Professional Documents
Culture Documents
Abs Mutual Fund
Abs Mutual Fund
UNIVERSITY
A
Project
On
Mutual Funds & ULIPS
Of
3rd Semester
CONTENTS
Investing money where the risk is less has always been risky to decide.
The first factor, which an investor would like to see before investing, is risk
knowledge about the industry in its totality and appreciate the use of an
This makes us more Conscious about Industry and its pose and makes us
also enhance our logical abilities. The Mutual Fund Industry is in the
growing stage in India, which is evident from the flood of mutual funds
Unit linked insurance plan (ULIP) is life insurance solution that provides for
denoted as units and is represented by the value that it has attained called
as Net Asset Value (NAV). The policy value at any time varies according to
the value of the underlying assets at the time. In a ULIP, the invested
amount of the premiums after deducting for all the charges and premium
for risk cover under all policies in a particular fund as chosen by the policy
holders are pooled together to form a Unit fund. A Unit is the component of
the Fund in a Unit Linked Insurance Policy. The returns in a ULIP depend
upon the performance of the fund in the capital market. ULIP investors
have the option of investing across various schemes, i.e., diversified equity
basis. Investors also have the flexibility to alter the premium amounts
There are various aspects, which have been studied in detail in the project
and have been added to this project report. Hope this report would help
one understand the Mutual Fund Industry and ULIPS of India in detail.
ACKNOWLEDGEMENT
Heera Singh
Mutual Funds
A Mutual Fund is a body corporate that pools the savings of a number of investors and
pools money from many investors and invests it in stocks, bonds, short-term money
Before we understand mutual funds in detail, it’s very important to know the area in
which mutual funds works, the basic understanding of stocks and bonds.
Companies include Reliance, ONGC and Infosys. Stocks are considered to be the most
Bonds: Bonds are basically the money which you lend to the government or a
company, and in return you can receive interest on your invested amount, which is back
over predetermined amounts of time. Bonds are considered to be the most common
lending investment traded on the market. There are many other types of investments
other than stocks and bonds (including annuities, real estate, and precious metals), but
A mutual fund is just the connecting bridge or a financial intermediary that allows a
objective. A mutual fund is a company that pools the money of many investors to invest
The mutual fund will have a fund manager who is responsible for investing the gathered
Money into specific securities (stocks or bonds). When we invest in a mutual fund, you
are buying units or portions of the mutual fund and thus on investing becomes a
Mutual funds are considered as one of the best available investments as compare to
others they are very cost efficient and also easy to invest in, thus by pooling money
together in a mutual fund, investors can purchase stocks or bonds with much lower
trading costs than if they tried to do it on their own. But the biggest advantage to mutual
Thus a Mutual Fund is the most suitable investment for the common man as it offers an
The Mutual fund is a trust registered under the Indian Trust Act. It is
Trust or Trustee Company -They form mutual funds under existing Trust
BY STRUCTURE
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
from 3 to15 years. The fund is open for subscription only during a specified
period. Investors can invest in the scheme at the time of the initial public
issue and thereafter they can buy or sell the units of the scheme on the
stock exchanges where they are listed. In order to provide an exit route to
the investors, some close-ended funds give an option of selling back the
prices. SEBI Regulations stipulate that at least one of the two exit routes is
Interval Schemes are that scheme, which combines the features of open-
ended and Close-ended schemes. The units may be traded on the stock
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 manager’s outlook on different stocks. The Equity Funds are sub-
Mid-Cap Funds
Equity investments are meant for a longer time horizon, thus Equity funds
2. Debt funds:
funds ensure low risk and provide stable income to the investors. Debt
carry zero Default risk but are associated with Interest Rate risk.
Government.
and debt market. These scheme ranks slightly high on the risk-return
funds to help you save regularly. It is just like a recurring deposit with
the post office or bank where you put in a small amount every month.
The difference here is that the difference here is that the amount is
monthly or quarterly.
Short Term Plans (STPs): Meant for investment horizon for three to
six months. These funds primarily invest in short term papers like
money market, CPs and CDs. These funds are meant for short-term
and debt funds. They invest in both equities and fixed income securities,
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.
pre-defined in the objectives of the fund. The investor can align his own
part of their fund in equities and are willing to bear Short-term decline
and capital gains they earn. These schemes invest in both shares
call money.
OTHER SCHEMES
the investors under tax laws prescribed from time to time. Under
NSE 50. The portfolio of these schemes will consist of only those
Sectors/industries.
Types of returns:
There are three ways, where the total returns provided by mutual funds can
be enjoyed by investors:
fund pays out nearly all income it receives over the year to fund
If the fund sells securities that have increased in price; the fund has a
distribution.
If fund holdings increase in price but are not sold by the fund
manager, the fund's Shares increase in price. You can then sell your
mutual fund shares for a profit. Funds will also usually give you a
The net asset value of the fund is the cumulative market value of the assets
fund net of its liabilities. In other words, if the fund is dissolved or liquidated,
by selling off all the assets in the fund, this is the amount that the
shareholders would collectively own. This gives rise to the concept of net
asset value per unit, which is the value, represented by the ownership of
one unit in the fund. It is calculated simply by dividing the net asset value of
the fund by the number of units. However, most people refer loosely to the
NAV per unit as NAV, ignoring the "per unit". We also abide by the same
convention.
Calculation of NAV
The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
+ Dividends/interest accrued
Amount due on unpaid asset
EXAMPLE
What are the no of units acquired by Mr. A every month and also find out
the Average Unit price at the end of 10th month?
Soln.
Systematic Investment Plan statement of Mr. A
Unit Units
Regular Investment Prices acquired
(on 10th of every
month)
(No. of
(in Rs.) (in Rs.) units)
10-04-2010 100 11.79 8.48
10-05-2010 100 12.11 8.26
10-06-2010 100 11.17 8.95
10-07-2010 100 11.62 8.61
10-08-2010 100 13.59 7.36
10-09-2010 100 13.82 7.24
10-10-2010 100 11.82 8.46
10-11-2010 100 10.3 9.71
10-12-2010 100 10.38 9.63
10-01-2011 100 9.74 10.27
1000 116.34 86.96
Average Unit
Price 11.634
MUTUAL FUND COMPANIES IN INDIA
purchase funds because they do not have the time or the expertise to
individual stocks or bonds, the investors risk is spread out and minimized
gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of
bring down the average cost of the unit for their investors.
whereby as little as Rs. 2000, where SIP start with just Rs.50 per month
basis.
6. Tax benefits.
also have the advantage of capital gains taxation. Tax-saving schemes and
88.
whether or not the so-called professionals are any better than mutual fund
2. Costs – The biggest source of AMC income is generally from the entry
& exit load which they charge from investors, at the time of purchase. The
mutual fund industries are thus charging extra cost under layers of jargon.
companies, high returns from a few investments often don't make much
fund getting too big. When money pours into funds that have had strong
success, the manager often has trouble finding a good investment for all
concept of mutual fund by UTI in the year 1963. Though the growth was
slow, but it accelerated from the year 1987 when non-UTI players entered
the industry.
In the past decade, Indian mutual fund industry had seen dramatic
monopoly of the market had seen an ending phase; the Assets under
Management (AUM) were Rs. 67bn. The private sector entry to the fund
family rose the AUM to Rs. 470 in March 1993 and till April 2004, it reached
the height of 1,540 bn. Putting the AUM of the Indian Mutual Funds
Industry into comparison, the total of it is less than the deposits of SBI
alone, constitute less than 11% of the total deposits held by the Indian
banking industry.
The main reason of its poor growth is that the mutual fund industry in India
The mutual fund industry can be broadly put into four phases according to
It was set up by the Reserve Bank of India and functioned under the
UTI was de-linked from the RBI and the Industrial Development Bank of
India (IDBI) took over the regulatory and administrative control in place of
RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end
Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by
Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug
89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of
Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of
Indian mutual fund industry, giving the Indian investors a wider choice of
fund families. Also, 1993 was the year in which the first Mutual Fund
Regulations came into being, under which all mutual funds, except UTI
merged with Franklin Templeton) was the first private sector mutual fund
The number of mutual fund houses went on increasing, with many foreign
mutual funds setting up funds in India and also the industry has witnessed
were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit
Trust of India with Rs.44, 541 crores of assets under management was way
India with AUM of Rs.29, 835 crores (as on January 2003). The Specified
under the rules framed by Government of India and does not come under
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund
Regulations. With the bifurcation of the erstwhile UTI which had in March
2000 more than Rs.76, 000 crores of AUM and with the setting up of a UTI
Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with
recent mergers taking place among different private sector funds, the
mutual fund industry has entered its current phase of consolidation and
Strengths
market liquidity.
Weakness
Limited channels of distribution i.e. banks and agent account for more
Threats
In India low risk investment products like PPF offer high returns.
allotted units by the insurance company and a net asset value (NAV) is
schemes ,i.e., diversified equity funds, balanced funds and debt funds to
a part of the investment goes towards providing you life cover. The residual
Simply put, ULIPs are structured in such that the protection element and
your specific needs. In this way, the ULIP plan offers unprecedented
INDUSTRY PROFILE
Many may not be aware that the life insurance industry of India is as old as
it is in any other part of the world. The first Indian life insurance company
was the Oriental Life Insurance Company, which was started in India in
1818 at Kolkata.
A number of players (over 250 in life and about 100 in non-life) mainly with
regional focus flourished all across the country. However the government of
In line with the economic reforms that were ushered in India in early
Regulatory and Development Authority (IRDA) Bill in 1999. IRDA was set
flood, breakdown, lightening, earthquake, etc. are perils. If such perils can
cause damage to the assets, we say that the asset is exposed to that risk.
Perils are the events. Risks are the consequential losses or damages.
be a few crores of rupees, depending on the cost of the building and the
contents in it.
Insurance does not protect the asset. It does not prevent its loss due to the
peril. The peril cannot be avoided through insurance. The peril can
management. Insurance only tries to reduce the impact of risk on the owner
of the asset and those who depend on that asset. It only compensates the
losses- and that too, not fully. Only economic consequences can be
companies
to the insurance sector and in particular the insurance companies was the
launch of the IRDA’s online services for issue and renewal of licenses to
agents.
Since being set up as an independent statutory body the IRDA has put in a
options.
schemes for the simple reason that it offers financial protection from
providing for the risk cover, while the rest is used for savings.
from many people who face the same risk. A loss claim is paid out
his/her life and life of his/her children or adult children. The rebate is
correct view. When a person saves, the amount of funds available at any
time is equal to the amount of money set aside in the past, plus interest. If
the money is invested in buying shares and stocks, there is the risk of the
money being lost in fluctuation of the stock market even if there is no loss,
the available money at any time is the amount invested plus appreciation.
In life insurance, however the fund available is not the total of the savings
already made (premium paid),but the amount one wished to have at the
end of the saving period (which is the next 20 or 30 years).the final fund is
secure from the very beginning. One has to pay for it only as long as one
There is no other scheme which provides this kind of benefit therefore life
saving will show that life insurance has the following advantages:-
• In the event of death, the settlement is easy. The heirs can collect the
assignment.
savings.
loss.
• Creditor can not claim life insurances moneys. They can be protected
• There are text benefits, both in income tax and capital gains.
Working of ULIPs
It is critical that you understand how your money gets invested once you
purchase a ULIP:
When we decide the amount of premium to be paid and the amount of life
cover we want from the ULIP, the insurer deducts some portion of the ULIP
and varies from product to product. The rest of the premium is invested in
the fund or mixture of funds chosen by us. Mortality charges and ULIP
Since the fund of our choice has an underlying investment – either in equity
or debt or a combination of the two – our fund value will reflect the
plan, we are entitled to receive the fund value as at the time of maturity.
The pie-chart below illustrates the split of our ULIP premium:
One of the big advantages that a ULIP offers is that whatever be our
specific financial objective, chances are that there is a ULIP which is just
units under the policy. This charge normally includes initial and
determined rate.
premium.
Unit Fund
deducting for all the charges and premium for risk cover under all
objectives, risk profile and time horizons. The following are some
Flexibility of ULIPs
Most unit linked policy holders opt for ULIPs because of the flexibility
needs. Additionally, as a unit linked policy holder, you have the option
fund, balanced fund, debt fund and secure fund. During the tenure of
your policy depending on your risk appetite you can also switch
investments from one fund to another. This gives you the flexibility of
View one. The issue is not about which regulator wins, but does the
want a market place that he can understand, navigate and where there is
no willful deceit in product sales. From the consumer’s point of view, the
key argument in the Irda-Sebi battle was not about turf but about mis-
selling. When the battle began, Ulips were governed by rules that were
archaic—the product was built like a trap to force investors into a lose-all or
opaque, with multiple costs calculated in many ways and with no uniformity
case for mis-selling. Worse, the commissions were loaded on to the first
year of a 15-20 year product, with no deterrent to the seller for adopting a
What the open regulatory battle and the accompanying public gaze has
a bit knee-jerk, they are along a path that will lead to a better marketplace,
though they still need to travel some distance to come up to the standards
regulations and product structure. However, there are issues that joint
products (such as mutual funds and Ulips) need a basic level of hygiene
around rules on benchmarking, a simple cost structure, easy entry and exit
manner of sale.
last piece that needs to fit in now is to bring in sales-side regulation. Sebi
has already taken a step in this direction and Irda is working on a format as
well. The ministry of finance needs to ensure that these regulations are the
same for the entire sales force in India. With these changes in place, the
investor may begin to trust the market again. The issue between Sebi and
Irda is less about who wins, but about using this opportunity, where
attention is on this problem, to make rules that work for the consumer. If,
along with single-point regulation of the Ulip product, the government also
nudges change to take care of the above issues, then it is irrelevant who
regulates the product. The investor really is not worried about how much
territory who has, but how safe his money is and how confident he feels
View two. If the ministry of finance has misread the depth of mis-selling in
the insurance industry and has handed over the keys to further institutional
cheating to a regulator who has done very little to show (before the battle
with Sebi began) that it spends time worrying about the investor, there is
Without a process of a level playing field from the point of view of the
WEBSITES
WWW.GOOGLE.COM
WWW.YAHOO.COM
WWW.WIKIPEDIA.COM
WWW.INDIAINFOLINE.COM
WWW.AMFIINDIA.COM
WWW.MONEYCONTROL.COM
BOOKS
FINANCIAL INSTITUITONS AND MARKETS – L.M BHOLE
SECURITIES LAWS AND COMPLIANCES –ICSI
NEWSPAPERS
MINT –HINDUSTAN TIMES
ECONOMIC TIMES