversification.

Variety: Within the broad categories of stock, bond, and money market funds, you can chooseamong a variety of investment approaches. Today, there are about 8,200 mutual funds available

in the U.S., with goals and styles to fi t most objectives and circumstances.

Low Costs: Mutual funds usually hold dozens or even hundreds of securities like stocks andbonds. The primary way you pay for this service is through a fee that is based on the total valueof your account. Because the fund industry consists of hundreds of competing fi rms andthousands of funds, the actual level of fees can vary. But for most investors, mutual fundsprovide professional management and diversifi cation at a fraction of the cost of making suchinvestments independently.

Liquidity: Liquidity is the ability to readily access your money in an investment. Mutual fundshares are liquid investments that can be sold on any business day. Mutual funds are required by

law to buy, or redeem, shares each business day. The price per share at which you can redeemshares is known as the funds net assetvalue (NAV). NAV is the current market value of all thefunds assets, minus liabilities, divided by the total number of outstanding shares.


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Convenience: You can purchase or sell fund shares directly from a fund or through a broker,financial planner, bank or insurance agent, by mail, over the telephone, and increasingly bypersonal computer. You can also arrange for automatic reinvestment or periodic distribution ofthe dividends and capital gains paid by the fund. Funds may offer a wide variety of otherservices, including monthly or quarterly account statements, tax information, and 24-hour phone

and computer access to fund and account information.

Protecting Investors:Not only are mutual funds subject to compliance with their self-imposedrestrictions and limitations, they are also highly regulated by the federal government through theU.S. Securities and Exchange Commission (SEC). As part of this government regulation, allfunds must meet certain operating standards, observe strict antifraud rules, and disclose completeinformation to current and potential investors. These laws are strictly enforced and designed toprotect investors from fraud and abuse. But these laws obviously cannot help you pick the fundthat is right for you or prevent a fund from losing money. You can still lose money by investingin a mutual fund. A mutual fund is not guaranteed or insured by the FDIC or SIPC, even if fundshares are purchased through a bank. For more information about how funds are regulated and

supervised


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I.DISADVANTAGES OF MUTUAL FUND:

There are certainly some benefits to mutual fund investing, but you should also be aware of thedrawbacks associated with mutual funds.

No Insurance: Mutual funds, although regulated by the government, are not insured againstlosses. The Federal Deposit Insurance Corporation (FDIC) only insures against certain losses at

banks, credit unions, and savings and loans, not mutual funds. That means that despite the risk-

reducing diversification benefits provided by mutual funds, losses can occur, and it is possible

(although extremely unlikely) that you could even lose your entire investment.

Dilution: Although diversification reduces the amount of risk involved in investing in mutualfunds, it can also be a disadvantage due to dilution. For example, if a single security held by a

mutual fund doubles in value, the mutual fund itself would not double in value because that

security is only one small part of the fund's holdings. By holding a large number of different

investments, mutual funds tend to do neither exceptionally well nor exceptionally poorly.

Fees and Expenses: Most mutual funds charge management and operating fees that pay for thefund's management expenses (usually around 1.0% to 1.5% per year). In addition, some mutual

funds charge high sales commissions, 12b-1 fees, and redemption fees. And some funds buy and

trade shares so often that the transaction costs add up significantly. Some of these expenses are

charged on an ongoing basis, unlike stock investments, for which a commission is paid only

when you buy and sell .

Poor Performance: Returns on a mutual fund are by no means guaranteed. In fact, on average,around 75% of all mutual funds fail to beat the major market indexes, like the S&P 500, and a

growing number of critics now question whether or not professional money managers have better

stock-picking capabilities than the average investor.


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Loss of Control: The managers of mutual funds make all of the decisions about which securitiesto buy and sell and when to do so. This can make it difficult for you when trying to manage your

portfolio. For example, the tax consequences of a decision by the manager to buy or sell an assetat a certain time might not be optimal for you. You also should remember that you are trusting

someone else with your money when you invest in a mutual fund.

Trading Limitations: Although mutual funds are highly liquid in general, most mutual funds(called open-ended funds) cannot be bought or sold in the middle of the trading day. You

can only buy and sell them at the end of the day, after they've calculated the current value of their

holdings.

Size: Some mutual funds are too big to find enough good investments. This is especially true offunds that focus on small companies, given that there are strict rules about how much of a single

company a fund may own. If a mutual fund has $5 billion to invest and is only able to invest an

average of $50 million in each, then it needs to find at least 100 such companies to invest in; as a

result, the fund might be forced to lower its standards when selecting companies to invest in.

Inefficiency of Cash Reserves: Mutual funds usually maintain large cash reserves as protectionagainst a large number of simultaneous withdrawals. Although this provides investors with

liquidity, it means that some of the fund's money is invested in cash instead of assets, which

tends to lower the investor's potential return.

Different Types: The advantages and disadvantages listed above apply to mutual funds ingeneral. However, there are over 10,000 mutual funds in operation, and these funds vary greatly

according to investment objective, size, strategy, and style. Mutual funds are available for

virtually every investment strategy (e.g. value, growth), every sector (e.g. biotech, internet), and

every country or region of the world. So even the process of selecting a fund can be tedious.


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J .RISK INVOLVED IN MUTUAL FUND:

Risk

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility

that you will lose money (both principal and any earnings) or fail to make money on aninvestment. A fund's investment objective and its holdings are influential factors in determininghow risky a fund is. Reading the prospectus will help you to understand the risk associated withthat particular fund.

Generally speaking, risk and potential return are related. This is the risk/return trade-off. Higherrisks are usually taken with the expectation of higher returns at the cost of increased volatility.While a fund with higher risk has the potential for higher return, it also has the greater potentialfor losses or negative returns. The school of thought when investing in mutual funds suggests

that the longer your investment time horizon is the less affected you should be by short-termvolatility. Therefore, the shorter your investment time horizon, the more concerned you shouldbe with short-term volatility and higher risk.

Defining Mutual fund risk

Different mutual fund categories as previously defined have inherently different riskcharacteristics and should not be compared side by side. A bond fund with below-average risk,for example, should not be compared to a stock fund with below average risk. Even though bothfunds have low risk for their respective categories, stock funds overall have a higher risk/returnpotential than bond funds.

Of all the asset classes, cash investments (i.e. money markets) offer the greatest price stabilitybut have yielded the lowest long-term returns. Bonds typically experience more short-term priceswings, and in turn have generated higher long-term returns. However, stocks historically havebeen subject to the greatest short-term price fluctuationsand have provided the highest long-term returns. Investors looking for a fund which incorporates all asset classes may consider abalanced or hybrid mutual fund. These funds can be very conservative or very aggressive. Assetallocation portfolios are mutual funds that invest in other mutual funds with different assetclasses. At the discretion of the manager(s), securities are bought, sold, and shifted betweenfunds with different asset classes according to market conditions.

Mutual funds face risks based on the investments they hold. For example, a bond fund facesinterest rate risk and income risk. Bond values are inversely related to interest rates. If interestrates go up, bond values will go down and vice versa. Bond income is also affected by thechange in interest rates. Bond yields are directly related to interest rates falling as interest ratesfall and rising as interest rise. Income risk is greater for a short-term bond fund than for a long-term bond fund.

.


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TYPES OF RISK IN MUTUAL FUND

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-sizedcompanies. This is known as Market Risk. A Systematic investment Plan (SlP) that works on

the concept of Rupee Cost Averaging (RCA) might help mitigate this risk.

3.CREDIT RISK:

The debt se i ic in g ability (may it be interest payments or repayment of pri nc ip al) 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. An

rating is considered the safest whereas a D rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.

4.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 paisa?1

Mchangai Ka Jainana 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 porttblio with

some investment in equities might help mitigate this risk.


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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 raise the prices ofbonds 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 favorable 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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K. NET ASSET VALUE (NAV):

The Mutual Fund NAV or Net Asset Value is a key indicator of the market value of each share

or unit of a mutual fund on a given day. It is the price per share or unit of the mutual fund.

For example, if the NAV of a Templeton Mutual fund is quoted as $10, it means that an investorcan buy a single share or unit of the templeton fund for $10.

CALCULATION OF NAV:

To calculate a Mutual Fund's Net Asset Value or NAV, the value of the total assets of the mutual

fund is subtracted by its liabilities, and then this amount is divided by the total number of shares

or units in the mutual fund.

Mutual Fund NAV = Total Assets - Liabilities / Total number of shares or units

The assets of a mutual fund would consist of its investments and cash. (For more info on mutual

fund investments, read Getting to know Mutual Fund Basics). The liabilities of a mutual fund

include operating expenses.

For example, a mutual fund has assets in stocks and other investments to the value of $100, 000

and liabilities worth $20, 000. Assuming the mutual fund has issued 10, 000 shares, then its

NAV would be:

NAV = (100, 000 - 20, 000)/ 10, 000 NAV = 80, 000 / 10, 000 NAV = $8

The NAV or price per share of this mutual fund would be $8.


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MUTUAL FUND V/S STOCK PRICES:

Mutual Fund NAV seems similar to stock prices as they are both indicative of the price per unit

or share. Both funds and shares can be bought on the basis of the unit price.

However, there are some differences between a mutual fund NAV and stock price:

The price of a stock is determined by company information - the performance of thecompany, public confidence in its services and other economic factors. The mutual fundNAV is a calculation of the fund assets divided by the number of total shares.

Mutual fund NAV is calculated at the end of the day after the daily closure of stockmarkets. Therefore NAV changes only on a daily basis. Stock prices, however, change

any time during the day during stock market trading hours.

It is important to note that the mutual fund NAV is linked to share prices, if the concerned

mutual fund has invested in those shares in its fund portfolio. It can be seen that Mutual Fund

NAVs are directly proportional to the value of its assets. If all other factors remain constant, and

the share prices, in which the mutual fund has invested, depreciate, then the NAV of the mutual

fund will also reduce.

NAV FLUCTUATION

A Mutual fund NAV changes value under these conditions: -

Rise or drop in value of stock investments. Change in number of shares in the mutual fund. Payout of dividends and capital gains by the mutual fund to its investors.


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NAV and its impact on the returns

We feel that a MF with lower NAV will give better returns. This again is due to the wrong

perception about NAV. An example will make it clear that returns are independent of the NAV.

Say, you have Rs 10,000 to invest. You have two options, wherein the funds arc same as far as

the portfolio is concerned. But say one Fund X has an NAV of Rs 10 and another Fund Y has

NAV of Rs 50. You will get 1000 units of Fund X or 200 units of Fund Y.

After one year, both funds would have grown equally as their portfolio is same, say by 25%.

Then NAV after one year would be Rs 12.50 for Fund X and Rs 62.50 for Fund Y. The value of

your investment would be 1000*12.50 Rs 12,500 for Fund X and 200*62.5= Rs 12,500 for

Fund Y. Thus your returns would be same irrespective of the NAV.

it is quality of fund, which would make a difference to your returns. In fact for equity shares alsobroadly this logic would apply.

Misconception about NAV

This situation arises from the perception that a fund at Rs 10 is cheaper than say Rs 15 or Rs 100.

However, this perception is totally wrong and investors would be much better off once they

appreciate this fact.

Two funds with same portfolio arc same, no matter what their NAV is. NAV is immaterial.

Why people carry this perception is because they assume that the NAV of a MF is similar to themarket price of an equity share. This, however, is not true.

MUTUAL FUND PERFORMANCE THROUGH NAV

While a stock's performance can be judged by its price in the stock market, the daily NAV is not

necessarily the indicator of mutual fund performance. In order to gauge a mutual fundperformance, the NAV should be monitored over a long term and annual returns of the mutual

fund should be examined.

Mutual Funds usually publish fund performance data in websites and brochures. These fund

performance data include annual return data, computed using NAV on an annualised basis. This

data reveals positive or negative percentage changes in the mutual fund performance.


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L.BASIC CONCEPTS OF LOAD

ENTRY LOAD:The load charged at the time of investment in known as entry load.It is

meant to cover the cost that AMC spends in the process of acquiring subscribers commissionpayable to brokers, advertisement, register expenses etc.The load is recovred by chargingselling

charges higher than prevailing NAV.

EXIT LOADS: Exit Loads, are paid by the investors in the scheme, if they exit one of thescheme before a specified time period.Exit Loads reduce the amount receivedby the investor.Not all schemes have an Exit Load, and not all schemes have similar exit loads as well. Someschemes have Contingent Deferred Sales Charge (CDSC). This is nothing but a modified form ofExit Load, wherein the investor has to pay different Exit Loads depending upon his investment

period. If the investor exits early, he will have to bear more Exit Load and if remains invested fora longer period of time, his Exit Load will reduce. Thus the longer the investor remains invested,lesser is the Exit Load. After some time the Exit Load reduces to nil; i.e. if the investor exits aftera specified time period, he will not have to bear any Exit Load.

UNIT: The unit means investment of unit holder in scheme.Each unit represents one undevidedshare in the assets of scheme. The value of each unit changes depending upon the performance ofthe fund.


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M. FACTORS AFFECTING MUTUAL FUNDS

1. Governmental influences

Mutual fund business is a highly regulated business throughout the world as it seeks to ensure

that quality and fairly priced schemes are available. Governmental intervention thus in mutualfund market usually is most needed to ensure that insurers are reliable, And in the developing

countries the additional goal may be promotion of domestic mutual fund industry and ensuring

the national mutual fund industry contributes to overall economic development. In a non

technical sense mutual fund is purchased in a good faith so the duty of government intervention

in mutual fund industry is to ensure that this principle of mutual fund is never defeated.

The ideology of government plays an important role in mutual fund industry also. For example in

the past during 1991, the P .V Narsimha Rao government strongly believed in liberalization also

liberalized the mutual fund sector which helped to allow private players in the industry from

1993 and enhancing joint ventures with foreign companies.

The present government with more focuses on foreign direct investments has declared to favor

the rise FDI in mutual fund to 49% which further enhances competition in the industry.

2. Taxation Policy

Social equity being one of the motives behind tax collections, government give certain

exemptions from such levying. One such exemption is deduction incurred by taxpayers towards

investment in mutual fund coverage. Similarly, capital invested in infrastructure bonds etc isoffered with certain concession under tax laws. The central idea behind such exemptions is that

the capitals so allocated by individuals reduce the ultimate burden on the public infrastructure or

helps in creating such infrastructural facilities.

The income tax rules related to the mutual fund transactions can be classified under:

[A] Exemptions available to companies or businesses

[B] Exemptions available to insured individuals

A. Exemptions available to companies

Expenses deductible from commission earned by distributor, banker, national distributor.

Tax concessions under risk management practices of an enterprise

In growth option equity schemes there no long tcrn capital gain by company.


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In dividend option equity schemes there no tax.

Return received by charitable trust is total exempted from tax.

Else schemes give to advantage of tax saving, growth potential and return.

B .Tax rules governing investment by individuals

Deduction in respect of ELSS schemes (sec 80C):

investment in this fund would enable you to avail the benefits under clause (xiii) of a section 80C

of the income Tax Act investment made in the schemes up to 1lakh by the eligible investor for

deduction under this section of the Act.

Since it will be an income deduction an investment of Rs 1lakh in this fund can save off Rs.

33600 from your tax payable liability (assuming you are in the highest tax bracket) investor will

also receive tax free dividend by investing equity schemes in dividend option investors also

receive tax free return by investing equity schemes in growth option for long term capital gain.

C. Tax plannings

An individual can think of health ELSS schemes purchase as a tool of tax planning exercise. For

example people who are marginally affected by tax liability can be as well

purchase a ELSS fund get benefits of Rs. 33600 from tax. In this way tax burden is become less

by purchasing ELSS fund.

Thus tax law offer benefit to individuals/companies by way of exemptions/deductions of

expenditure incurred towards purchase of mutual fund various schemes coverage from total

taxable income.

3. Foreign Trade Regulations

With the vast potential for mutual fund in India due its large population in the country many

foreign companies are ready to enter into the indian market. But companies can be permitted in

India through joint ventures with an Indian partner as well as come separately and the foreign

equity shall be restricted to only 25%. Another statement also tells that Indian subsidiaries of

foreign companies shall not be allowed to participate in banking sector unless they entered in to

joint ventures with the indian partners.

But at present the mutual fund regulator is in favor of hike in FDI cap from 25% to 49%, and is

finalizing a report that will be submitted to the government for a comprehensive legislation for

the industry. The security exchange board of India and association of mutual fund India have

been advocating a hike in FD1 limit for mutual fund companies so that the foreign partners can

infuse additional funds in these companies to sustain their growth.


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The government will need to amend the separate mutual fund Act for FDI capital as well as

domestic company as this is the statutory provision unlike sectors like civil aviation and telecom,

which have come through notification.

4. National income

The relative importance of the mutual fund Market within a country will also be dependent upon

economic development. With greater rates of economic growth, consumption of investment

should increase as a result of increased income, and an increased stock of assets requiring mutual

fund. Furthermore, the development of mutual fund is likely to facilitate greater economic

growth, implying that economic growth may be endogenous. Consistent with these arguments,

studies find that the level of financial development and economic development arc positively

related to the level of mutual fund across emerging markets.

5. Consumptions and Savings

The gross capital formation of any country is important for indication of its growth in the future

years. it is quite necessary to set up the rate of capital formation so that a large stock of

machines, tools and equipments are accumulated in a country. Experience of development in

other countries suggests that a high rate of capital formation was achieved to trigger rapid rate of

economic growth. With the hike in foreign capital coming to India the rate of capital formation is

becoming boom to insurers, which has given them opportunities. It is heartening to them to note

that latest savings rate of 28% is highest till now and with the growth rate near to 8% is bringing

a pool of buyers purchasing power. This directly influences the demand for mutual fund

products.

6. Employment

The effect of employment on mutual find industry is as direct as that on economic development

of any country. With the rising levels of employment the effect on mutual fund industry is

positive because employment adds to the insured properties and assets from every prospective be

it due to organized or unorganized.

7. Inflation

The midterm policy review the strong macroeconomic indicators and RBI has revised its GDP

growth estimates to the upper limit of the earlier projection range 8% inflation (WPI) has been

steadily moving up in recent times and RB I has highlighted that primary articles prices have

been on of the key contributors. However one needs to keep in mind that recent increase in

global oil prices.


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8. Money supply

The central banks has indicated that credit growth and money supply number are likely to be

above its prosecution for the current fiscal year, the statement to consider promptly all possible

measures as appropriate to the evolving global and domestics situation is indicative of phased

increase in FII limits for gilt investment could help in depending the securities market and is part

of the road map towards fuller convertibility.

9. Interest

Interest is major factor for investment when a person find less return from investment tool

than people move towards the higher returns tool of investment.\


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N REASON FOR POOR PERFORMANCE OF MUTUAL FUND

Most investors associate mutual funds with Master gain. Monthly Equity Plans of SHI Mutual

Fund, UTI and canbank Mutual Fund and of course Morgan Stanley Growth Fund. This is so

because these funds truly had participation from masses, with a fund like Morgan Stanley having

more than I million investors. Investors feel that after 5 years, Morgan Stanley Growth Fundunits still trade below the original IPO price of Rs 10.

It is incorrect to think that all mutual funds have performed poorly. If one looks at some income

funds, they have come with reasonable returns. It is only the performance of equity funds, which

has been poor. Their poor performance has been amplified by the closed end discounts i.e. units

of these funds quoting at sharp discounts to their NAN resulting in an even poorer return to the

investor.

One must remember that a Mutual Fund does not provide assured returns and neither can it

manufacture returns out of thin air. Returns provided by mutual funds are a function of thereturns in the underlying asset class in which the fund invests. Good funds can beat returns in

their asset class to some extent but thats all. E.g. take the case of a sector specific fund like a

pharma fund which invests only in shares of pharmaceutical companies. If the Govt. comes with

new regulation that severely restricts the pricing freedom of these companies resulting in

negative outlook for the sector, the prices of all stocks in the sector could fall substantially

resulting in severe erosion in the NAV of the fund. No one can do anything about it. A good fund

manager would probably sell part of the fund before prices fall too much and wait for an

opportune time to reinvest at lower Levels once the dust has settled. In that case, the NA of the

fund would fall to a lesser extent

Most mutual fund managers took some time to realize the changed circumstances wherein the

open economy ushered in by the Liberalization took the full impact of the global deflation in

commodity prices. This problem was compounded further by the Asian crisis after which cheap

imports from Asia caused severe pressure on profits.

One more issue is that the fund managers in many funds were not professionally qualified and

experienced. This is especially true of some of the funds floated by nationalized banks. Some of

these individuals were transferred from the parent organization and did not really know much

about investment management.

Lastly. investors would do well to have a look at the investments, which they made on their own,

in most cases, they would have done much worse than the mutual funds. We have received

numerous requests for advice from individual investors on what to do about their own

investments. If that were any indicator, investors would have done really badly.


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O. FUTURE OF MUTUAL FUND INDUSTRY IN INDIA

GOLD

Historically, gold has been a proven method of preserving value when a national currency was

losing value. If your investments are valued in a depreciating currency, allocating a portion togold assets is similar to a financial insurance policy. In the past year, the climb in the price ofgold above $700 per ounce is due to many factors, one being that the dollar is losing value.

Reasons favoring to investment in Gold

1. Gold price appreciation makes up for lost interest, especially in a bull market..2.Central banks in several countries have stated their intent to increase their gold holdingsinstead of selling.

3. All gold funds are in a long term uptrend with bullion, most recently setting new all-timehighs.

4. The trend of commodity prices to increase is relative to gold price increases.

5. Worldwide gold production is not matching consumption. The price will go up with demand.

6. Most gold consumption is done in India and China

final project report on mutual fund

Documents