sviet deepak sharekhan

8/7/2019 SVIET DEEPAK SHAREKHAN

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SUMMER TRAINING REPORT

On

Mutual Funds as an Investment

option

For

SHAREKHAN ltd.

(In partial fulfillment of Degree of Master of Business Administration, Finance)

Submitted By: Submitted To:

Deepak Dhiman Mr. Atul

Gauri

MBA (Finance) (Asst.Manager)Roll. No. 7032221160 SHAREKHAN

LIMITED


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Swami Vivekanand Institute Of Engineering &Technology

Ramnagar ,Banur(Patiala)

DECLARATION

I hereby declare that the project work entitled MUTUAL FUND AS AN

INVESTMENT OPTION is an authentic record carried out at SHAREKHAN,

Chandigarh as requirements of 2 month summer internship for the award of MBA

degree, SVIET, under the guidance of Mr. Atul Gauri, the deputy Asst. manager of

SHAREKHAN ltd., Chandigarh.

Date-25-july-2008

SIGNATURE OF THE STUDENT

DEEPAK DHIMAN

7032221160

MBA(finance)

SECTION A


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SVIET,

BANUR.

CERTIFICATE

This is to certify that Deepak Dhiman studying in Third Semester of Masters Of

Business Administration in the Academic Year 2007-2009 at SVIET, BANUR, has

completed project on MUTUAL FUNDS AS AN INVESTMENT OPTION, under

my guidance for two months i.e. 01.05.2008 to 30.06.2008

The information presented in this project is true and original to the best of my

knowledge.

Date:

Place: (Ms.PARINEETA )


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ACKNOWLEDGEMENT

Words are often to be a mode of expression for ones deep feelings. I take this

opportunity to express my deepest gratitude to those who have generously helped

me in providing the valuable knowledge and expertise during my training.

At the very outset, I bow my head to thank the God Almighty, whose kind grace has

made it possible for me to bring this report.

I, hereby express my sincere gratitude to my Company Guide, Asst. Mgr. Mr. ATUL

GAURI for the valuable guidance and immense cooperation right from the day 1 st

till the end of the training without which this project would not have become a

successful one. I shall also like to specially thank Mrs. Parineeta (Faculty Guide) forgiving me the required guidance and removing any difficulties faced by me during

training.


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Last but not the least I would like to thank Company staff to help me write this

report by providing full cooperation and continuous support during the course of this

assignment.

Thanks to my parents and SVIET , Faculty Members for their belief and constant

support. And finally, I would like to thank each and every person who has

contributed in any of the ways in my training.

Date-25-07-2008

Deepak

Dhiman

PREFACE

The Summer Internship Program forms an important component of education

SVIET. It is an attempt to bridge the gap between the academic institution and the

corporate world. It provides us an opportunity to apply the concepts learnt in real

life situations.

The perfect combination of Project and OJT help us in exploring our skills and

capabilities. This internship program makes a mark of hard work, sincerity,

knowledge and ethics on the host organization. It would also be a great learning

experience since it enables us to apply theory to practice and observe and learn the

current trends in the market.


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It provides an opportunity for us to satisfy our inquisitiveness about corporate,

provides exposure to technical skills, and helps us to acquire social skills by being in

constant interaction with the professionals of other organizations.

It helps us in developing a network, which will be useful in enhancing in career

prospects. This will help to gain a deeper understanding of the work, culture,

deadlines, pressures etc. of an organization.

Thus, it helps to develop the qualities of a Manager by involving teamwork, goal

orientation and managing interpersonal relationships and by creating awareness

about strengths and weaknesses in the work environment.

ABSTRACT

In the corporate world of today customer is considered as the king and is placed at

the top and if you have won the customer then the gold coin is in your pocket. For

those two rules are to be followed they are:

Rule 1- customer is always right.

Rule 2- if not, refer to rule 1.


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If these two rules are followed then the customers will always be happy and would

be having a better relation with the market. In business, building long term

relationship is very important. Relationship management plays a vital role while

dealing with financial instruments.

The project also is an endeavor towards unearthing the psyche of the end-users of

these financial products

For completion of this respective task, personal interaction with the executives was

done so as to get the first hand information.


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TABLE OF CONTENTS

SERIAL NO. PARTICULARSPAGE NO.

1 COMPANY PROFILE 4

2

INTRODUCTION TO MUTUAL

FUNS V/S OTHER INVESTMENT

OPTIONS

5

3MUTUAL FUNS V/S OTHER

INVESTMENT OPTIONS

7

4PEOPLE PERCEPTION ABOUT

MUTUAL FUNDS8

5SUGGESTIONS AND

RECOMMENDATIONS10

5.1 QUESTIONAIRRE 14

5.2RETURNS OF VARIOUS

MUTUAL FUNDS16

5.3 BIBLIOGRAPHY 20

5.4 INVESTMENT CHECK STYLE 23


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SHAREKHAN BACKGROUND

Sharekhan is one of the leading retail brokerage of SSKI Group which is running

successfully since 1922 in the country. It is the retail broking arm of the Mumbai -based

SSKI Group, which has over eight decades of experience in the stock broking business.

Sharekhan offers its customers a wide range of equity related services including trade

execution on BSE, NSE, Derivatives, depository services, online trading, investment

advice etc.

The firms online trading and investment site - www.sharekhan.com - was

launched on Feb 8, 2000 . The site gives access to superior content and transaction

facility to retail customers across the country. Known for its jargon -free, investor friendly

language and high quality research, the site has a registered base of over 2 lacs

customers. The number of trading members currently stands at over 5 Lacs . While

online trading currently accounts for just over 2 per cent of the daily trading in stocks in

India, Sharekhan alone accounts for 27 per cent o f the volumes traded online .

The content -rich and research oriented portal has stood out among its

contemporaries because of its steadfast dedication to offering customers best -of-breed

technology and superior market information. The objective has been to let customers

make informed decisions and to simplify the process of investing in stocks.

On April 17, 2002 Sharekhan launched Speed Trade and Trade Tiger , are net-

based executable application that emulates the broker terminals along with host of

other information relevant to the Day Traders. This was for the first time that a net -

based trading station of this caliber was offered to the traders. In the last six months

SpeedTrade has become a de facto standard for the Day Trading community over the

net.

Sharekhans ground network includes over 700+ Shareshops in 130+ cities in

India.

Sharekhan has always believed in investing in technology to build its business.The company has used some of the best -known names in the IT industry, like Sun

Microsystems , Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,

Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading

engine and content. The Citi Venture holds a majority stake in the company. HSBC,


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The Citi Venture holds a majority stake in the company. HSBC, Intel & Carlyle are

the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group

ventured into institutional broking and corporate finance 18 years ago. Presently

SSKI is one of the leading players in institutional broking and corporate finance

activities. SSKI holds a sizeable portion of the market in each of these segments.

SSKIs institutional broking arm accounts for 7% of the market for Foreign

Institutional portfolio investment and 5% of all Domestic Institutional portfolio

investment in the country. It has 60 institutional clients spread over India, Far East,

UK and US. Foreign Institutional Investors generate about 65% of the organizations

revenue, with a daily turnover of over US$ 2 million. The Corporate Finance sectionhas a list of very prestigious clients and has many firsts to its credit, in terms of the

size of deal, sector tapped etc. The group has placed over US$ 5 billion in private

equity deals. Some of the clients include BPL Cellular Holding, Gujarat Pipavav,

Essar, Hutchison, Planetasia, and Shoppers Stop.

PRODUCTS OFFERED BY SHAREKHAN

1- Equity Trading Platform (Online/Offline).

2- Commodities Trading Platform (Online/Offline).

3- Portfolio Management Service.

4- Mutual Fund Advisory and Distribution.

5- Insurance Distribution.


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REASONS TO CHOOSE SHAREKHAN LIMITED

Experience

SSKI has more than eight decades of trust and credibility in the Indian stock market. In the

Asia Money broker's poll held recently, SSKI won the 'India's best broking house for

2004' award. Ever since it launched Sharekhan as its retail broking division in February

2000, it has been providing institutional-level research and broking services to individual

investors.

Technology

With our online trading account you can buy and sell shares in an instant from any PC with

an internet connection. You will get access to our powerful online trading tools that will

help you take complete control over your investment in shares.

Accessibility

Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services forinvestors. These services are accessible through our centers across the country (Over 650

locations in 150 cities) over the Internet (through the website www.sharekhan.com) as well

as over the Voice Tool.

Knowledge

In a business where the right information at the right time can translate into direct profits,

you get access to a wide range of information on our content-rich portal,

www.sharekhan.com. You will also get a useful set of knowledge-based tools that will

empower you to take informed decisions.


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Convenience

One can call our Dial-N-Trade number to get investment advice and execute your

transactions. We have a dedicated call-centerto provide this service via a Toll Free Number

1800-22-7500 & 39707500 from anywhere in India.

Customer Service

Our customer service team will assist you for any help that you need relating to transactions,

billing, demat and other queries. Our customer service can be contracted via a toll-free

number, email or live chat on www.sharekhan.com.

Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamental and

technical research. Our analysts constantly track the pulse of the market and provide timely

investment advice to you in the form of daily research emails, online chat, printed reports

and SMS on your mobile phone.


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Benefits

1. Free Depository A/c

2. Instant Cash Tranfer

3. Multiple BankOption.

4. Secure Order by Voice Tool Dial-n-Trade.

5. Automated Portfolio to keep track of the value of your actual purchases.

6. 24x7 Voice Tool acess to your trading account.

7. Personalised Price and Account Alerts delivered instantly to your Mobile Phone &

E-mail address.8. Live Chat facility with Relationship Manager onYahoo Messenger

9. Special Personal Inbox for order and trade confirmations.

10. On-line Customer Service via Web Chat.

11. Enjoy Automated Portfolio.

12. Buy or sell even single share

13. Anytime Ordering.

We offer you the following products:-

CLASSIC ACCOUNT

This is an User Friendly Product which allows the client to trade through website

www.sharekhan.com and is suitable for the retail investor who is risk-averse and hence

prefers to invest in stocks or who do not trade too frequently.

Features

1. Online trading account for investing in Equity and Derivatives via

www.sharekhan.com


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2. Live Terminal and Single terminal forNSE Cash, NSE F&O & BSE.

3. Integration of On-line trading, Saving Bank and Demat Account.

4. Instant cash transfer facility against purchase & sale of shares.

5. Competative transaction charges.

6. Instant order and trade confirmation by E-mail.

7. Streaming Quotes (Cash & Derivatives).

8. Personlized market watch.

9. Single screen interface for Cash and derivatives and more.

10. Provision to enterprice triggerand view the same online in market watch.

SPEEDTRADE

SPEEDTRADE is an internet-based software application, that enables you to buy and

sell in an instant.

It is ideal foractive traders and jobbers who transact frequently during days session to

capitalise on intra-day price movement.

Features

1. Instant order Execution and Confirmation.

2. Single screen trading terminal for NSE Cash, NSE F&O & BSE.

3. Technical Studies.

4. Multiple Charting.

5. Real-time streaming quotes, tic-by-tic charts.

6. Market summary (Cost traded scrip, highest calue etc.)

7. Hot keys similar to broakers terminal.

8. Alerts and reminders.

9. Back-up facility to place trades on Direct Phone lines.

10. Live market debts.


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DIAL-N-TRADE

Along with enabling access for your trade online, the CLASSIC and SPEEDTRADE

ACCOUNT also gives you our Dial-n-trade serives. With this service, all you have to do is

dial our dedicated phone lines 1-800-22-7500, 3970-7500.

Beside this, Relationship Managers are always available on Offic Phone and Mobile to

Resolve your querries.

ShareMobile *

Now Track the Market Anywhere..! Sharekhan had introduced ShareMobile, A mobile

based software where you can watch Stock Prices, Intra Day Charts, Reasearch & Advice

and Trading Calls live on the Mobile.

Stay updated with ShareMobile, Sharekhan's new service that lets you to catch the pulse of

the stock market on your mobile phone. All you need is a Sharekhan account and a GPRS

enabled Mobile handset.

* As per SEBI regulations, buying-selling shares through a mobile phone is not yet permitted. So when you place

a buy-sell order on ShareMobile, our Dial-n-Trade executive will call you back and place the order on your

behalf. This service is free and has NO extra fees.

PREPAID Account

Now you can buy Prepaid Account of Sharekhan. Pay Advance Brokerage on your Account

and enjoy uniterrupted trading in your Account. Beside this, get great discount (upto 50%)

on

Brokerage.

Prepaid Classic Account : - Rs. 2000

Prepaid Speedtrade Account : - Rs. 6000


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IPO ON-LINE

You can apply to all the forthcoming IPO online hasselfree, paperless and time saving.

Simply allocate fund to IPO Account, Apply for the IPO and Sit Back & Relax.

Mutual Fund Online

You can apply to Mutual Funds of Reliance, Franklin Templeton Investments, ICICI

Prudential, SBI, Birla, Sundaram, HDFC, DSP Merrill Lynch, PRINCIPAL, TATA with

Sharekhan hasselfree, paperless and time saving.


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Zero Balance ICICI Saving Account *

Sharekhan had tied-up with ICICI bank for Zero Balance Account for Sharekhans Clients.

Now you can have a Zero Balance Saving Account with ICICI Bank after your demat

Account creation with Sharekhan.

Subject to Approval of Account

CHARGE STRUCTURE

Fee Structrue for General Individuals : -

Charge Classic Account Speed Trade Account

Account Opening Rs. 750/= Rs. 1000/=

Monthly

Commitment

Rs. NIL Rs. 500/=

Broakerage Intra-day 0.10 %**

Delivery - 0.50 %**

Intra-day - 0.10%**

Delivery - 0.50%**

* Refundable in case the broakerage is more than Rs. 500/= p.m.

** Condition Apply.

*** Taxes as per govt.


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Depository Charges

Account Opening Charges Rs. NIL

Annual Maintanance Charges Rs. NIL first year Rs. 300/= p.a. from

second celender year onward

PRODUCT DETAILS

Online Trading:

(a) CLASSIC ACCOUNT: A/C Opening charges: Rs. NIL

Special Discount in A/c Opening Charges

Rs.300 from 2nd year onwards (Annual Maintenance charges). Trading through website

Live terminal. No brokerage commitment required. NSE and BSE online. Both Cash &

F&O.

(b) SPEED TRADE : Account Opening Fee: Rs. 1000/- Both Cash & F&O.

Monthly Recurring Fee: Rs 500/- per month, which is very nominal if you consider the

benefits of the product. This access charges will be debited to all the new customers signed

up after Sept 15, 2004. And at the end of the month if the client has contributed more than

Rs. 500/- as brokerage the access charges of Rs. 500/- will be credited back to the clients

account. Please note - this credit of Rs. 500/- will be given only to customers who have

contributed more than Rs. 500/- as brokerage during the months.

Brokerage :


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0.05 % Plus Taxes for Each leg of Intra-day trade

0.50 % Plus Taxes for trades resulting in delivery

EXPOSURE : 4 TO 6.7 TIMES (ON MARGIN MONEY)

Online IPO's available

We have tie up with Twelve Banks for online fund transfering i.e. HDFC, ICICI, IDBI,

CITI, Union Bank of India, Oriental Bank of Commerce, INDUSIND, Yes Bank, Bank

of India, Centurion Bank of Punjab, Bank of Punjab and UTI bank for online money

transfer.

FOLLOWING DOCUMENTS REQUIRED TO OPEN AN A/c WITH SHAREKHAN

LTD.:

Photo ID Proof Residence Proof (Permanent)

Pan Card (Mandetory)

Passport

Driving Licence

Voter's ID

MAPIN UIN Card

Passport (valid)

Voter's ID

Driving Licence (valid)

Bank Statement (latest)

Telephone Bill (latest)

Electricity Bill (lates)

Ration Card

Flat Maintanance Bill (latest)

Insurance Policy (latest)

Leave-Licence/Purchase Agreement


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2 (Two no.) Colour Photographs (Passport size & front face)

For Classic Account:- 1 cancelled cheque

For Speed Trade:- 1 Account Opening Cheque of Rs. 1000/- in the favour of M/s

Sharekhan Limited

THANKS

So we look forward to your joining in the Sharekhan family and benefitting from the

evergreen posibilities of the stock market.


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SYNOPSIS

Title: Mutual fund As an investment Option.

Objective: Experts generally says that mutual says that mutual fund is the best

investment option. My objective is to

Study the people perception about the mutual fund

To study mutual funds in comparison to other investment options.

Suggestions will be given that how to invest in mutual funds.

Scope: Scope of my study in Chandigarh only. I have only studied people perception

of Chandigarh people.

Research Methodology: Convenience research methodology is used and chose

samples on random sampling basis, & also used a questionnaire to collect date from

people.

Data Analysis: Analysis is done by using various statistical tools such as graphs,

averages, charts, etc. From the data collected, analysis & conclusion have been

made.


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INTRODUCTION TO MUTUAL FUNDS

Introduction to mutual funds

For decades, the middle class had an ideological bias against having too much

wealth. Money was seen only as a means for meeting basic needs. The risk and

low returns provided by other investment schemes accompanied by high

inflation and decreasing interest rates gave birth to Mutual Funds.

Meaning of Mutual Funds

A mutual Fund is an investment vehicle for investors who pool their savings

for investing in diversified portfolio of securities with the aim of attractive yields

and appreciation in their value. A mutual fund is a trust that pools together the

savings of a number of investors who share a common financial goal.

As per Mutual Fund Book, published by Investment Company Institute of U.S.,

A Mutual Fund is a financial service organization that received money from

shareholders, invests it, earns returns on it, attempts to make it grow and agrees

to pay the shareholders cash on demand for the current value of his investment.


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Securities and Exchange Board of India (Mutual Funds) Regulations, 1996

defines Mutual Funds as a fund established in the form of a trust to raise

monies through the sale of units to the public or section the public under one or

more schemes for investing in securities, including money market instruments.

So, a mutual fund is a special type of institution, a trust or an investment

company which acts as an investment intermediary and channelizes the savings

or large number of people to the corporate securities in such a way that investors

get steady returns, capital appreciation and a low risk.

Pooling is the key to mutual fund investing. Through pooling the financial

resources of thousand of investors, each with a different amount to invest,

investors gain access to the expertise of the qualified and experienced fund

managers, wide diversification of ownership in securities market and a variety of

services, otherwise available only to institutions. Through diversification in

portfolio, mutual funds spread out inherent risks in securities and can earn a

more stable return. Individuals are free from the time consuming mechanics

involved in the direct purchase of securities in their portfolio. Professional fund

managers take pool of money and invest in a variety of securities selected from a

broad range of industries. They select securities that best meet their funds

investment objectives. They make decision when to buy, when to sell and when

to hold based on their extensive research and experience. The investment

objective set forth by the fund is important both to managers and investors.

These objectives guide the manager to plan the portfolio of the schemes. On the

other hand investors are guided by these objectives to select most suitable

scheme. A scheme is most suitable whose objectives are compatible to investors

targets. The concepts is explained in Fig. 1

Investors


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Passedback to

Pool theirmoney with

Returns Fund Manager

Generates invest in

Securities

Source: Making Mutual Funds work for you AMFI

CLASSIFICATION OF MUTUAL FUNDS

There are various types of Mutual Funds. Broadly, they can be classified

A) According to Scheme of Operation

B) According to Portfolio

C) According to Location

D) Other Types

ACCORDING TO SCHEME OF OPERATION: According to scheme

of Operation, Mutual Funds can be classified as:

1) Open-Ended Funds: Open Ended Funded means a scheme of mutual funds

which


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offers unit of ale without specifying any duration for redemption. These schemes

do

not have a fixed maturity and entry to the funds is always open to investors

having an

option to get their holdings redeemed at any time. The repurchase rates are based

upon

the Net Asses Value (NAV) of the fund. The open-ended funds provide better

liquidity to the investor. These days open ended schemes are more popular.

2) Close-Ended Funds: A close ended fund means any scheme of mutual fund

in which the period of maturity of the scheme is specified . The corpus of the

close-ended scheme is fixed and an investor can subscribe directly to the scheme

only at the time of initial issue. These schemes are listed at the secondary market

i.e. stock exchanges. The price in the secondary market is determined on the

bases of demand & supply.

3) Interval Funds: scheme is a scheme of mutual funds which is kept open for

specific interval and after that it operates as close scheme. Thus it combines the

features of both ended & close-ended funds. The scheme is open for sale orrepurchase at fixed predetermined interval, which are disclosed in the offer

document. The units of the scheme are also traded in the stock exchange.

ACCORING TO PORTFOLIO: Mutual Fund can also be classified

according to

portfolio or the objective of the fund. Some of these funds are:

1) Equity funds: These funds mainly invest in shares of the companies. The

investments may vary from blue-chip companies to newly established

companies. They undertake risk associated with investment in equity shares of


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companies. Equity funds may have further sub-divisions such as income fund &

growth fund.

2) Debt Funds: These funds employee their resources in bonds. These

investments ensure fixed and regular income. Come times bonds are available in

the market at lower than the face value, the net income on these bonds goes

higher because interest will be received on the face value of the bond.

3) Balanced Funds: Balanced funds spend both on common stock and preferred

stock. Some part of the funds is pent on buying equity which other part is used in

acquiring interest bearing debentures and preference shares ensuring certain

amount of dividend. Some funds generally spend half the funds on equity stock

while the other half is pent on preferred stock. Balanced Funds ensure both

appreciation in stock as well as regular return in the shape of interest &

dividend. The investors have advantages of regular income and appreciation in

value of securities. These funds are also known as Conservative Funds or

Income & Growth Funds.

4) Sectoral Funds: These funds invest in a particular type of securities. The

funds may specialize in securities of companies dealing in a particular product or

firms in a particular industry. Any investor wanting to invest in a particular

security will prefer a fund dealing in such securities. These funds are amore

risky.

5)Leverage Funds

: The primary aim of leverage funds is to maximize capital

appreciation. These funds may use even borrowed funds for buying speculative

stocks which ensures a profit in the future/.the cost of raising loaned funds and

the gain form holding shares is the profit of the leveraged fund. The leverage is


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used to the benefit of the shareholders. Leverage funds indulge in speculative

activities to earn more and more profits.

6) Taxation Funds: Mutual Funds may be designed to suit the taxpayers. The

contributors to such funds get some concession in income tax. These schemes

are also known as Equity linked Saving Schemes (ELSS). The investors are

required to keep the money with the fund for a period of 3 years. The Amount

collected by these funds is used to acquire shares and interest bearing securities.

7) Money, Market Mutual Funds: Money Market Mutual Fund means a

scheme of a Mutual Fund which has been setup with the objective of investing

exclusively in money market instruments. These instruments include treasury

bills, dated Government Securities with an unexpired maturity of upto one year,

call and notice money, commercial paper, commercial bills accepted by banks

and certificate of deposits.

ACCORDING TO LOCATION: Mutual Fund can also be classified

on the

basis of location form where they mobilize funds; as

1) Domestic Funds: These are the funds which mobilizes savings of people within the country where investments are made.


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2) Off-Shore Funds: Off-Shore mutual funds are those funds which raise or

mobilize funds in those countries other than where investments are to be made.

These funds attract foreign savings for investments in India.

Other Types: There can be some other types of Mutual Fund also, such as Loan

Funds and Non-Loan Funds based on the expense / fees to be charged. Hub &

Spoke

funds which are basically fund of funds invests in other mutual funds.

WHY MUTUAL FUNDS?

A mutual fund is a special type of institution which acts as an investment

intermediary &

Channelizes the savings of large number of the people in the corporate securities in

such

a way that investors get steady returns, capital appreciation and allow risk. Mutual

funds

are becoming very popular world wide because of the following important

advantages:

1) Diversification: A proven principle of sound investment is that of

diversification which is the idea of not putting all your eggs in one basket. By

investing in many companies, Mutual Funds have cushioned themselves from

unexpected drop in value of some shares.

2) Expert Supervision & Management: Other advantage of Mutual Fund is

of expert supervision and management, which mutual fund can afford because of

large


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resources at their disposal. The funds can be professionally employed through

the mutual funds ensuring good returns. Fund Managers can analyze the

performance and prospects of various companies and take better decisions in

making investments.

3) Liquidity: A peculiar advantage of a mutual fund is that investments made in its

schemes can be converted back into cash promptly without heavy expenditure on

brokerage, delays, etc. According to the regulation of SEBI, a mutual fund in

India is required to ensure liquidity.

4) Reduced risk: As mutual fund invests in large number of companies and is

managed professionally, the risk factor of the investor is reduced.

5) Tax Advantage: There are certain schemes of mutual funds which provide tax

advantage under the Income Tax Act liability of an investor is also reduced

when he invests in these schemes of the mutual funds.

6) Low Operating Costs: Mutual Funds Have large investible funds at their

disposal and thus can avail economies of large scale. This reduces their

operating costs by way of brokerage, fees, commission, etc. Thus a small

investor also gets the benefits of large scale economies and low operating costs.

7) Flexibility: Mutual Funds provide flexible investment plans to its subscriber

such as regular investment plans, regular withdrawal plans and dividend

reinvestment plans etc. Thus, an investor can invest or withdraw funds accordingto his own requirements.


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8) Higher Returns: Mutual funds are expected to provide higher returns to the

investors as compared to direct investment because of professional management,

economies of scale, reduced risks, etc.

9) Investor Protection: Mutual Funds are regulated and monitored by SEBI.

SEBI ( Mutual Fund) Regulation Act, 1996, which have replaced the regulations

of 1993, provide better protection to the investors, impart a great degree of

flexibility and facilitate completion.

10) Transparency: You will always have access to up-to-date information on the

value of your investment in addition to the complete portfolio of investments,

the proportion allocated to different assets and the fund managers investment

strategy.

DISADVANTAGES:

Mutual funds are good investment vehicles to navigate the complex & unpredictable

world of investments. However, even mutual funds have some inherent drawbacks.

These

are:

1) No assured returns and no protection of capital: Mutual funds do not

offer assured returns and carry risk. For instance, unlike bank deposits,

investment in a mutual fund can fall in value. In addition, mutual funds are not

insured or guaranteed by any government body.


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2) Restrictive Gains: Diversification helps, if risk minimization is objective.

However, the lack of investment focus also means you gain less than if you had

invested directly in a single security.

For example, say, Reliance appreciated 50 percent. A direct investment in the stock

would appreciate by 50 percent, But your investment in the mutual fund, which had

invested 10 percent of its corpus in Reliance, will see only a 5 per cent appreciation.

History of Mutual Funds

Although the Massachussets Investors Trust, formed on 21 March 1924 by three

Boston financial executives, is recognized as the first mutual fund, the ideas of

pooling money for investment purposes is not a twentieth century phenomenon. By

various historical accounts, investment entities that resembled what we know as

mutual funds had been around in Europe since the eighteenth century.

In 1774, a Dutch merchant invited subscriptions from investors to set up aninvestment trust by the name of Eendragt Maakt Magt (translated) into English, it

means Unity creates Strength, with the objective of diversification at low cost to

investors. Its success caught on, and more investment trusts were launched, with

verbose and quicky names that, when translated, read, Profitable and Prudent or

Small Matters Grow by Consent. The formal origin of Mutual Funds can be traced

to Belgium where Society Generale de Belgique was established in 1822 as an

investment company to finance investment in national industries with high

associated risks. The Foreign and Colonial government Trust, formed in London in

1868, promised the investor of modest means and same advantages as the large

capitalists by spreading the investment over a number of stocks.


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The Birth of the Massachusetts Investors Trust in the U.S., in 1924, started a chain

of events that would bring mutual funds to American homes for good. There was an

initial euphoria among American investors over a new investment vehicle, but much

of this died with the onset of the Great Depression in 1929. It took a series of

confidence building measures the birth of a powerful market regulator, laying

down of rules for all industry participants, enactment of legislation for the mutual

fund juggernaut to start rolling again More and more financial entities got into the

act, The schemes and total assets keeps on increasing from year to year.

The Indian Time line

1963 UTI is Indias first mutual fund.

1964 UTI launches US-64.

1986 UTI Mastershare Indias first true mutual fund scheme, launched.

1987 PSU banks and insurers allowed to float mutual funds; State Bank of India

first

off the blocks.

1992 The Harshad Mehta fuelled bull market arouses middle-class interest in

shares

and mutual funds.

1993 Private sector and foreign players allowed; Kothari Pioneer first private

fund

house to start operations; SEBI set up to regulate industry.


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1994 Morgan Stanley is the first foreign player.

1996 SEBIs mutual fund rules and regulation, which form the basis of the most

current laws, came into force.

1998 UTI Master Index Fund is the countrys first index fund.

1999 The takeover of 20 Century AMC by Zurich Mutual Fund is the first

acquisition

in the mutual fund industry.

2000 The industry assets under management crosses Rs. 1,00,000 crore.

2001 US-64 scam leads to UTI overhaul.

2002 UTI bifurcated, comes under SEBI purview; Mutual fund distributors

banned

form giving commissions to investors; floating rate funds and foreign

debt

funds debut.

2003 AMFI certification made compulsory for new agents; fund of funds

launched.

2004 33 Mutual Funds exits; Loads on schemes increased.


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Mutual Funds Vs. Other Investment Options

In todays world, every individual is trying to accumulate lots and lots of wealth.The objective of average Indian changed from finding a good job to become a

crorepati. But to become a crorepati one has to plan his investments carefully. The

basic step for creating wealth revolve around the concept of asset allocation,

systematic investments and taking a long term approach towards investments.


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These days their are many investment option available like Post Office Schemes,

Mutual Funds. Bank Fixed Deposits. Share. Etc. Before investing one has to be very

clear about his financial goals and pros & cons of each investment option.

Study of some investment options on the basis of following parameters:

1. Risk

2. Returns

3. Liquidity

4. Inflation Protection

5. Option of Borrowing

6. Tax Implications

Various investment options :

Open Ended Mutual Funds

Close Ended Mutual Funds

Shares

Bank Fixed Deposits

Bonds

Public Providend Fund

National Saving Certificates

Post Office Monthly Income Scheme

Post Office Time Deposits


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OPEN-ENDED MUTUAL FUNDS

An open-ended mutual fund is the one whose units can be freely sold and

repurchased by the investors. Such funds are not listed on bourses since the AssetManagement Companies (AMCs) provide the facility for buyback of units form

unit-holders either at the NAV, or NAV-linked prices. Open Ended Mutual Funds

are of many types and the returns form them are also different: The major types

being:

1. Equity Diversified Funds

2. Equity Sectoral Funds

3. Equity Tax Relief Funds (ELSS)

4. Balanced Funds

5. Monthly Income Plans

6. Gilt Funds

7. Debt Funds

8. Fund of Funds

Open-ended mutual funds are indeed suitable for an appreciation in investment.

Choice of mutual funds can vary depending on ones appetite to take risks e.g.

person who can take risk can go for equity funds while who dont take risks goes for

debt fund. For Open-ended mutual fund, we can go by saying higher the risk,

higher the return. There is no guarantee of returns as NAV of mutual funds depends

on market. Therefore, it is stated that Mutual Funds are subject to market risk. Fig

2 shows risk and return relationship of various mutual funds. There is a directrelationship between risk and return i.e. schemes with higher risk also have potential

to provide higher returns.


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Equity Sectoral Fund

Equity Diversified Fund

Equity Tax Relief Fund

Balanced Funds

RISK Monthly Income Plans

Gilt funds

Debt Funds

RETURN

Fig.2

Returns given by various mutual funds schemes are shown in annexure 2.

LIQUIDITY: Instant Liquidity is the USP of open ended funds. Units of open-

ended mutual funds can be redeemed on weekdays (Monday-Friday) at NAV or at

NAV plus a small exit load. There is a concept of Contingent Deferred SalesCharge where the exit load is charged only if the redemption takes place before a

specified time period or above a specified amount. A majority of open-ended mutual

funds allow switching among the various funds of the same AMC without any load.

You generally get your redemption requests processed promptly, and received the

cheque in 3-4 days. However, in case of Equity Linked Savings Schemes (ELSS)

there is a lock in period of three years.

INFLATION PROTECTION: - Open ended Mutual Funds provide a fair

amount of protection against inflation. But funds with an equity portfolio provide

better protection than debt funds because equities, over the long term, provide the


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best means of beating inflation. Moreover, long-term capital gains are taxed after

indexing for inflation.

OPTION OF BORROWING: - There are some banks that offer loans against

mutual funds. Different banks have their own criteria on which they approve the

loans.

TAX BENEFITS:- Divided paid by mutual funds is fully tax-exempt at the

hands of the investors, although, debt funds have to pay a 12.5 per cent dividend

distribution tax. On redemption of an unit held for more than a year, realization will

attract long-term capital gains tax of 20 percent plus surcharge after indexing for

inflation, or at a flat rate of 10 percent. If redeemed before a year it will be termed as

short term capital gain and taxed along with your other income. However, one can

cave tax by investing in Equity-Linked Savings Scheme (ELSS) under Section 88 of

the Income Tax Act, 1961, according to which 20 per cent of the amount invested in

ELSS can be deducted from tax liability subject to a maximum investment of Rs.

10,000 per year.

CLOSE ENDED MUTUAL FUND

Closed-ended mutual funds have a fixed umber of units, and a fixed tenure (3, 5, 10

or 15 years), after which their units are redeemed or they are made open-ended.These funds have various objectives: generating steady income by investing in debt

instruments, capital appreciation by investing in equities, or both by making an

equal allocation of the corpus in debt and equity instruments.


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Since units of closed-ended funds rise and fall in the market like any other stock,

they are well suited for an increase in your investment. How ever, a mutual fund is

more influenced by the value of its own portfolio than any other factor. Units of an

equity fund are more frequently traded than a debt fund. Also, the NAV of an equity

fund rises and falls at a much faster pace. One the other hand, equity provided

healthy appreciation in NAV in the long term. Closed-ended debt funds, with their

conservative investment approach are best suited for income. These funds declare

dividend annually or semi-annually.

One cannot be completely sure of getting your full investment back. Depending on

their investment objective and under laying portfolio, closed-ended funds can be

very volatile or be fairly stable. Hence, principal is not assured.

LIQUIDITY: The Indian stock markets lack depth and, thus, the closed-ended

mutual funds are illiquid where they are listed and trade with heavy discount to their

NAVs. Besides listing, some mutual funds also offer repurchase option in there

closed-ended funds at an NAV-linked price after a certain lock-in period.

INFLATION PROTECTION: with stocks being better than bonds in

providing returns on a long term basis, an equity closed-ended fund is better

equipped to guard investment against inflation in the long run.

OPTION OF BORROWING: Closed end funds are treated as shares for the

purpose of raising loans in which the market value of the fund is considered.

However, there are few listed closed-ended fund that may be acceptable by banks.

TAX IMPLICATIONS: While divided paid on open-ended mutual funds is

fully tax-exempt, on redemption or sale of units, realization will attract long-term


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capital gains tax of 20-per cent plus surcharge after indexing for inflation, or at a

flat rate of 10 per cent . However, you can save tax by investing in Equity-Linked

Savings Scheme (ELSS) under Section 88 of the Income Tax Act, 1961, according

to which 20 percent of the amount invested in ELSS-which have a lock-in period of

3 years-can be deducted from your tax liability subject to a maximum investment of

Rs 10,000 per year.

SHARES

Shares, also called scrips, are the basic building blocks of a company. A companys

ownership is determined on the basis of its shareholding,. Shares are, by far, the

most glamorous investment option for the simple reason that, over the long term,

they offer the highest returns. Predictably, theyre also the riskiest investment

option.

Shares are meant to be long-term investments. Three golden rules for investment in

equity- Diversity, Average out & most importantly stay invested. Shares do generate

income form dividend as well as capital appreciation and have a strong potential to

increase value of investment. But shares are risky share prices are affected by

factors beyond anyones control and hence one needs to have an appetite for that

kind of risk.

LIQUIDITY: Shares are the most liquid financial instruments as long as there is

a buyer for shares on the stock exchange. Most shares belonging to the A Group on

the BSE are among the most liquid. However, shares of some companies may notwitness any trading for many days altogether. In such a case, you will not be able to

sell your shares. So, the liquidity factor varies to a large extent.


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INFLATION PROTECTION: Shares do provide for some protection

although share prices have no relation to inflation. The price may crash or rise far

beyond the inflation rate.

OPTION OF BORROWING: You can pledge shares with a bank for raising a

loan. The banks have their list of approved shares that they accept as a security.

Generally, shares of well known and respectable companies are accepted a security.

TAX IMPLICATION: While dividend is not taxable at the hands of the

investor, capital gains are. When your sell your shares at a profit, it attracts a capital

gains tax. Gains realised within one year of purchase of shares come under the short-

term capital gains tax, and are included in gross taxable income. If the duration is

more than one year, it attracts long-term capital gains tax. The rate is 20 per cent

with indexation benefit, or a flat 10 percent. However, capital gains tax can be saved

if the gains are invested in an IPO of a company with a lock-in period of 1 year.

Alternatively, they can also be invested in capital gains bonds of the NHAI,

NABARD, or Rural Electrification Corporation (REC). However, listed shares

acquired after March 1, 2003, will not be subject to long-term capital gains tax.

BANK FIXED DEPOSITS

When you deposit a certain sum in a bank with a fixed rate of interest and a

specified time period, it is called a Bank Fixed Deposit (FD). At maturity, you are

entitled to receive the principle amount as well as the interest earned at the pre-

specified rate during that period. The rate of interest for Bank Fixed Deposits varies

between 4 and 6 per cent, depending on the maturity period of the FD and the

amount invested. The interest can be calculated monthly, quarterly, half-yearly, or

annually, and varies form bank to bank. They are one the most common savings


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avenue, and account for a substantial portion of an average investors savings. The

facilities vary form bank to bank. Some services offered are withdrawal through

cheques on maturity, break deposit through premature withdrawal, and overdraft

facility etc. Fig 2.1 shows the return on FDs

INTEREST RATES PAYABLE ON DEPOSITS

DurationInterest Rates ( % p.a.) effective 9 Aug, 04

15 days to 45 days 3.75

46 days to 179 days 4.25

180 days to less than 1 year 4.75

1 year to less than 3 years 5.00

3 years & above 5.25

Source: State Bank of India

Fig.2.1

While a Bank FD does provide for an increase in your initial investment, it may be

at a lower rate than other comparable fixed-return instruments. Since capital

appreciation in any investment option depending on the safety of that option, and

banks being among the safest avenues, the increase in investment is modest.

Bank Deposits are the safest investment option after post-office schemes since the

banks function according to the parameters set by the Reserve Bank of India (RBI),

which frames regulations keeping in mind the interest of the investors.

LIQUIDITY: Bank FDs are liquid to the extent that premature withdrawal of a

bank FD is allowed. However, that involves a loss of interest.


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INFLATION PROTECTION: With a fixed return, which is lower than other

assured return options, banks cannot guard against inflation. In fact, this is the main

problem with Bank FDs as any return has to be calculated keeping inflation in mind.

OPTION OF BORROWING: Yes, in some cases, loans upto 90 per cent of

the deposit amount can be taken form the bank against fixed deposit receipts.

TAX IMPLICATIONS: Interest income form a Bank FD qualifies for

exemption under section 80L, which means that interest income upto Rs. 12,000 is

tax- exempt.

BONDS

Bond is a loan given by the buyers to the issuer of the instrument. Bonds can be

issued by companies, financial institutions, or even the government. Over and above

the scheduled interest payments as and when applicable, the holder of a bond is

entitled to received the par value of the instrument at the specified maturity date.

Bonds can be broadly classified into

(a) Tax-Saving Bonds

(b) Regular Income Bonds

Tax-Savings Bonds offer tax exemption up to a specified amount of investment.

Examples are:

a) ICICI Infrastructure Bonds under Section 88 of the Income Tax Act, 1961.

b) NAABARD/ NHAI/ REC Bonds under Section 54EC of Income Tax Act, 1961.

c) RBI Tax Relief Bonds


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Bonds are usually not suitable for an increase in your investment. However, in the

rare situation where an investor buys bonds at a lower price just before a decline in

interest rates, the resultant drop in rates leads to an increase in the price of the bond,

hereby facilitating an increase in your investment. This is called capital appreciation.

There is low risk involved in bonds.

LIQUIDITY: Investors can subscribe to primary issues of Corporates and

Financial Institutions (FIs). It is common practice for FIs and corporates to raise

funds for asset financing or capital expenditure through primary bond issues. Some

bonds are also available in the secondary market. The duration of a bond issue

usually varies between 5 and 7 years. If the bond is listed, it can be sold in the

secondary debt market.

Selling in the debt market is an obvious option. Some issues also offer what is

known as Put and Call option. Under the Put option, the investor has the option to

approach the issuing entity, after a specified period (say, three years), and sell back

the bond to the issuer. In the Call option, the company has the right to recall its debt

obligation after a particular time frame. For instance, a company issues a bond at an

interest rate of 12 per cent . After 2 years, it finds it can raise the same amount at 10per cent. The company can now exercise the Call option and recall its debt

obligation provided it has declared so in the offer document. Similarly, an investor

can exercise his Put option if interest rates have moved up and there are better

options available in the market.

INFLATION PROTECTION: This depends on the rate of inflation. In times

of falling inflation, the real rate of return remains high, but bonds do not offer any

protection if prices are rising. This is because they offer a pre-determined rate of

interest.


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OPTION OF BORROWING: One can borrow against bonds by pledging the

same with a bank. However, borrowings depend on the credit rating of the

instrument. For instance, it is easier to borrow against government bonds than

against bonds issued by a company with a low credit rating.

TAX IMPLICATIONS: There are specific tax saving bonds in the market that

offer various concessions and tax-breaks. Tax free bonds offer tax relief under

Section 88 of the Income Tax Act, 1961. Interest income form bonds, upto a limit of

Rs. 12000, are exempt under section 80 L of the Income tax Act, plus Rs. 3,000

exclusively for interest from government securities. However, if you sell bonds in

the secondary market, any capital appreciation is subject to the Capital Gains Tax.

PUBLIC PROVIDEND FUND

A public Providend Fund (PPF) is a long-term savings plan with powerful tax

benefits. Your money grows @ 8 per cent per annum, and this is guaranteed by the

Government of India (GOI). You may consider this option if you are not looking for

short-term liquidity or regular income. Normal maturity period is 15 years from theclose of the financial year in which the initial subscription was made.

A PPF account is not aimed at generating capital appreciation since it has no

secondary market. It is mainly suitable for long-term saving and for availing of tax

incentives. This lump-sum amount that you received on maturity ( at the end of 15

year) is completely tax- free. The PPF Scheme has the backing of the GOI, and is

considered completely risk-free. Since the PPF Scheme is backed by the GOI, Your

interest income is assured.

You can safety put your money in a PPF Scheme as it is risk-free. Although factors

like inflation and interest rate fluctuations may determine whether you opt for a PPF


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Account or not, the decision to invest in a PPF account is based on the twin benefits

of long-term savings and tax incentives. But if the interest rates will be applicable to

your account.

Subsequent interest calculations will be on the new rate of interest.

LIQUIDITY: PPF certainly lacks liquidity. The duration of a PPF account is

15 years, i.e., 15 complete financial years. On expiry or five financial years form the

end of the financial year in which the initial subscription was made, you have the

facility of one withdrawal every year. The maximum amount available for

withdrawal is 50 per cent of the balance at the end of the year immediately

preceding the year of withdrawal or the fourth year immediately preceding the year

of withdrawal, whichever is lower. For instance, if you have Rs. 50,000 at the end of

the fifth financial year, and Rs. 90,000 at the end of the eighth financial year, you

can withdraw upto Rs. 25,000 (50 per cent of Rs. 50,000). Importantly, there are no

penalties for availing of the withdrawal facility.

INFLATION PROTECTION: A PPF account does not provide protection

against high inflation. In certain years when the inflation rate is high, the real rate of

return on your PPF may be marginal. This depends on the prevailing rate of interest

on your PPF at any given time. These rate are notified by the GOI in the Official

Gazette form time to time, and are calculated in such manner as in specified in the

scheme.

OPTION OR BORROWING: Loans can be availed of form the third to sixth

year @ 1 per cent per annum if repaid within 36 months. Else, interest on loan is et

at 6 per cent per annum. Amount of such loans will not exceed 25 per cent of theamount that stood to your credit at the end of the second year immediately preceding

the year in which the loan is applied for. You will continue to earn interest at the

specified rate on your balance in the PPF Account after availing of the loan facility.


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TAX IMPLICATIONS: besides long-term savings, the most attractive feature

PPF is the tax incentives it offers. The interest income earned in PPF and the lump-

sum amount received on maturity or premature withdrawal is completely tax-free as

per the pro-visions of the Income Tax Act, 1961. The scheme also offers tax benefits

under Section 88 of the Income tax Act, 1961 as indicated below:

Gross Total Income (Rs) Rebate

0 150,000 20%

150,001 500,000 15%

500,001 & Above Nil

Rebate is calculated @ 30 per cent if your gross annual salary is upto Rs 1,00,000.

This also helps to reduce the actual amount invested over a 15-year period. You can

also open an account in the name of your spouse or children including married

daughters and claim the tax rebate if the contribution is made out of your personal

taxable income.

NATIONAL SAVING CERTIFICATES

National Savings Certificates (NSC) are an assured return scheme, armed with

powerful tax rebates under Section 88 of the Income Tax Act, 1961. Interest is

payable at 8 per cent, compounded half-yearly for a duration of 6 years. NSC

combines growth in money with reductions in tax liability as per the provisions of

the Income Tax Act, 1961. The scheme offers a coupon of 8 per cent, compounded

semi-annually. So, Rs 1,000 invested in NSCs become Rs. 1,601 on maturity after 6years.

The NSC has the backing of the Government of India. Since the NSC has the

backing of the Government of India, your income at the prescribed rate of interest is


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assured. This is a safe long-term savings option. There are no risks associated with

your investment in the NSC.

LIQUIDITY: The maturity period (duration) of a NSC scheme is 6 years. NSCs

do not offer any scope of premature withdrawal except on death or forfeiture by

pledgee or by court order. However, NSCs can be transferred from one person to

another through the post office on the payment of a prescribed fee. They can also be

transferred form one post office to another. If a certificate a lost, destroyed, stolen or

mutilated, a duplicate can be issued by the post-office on payment of the prescribed

fee.

INFLATION PROTECTION: With a Fixed rate of return, the NSC cannot

provide adequate safeguards against the risk of a high inflation rate.

OPTION OF BORROWING: You can borrow against your NSC by pledging

it after the permission of the concerned post-master.

You can pledge you NSC to any of the following:

> The President of India or Governor of a State is his official capacity.

> The RBI or a scheduled bank or a co-operative society ( including a co-operative

bank).

> A Corporation or a government company.

> A local authority.

> A Housing Finance Company approved by the National Housing Bank and

notified by the Central Government.

TAX IMPLICATIONS: NSCs offer tad benefits as per the provisions of the

Income Tax Act, 1961. Rebates are available under Section 88 of the Income Tax


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Act, 1961 on both the principal as well as the interest income. Under the provisions

of this Section, an investor can reduce his tax liability by Rs. 12,000 by investing the

maximum permissible sum of Rs. 60,000 in one financial year. Moreover, the annual

interest income ( till five years) is deemed reinvested under Section 88, and is

eligible for tax rebate.

Moreover, the annual interest income ( till five years) is deemed reinvested under

Section 88, and is eligible for a 20 per cent tax rebate. The rebate is calculated @ per

cent if your gross annual salary is upto Rs. 1,00,000. However, the interest income

at the end of the sixth year is not eligible for tax breaks. The interest income every

year also qualifies for exemption under Section 80L of the Income Tax act, which

means that interest income upto Rs. 12,000 is tax-exempt. Thus, while you can

claim 20 percent tax rebate on reinvested interest income, the entire interest income

will be tax-free if it is lower than Rs. 9,000. An added advantage is that TDS ( Tax

Deductible at Source) is not applicable on the NSC.

POST OFFICE MONTHLY INCOME SCHEMES

The post-office monthly income scheme (MIS) provides for monthly payment of

interest income to investors. It is meant for investors who want to invest a lump-sum

amount initially and earn interest on a monthly basis for their livelihood. The

scheme is,

therefore, a boon for retired persons. The post-office MIS gives a return of 8 per

cent plus a bonus of 10 per cent on maturity. However, this 10 per cent bonus is not

available in case of premature withdrawals.

Like all post-office schemes, the MIS has the backing of the Government of India,

and is, therefore, a safe investment. You can be assured of getting your full


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investment back. Your monthly interest income is assured at the specified rate of

interest. Since this scheme ha the backing of the Government of India, it is a sage

investment channel.

LIQUIDITY: You can buy a post office MIS at any post-office in India. The

duration of the MIS is six years. Investors can withdraw money before three years,

but at a discount of 5 percent. No such deduction will be made if an account is

closed after three years. Premature closure of the account is permitted any time after

the expire of a period of one year of opening the account. Deduction of an amount

equal to5 per cent of the deposit is to be made when the account is prematurely

closed.

INFLATION PROTECTION: With a fixed rate of return, the MIS does not

provide adequate safeguards against high inflation rates.

OPTION OF BORROWING: Depends if the banker accepts it as a security..

TAX IMPLICATIONS: The interest income accruing from a post office MIS

is exempt for tax under Section 80L of the Income Tax Act, 1961. Moreover, no

TDS is deductible on the interest income. The balance is exempt form Wealth Tax.

POST OFFICE TIME DEPOSITS


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A Time Deposit is an investment option that pays annual interest rates between 6.25

and 7.5 per cent, compounded quarterly, and is available through post-office across

the country. Time Deposits are suitable for capital appreciation in the sense that your

money grows at a pre-determined rate. Unlike certain other investment options,

where returns are commensurate with the risk, the rate of growth is also high, Time

Deposits return a lower, but safer, growth in investment, Therefore, Time Deposits

are one of the better ways to get a relatively high interest rate for your savings. The

only condition is that they are bound for some specific period of time.

With a Government of India-baking , your principal is as assured as it is in any other

post office account. With backing form the Government of India, your interest

income form Time deposits is assured . There are no risks unique to this investment

option.

LIQUIDITY: a time Deposit account can be opened at any post-office. Time

Deposits have a term ranging between 1 and 5 years. The scheme pays annual

interest, but its is compounded quarterly, thus giving a higher yield. Time deposit for

1 year offers a coupon rate of 6.25 per cent, a 2 years deposit offers an interest of

6.5 per cent, 3 years is 7.25 per cent while 5-year Time Deposit offers 7.5 per cent

return. While 2, 3, and 5-year Time Deposits can be closed after one year, theyentail a loss in the interest accrued for the time the account ha been in operation.

INFLATION PROTECTION: Time Deposits are not the ideal investment

option if the rate of inflation is either too high or is fluctuating beyond a limit. Since

the rate of return in case of a Time Deposit is fixed , they cannot guard you against a

high rate of inflation.


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OPTION OF BORROWING: You can borrow against a Time Deposit. The

balance in you account can be pledged a security for a loan.

TAX IMPLICATIONS: Interest income upto Rs. 9,000 from Time Deposits is

exempt under section 80L of the Income Tax Act, 1961, and no tax is deducted at

source, i.e., the interest income form a Time Deposit is also exempt form TDS.

Investments at a glance is shown in Fig. 2.2

INVESTMENT AT A GLANCE

Investments Risk Return LiquidityInflation

ProtectionOption of

BorrowingTax

Benefits

Open-ended Mutual Funds A H H H A A

Close-ended Mutual Funds A H L H H H

Shares H H H H H A

Bank Fixed Deposits L A A L H A

Bond L H L L H H

Public Providend Fund L A A A H H

National Saving Certificate L A A L H HPost Office Monthly Income Scheme L A A A H A

Post Office Time Deposits L A A L H A

Fig. 2.2

Here, Character H means High, L Low & A means Adequate


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PEOPLE PERCERTION ABOUT MUTUAL FUND

In todays market, Customer is the king. It is very important for an industry to

satisfy its customers. To study people perception about Mutual Funds, I have

conducted my research on 40 respondents of Chandigarh from different age /

income group.

Different Age Groups

Age No of Respondents Percentage1-18 years 2 5%18-35 years 18 45%35-45 years 14 35%

45 & above 6 15%

Total 40 100%

Table 3.1

AGE GROUP


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5%

45%

35%

15%1-18 years

18-35 years

35-45 years

45 & above

Fig. 3.1

Different Income Groups

Income No of Respondents Percentage

Below Rs. 50,000 4 10%

Rs. 50,000 Rs. 1 Lakh 8 20%

Rs. 1 Lakh Rs. 3 Lakh 22 55%

Rs. 3 Lakh & Above 6 15%

Total 40 100%

Table 3.2


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Income Groups

10%

20 %

55%

15%

Below Rs. 50,000

Rs. 50,000 Rs. 1 Lakh

Rs. 1 Lakh Rs. 3 Lakh

Rs. 3 Lakh & Above

Fig. 3.2

Male / Female

Sex No. of Respondents Percentage

Male 26 65%Female 14 35%

Total 40 100%

Table .3.3

MaleFemale

65%

35%

0%

50%

100%

SEX

Fig. 3.3

Marital Status

Married No of Respondents Percentage

Married 28 70%

Single 12 30%

Total 40 100%


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Table 3.4

MarriedSingle

70%

30%

0%

20%

40%

60%

80%

Marital Status

Fig 3.4

PEOPLE AWARENESS ABOUT MUTUAL FUNDS

Answer No.of Respondents Percentage

Yes 34

No 6 15%

Total 40 100%

Table 3.5


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85%

15%

0%

20%

40%

60%

80%

100%

Yes No

Seri es1

Fig. 3.5I conducted my research on 40 respondents, out of which 34 respondents are aware

about mutual funds i.e. 85%. Only 15 % of the respondents are not at all aware

about mutual funds. It suggests that there is awareness amount people about mutual

funds which is good for the mutual funds industry.

UNDERSTADING MUTUAL FUNDS

Answer No. of Respondents Percentage

A 3 8.82%B 8 23.53%

C 23 67.65%

Total 34 100%

Table 3.6

Uderstanding Mutual Fund8.82%

23.53

%

67.65

%

a

b

c


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Fig 3.6

When it actually comes to understanding mutual funds, 67.65% respondents actually

knows mutual funds as an trust that pools the saving of investors, invests it is

different securities and generate returns. 23.53% respondents understands it as an

organization providing financial services. 8.82% of respondents thinks that mutual

fund units are just similar to share. From this, we can interpret that people

understands about mutual funds, what they are, how they work.

POPULARITY OF VARIOUS MUTUAL FUNDS AMSs

Answer No of Respondents Percentage

UTI 30 88.23%

Pru ICICI 30 88.23%

Franklin Templeton 28 82.35%

Birla Sunlife 24 70.59%

HSBC 21 61.76%

SBI Magnum11 32.35%


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0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

1

Popularity Chart

UTI

Pru ICICI

Franklin Templeton

Birla Sunlife

HSBC

SBI Magnum

Fig 3.7

Only 5.88 % of respondents knows only one AMC i.e. UTI. Majority of AMCs

knows about 4-5 AMCs. Moving onto which AMC is known to people, most of the

respondents knows about UTI & Pru ICICI, expressed in percentage as 88.23%.

88.35% of the respondents knows about Franklin Templeton shares 70.59% of

respondents are aware of Birla Sunlife. HSBC & SBI are also popular. This clearly

shows that UTI & Pru ICICI are the most popular AMCs.

INVESTMENTS IN MUTUAL FUNDS


Yes 23 67.64%

No 11 32.36%

Total 34 100%

Table 3.8


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67.64%

32.36%

0.00%

10.00%20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Yes No

Percentage

Fig 3.8

Answer No of respondents Percentage

0 10% 0 0%

10% - 25% 15 65.22%

25% - 50% 4 17.39%

50% & above 4 17.39%

Total 23 100%

Table 3.9

Percentage of Savings

0.00%

65.22%

17.39%

17.39%

0 10%

10% - 25%

25% - 50%

50% & above

Fig 3.967.64% of respondents have invested their savings in mutual funds. Only 32.36% of

respondents are there who have not invested in mutual funds. 67.22% People have

invested 10-25% of their savings while 17.39% of respondents have invested

25.50% & 50 % and above in mutual funds.

This suggests that lots of people of Chandigarh have invested in mutual funds.


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POPULARITY OF OPEN-ENDED MUTUAL FUND SCHEMES


Equity 16 69.56%

Debt 7 30.43%

Balanced funds 19 82.60%

Fund of Funds 5 21.74%

69.56%

30.43%

82.60%

21.74%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

1

Equity

Debt

Balanced funds

Fund of Funds

Percentage

Fig 3.10

Balanced funds are more popular as 82.60% of people have invested in these

schemes followed by equity funds where 69.56% of respondents have invested.

People have also invested their savings in debt funds expressed in percentage as

30.43%. Popularity of funds of fund is really low as only 21.74% of respondents

have invested in them. Thus we can say, Balanced Funds are the most popular as

they have both equity and debt portfolio.

RETURNS FROM INVESTMENT IN MUTUAL FUNDS


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Answer No. of Percentage Percentage

High 7 30.43%

Good 13 56.52%

Low 3 13.05%Total 23 100%

Table 3.11

Percentage

Good

56.52%

High

30.43%

Low

13.05%

Fig. 3.11

56.52% of people have enjoyed good returns from their investments in mutual funds

whereas 30.43% have earned handsome high return. 13.05% of respondents got low

returns. By looking at the above figures, we can predict that returns form mutual

funds are good.

RISK ASSOCIATED WITH MUTUAL FUNDS


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High 5 17.39%

Low 4 21.74%

Adequate 14 60.87%

Total 23 100%Table 3.12

Risk

17.39%

21.74%

60.87%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

High Low Adequate

Fig. 3.12

People of Chandigarh (60.87%) who have invested in mutual funds see adequate

risk in mutual funds. 17.39% of respondents perceives mutual funds as very risky

option where as 21.74% of respondents think that there is low risk associated with

mutual funds.


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MAIN REASON FOR INVESTMENT IN MUTUAL

FUNDS

Answer No. of Respondents PercentageTax Benefits 8 34.78%

Higher Returns 11 47.83%

Liquidity 4 17.39%

Total 23 100%

Table 3.13

Tax Benefits

Higher

Returns Liquidity

S1

34.78%

47.83%

17.39%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Reasons for investments

Fig. 3.13

47.83% of respondents invests in mutual funds because of higher returns whereas

34.78% of respondents invests in mutual funds for tax benefits. Only 17.39% of

investors invests in mutual funds for liquidity advantage.


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RANKING OF MUTUAL FUNDS VS OTHER

INVESTMENT OPTION


1st 5 14.70%

2nd 17 50%

3rd 7 20.60%

4th & above 5 14.70%

Total 34 100%

Table 3.14

14.70%

50%

20.60%

14.70%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1

Percentage

1st

2nd

3rd

4th & above

Fig.3.14

The above data clearly indicates that mutual funds standing vs. other option is good.

EXPERIENCE OF INVESTORS ABOUT MUTUALFUND



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Good 14 60.87%

Bad 9 39.13%

Total 23 100%

Table 3.15

The experience of investors about mutual funds industry is quite good. 60.87% of

respondents agrees with it whereas 39.13% have bad experience in mutual fund.

EXPECTATIONS FROM INVESTMENT OPTIONS

People of Chandigarh expects high returns, low risks professional management,

transparency, easy availability, after sales service and liquidity form an investment.

Conclusion: From above data, we can conclude that people that people of

Chandigarh are aware of mutual funds and understands what mutual funds are. They

have also invested their savings in various mutual funds schemes. AMCs like Pru

ICICI, UTI & Franklin Templeton are popular amongst the people of Chandigarh.

Peoples experience about mutual funds is good. They have also earned a very

handsome return which is more than other investment options. But risk associated

with mutual funds is one the higher side, but people invests because of various

reasons like tax benefits, liquidity, higher returns better returns. People of

Chandigarh invests about 10-50% of their savings in mutual funds. They think that

mutual funds provide better returns over a longer period of time. People of

Chandigarh expects high returns, low risks, professional management, transparency,

easy availability, after sales service and liquidity, from an investment option


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As an investment options, Mutual Funds provide high returns with risk associated

with it, better liquidity, tax benefits, inflation protection, option of borrowing,

professional management, power of diversification etc. All these qualities are not

generally present in single investment option, which is present in mutual funds.

So, we can say Mutual Fund is the smart way to invest.

DO YOU EXPECT THESE FROM YOUR

INVESTMENTS?

IDEAL RETURNS

TAX EFFICIENCY THE ANSWER IS

ANYTIME LIQUIDITY MUTUAL

FUNDSFLEXIBILITY

TRANCPARENCY

SAFETY


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CONTROL OF MONEY

SUGGESTION & RECOMMENDATIONS

Investment Planning is necessary for all individuals to achieve their financial goals.

One has to plan his limited resources to avail maximum benefit about of them.

People should plan their investments to fulfill major needs like:

Financial Protection

Career Building

Assets Purchase

Marriage

Children Education

Retirement Funding

There is no way to do it without investing surplus money in right kings of

instruments.


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Choosing the best investment option one depends in his personal circumstances as

well as general market conditions. In each case, the right investment is a balance of

three things: Liquidity, Safety and Return.

So, before investing one has to be vary sure about his financial goals and risk taking

capacity. To do this, one should check his risk taking capacity with Investment

Style Check enclosed in Annexure IV. After checking his score, one can know what

kind of investor he or she is.

The recommended asset allocation for different kind of investors is given below in

graphical form:

1) Very Conservative Investor:

Equity

0% Cash20%

Debt

80%

2) Conservative Investor:


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Debt

80%

Cash

10%

Equity

10%

3) Moderate Investor:

Equity

30%

Cash

10%

Debt

60%

4) Aggressive Investor:


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Equity

40%

Cash

10%

Debt50%

5) Very Aggressive Investor:

Equity

50%Cash

40%

Debt

10%

It is not difficult to become a crorepati with mutual funds, provided one invest

according to the above portfolio.

Donts for Mutual Funds:

Do not speculate: always evaluate risk taking capacity

Do not chase returns: because what goes up must come down


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Do not put all eggs in one basket

Do not stop working on mutual funds

Do not time the market . Every time is good for investments.

Remember:

Mutual funds are subject to market risk and there is no assurance that fund

objective will be achieved.

NAV fluctuates depending on forces affecting capital markets.

Past performance do not indicate future performance.

Returns are not guaranteed and assured

Take long term approach towards investments.

Create an ideal portfolio

By following the above suggestions, one has to plan his investments and as proved

by studies that:

MUTUAL FUNDS IS A BEST LONG TERM INVESTMENT OPTION


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Annexure I

QUESTIONAIRE

Personal Information:

Name :_________________________

Age:___________________________

Address:________________________

_______________________________

Income :

Below Rs. 50,000

Rs. 50,000 Rs. 1 Lakh

Rs. 1 Lakh Rs. 3 Lakh

Rs. 3 Lakh & Above

Sex:

Male

Female

Marital Status:

Married

Un- Married


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Q-1) Are you aware of Mutual Funds?

a) Yes

b) No

Q-2) What do you understand by Mutual Funds?

a) They are units just similar to share.

b) It is an organization providing financial services.

c) It is an trust that pools the savings of investors, invests it in different

securities and generate return.

Q-3) Which major Mutual Funds do you Know?

a) ____________________________

b) ____________________________

c) ____________________________

d) ____________________________

Q-4) Have you invested in Mutual Funds?

a) Yes

b) No

Q-5) How much (%) of your savings have you invested in Mutual Funds?

a) 0 - 10%

b) 10% - 25%

c) 25% - 50%

d) 50% & above

Q-6) In which Mutual Fund schemes have you invested?


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a) Equity

b) Debt

c) Balanced Funds

d) Fund of Funds

Q-7) What kind of returns have you got from your earlier investments in

Mutual

Funds?

a) High

b) Good

c) Low

Q-8) What kind of risk do you associate with Mutual Funds?

a) High

b) Low

c) Adequate

Q-9) What is the main reason for your investments in Mutual Funds?

a) Tax Benefits

b) Higher Returns

c) Liquidity

Q-10) What Ranking you give to Mutual Funds in comparisons with other

investment options?

a) 1st

b) 2nd


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c) 3rd

d) 4th & More

Q-11) What is your experience about Mutual Fund Industry?

a) Good

b) Bad

Q-12) What do you expect from you Investments?

a) High Returns

b) Low Risk

c) Professional Management

d) Transparency

e) Easy Availability

f) After Sales Service

g) Liquidity

h) All of above


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Annexure II

Return of Various Mutual Fund Schemes

EQUITY DIVERSIFIED FUNDSScheme Fund

Corpu

s in Rs.Crores

Return % as on 21.12.2004

7

days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionBirla Advantage Fund 437.10 3.57 6.74 12.96 23.58 51.99 29.81 62.76 23.89HSBC Equity Fund 1519.94 3.19 4.52 12.60 17.97 47.96 41.90 N.A 88.56FT India Bluechip 1938.71 2.36 3.14 9.04 15.09 35.61 28.14 64.77 2257Pru ICICI Power Fund 477.24 3.08 4.83 10.50 19.33 46.96 24.89 64.90 13.29Reliance Vision Fund 736.14 4.34 7.15 12.23 19.48 50.70 24.47 75.87 25.54

EQUITY SECTORAL FUNDSScheme Fund

Corpu

s in Rs.Crores

Return % as on 21.12.20047days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionFranklin Infotech 203.28 3.15 4.02 4.24 16.49 44.14 36.24 36.14 30.64UTI Growth Sector IT 208.43 3.45 4.63 5.94 14.02 40.58 23.95 32.07 4.17Reliance Pharma Fund 154.77 5.68 9.29 10.82 20.96 32.95 N.A 59.48Alliance Buy India 29.29 6.37 9.91 17.52 34.76 58.62 50.30 68.35 6.36


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Birla MNC 133.85 3.59 6.04 8.12 17.85 39.24 22.73 54.05 13.15

EQUITY TAX RELIEF FUNDSScheme Fund

Corpu

s in Rs.Crores


7

days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionBirla Equity Plan 43.33 3.11 5.88 11.73 23.22 47.03 32.31 81.25 30.43Franklin India Taxshield 126.15 2.41 3.55 8.41 17.04 40.03 32.04 61.49 38.55Pru ICICI Tax 40.67 2.88 6.36 9.83 28.10 73.83 37.55 83.44 27.42Tate Tax Saving 48.71 2.95 4.43 9.62 19.24 41.82 25.72 71.43 28.40HDFC Tax Saver 32.64 2.04 6.02 12.32 23.36 65.44 48.13 79.72 32.11

BALANCED FUNDSScheme Fund

Corpu

s in Rs.Crores


7

days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionAlliance 95 fund 137.83 3.59 5.61 10.77 17.95 36.47 27.79 46.76 27.66Birla Balance Fund 158.37 2.27 4.02 8.54 14.01 28.13 19.08 40.97 11.46HDFC Prudence Fund 683.34 1.23 3.18 8.02 14.10 34.01 25.28 54.81 27.62UTI Balanced Fund 459 1.80 2.87 4.78 9.76 29.33 15.47 36.12 13.30Tata Balanced Fund 93.58 1.62 2.74 6.16 13.51 35.41 17.50 41.10 12.10

MONTHLY INCOME FUNDSScheme Fund

Corpu

s in Rs.Crores


7

days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionBirla MIP 752.14 0.63 1.08 2.30 3.26 6.05 6.13 10.74 12.37FT India MIP 1161.24 0.71 1.02 2.51 3.66 7.99 8.38 13.20 13.28Tata MIP 283 -0.04 0.04 0.75 1.54 3.66 2.64 10.47 10.17Reliance MIP 575.34 0.28 0.46 0.91 1.55 4.69 N.A N.A 4.39UTI MIP 549.10 0.38 0.50 1.56 0.99 1.62 2.92 6.22 6.97

GILT FUNDSScheme Fund

Corpu Return % as on 21.12.2004


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s in Rs.Crores

7

days

15

days

1

month

3

month

6

months

1

years

2

year

Since

InceptionBirla Gilt Plus 20.64 0.32 0.41 0.8

sviet deepak sharekhan

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