1.

INTRODUCTION OF MUTUAL FUNDS

“A mutual fund is a pool of money collected from investors and is invested

further by the fund manager according to investors stated investment
objectives.”

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized is shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.

The diagram below describes broadly the working of a mutual fund:

There are many entities involved and the diagram below illustrates the organizational
set up of a mutual fund:

1.1 A BRIEF HISTORY OF THE MUTUAL FUND

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History of Mutual Funds has evolved over the years and it is sure to appear as
something very interesting for all the investors of the world. In present world, mutual
funds have become a main form of investment because of its diversified and liquid
features. Not only in the developed world, but in the developing countries also different
types of mutual funds are gaining popularity very fast in a tremendous way. But, there
was a time when the concept of Mutual Funds was not present in the economy. 

According to some historians, the mutual funds were first introduced in Netherlands in
1822. But according to some other belief, the idea of Mutual Fund first came from a
Dutch Merchant ling back in 1774. In 1822, that idea was further developed. In 1822,
the concept of Investment Diversification was properly incorporated in the mutual
funds. This form of investment soon spread to Great Britain and France. Mutual funds
became popular in the United States in the 1920s and continue to be popular since the
1930s, especially open-end mutual funds. Mutual funds experienced a period of
tremendous growth after World War II, especially in the 1980s and 1990s.

In fact, the Investment Diversification is the main attraction of mutual funds as the

small investors are also able to allocate their little Funds in a diversified way to
lower Risks. 

MUTUAL FUNDS GLOBAL OVERVIEW

Mutual fund assets worldwide decreased 12.1 percent to $21.66 trillion at the end of the
third quarter of 2008. Net cash flow to all funds was negative in the third quarter with
$218 billion in outflows, the first worldwide outflow recorded since the third quarter of
2002. The decline in assets reported in U.S. dollars was exacerbated by strengthening
of the dollar. Long-term funds had net outflows of $246 billion in the third quarter, after
registering net inflows of $73 billion in the second quarter. All categories of long-term
funds experienced outflows. Year-to-date, equity funds have had $254 billion in
outflows, bond funds have had $39 billion in outflows, and balanced/mixed funds have
had $24 billion in outflows. Money market funds experienced net inflows of $28 billion in
the third quarter, compared with outflows of $70 billion in the second quarter of 2009.
Year-to-date money market funds have had $444 billion of net inflows.

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 Worldwide Mutual Fund Assets (trillions of U.S. dollars, end of quarter 3)

INDIAN MUTUAL FUND INDUSTRY

The Evolution
The formation of Unit Trust of India marked the evolution of the Indian mutual fund
industry in the year 1963. The primary objective at that time was to attract the
small investors and it was made possible through the collective efforts of the
Government of India and the Reserve Bank of India. The history of mutual fund industry
in India can be better understood divided into following phases: 

Phase I. Establishment and Growth of Unit Trust of India - 1964-87

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

1992-93 Amount Assets Under Mobilisation as % of gross

Mobilised Management Domestic Savings

UTI 11,057 38,247 5.2%

Public
1,964 8,757 0.9%
Sector

Total
13,021 47,004 6.1%

Phase II. Entry of Public Sector Funds - 1987-1993

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
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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 1993 marked Rs.47, 004 as assets. Under
management.

Phase III. Emergence of Private Sector Funds - 1993-96

With the entry of private sector funds in 1993, a new era started in the Indian mutual
fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was
the year in which the first Mutual Fund Regulations came into being, under which all
mutual funds, except UTI were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund
registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive
and revised Mutual Fund Regulations in 1996. The industry now functions under the
SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on
increasing, with many foreign mutual funds setting up funds in India and also the
industry has witnessed several mergers and acquisitions. As at the end of January
2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit
Trust of India with Rs.44, 541 crores of assets under management was way ahead of
other mutual funds. 

Phase IV. Growth and SEBI Regulation - 1996-2004

This phase had bitter experience for UTI. It was bifurcated into two separate entities.
One is the Specified undertaking of the Unit Trust of India with AUM of Rs.29, 835
crores (as on January 2003). The Specified Undertaking of Unit Trust of India,
functioning under an administrator and under the rules framed by Government of India
and does not come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the Mutual Fund Regulations. With the
bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76, 000 crores
of 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

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growth. As at the end of September, 2004, there were 29 funds, which manage assets
of Rs.153108 crores under 421 schemes. 

AVERAGE ASSETS UNDER MANAGEMENT (AUM) IN INDIA

The country's mutual fund industry witnessed a nearly Rs 37,000 crore decline in its
assets in the financial year 2008-09, with top fund house Reliance MF accounting for a
little less than one-third of the losses.

The combined average assets under management (AUM) of the 35 fund houses in the
country saw an erosion of Rs 36,798.58 crore, or 6.94 per cent, and dropped to Rs
4,93,286.56 crore at the end of March 08, according to the data released by the
Association of Mutual Funds in India. According to facts published by Association of
Mutual Funds in India (AMFI) of the total 35 fund houses, the average asset under
management (AUM) for the month ended Feb 28, 2010 stood at Rs 5,009,733.79
million.

Growth of Mutual Funds in India

Let us start the discussion of the performance of mutual funds in India from the day the
concept of mutual fund took birth in India. The year was 1963. Unit Trust of India invited
investors or rather to those who believed in savings, to park their money in UTI Mutual
Fund.

For 30 years it goaled without a single second player, though the 1988 year saw some
new mutual fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to
satisfactory level. 67bn. the Assets under Management rose to Rs. 470 bn. in March
1993 and the figure had a three times higher performance by April 2004. It rose as high
as Rs. 1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices started
falling in the year 1992. Those days, the market regulations did not allow portfolio shifts
into alternative investments. There was rather no choice apart from holding the cash or
to further continue investing in shares. One more thing to be noted, since only closed-
end funds were floated in the market, the investors disinvested by selling at a loss in
the secondary market.
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The performance of mutual funds in India suffered qualitatively. The 1992 stock market
scandal, the losses by disinvestments and of courses the lack of transparent rules in
the where about rocked confidence among the investors. Partly owing to a relatively
weak stock market performance, mutual funds have not yet recovered, with funds
trading at an average discount of 1020%of their net asset value. .
The measure was taken to make mutual funds the key instrument for long-term saving.
The more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks
and higher profitability within a short span of time, more and more people will be
inclined to invest until and unless they are fully educated with the dos and donts of
mutual funds.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era between
1963 and 1987 marked the existence of only one mutual fund company in India with Rs.
67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust
of India (UTI). By the end of the 80s decade, few other mutual fund companies in India
took their position in mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank
Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of
India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the
end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds
started penetrating the fund families. In the same year the first Mutual Fund

SEBI guidelines

 Mutual funds cannot invest more than 10 per cent of the total net assets of a
scheme in the short-term deposits of a single bank, the Securities and Exchange
Board of India said on Monday.

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 Announcing guidelines for parking of funds in short-term deposits of scheduled
commercial banks (SCBs) by mutual funds, the regulator said that investment
cap would also take into account the deposit schemes of the bank's subsidiaries.

 The SEBI has also defined 'short term' for funds' investment purposes as a
period not exceeding 91 days.

 Besides, the parking of funds in short-term deposits of all SCBs has been
capped at 15 per cent of the net asset value (NAV) of a scheme, which can be
raised to 20 per cent with prior approval of the trustees.

 The parking of funds in short-term deposits of associate and sponsor SCBs

together should not exceed 20 per cent of total deployment by the MF in short-
term deposits, it added.

 The SEBI has also asked the trustees of a fund to ensure that no funds are
parked by a scheme in short term deposit of a bank, which has invested in that
particular scheme.

 The SEBI guidelines say that asset management companies (AMCs) shall not be
permitted to charge any investment and advisory fees for parking of funds in
short-term deposits of banks in case of liquid and debt-oriented schemes.

MEASURING MUTUAL FUND PERFORMANCE

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Net Asset Value

Net Asset Value represents a fund's per share market value. NAV is the market value
of the assets of the scheme minus its liabilities. The per unit NAV is the net asset value
of the scheme divided by the number of units outstanding on the Valuation Date. It may
also be used as a synonym for the book value of a firm

SEBI’s formula for NAV: Net assets of scheme

Number of units outstanding

In other words:

(Market value of investments + Receivables + Other Accrued Income +

Other Assets) - (Accrued Expenses — Other Payables — Other Liabilities)
_____________________________________________________________________
________ Number of units outstanding on the NAV calculation date

Sharpe Ratio

Developed by William F. Sharpe, this calculation measures a ratio of return to volatility.

It is useful in comparing two portfolios or stocks in terms of risk-adjusted return. The
higher the Sharpe Ratio, the more sufficient are returns for each unit of risk. It is
calculated by first subtracting the risk free rate from the return of the portfolio, then
dividing by the standard deviation of the portfolio.

The Sharpe ratio is calculated as follows:

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment
decisions or a result of excess risk.The greater a portfolio's Sharpe ratio, the better its
risk-adjusted performance has been. A negative Sharpe ratio indicates that a risk-less
asset would perform better than the security being analyzed. The risk free return is
taken as the return on Treasury Bills, Government Securities or Saving Bank Accounts.

Sharpe Ratio-A comparative Tool

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It can only be used as a comparative tool. It is used to compare performance of a
number of funds. Alternatively one can compare the Sharpe ratio of a fund with that of
its benchmark index.

Yield Ratio

Income or return received from an investment, usually expressed as a percentage of

market price, over a designated period. For a mutual fund, yield is interest or dividend
before any gain or loss in the price per share

Yield = (Income Distribution per share/ Price per share) * 100

Exit Load

When an investor wants to exit any scheme, a charge is levied as a percentage to the
applicable net asset value (NAV) at the time of exit. So, if a scheme with an NAV of Rs
50 carries an exit load of 1 per cent, the price at which the investor sells the units of this
scheme (called the repurchase price) will be Rs 49.50. 

Expense ratio

These are recurring expenses which are incurred to run and manage a Mutual Fund
scheme and are charged as a percentage of the net assets of the fund. Management
fee is the charge which the asset management company charges an investor on
account of the professional service they render of managing the investor’s funds. It is
also called investment management and advisory fee.

The expense ratio charged is used to meet the fund’s day-to-day expenses like costs
related to dispatching investor communications such as account statements, dividend
and redemption cheques, advertisements, trustee fees and expenses, custodian fees,
among others. 

Sale Price

Is the price you pay when you invest in a scheme. And is also called Offer Price. It may
include sales load.

Repurchase Price

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Is the price at which a close-ended scheme repurchases its units and it may include a
back-end load. This is also called Bid Price.

Redemption Price

Is the price at which open-ended schemes repurchase their units and close-ended
schemes redeem their units on maturity. Such prices are NAV related.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front-end’ load.
Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load

Is a charge collected by a scheme when it buys back the units from the unit holders.

SYSTEMATIC INVESTMENT PLAN (SIP)

An SIP is a vehicle offered by mutual 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 amount is invested in a mutual fund. The
minimum amount to be invested can be as small as Rs 500 and the frequency of
investment is usually monthly or quarterly.

How to invest in SIPs?

 The SIP option is available with all types of funds like equity, income or gilt. 

 An investor can avail the SIP option by giving post-dated cheques of Rs 500 or
Rs 1,000 according to the funds’ policy. 

 If an investor wants to put more than Rs 500 or Rs 1,000 in any given month he
will have to fill in a new a form for SIP intimating the fund that he is changing his
SIP structure. Also he will be allowed to change the SIP structure only in the
multiples of the SIP amount.

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 1.2 CONCEPT OF MUTUAL FUNDS

“A mutual fund is a pool of money collected from investors and is invested further by the
fund manager according to investors stated investment objectives.”

A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned
through these investments and the capital appreciation realized is shared by its unit
holders in proportion to the number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a relatively low cost.

There are many entities involved and the diagram below illustrates the organizational
set up of a mutual fund:

11
 HOW, WHEN AND WHERE INVESTORS INVESTS?

A mutual fund is a common pool of money in to which investors with common

investment objective place their contributions that are to be invested in accordance with
the stated investment objective of the scheme. The investment manager would invest
the money collected from the investor in to assets that are defined/ permitted by the
stated objective of the scheme. For example, an equigo I hty fund would invest equity
and equity related instruments and a debt fund would invest in bonds, debentures, gilts
etc.

The whole cycle goes like this: - Investor invests money in the mutual fund company.
The Fund Manager of the Company invests in a number of stocks and bonds in the
market. There is profit/loss to the mutual fund company from the market. Then the
profit/loss from the market is passed to the investor from the mutual fund company. The
company distributes its profits in the form of dividends to the investors.

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 1.3 MUTUAL FUND SCHEMES

The mutual funds offer different schemes. Schemes of mutual funds can be classified
under heads from angles.

By Structure

Open Ended Schemes: A mutual fund scheme which does not have a fixed
maturity and which is available for subscription and redemption throughout the
year is called an open ended scheme. Open ended scheme are traded at their
net asset value related prices. The biggest advantages of these schemes are
liquidity.

 Closes Ended Schemes: A closes ended scheme is open for

subscription at the time of initial public offer for a specified period. It has a
maturity between 3 and 15 years. The units of the schemes are listed in a
stock exchange. Once the issue is close for subscription, the investors
can buy or sell the units in the stock exchange at the prevailing market
price. In order to give an option to sell the units at net asses value related
price, some funds repurchase the units at periodic intervals.

 Interval Schemes: Interval schemes are the combination of open ended

and close ended schemes. The units of an interval scheme may be at net
asset value related prices during the predetermined intervals.

By Investment Objective

 Growth Schemes: These schemes provide capital appreciation over a

period of time. They do not provide regular income. Normally, major
portion of the fund is invested in equity.

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 Income Schemes: These schemes provide regular income to investors.
Major portion of the fund is invested in fixed income securities. Scope for
growth in these schemes is very little.

 Balance Schemes: These schemes are a combination of growth

schemes and income schemes. They distribute periodic income and at
the same time there is capital appreciation also. The funds are invested in
equity shares as well as in fixed income security.

 Money Market Schemes: The funds of these schemes are invested in

money market instrument like treasury bills, commercial schemes,
Certificate of deposits and call money market. Return of these schemes is
normally lower than the others, but they are very liquid.

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By Nature

 Equity Funds: As the name says, the fund is invested mostly in equity
shares. Equity funds again can be classified under the following heads:

I. Diversified Equity Funds

II. Mid Cap Funds

III. Sector Specific Funs

IV. Tax Saving Funds

 Debt Funds: The debt funds are invested in the debts like government
securities, corporate debentures etc. Therefore, risks associated in these
funds are very low and they provide a steady income. Debt funds can be
classified as follows.

I. Gilt Funds

II. Income Funds

III. MIPs

IV. Short Term Plans

V. Liquid Fund.

2. INTRODUCTION TO ICICI GROUP

15
ICICI Ltd (Since Merged into ICICI Bank Ltd) was established in 1955 by the World
Bank, the Government of India and the Indian Industry, to promote industrial
development of India by providing project and corporate finance to Indian industry.

Since inception ICICI has grown from a development bank to a financial conglomerate
and has become one of the largest public financial institutions in India. ICICI Bank is
India’s second largest bank with an asset base of Rs.106,812 crore. ICICI Bank
provides a broad spectrum of financial services to individuals and companies. This
includes mortgages, car and personal loans, credit and debit cards, corporate and
agricultural finance. The Bank services a growing customer base of more than 7 million
customers and 6 million bondholder accounts through a multi-channel access network.
This includes about 450 branches and extension counters, 1675 ATMs, call centers and
Internet banking ICICI Bank posted a net profit of Rs.1, 206 crore for the year ended
March 31, 2003. ICICI Bank is the only Indian company to be rated above the country
rating by the international rating agency Moody’s and the only Indian company to be
awarded an investment grade international credit rating. The Bank enjoys the highest
AAA (or equivalent) rating from all leading Indian rating agencies. ICICI Bank was
originally promoted in 1994 by ICICI Limited, an Indian financial institution, and was its
wholly-owned subsidiary.

ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial
institution, and was its wholly-owned subsidiary. ICICI Bank's acquisition of Bank of
Madura Limited in an all-stock amalgamation in fiscal 2001, and secondary market
16
sales by ICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed
in 1955 at the initiative of the World Bank, the Government of India and representatives
of Indian industry.

ICICI Bank is India's second-largest bank with total assets of Rs. 3,744.10 billion (US$
77 billion) at December 31, 2008 and profit after tax Rs. 30.14 billion for the nine
months ended December 31, 2008. The Bank has a network of 1,420 branches and
about 4,644 ATMs in India and presence in 18 countries.

Today, ICICI Bank offers a wide range of banking products and financial services to
corporate and retail customers through a variety of delivery channels and through its
specialised subsidiaries and affiliates in the areas of investment banking, life and non-
life insurance, venture capital and asset management.

Product Portfolio

Banking

Personal Banking

Corporate Banking

Business Banking

NRI Banking

Insurance & Investment

Life Insurance

General Insurance

Securities

Mutual Fund

2.1 ICICI PRUDENTIAL AMC PROFILE

17
ICICI Asset Management Company enjoys the strong parentage of prudential plc, one
of UK's largest players in the insurance & fund management sectors and ICICI Bank, a
well-known and trusted name in financial services in India. ICICI Prudential Asset
Management Company, in a span of just over eight years, has forged a position of pre-
eminence in the Indian Mutual Fund industry as one of the largest asset management
companies in the country with average assets under management of Rs. 73,822.45
Crore (as of June 30, 2010). The Company manages a comprehensive range of
schemes to meet the varying investment needs of its investors spread across 230
cities in the country.

ICICI Prudential mutual fund is a joint venture between ICICI bank, a well-known and
trusted name in financial services in India, and Prudential plc, one of UK’s largest
players in the financial services sectors. ICICI Prudential Asset Management Company
Limited (‘the Company’) was incorporated on 22 June 1993. The principal shareholders
of the Company as at 31 March 2009 are ICICI Bank Ltd (51%) and Prudential Plc
(49%) (Through its wholly owned subsidiary Prudential Corporation Holdings Limited).

ICICI Prudential mutual fund, have been prepared in accordance with the Securities
and Exchange Board of India (Mutual Fund) Regulations, 1996, as amended till date,
and filled with the Securities and Exchange Board of India (SEBI). The units being
offered for public subscription have not been approved or disapproved by the SEBI nor
has SEBI certified the accuracy. The home-grown talent of its people has fuelled the
commendable growth of the company. ICICI Prudential has been and is committed to
its people, and considers them to be vital to its success. To this end ICICI Prudential
focus on creating opportunities for growth and diversity for all its employees.

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Key Indicators
  At inception - May 1998 As on June 30, 2010
Average Assets Under
Rs. 160 Crore Rs. 73,822.45 Crore
Management
Number of Funds Managed 2 40

ICICI PRUDENTIAL FUNDS

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Equity funds

Equity funds invest in shares or equity of companies with a potential for growth and
capital appreciation. They invest in well-established companies where the company
itself and the industry in which it operates are thought to have good long term growth
potential.

(VERY HIGH RISKS, HIGH RETURNS)

Some of the schemes offered are:

ICICI Prudential Infrastructure Fund

ICICI Prudential Power Fund

ICICI Prudential Dynamic Plan

ICICI Prudential Emerging S.T.A.R. Fund

ICICI Prudential Tax Plan

ICICI Prudential Focused Blue Chip Equity Fund

Debt Funds

Debt funds or fixed income funds invest in government or corporate securities/ bonds
that offer fixed rates of return. The goal of fixed income funds is to provide current
income consistent with the preservation of the capital. (LOW RISKS, LOW RETURNS)

20
Some of ICICI Schemes

ICICI Prudential Discovery Fund

It offers an alternative value investing style that helps you truly balance your equity
portfolio. ICICI Prudential Discovery Fund seeks to invest in companies that are well
managed and fundamentally strong, picked based on in depth research. As these
companies are bought at a discount to their fair value, there is a margin of safety in the
value portfolio.

Investment Philosophy

The stocks selection is based on a bottom up approach backed by an in depth research

evaluating several parameters such as Price / Earning, Price / Book Value and

21
Dividend Yield. Focus is on stocks that are selling at discounted prices to their inherent
value. 

 ICICI Prudential Discovery Fund offers the following key benefits:

 It aims to discover stocks at a discount to their fair value. This provides a margin
of safety over the long term.

 It diversifies your existing equity portfolio. An investor, who diversifies across

growth and value portfolios, can reduce volatility

See performance for the fund in the graph below:.

This fund is ideal for:

Investors in growth plans who are looking to further diversify their portfolios by investing
in a value fund.

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 ICICI Prudential Infrastructure Fund

India needs to invest large amounts in areas like Roads, Ports, Power, and Telecom
etc. to sustain high economic growth. Apart from government spending, it will also
require private participation to make significant progress on developing infrastructure. It
is an open-ended equity fund focused on capturing the opportunity presented by the
long term growth potential of the Indian Infrastructure sector. It invests across
infrastructure sectors such as Cement, Power, Telecom, Oil and Gas, Construction,
Banking etc.

Investment Philosophy

ICICI Prudential Infrastructure Fund seeks to optimize the risk adjusted return by a mix
of top-down macro and bottom-up micro research to pick up stocks providing long term
potential. It is a multi-sector fund and therefore has a much lesser concentration risk
than a typical sector fund.

ICICI Prudential Infrastructure Fund offers the following key benefits:

 Multi-sector fund with much lesser concentration risks.

 The sector provides an attractive investment opportunity based on its long term
growth potential.

You can see performance for the fund in the graph below:  

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This fund is ideal for:

Investors who prefer a long term investment in equity and also for long term investors in
debt products who now seek some exposure to equity with steady growth prospects.

ICICI Prudential Dynamic Plan

It is a diversified equity fund that could be your ideal choice to make the most of
dynamic changes in the market. It has the agility to capture upside opportunities across
value and growth, large and midcap, index and non-index stocks. On the flip side it also
has ability to move into cash as markets get overvalued.

Investment Philosophy

It is a diversified equity plan that follows the growth investment philosophy to invest in a
portfolio of large, mid and small-cap stocks. It has the ability to move gradually into
cash as the market gets over-valued. It offers a portfolio of stocks selected through
rigorous bottom-up fundamental analysis across market capitalisations on a diversified
basis for long-term capital appreciation.

24
  ICICI Prudential Dynamic Plan offers the following key benefits:

 Has the agility, aimed at capturing upside opportunities in the market across
market capitalizations. 
 On the flip side, in case stock markets get into an over valued position; the plan
has the ability to switch to cash thus seeking to limit the downside.

You can see performance for the fund in the graph below:

This fund is ideal for:

Investors who are more conservative or risk-averse investors who have a long term
investing horizon of more than five years.

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 2.2 DIFFERENT INVESTMENT AVENUES

REAL ESTATE

Real estate is basically defined as immovable property such as land and everything
permanently attached to it like buildings. The investment in real estate essentially
depends on the risks associated with it. Real estate investment can be attractive if
viewed as a business opportunity; it can generate rental income, using it as collateral to
secure a loan for a business venture, to offset otherwise taxable income through cash
savings on tax-deductible interest rate losses, or simply from the profits garnered from
its resale. 

The Indian real estate sector plays a significant role in the country's economy. The real
estate sector is second only to agriculture in terms of employment generation and
contributes heavily towards the gross domestic product (GDP). Almost five per cent of
the country's GDP is contributed to by the housing sector. In the next five years, this
contribution to the GDP is expected to rise to 6 per cent. According to industry players,
housing accounts for 4.5 per cent of gross domestic product (GDP) with urban housing
accounting for 3.13 per cent

Advantages of Investment in property

Pride of ownership

Personal control

Self use and occupancy

Security of capital

High operating yield

Leverage for loans

Tax shelter

26
Returns on real estate investments are obtained from rental/lease/deposit interest
income and possible capital appreciation, and can also be enhanced by the benefits of
leveraging (taking a loan against the real estate asset). Obviously a property
investment with no income, such as vacant land, is entirely dependent on capital
appreciation for performance.

Investment in Real estate does not require day-to-day tracking unlike investment in
stocks and bonds. The inherent characteristics of real estate present the investor with
numerous opportunities to generate extraordinary profits. If an investor can learn to
carefully analyze or exert some degree of control over the physical, legal, social and
financial aspects of a parcel of real estate, a strategy can be developed that will
increase returns relative to risk.

The slowdown in the real estate sector and due to rise in interest rates, real estate
developers had to increase the assured returns from the present 8.5% to around 12%-
15%. 

This is an illiquid investment avenue i.e. we can’t convert the investment into cash as
and when we want. But still investment in real estate is growing constantly.

GOLD

India is the largest consumer of gold in the world, consuming around 18 per cent of the
total world's production. India has to import around 70 per cent of its total gold
consumption, thus imparting a lot of foreign exchange to major gold producing
countries.

With the development of the stock markets, especially on-line trading systems, urban
India is slowly shifting its investment focus from gold to the other avenues of investment
such as stocks, bonds, mutual funds, etc.

Gold is once again gaining formal acceptance as a safe investment avenue and the
target for the renewed gold investment thrust are retail investors across the USA,
Canada, Australia and Asia and even in Dubai.

27
Indian investors prefer to add gold to their portfolio because of the following
factors:

Increasing value

Lifestyle

Precious asset for marriages

Liquidity

Wealth maximization

Status symbol

Mortgage instrument

Gold an effective Hedging Tool

Gold provides an effective hedge against inflation. Gold prices are considered to be
highly sensitive to inflation and rise accordingly. Gold also provides effective liquidity
higher than other forms of real assets like gemstones, land and antiques which require
some time to get liquidated.

The only problem that arises with the liquidity of gold is its resale value in the form of
jewellery. Jewellery requires gold to mix with a little amount of other base metals like
copper and zinc which reduce the purity of gold and hence gives lower returns than
pure gold (99 per cent pure) of equal weight.

Returns

As per the data released by World Gold Council (WGC), gold has provided an annual
average return of 26% over the past decade (between 1999 and 2009).

As of the first quarter of 2010, gold has provided a positive return of 17% when
compared to the average annual price of Rs 12,147 for 2009. The average price for Q1
of 2010 was Rs 18,180. The first quarter of 2010 also witnessed the gold price at an all
time high of Rs 18,470 per 10 gm according to latest survey report released by World
Gold Council (WGC).

Gold Consumption in India

28
 Year Gold Price per 10 gms

(Rs)
2006 6940
2007 9820
2008 10250
2009 13500
2010 as on June 18470

POST OFFICE SAVINGS

Post Office Saving is the best form of savings schemes which provide substantially
higher rates of interest and pose relatively lesser risks of suffering losses. Post office
schemes are one of the favourite schemes of the Indian commodity. Since these
schemes are offered by government, these are considered the safest investment
avenue in the Indian markets. These schemes are issued by department of Post,
Government of India and are readily available at all post offices in India. Most of the
schemes combine growth in money with reductions in tax liability as per the provisions
of the Income Tax Act, 1961.

The Indian postal sector has started numerous Post Office saving schemes like:

 Post Office Monthly Income Scheme

 Post Office Recurring Deposits

 Deposit Scheme for Retiring Employees of Public Sector Companies

 National Savings Certificates

 Postal Life Insurance

INSURANCE

Every investment is made with specific needs. Some investment avenue are links to life
cover as investment, Risk level – market linked and traditional, Sector level exposure,
29
Capital guaranteed. Each investment avenue liked to risk and returns. An investor
needs to be careful while choosing the avenue thinking of post tax returns, Risk, our
goals, long term and short term. A well diversified portfolio will optimize the returns with
assumption of minimal risk. 

Insurance Overview 
A contract (policy) under which a corporation (the insurer) provides financial protection
against losses to an individual, business or organization (the insured) in exchange for
periodic payments of a sum of money, known as a premium.

There are two kinds of insurance:

      Life Insurance
     General Insurance

Life insurance
Life insurance or life assurance is a contract between the policy owner and the insurer,
where the insurer agrees to pay a sum of money upon the occurrence of the insured
individuals or individuals’ death or other event, such as terminal illness or critical illness.
In return, the policy owner agrees to pay a stipulated amount called a premium at
regular intervals or in lump sums.

General Insurance
General Insurance or non-life insurance policies, including health, automobile and
homeowners policies, provide payments depending on the loss from a particular event.
General insurance typically comprises any insurance that is not determined to be life
insurance.

EQUITIES

Equity investment generally refers to the buying and holding of shares of stock on

a stock market by individuals and funds in anticipation of income
from dividends and capital gain as the value of the stock rises. It also sometimes refers
30
to the acquisition of equity (ownership) participation in a private (unlisted) company or
a start-up (a company being created or newly created). When the investment is in infant
companies, it is referred to as venture capital investing and is generally understood to
be higher risk than investment in listed going-concern situations.

When any investor buy’s company’s equity, he/she is in effect of financing it, and being
compensated with a stake in business. Investor becomes part owner of the company,
entitled to dividends and other benefits that the company may declare, but without any
guarantee of returns on the investments.

Equity investment generally yields high returns, particularly if invested over a long
period of time. In short term also, the returns vary from company to company and the
market trend at that time.They generally look for very high returns and lose their
patience when the market declines. The major risk factor in investing in equity is that it
is a single asset. I the value increases then the return becomes high and if the value
decreases/ falls, then there is a loss.

Benefits:

 The capital appreciates quickly. Over the long term, investment in shares can
easily offer a return at least double of what is possible from fixed deposits in
banks, P.O. savings etc.

 Investor also gets dividend ad additional income when declared.

 Shares can be converted into liquid quickly like in gold, mutual funds etc.

 Investments in shares are very easy to manage.

 Investor doesn’t need a lot of money to start. Most of India’s 50 million

shareholders have investments ranging from Rs 10,000 to Rs 25,000 in the
stock market.

SHARES MUTUAL FUNDS

Know-how is needed Superficial knowhow Is sufficient

High cost involved Low Cost

Much Time needed Less time needed

Has to managed by the person himself Professionally managed by the fund

31
 manager

BANK DEPOSITS

Bank deposits currently the most attractive investment avenue as fixed deposits are
offering higher interest and steady returns on their deposits without having to track their
performance. A bank deposit scores high in safety, liquidity and convenience. Interest
rates are yield a good return and the money may double in 6 years. An analysis of bank
rate reveal that the short term bank deposits are the best investment options in terms of
maximum yield, safety, convenience and flexibility. An investor can actually park the
money for as short as 15-30 days to 3-5 years and can earn an interest of around 4-8%
per annum which very few other investment avenues offer.

Bank deposits have been extremely popular with individuals and continue to be the
impressive investment avenue in every investor’s portfolio not just they give high
returns but because they provide assured returns, a cushion of safety and tax benefits.

Why Bank Deposits?

Low risk
Banks deposits come with very low default risk and offer security of your capital. The
real risk to these products is in the form of inflation. This is because if interest rates are
low, the post inflation returns on FDs may be negligible or even negative.

Capitals guarantee
Investor’s deposit of up to Rs 1 lakh in any bank is protected under RBI's Deposit
Guarantee Scheme. This means if one places a deposit in a bank that defaults, you will
get up to Rs 1 lakh of your money in the deposit.

Fixed returns
Interest rate on bank deposits is fixed for the entire tenure of the deposit. FDs of
different tenures carry different interest rates. Generally, higher the tenure, higher is the
rate.
32
Liquidity
Investor can invest in a FD for as little as a month too. Thus, it provides ample liquidity
as you can place your surplus for the short term. Besides, bank deposits can be
prematurely withdrawn. However, you will need to pay a penalty of 1 per cent of the
interest rate.

Good returns
With high interest rates at present, FD returns have become attractive. For a longer
tenure deposit (two to three years), investor can even get a rate of around eight to nine
per cent per annum. However, rates vary from bank to bank.

CURRENT ACCOUNT

This is another kind of demands deposit like saving account with unlimited
withdrawals. There are many different Current Accounts available in today. From
specialist young people bank accounts to Current Accounts (with overdraft), Cheque
Accounts, Basic Bank Accounts, Student Accounts, Graduate Accounts, Foreign
Currency Accounts and Current Accounts with special offers.

FIXED DEPOSITS

Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a
certain sum of money is deposited in the bank for a specified time period with a fixed
rate of interest.
The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher
in case of longer maturity period investments. A fixed deposit is meant for
those investors who want to deposit a lump sum of money for a fixed period; say for a
minimum period of 15 days to five years and above, thereby earning a higher rate of
interest in return. Investor gets a lump sum (principal + interest) at the maturity of the
deposit. Bank fixed deposits are one of the most common savings scheme open to an
average investor. Fixed deposits also give a higher rate of interest than a savings bank
account. 

Returns

 The rate of interest for Bank Fixed Deposits varies between 4 and 11 per cent,
depending on the maturity period (duration) of the FD and the amount

33
invested. Interest rate also varies between each bank. A Bank FD does not provide
regular interest income, but a lump-sum amount on its maturity. Some banks have
facility to pay interest every quarter or every month, but the interest paid may be at a
discounted rate in case of monthly interest.  The Interest payable on Fixed Deposit can
also be transferred to Savings Bank or Current Account of the customer. The deposit
period can vary from 15, 30 or 45 days to 3, 6 months, 1 year, and 1-5 years to 10
years

RECURRING DEPOSIT

This is another type of fixed deposit in with investor pay a small amount every month for
a specific time period. For example pay Rs.1000/- every month for a period of 5 years.
After 5 years he will get the principle with interest accumulated. A Recurring Bank
Deposit is a good option for regular savings.

SAVING ACCOUNT

This is a kind of demand deposit with limited number of withdrawals during any specific
period. Savings Accounts provide principal security and a modest interest rate. Now
banks also put some restriction on the minimum balance. If customer don’t maintain the
minimum balance customer has to pay a penalty. Now saving account comes with
many features like ATM and Debit Card, Cheque Book, Free Internet Banking with Bill
Pay, Fund Transfer Prepaid mobile charging, Free Telephone Banking etc.

Banks v/s Mutual Funds

BANKS MUTUAL FUNDS

Returns Low Better

Administrative High Low

exp.

Risk Low Moderate

Investment Less More

options

34
Network High Penetration Low put improving

Liquidity At a cost Better

Quality of assets Not Transparent Transparent

Interest Min. bal. between 10th & 30th of Everyday

calculation every month

Guarantee Max. Rs. 1Lakh on deposit None

COMPARISON OF MUTUAL FUND WITH OTHER INVESTMENTS

INVESTMENT FD Real Busine Asset MF Shares RBI PPF NSC Post

AVENUES ss Bonds Offic
Estate
e

RETURNS * 5.25% V V DEP V V 8% 9.50% 8% 8%

POST TAX 3.63% V V - V V 5.60% 6- 5.60% 5.60

YIELD 6.5% %

INFLATION 6% - - - - - - - - -

RRR -2.50% V V - V V -0.40% 0.65% -0.40% -

0.40
%

Pos RRR - Pos Pos - Pos Pos - - - -

LIQUIDITY - LOW LOW - HIGH HIGH LOW LOW LOW LO

W

ADVANTAGES OF MUTUAL FUNDS

Mutual Funds offer several benefits to an investor that unmatched by the other
investment options. The major benefits are good post-tax returns and reasonable
safety, the other benefits in investing in Mutual Funds are

35
Professional Management:
Mutual Funds employ the services of experienced and skilled professionals and
dedicated investment research team. The whole team analyses the performance and
balance sheet of companies and selects them to achieve the objectives of the scheme.

Potential Return:
Mutual Funds have the potential to provide a higher return to an investor than any other
option over a reasonable period of time.

Diversification:
Mutual Funds invest in a number of companies across a wide cross section of
industries and sectors.

Liquidity:
The investor can get the money promptly at the net asset value related prices from the
Mutual Funds open-ended schemes. In close-ended schemes, the units can be sold on
a stock exchange at the prevailing market price.

Low Cost:
Investment in Mutual Funds is a less expensive way in comparison to a direct
investment in capital market.

Transparency:
Mutual Funds have to disclose their holdings, investment pattern and the necessary
information before all investors under a regulation framework.

Flexibility:
Investment in Mutual Funds offers a lot of flexibility with features of schemes such as
regular investment plan, regular withdrawal plans and dividend reinvestment plans
enabling systematic investment or withdrawal of funds.

Affordability:
Small investors with low investment fund are unable to high-grade or blue chip stocks.
An investor through Mutual Funds can be benefited from a portfolio including of high
priced stock.

Well regulated:
36
All Mutual Funds are registered with SEBI, and SEBI acts a watchdog, so the Mutual
Funds are well regulated

Choice of Scheme:

Mutual funds offer a family of schemes to suit investor’s varying needs over a lifetime.

Disadvantages of Mutual Funds

Fluctuating Returns:
Mutual funds are like many other investments without a guaranteed return. There is
always the possibility that the value of your mutual fund will depreciate. Unlike fixed-
income products, such as bonds and Treasury bills, mutual funds experience price
fluctuations along with the stocks that make up the fund.

Diversification:
Although diversification is one of the keys to successful investing, many mutual fund
investors tend to over diversify. The idea of diversification is to reduce the risks
associated with holding a single security; over diversification (also known as
diversification) occurs when investors acquire many funds that are highly related and so
don't get the risk reducing benefits of diversification.

Cash, Cash and More Cash

Mutual funds pool money from thousands of investors, so everyday investors are
putting money into the fund as well as withdrawing investments. To maintain liquidity
and the capacity to accommodate withdrawals, funds typically have to keep a large
portion of their portfolio as cash. Having ample cash is great for liquidity, but money
sitting around as cash is not working for you and thus is not very advantageous

Costs:
In mutual funds the fees are classified into two categories: shareholder fees and annual
fund-operating fees.

The shareholder fees, in the forms of loads and redemption fees are paid directly by
shareholders purchasing or selling the funds. The annual fund operating fees are
charged as an annual percentage - usually ranging from 1-3%. These fees are
37
assessed to mutual fund investors regardless of the performance of the fund. When the
fund doesn't make money these fees only magnify losses.

Misleading Advertisements:
The misleading advertisements of different funds can guide investors down the wrong
path. Some funds may be incorrectly labeled as growth funds, while others are
classified as small-cap or income.

Evaluating Funds:

Another disadvantage of mutual funds is the difficulty they pose for investors interested
in researching and evaluating the different funds. Unlike stocks, mutual funds do not
offer investors the opportunity to compare the P/E ratio, sales growth, earnings per
share, etc.

What is deposit?

The term `deposit’ has been defined as receipt of any money borrowed by the company
but not including any of the following:-

o Government Borrowings
o Borrowings from any financial institutions;
o Borrowings from any Banks;
o Borrowings from any company
o Security deposit;
o Advance from purchasing/selling agent
o Money received in Trust;
o Subscription against application for shares;

o Subscription against bonds, debentures, etc. secured by a mortgage with or

without option to convert into shares;
o Money brought in by issue of any secured bonds/debenture
o Money received from the shareholders of a private limited company or a deemed
public company.

38
What are the limits for accepting deposits?

o A company can borrow deposits up to the extent given below :-

o Up to 25% of the paid-up capital and free reserves of the company from the
public and up to 10% of its paid-up capital and free reserves from its
shareholders,
o Therefore, maximum deposit a company can accept from public/shareholders is
35% of its paid up capital and free reserves as mentioned above.
o “Free Reserves" mean the balance in the share premium account, capital and
debenture redemption reserves and any other reserves shown in the balance-
sheet of the company and created by appropriation out of the profits of the
company
o Revaluation of any assets of the company

Period of accepting deposits:-

A company can invite/accept deposits for a period not less than 6 months and not more
than 36 months from the date of acceptance of such deposits or from the date of its
renewal. Therefore, a company can accept/invite deposits for a period between 6-36
months.

However, a company may accept deposits up to 10% of its paid up capital and free
reserves which are repayable after three months, from the date of such deposits or
renewal thereof to meet any of its short term requirements.

Rate of interest

Maximum rate of interest that a company can offer on fixed deposits is 15%.

Fixed Deposits

Fixed deposits remain the most popular instrument for financial savings in India. They
are the middle path investments with adequate returns and sufficient liquidity. There are
basically three avenues for parking savings in the form of fixed deposits. The most
common are bank deposits. For nationalized banks, the yield is generally low with a
maximum interest of 10 to 10.5% per annum for a period of three years or more. As
opposed to that, NBFCs and company deposits are more attractive.          
39
The idea is to select the right company to minimize the risk. Company deposits as a
saving instrument have declined in popularity over the last three years. The major
reasons being the slowdown in economy resulting in default by some companies, Also,
some NBFCs simply vanished with the depositors' money. All that is likely to change for
the better, corporate performance is likely to improve and stricter control by RBI should
improve NBFCs record. But one still needs to be selective. Let us help you in making
the right decision.

Post office is a very safe and secure investment avenue. The money is used in the
development of the society as a whole, while it provides steady returns. The biggest
advantage of investing in post office schemes is the tax benefit that they provide. Thus
a lot of savings go through this channel to dual advantage - tax benefits and steady
returns

Deposit account

A deposit account is an account at a banking institution that allows money to be held on

behalf of the account holder. Some banks charge a fee for this service, while others
may pay the client interest on the funds deposited.

The account holder retains rights to their deposit, although restrictions placed on
access depend upon the terms and conditions of the account and the provider.

A deposit is a type of asset.

Saving deposit

Savings deposits are accounts maintained by commercial banks, savings and loan
associations, credit unions, and mutual savings banks that pay interest but can not be
used directly as money (by, for example, writing a check). These accounts let
customers set aside a portion of their liquid assets that could be used to make
purchases. But to make those purchases, savings account balances must be
transferred to "transaction deposits" (or "checkable deposits") or currency. However,
this transference is easy enough that savings accounts are often termed near money.
Savings accounts, as such constitute a sizeable portion of the M2 monetary aggregate

40
With savings accounts you can make withdrawals, but you do not have the flexibility of
using checks to do so. As with a MMDAs (money market deposit account), the number
of withdrawals or transfers you can make on the account each month is limited

Time deposit

A time deposit (also known as a term deposit, particularly in Australia and New
Zealand) is a money deposit at a bank that cannot be withdrawn for a certain "term" or
period of time. When the term is over it can be withdrawn or it can be held for another
term. Generally speaking, the longer the term the better the yield on the money, a
certificate of deposit is a time-deposit product.

Note that the M2 money supply includes funds that can be used directly in payment,
such as money market mutual funds and money market deposit accounts (MMDAs).
MMDAs are considered by the United States Federal Reserve (the Fed) to be savings
accounts and are thus exempt from reserve requirements. These large transaction
accounts not being included in the M1 money supply suggests that the Fed does not
pay much attention to ordinary transaction deposits, and in July 2000, it announced that
it was no longer setting target ranges for growth rates of the monetary aggregates

Transaction deposit

Transaction accounts include all deposits against which the account holder is permitted
make withdrawals by negotiable or transferable instruments, payment orders of
withdrawal, or telephone or preauthorized transfers for the purpose of making
payments to third persons or others. However, accounts subject to the rules that permit
no more than six preauthorized, automatic, or other transfers per month (of which no
more than three may be by check, draft, debit card, or similar order payable directly to
third parties) are savings deposits, not transaction accounts.

Current account

A current account is a deposit account in the UK and countries with a UK banking

heritage offering various flexible payment methods to allow customers to distribute
money directly to others. Most current accounts have a cheque book, offer the facility to
arrange standing orders, direct debits and payment via a debit card. Current accounts

41
may also allow borrowing via an overdraft facility.Current accounts providers include
banks, building societies and credit unions.

Demand deposit

A demand account (or demand deposit, demand deposit account) is a deposit account
held at a bank or other financial institution, the funds deposited in which are payable on
demand. The primary purpose of demand accounts is to facilitate cashless payments
by means of check, bank draft, direct debit, electronic funds transfer, etc.

A demand account is commonly known as:

o a checking account
o a share draft account
o a current account
o a current account
o a cheque account

REASON WHY PEOPLE INVEST IN DEPOSITS

There has been an age old concept of people investing in fixed deposits and other
methods of deposits .They follow this concept because again and again investing in
different fields might fetch them loss at different stages of life and in order to have a
secure future people prefer to invest in one deposit for a particular period of time and
withdraw them whenever they need.

In today’s era where people are more concerned about their secure future and due to
their busy life they lack knowledge about other methods if investment.

REASONS OF INVESTMENTS

42
 BASIC INVESTMENT OBJECTIVE

The investment approach will be based on a set of well established but flexible
principles that emphasize the concept of sustainable economic earnings and cash
return on investment as the means of valuation of companies.

Five basic principles serve as the foundation for this investment approach. They
are as follows:

Focus on the long term

There is substantive empirical evidence to suggest that equities provide the maximum
risk adjusted returns over the long term. In an attempt to take full advantage of this
phenomenon, investments would be made with a long term perspective.

43
Investments confer proportionate ownership

The approach to valuing a company is similar to making an investment in a business.

Therefore, there is a need to have a comprehensive understanding of how the business
operates. The key issues to focus on are growth opportunities, sustainable competitive
advantage, industry structure and margins and quality of the management.

Maintain a margin of safety

The benchmark for determining relative attractiveness of stocks would be the intrinsic
value of the business. The Investment Manager would endeavor to purchase stocks
that represent a discount to this value, in an effort to preserve capital and generate
superior growth.

Maintain a balanced outlook on the market

The investment portfolio would be regularly monitored to understand the impact of

changes in business and economic trend as well as investor sentiment. While short-
term market volatility would affect valuations of the portfolio, this is not expected to
influence the decision to own fundamentally strong companies.

Tax aspect of Mutual fund

Dividend Made Tax-free

Dividend received from a domestic company and income distributed by UTI-I or any MF,
to its unit holders has been made tax-free from 1.4.03 onwards. However, dividend
declared, distributed or paid by such sources shall be charged a distribution tax of
@12.8125% flat. This distribution tax is in addition to the normal income tax payable by
them.
Capital Gain Tax:
Capital gains are generated through the sale of stocks, bonds and other investments,
which have appreciated in value, from the fund’s portfolio. Net capital gains are taxed at
the 15% cap.

44
LTCG on Equities Exempt
Long-term capital gains arising from transfer of shares purchased through a recognized
stock exchange, on or after 1.3.03 but before 1.3.04 are exempt from income tax. This
exemption is restricted to only those shares figuring in the BSE-500 index as on 1.3.03.
If during the course of the year, any of these shares are replaced with another stock in
the index, investors who had purchased the share prior to its replacement will continue
to enjoy the benefit.
The benefit is also extended to shares of companies making Initial Public Offers during
the year.

Income received from Mutual Fund:

The Internal Revenue Service might depend upon the nature of your mutual fund
investment. Generally, most income generated from a mutual fund account, with the
exception of tax-exempt money market or municipal bond funds, is subject to federal
taxes as ordinary income or capital gains.

Gift Tax:
Mutual Fund may be given as a gift and no tax is applicable by donor or donee.

TDS on Redemption:
No TDS is required to be deducted from capital gain at the time of redemption in case
of mutual fun

Tax benefits on investment in Mutual Fund

100% Income Tax Exemption on all Mutual Fund dividends

Capital Gains tax to be lower of –

10% on the capital gains without factoring indexation benefits and

20% on the capital gains after factoring indexation benefits.

45
Open-end funds with equity exposure of more than 50% are exempt of dividend tax for
a period of 3 years from 1999-2000.

Another Investment Avenue featuring in the list of “eligible” instruments is the Equity
Linked Saving Scheme or tax saving funds. Simply put, these are mutual fund schemes
wherein investment upto Rs 10,000 qualify for Section 88 benefits. Investors are given
the unique opportunity to invest in an equity-linked product and still claim tax benefits
on the same; which is quite a departure from conventional tax saving instruments. Tax
saving funds has a mandatory 3-Yr lock in period, which distinguishes them from
conventional equity-oriented funds, which have no constraints on liquidity.

Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document, some broad
income tax implications of investing in the units of the Scheme are stated below. The
information so stated is based on the Mutual Fund's understanding of the tax laws in
force as of the date of the Offer Document, which have been confirmed by its auditors.
The information stated below is only for the purposes of providing general information
to the investors and is neither designed nor intended to be a substitute for professional
tax advice.

Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006
To the Unit holders

Tax on Income
In accordance with the provisions of section 10(35)(a) of the Act, income received by all
categories of unit holders in respect of units of the Fund will be exempt from income-tax
in their hands.
Exemption from income tax under section 10(35) of the Act would, however, not apply
to any income arising from the transfer of these units.

Tax on capital gains:

As per the provisions of section 2(42A) of the Act, a unit of a Mutual Fund, held by the
investor as a capital asset, is considered to be a short-term capital asset, if it is held for
12 months or less from the date of its acquisition by the unit holder. Accordingly, if the
46
unit is held for a period of more than 12 months, it is treated as a long-term capital
asset.

Computation of capital gain

Capital gains on transfer of units will be computed after taking into account the cost of
their acquisition. While calculating long-term capital gains, such cost will be indexed by
using the cost inflation index notified by the Government of India.
Individuals and HUFs, are granted a deduction from total income, under section 80C of
the Act up to Rs. 100,000, in respect of specified investments made during the year
(please also refer paragraph d).

Long-term capital gains

As per Section 10(38) of the Act, long-term capital gains arising from the sale of unit of
an equity oriented fund entered into in a recognized stock exchange or sale of such unit
of an equity oriented fund to the mutual fund would be exempt from income-tax,
provided such transaction of sale is chargeable to securities transaction tax.
Pursuant to an amendment made in the Finance Act, 2006, effective 1 April 2006,
companies would be required to include such long term capital gains in computing the
book profits and minimum alternated tax liability under section 115JB of the Act.

Short -term capital gains

As per Section 111A of the Act, short-term capital gains from the sale of unit of an
equity oriented fund entered into in a recognized stock exchange or sale of such unit of
an equity oriented fund to the mutual fund would be taxed at 10 per cent, provided such
transaction of sale is chargeable to securities transaction tax.
The said tax rate would be increased by a surcharge of:
o 10 per cent in case of non-corporate Unit holders, where the total income
exceeds Rs.1,000,000,
o 10 per cent in case of resident corporate Unit holders, and
o 2.5 per cent in case of non-resident corporate unit holders irrespective of the
amount of taxable income.
o Further, an additional surcharge of 2 per cent by way of education cess would be
charged on amount of tax inclusive of surcharge.

47
 o In case of resident individual, if the income from short term capital gains is less
than the maximum amount not chargeable to tax, then there will be no tax
payable.
o Further, in case of individuals/ HUFs, being residents, where the total income
excluding short-term capital gains is below the maximum amount not chargeable
to tax1, then the difference between the current maximum amount not
chargeable to tax and total income excluding short-term capital gains, shall be
adjusted from short-term capital gains. Therefore only the balance short term
capital gains will be liable to income tax at the rate of 10 percent plus surcharge,
if applicable and education cess.

Non-residents
In case of non-resident unit holder who is a resident of a country with which India has
signed a Double Taxation Avoidance Agreement (which is in force) income tax is
payable at the rates provided in the Act, as discussed above, or the rates provided in
the such agreement, if any, whichever is more beneficial to such non-resident unit
holder.

Investment by Minors
Where sale / repurchase is made during the minority of the child, tax will be levied on
either of the parents, whose income is greater, where the said income is not covered by
the exception in the proviso to section 64(1A) of the Act. When the child attains
majority, such tax liability will be on the child.

Losses arising from sale of units

o As per the provisions of section 94(7) of the Act, loss arising on transfer of units,
which are acquired within a period of three months prior to the record date (date
fixed by the Fund for the purposes of entitlement of the unit holder to receive the
income from units) and sold within a period of nine months after the record date,
shall not be allowed to the extent of income distributed by the Fund in respect of
such units.

48
 o As per the provisions of section 94(8) of the Act, where any units ("original
units") are acquired within a period of three months prior to the record date (date
fixed by the Fund for the purposes of entitlement of the unit holder to receive
bonus units) and any bonus units are allotted (free of cost) based on the holding
of the original units, the loss, if any, on sale of the original units within a period of
nine months after the record date, shall be ignored in the computation of the unit
holder's taxable income.
o Each Unit holder is advised to consult his / her or its own professional tax
advisor before claiming set off of long-term capital loss arising on sale /
repurchase of units of an equity oriented fund referred to above, against long-
term capital gains arising on sale of other assets.

o Short-term capital loss suffered on sale / repurchase of units shall be available

for set off against both long-term and short-term capital gains arising on sale of
other assets and balance short-term capital loss shall be carried forward for set
off against capital gains in subsequent years.

o Carry forward of losses is admissible maximum upto eight assessment years.

Tax withholding on capital gains

Capital gains arising to a unit holder on repurchase of units by the Fund should attract
tax withholding as under:

o No tax needs to be withheld from capital gains arising to a FII on the basis of the
provisions of section 196D of the Act.

o In case of non-resident unit holder who is a resident of a country with which India
has signed a double taxation avoidance agreement (which is in force) the tax
should be deducted at source under section 195 of the Act at the rate provided in
the Finance Act of the relevant year or the rate provided in the said agreement,
whichever is beneficial to such non-resident unit holder. However, such a
nonresident unit holder will be required to provide appropriate documents to the
Fund, to be entitled to the beneficial rate provided under such agreement.
49
 o No tax needs to be withheld from capital gains arising to a resident unit holder on
the basis of the Circular no. 715 dated 8 August 1995 issued by the CBDT.

Subject to the above, the provisions relating to tax withholding in respect of gains
arising from the sale of units of the various schemes of the fund are as under:

o No tax is required is to be withheld from long term capital gains arising from sale
of units in equity oriented fund schemes, that are subject to securities transaction
tax.
o In respect of short-term capital gains arising to foreign companies (including
Overseas Corporate Bodies), the Fund is required to deduct tax at source at the
rate of 10.46 per cent (10 per cent tax plus 2.5 per cent surcharge thereon plus
additional surcharge of 2 per cent by way of education cess on the tax plus
surcharge). In respect of short-term capital gains arising to non-resident
individual unit holders, the Fund is required to deduct tax at source at the rate of
11.22 per cent (10 per cent tax plus 10 per cent surcharge thereon2 plus
additional surcharge of 2 per cent by way of education cess on the tax plus
surcharge).
Wealth Tax
Units held under the Schemes of the Fund are not treated as assets within the meaning
of section 2(ea) of the Wealth Tax Act, 1957 and therefore, not liable to wealth-tax.

Securities Transaction Tax

Nature of Transaction Current tax rate Tax rate effective (%) 1 June 2006 (%) Delivery
based purchase transaction in equity shares or units of equity oriented fund entered in
a recognized stock exchange 0.1 0.125 Delivery based sale transaction in equity
shares or units of equity oriented fund entered in a recognized stock exchange 0.1
0.125 Non-delivery based sale transaction in equity shares or units of equity oriented
fund entered in a recognized stock exchange. 0.02 0.025 Sale of units of an equity
oriented fund to the mutual fund 0.2 0.25 Value of taxable securities transaction in case
of units shall be the price at which such units are purchased or sold.
A deduction in respect of securities transaction tax paid is not permitted for the purpose
of computation of business income or capital gains.
50
However, if the total income of an assessed includes any business income arising from
taxable securities transactions, he shall be entitled to a rebate3 from income-tax of an
amount equal to the securities transaction tax paid by him in respect of the taxable
securities transactions entered during the course of his business.

How to invest in Mutual Fund

Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle, financial independence,
family commitments, and level of income and expenses among many other factors.
Therefore, the first step is to assess your needs. You can begin by defining your
investment objectives and needs which could be regular income, buying a home or
finance a wedding or educate your children or a combination of all these needs, the
quantum of risk you are willing to take and your cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your
requirements. The offer document of the scheme tells you its objectives and provides
supplementary details like the track record of other schemes managed by the same
Fund Manager. Some factors to evaluate before choosing a particular Mutual Fund are
the track record of the performance of the fund over the last few years in relation to the
appropriate yardstick and similar funds in the same category. Other factors could be the
portfolio allocation, the dividend yield and the degree of transparency as reflected in the
frequency and quality of their communications.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You
may consider investing in a combination of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month. By
investing a fixed sum each month, you buy fewer units when the price is higher and
51
more units when the price is low, thus bringing down your average cost per unit. This is
called rupee cost averaging and is a disciplined investment strategy followed by
investors all over the world. You can also avail the systematic investment plan facility
offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you start
now, you will make more than if you wait and invest later. The power of compounding
lets you earn income on income and your money multiplies at a compounded rate of
return.

Step Six - The final step

All you need to do now is to Click here for online application forms of various mutual
fund schemes and start investing. You may reap the rewards in the years to come.
Mutual Funds are suitable for every kind of investor - whether starting a career or
retiring, conservative or risk taking, growth oriented or income seeking.           

RISK FACTORS IN MUTUAL FUND INDUSTRY

Mutual funds have been a significant source of investment in both government and
corporate securities. It has been for decades the monopoly of the state with UTI being
the key player, with invested funds exceeding Rs.300bn. (US$ 10bn.). The state-owned
insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds
exist, including private and foreign companies. Banks--- mainly state-owned too have
established Mutual Funds (MFs). Foreign participation in mutual funds and asset
management companies is permitted on a case by case basis.

All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the
functioning of mutual funds, and it requires that all MFs should be established as trusts
under the Indian Trusts Act. The actual fund management activity shall be conducted
from a separate asset management company (AMC). The minimum net worth of an
AMC or its affiliate must be Rs. 50 million to act as a manager in any other fund. MFs
can be penalized for defaults including non-registration and failure to observe rules set
by their AMCs.

52
In 1995, the RBI permitted private sector institutions to set up Money Market Mutual
Funds (MMMFs). They can invest in treasury bills, call and notice money, commercial
paper, commercial bills accepted/co-accepted by banks, certificates of deposit and
dated government securities having unexpired maturity upto one year.

Before investing in a Mutual Fund an investor must identify his needs and preferences.
While selecting a Mutual Fund's schemes he should consider the effect of inflation rate,
diversification of investment, the time period of investment and the risk factors. There
are various type of risk factors as:

o Market Risk
o Credit Risk
o Interest Rate Risk
o Inflation Risk
o Political Environment

2.3 ICICI MAJOR COMPETITORS

RELIANCE MUTUAL FUNDS

53
HDFC MUTUAL FUNDS

SBI MUTUAL FUNDS

RELIANCE MUTUAL FUNDS

Reliance Mutual Fund (RMF) is one of India’s leading Mutual Funds, with Average
Assets under Management (AAUM) of Rs. 1, 01,320 Crores and an investor count of
over 74 Lakh folios. (AAUM and investor count as of June 2010) AAUM

54
Reliance Mutual Fund, a part of the Reliance - Anil Dhirubhai Ambani Group, is one of
the fastest growing mutual funds in the country. RMF offers investors a well-rounded
portfolio of products to meet varying investor requirements and has presence in 159
cities across the country. Reliance Mutual Fund constantly endeavours to launch
innovative products and customer service initiatives to increase value to investors.
"Reliance Mutual Fund schemes are managed by Reliance Capital Asset Management
Limited., a subsidiary of Reliance Capital Limited, which holds 93.37% of the paid-up
capital of RCAM, the balance paid up capital being held by minority shareholders."

Reliance Capital Ltd. has interests in asset management, life and general insurance,
private equity and proprietary investments, stock broking and other financial services.

Sponsor: Reliance Capital Limited

Trustee: Reliance Capital Trustee Co. Limited

Investment Manager: Reliance Capital Asset Management Limited

Statutory Details: The Sponsor, the Trustee and the Investment Manager are
incorporated under the Companies Act 1956.

Some of its schemes are

Reliance Growth Fund (An Open-ended Equity Growth Scheme)

Reliance Vision Fund (An Open-ended Equity Growth Scheme)
Reliance Equity Opportunities Fund (An Open-ended Diversified Equity Scheme)

Reliance Quant Plus Fund (An Open-ended Equity Scheme)

Reliance NRI Equity Fund (An Open-ended Diversified Equity Scheme)
Reliance Tax Saver (ELSS) Fund (An Open-ended Equity Linked Savings Scheme)
Reliance Regular Savings Fund (An open ended Scheme)

HDFC MUTUAL FUNDS

55
HDFC Asset Management Company Limited (AMC)
HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies
Act, 1956, on December 10, 1999, and was approved to act as an Asset Management
Company for the HDFC Mutual Fund by SEBI vide its letter dated July 3, 2000.

In terms of the Investment Management Agreement, the Trustee has appointed the
HDFC Asset Management Company Limited to manage the Mutual Fund. The paid up
capital of the AMC is Rs. 25.161 crore.
The AMC is managing 28 open-ended schemes of the Mutual Fund viz. HDFC Growth
Fund, HDFC Equity Fund, HDFC Top 200 Fund, HDFC Capital Builder Fund, HDFC
Core & Satellite Fund, HDFC Premier Multi-Cap Fund, HDFC Index Fund, HDFC Long
Term Advantage Fund, HDFC Tax Saver, HDFC Arbitrage Fund, HDFC Mid-Cap
Opportunities Fund, HDFC Balanced Fund, HDFC Prudence Fund, HDFC Children’s

SBI Mutual Funds

SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable
track record in judicious investments and consistent wealth creation.

The fund traces its lineage to SBI - India’s largest banking enterprise. The institution
has grown immensely since its inception and today it is India's largest bank, patronized
by over 80% of the top corporate houses of the country.

SBI Mutual Fund is a joint venture between the State Bank of India and Société
Générale Asset Management,  one  of  the  world’s  leading  fund  management 
companies  that  manages  over US$ 500 Billion worldwide.

56
A total of over 5.8 million investors have reposed their faith in the wealth generation
expertise of the Mutual Fund.

Today, the fund manages over Rs. 38,782 Crores of assets and has a diverse profile of
investors actively parking their investments across 38 active schemes.

The fund serves this vast family of investors by reaching out to them through network of
over 130 points of acceptance, 28 investor service centres, 46 investor service desks
and 56 district organisers.

Some of its schemes are as follows:

Magnum COMMA Fund

Magnum Equity Fund

Magnum Global Fund

Magnum Index Fund

Magnum MidCap Fund

3.RESEARCH METHODOLOGY

Primary Data: We have collected data through questionnaire which is prepared to give
quantitative data.

The questionnaire consists of 10 different questions covering all the different

investment avenues helping in:

 Analyzing different options in terms of risks, returns

 Analyzing the investment behavior of the investor.

 Analyzing the change in the investment pattern due to economic slowdown.

 Stating the reasons for the change in investment pattern.

Various investment options have been selected like Mutual Fund, Gold, Real Estate,
Bank Deposits, Post Office Savings and Insurance.

57
Various parameters taken for comparison

 Risks/ Return

 Time Horizon

 Return on Investment

 Safety

3.1 OBJECTIVES

 To study the performance of the mutual funds industry over the period.

 To analyze the different investment avenues in ICICI prudential AMC.

 To chart out the differences in investment options of the investors

before the economic slowdown and after the economic slowdown.

 To determine why over the past few years’ people have increased/
decreased investment in Mutual Funds and other investment options.

 To analyse the difference between Mutual Funds and other Investment

Schemes.

58
 3.2 LIMITATIONS

1. The first limitation is that the questionnaires were not filled by the candidates but
by the interviewer (myself) on the basis of observations got throughout the
interview. So, the results generated from the questionnaires are not 100%
accurate.

2. The data collected is totally dependant on response ‘views, which could be bias
in nature. Sometimes respondents do not give a response or give partial
response. It is called non response error. The reason may be lack of knowledge
or unwillingness to answer.

3. The sample size is small and it may not actually represent the whole population.

4. There is limited time available each day and lot of tasks have to completed in a
day like preparing reports, conducting surveys, spend time at the office to gain
knowledge, etc

59
 5. The answers given by the respondents are not always correct and may be
misleading.

6. Being a trainee, no confidential information about the organization was available.

This sometimes became a hurdle during the training

3.3 Sampling Plan

Target population: Investor who invests money into various investment options
seeking returns.

Sampling element: High Net worth Investors (HNI) and middle class retail
investors.

Sampling technique: In my study, the sampling technique used for sampling is

“Convenient Sampling”. So sample selected would be on the basis of proximity
and convenience.

Sample size: The sample size of the study is around 50 respondents.

Area of Survey: Jaipur

Secondary Data: We will be collecting existing data from the following ways:

 Company’s Fact sheet

60
  ICICI PRU AMC’s Catalogues

 ICICI PRU AMC’s Knowledge Bytes

 Journals/Newspapers

 Other Published and Non- published Resources.

 Internet

4. DATA ANALYSIS & INTERPERATATION

The initial stage of the project was not very exploring, but as the project progressed
many facts came in front. The main findings are:
 People are now willing to invest in Mutual Funds and Insurance other than equity
but are not well educated and aware of them.
 As compared to other investment options such as Real estate, Gold, Insurance,
Equity, Bank Deposits, Post office savings, Mutual funds gives higher rate of
return in less time period with no lock in period.
 Liquidity in mutual funds is very easy as compared to other options.
 Mutual funds are less risky as investment is done by mutual funds experts
managing the fund with several years of experience.
 Through investment in mutual funds one can simultaneously invest in a lot of
companies so even if one company wil go down, the other one would progress
which gives the investment safety and security.

61
  No individual can keep full knowledge about each n every company or for even
10 companies at one go, so fund experts do it for them while managing the
schemes and individuals need not to bother.
 We, also found out that the investment pattern of the customers have changed a
lot after recession, where they used to rely on equity a lot before recession now
they are concentrating more in mutual funds and insurance.
 We also saw that every customer has different objectives to invest; some do it
for tax planning, some for capital appreciation and some for securing lifestyle.
 Till now maximum people wants to invest a very small portion of their Income
which is less than 20% which has to be increased to prepare them for future
liabilities and inflation.
 People still have the tendency to invest money for very less time period, 45%
people still invest just for less than 1 year which in any case would not give them
high returns, so they need to be influenced to invest money for a long time
period to get good returns.
 We also found out that brand name does matters a lot for customers, so building
a better brand image and goodwill is a must for companies.

Some of the questions are as follows:

Q.1 Which are the various investment options where you have already invested? (Tick
them)

a) Mutual Funds

b) Real Estate

c) Gold

d) Bank Deposits

e) Equity

f) Insurance (Life & Non Life)

62
 Percentage of investements in various Investement Options

35% 32%
30%
25%
20%
15% 15% 15%
15% 13% Series1
10%
10%
5%
0%
Mutual Real Gold Bank Equity Insurance
Funds Estate Deposits

Around 32% people said that they invest in equity even when it gives no security and
high risk. 15% people said they invest in real estate or mutual funds or gold. 13%
people said they invest in Insurance and around 10% people said they invest in bank
deposits.

So, maximum investors say that they invest in equity despite of high risk.

Q.2 How much of unrealized loss are you prepared to bear in your overall investment?

a) 0% to 10%

b) 10% to 20%

c) 20% to 30%

d) Above 30%

63
 Percentage of unrealized loss you are prepared in
investements.

50%
45%
40%
35%
30%
25% Series1
20%
15%
10%
5%
0%
0% to 10% 10% to 20% 20% to 30% Above 30%

After talking to investors and asking them about their planning, I could notice that not
much people are prepared to bear unrealized loss. 40% people are ready to bear just
0% to 10% loss while 25% re ready to bear 10 to 20% percent loss. 15% are ready to
bear 20 too 30 % loss and just 10 % investors are ready or prepared to bear loss above
30%. So, it shows us directly that investors need high security and safety in their
investments as they are not prepared to bear unrealized loss.

Q.3 What is the investment horizon which you aim for achieving your financial goal?

a) More than 5 Years

b) 3 Years to 5 Years

c) 1 Year to 3 Years

d) Up to 1 Year

64
 Investement Horizon

10%

Up to 1 Year
20%
1 Year to 3 Years 45%
3 Years to 5 Years
More than 5 Years

25%

When I asked them about their investment horizon, 45% people said they want to invest
just for a year while25% said from 1 yr to 3 yr. 20% people said they will keep the
money for 3 to 5 years and only 10% people said they would invest money for more
than 5 years. This reflects that people are not ready o leave their money for long and
thus need good return in less time which can be best provided in case of Mutual funds.

Q.4 What Portion of your annual income you invest in the various investment avenues
available?

a) Less than 20%

b) 20% to 30%

c) 30% to 50%

d) Above 50 %

65
 Portion Of Annual Income Invested

15%

40%

20%

25%

Less than 20% 20% to 30% 30% to 50% Above 50 %`

When I asked people about the portion of Income they invest 40% people said they
invest less than 20% whole 25% said 20 to 30%. 20% said between 3%0 to 50 % of
their Income and rest 15% said above 50% of their Income. It tells us that majority of
people invest a very small amount of their Income in savings and thus should be
educated and motivated more to invest more and more in investments to get good
returns and enjoy safety of money.

Q.5 What you look for the most when you invest in any of the options?

a) Safety

b) Yield/Return

c) Risks

d) Time Horizon

66
 Options for Investement

35%
35%
30%
25%
25% 22%
20% 18%
Series1
15%

10%

5%
0%
Safety Yield/Return Risks Time Horizon

While answering this question majority pf people were confused as they wanted all bt
most of them wanted safety first n there after followed returns than risk and than time
horizon. People here are very much concerned about the safety of their money and so
it is very easy for the mutual funds company to target them as they provide safety and
returns both and that too in a short span of time and low risk as money is invested
simultaneously in couple of companies instead of one.

Q.6 How do you select and choose the mutual funds?

a) Brand Name

b) Financial Advisor’s Advise

c) Influence of Peer group & Friends

d) Past Performance

67
 Basis of Selection of Mutual Funds

Past 20%
Performance
Influence of Peer 25%
group & Friends
Financial Series1
20%
Advisor’s Advise

Brand Name 35%

0% 5% 10% 15% 20% 25% 30% 35%

We can take our own example while analyzing this question. Before investing in any
investment avenue the first thing we will notice is the brand name. In this new era of
technology with everyday new upcoming trends customers associate themselves with
the brand name and a relationship if trust is formed. After brand name we always prefer
to ask from our friends, family, relatives and peer groups. And after all this comes the
financial advisor’s advice followed by the past performance. People generally trust on
thr booklets shown by the company regarding their returns and do not go further to
verify their facts n figures. So, for a company it is essential to create a trustful brand
image and need to give proper services to the existing customers so that they can
influence other potential customers.

Q.7 What is the main objective of the investment?

a) Tax Planning

b) Capital Appreciation

c) Securing Lifestyle of family & Financial Liability

d) Source of Income

68
 Objective of the Investment

35%
35%
30%
25% 25%
25%
20%
15%
15%
10%
Series1
5%
0%
Tax Planning Capital Securing Source of
Appreciation Lifestyle of Income
family &
Financial
Liability

We always invest for some objective but the objectives differ according to needs. When
35% people asked said they invest as it’s a source of Income. 25% people say they
invest for their tax planning and capital appreciation. And just 15% people invest to
secure the lifestyle of family and financial liability. Mutual Funds Company can educate
them more as by investing they can reduce their financial liability as they can even save
Rs.1000 every month for a year or two and can redeem it when they need in any
financial crisis and it will improve their lifestyle and will secure it too.

Q.8 Are you an active investor in the share market

a) Yes

b) No

69
 Active Investor in Stock Market

60%

50%

40%
56% Series1
30%
44%
20%

10%

0%
Yes No

Just to check how many people regularly invest I took this question and 56% people
said yes they are regular investors. While 44% people still say they are not active
investors. So, the companies can target these 44% people to invest a small amount
monthly which can help them in saving and investing the money on a regular basis and
without much pressure. And, since 56% people are already active investors Mutual
Fund Companies can educate them better about their products and benefits as they
already must have got basic knowledge so it will be easy to convert them.

Q.9 During the FY 2006-2007 (Pre Recession) period what option you preferred to
invest?

a) Mutual Funds

b) Bank Deposits

c) Insurance (Life & Non Life)

d) Equity

e) Real Estate

70
f) Gold

Options for Investement before Recession (2006-

2007)

35%
30%
30%
25%
20%
20% 15% 15% Series1
15%
10% 10%
10%
5%
0%
Mutual Bank Insurance Equity Real Gold
Funds Deposits (Life & Estate
Non Life)

Due to this Global recession investment options would have surely changed. Just to
check this I asked the people about their investment choice before recession and 30%
people said they used to invest in equity and 20% said in Insurance, 15% said in Gold
and Bank Deposits and 190% in real estate and mutual funds. So, we can see that pre
recession only 10% people were aware of and invested in Mutual Funds.

Q.10 How has Global economic slowdown changed your investment pattern?

a) Mutual Funds

b) Bank Deposits

c) Insurance (Life & Non Life)

d) Equity

e) Real Estate

f) Gold

71
 After Global Economic slow down (Investement Pattern)

Gold 13%

Real Estate 10%

Equity 15%

Insurance (Life & Non Life) 22% Series1

Bank Deposits 15%

Mutual Funds 20%

0% 5% 10% 15% 20% 25%

When asked them about their investment option after recession 15% people said they
invested in equity while 22% said they invested in Insurance. 20% people said they
invested in Mutual funds and 15% said in bank deposits. 13% people said they would
invest in Gold and 10% in real estate. So, just after recession equity market was fallen
drastically and people diverted their mind on to mutual funds and insurance. As they
needed options on which they can trust and their money can be secured. Which gave
chance to both insurance and mutual fund companies to make use of the opportunity
and to capture the market.

Q. 11 Why do people invest in Mutual Fund?

Response %age of respondents

Diversification 10%

Return Potential 60%

Flexibility 20%

Well regulated 10%

72
To know about the growth rate of Mutual Fund Industry. The above figure depict that
mostly respondent invest Mutual Fund 60% return potential, 20% Flexibility and 10%
Diversification & well regulated.

Q.12 How do people evaluate schemes of Mutual Fund?

Response %age of respondents

On the basis of NAV 20%

Advertisement 16%

73
 Past Performance 44%

Any other 20%

The above figure depict that mostly respondent evaluate the mutual funds schemes for
past performance i.e. 44%, 20% respondent in the basis of NAV and 16%
advertisement.

Q.13 In which scheme do people like to invest?

Response %age of respondents

Growth 60%

Balanced 10%

Specific 30%

74
The above figures depict that 60% respondent growth, 30% specific, 10% in Balanced.

Q.14 Which is the most professional Mutual Fund companies according to you?

Response %age of respondents

ICICI 30%

HDFC 25%

TATA 5%

Reliance 25%

DSP Blackrock 15%

75
The evident from above finding showed that out of 100 respondents, 60% respondent
are awareness UTI Mutual Fund Companies, 20% respondent are aware Franklin, 10%
reliance, 5% HDFC & TATA both.

FACT & FINDINGS

The Project here provides us with the information about Mutual Funds and its
importance. It also enlightens us with other investment options and how is Mutual Fund
beneficial.

I tried gathering information from the investors about their preference in investment
options and on what basis do they select the options.

76
 CONCLUSION

The project provides an overview about the popularity and awareness of mutual funds
among the investors in Jaipur region.

The investors are of a mixed breed, some of them are risk averse and some are risk
taking. The investors who are risk taking have adequate knowledge of mutual funds,
but those who are risk averse either lacks knowledge or they have some misconception
regarding the concept of mutual funds. The main problem was that there were more
myths and fewer facts known to the investors. The perception in their mind was that
mutual fund investment is a very risky game as it involves stock market. To some
extent it is true that investment in mutual funds involves risk but not in all types of
schemes that today’s companies offer.

77
The schemes that mutual fund companies are offering are so diversified that it suits the
investment criteria of every investor. Let the investor be risk averse or risk taking or a
combination of both there are schemes for everyone.

There are a potentially large number of prospects but they lack in knowledge regarding
the benefits of investing in a mutual fund. Every type of investment in this world
involves risk, some has high risk and some has low risk. Mutual Fund investments have
both types of plans (schemes); higher the risk-higher the returns and lower the risk-
comparatively lower is the return. There are advantages and disadvantages in all kinds
of investments.

The project also throw some light on “How to handle the clients who have suffered in
past by investing in a mutual fund company?” In most of the cases the investors suffer
because of their impatience. Instead of the investment horizon told by the experts of the
company, they withdrew their money before completion of the time period and incur
losses.

In the end let me finish by saying that during the project there were many days when I
converted many prospects but there were times when it was difficult to convert even a
single prospect. The experience I gained from the project will help me to understand the
market in a better manner in future.

RECOMMENDATION

 There should be an orientation session conducted for the management trainees.

This will introduce the trainees to the members and help them to perform their
jobs in a better way.

 To give more focus towards imparting education. During the project it was seen
that many candidates were lacking the complete knowledge about mutual funds.

 The company should have feed back from market and consumer about the
products.

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  The company should associate itself with some games or tournaments like
football, cricket and so on.

 Free gifts in the peak season during festive season like costly pens, wall clocks,
etc.

 Company should provide sponsored t-shirts to staff members.

 Company should maintain healthy relationship with market channel (agents). It

boosts the brand image, sales and goodwill of the company and product as well.

ANNEXURE

Questionnaire for Data Collection

Dear respondent, your valuable time and effort for filling this questionnaire is highly
appreciated. The information gathered through this questionnaire will be used for
academic purpose only.

Name:

Profession:

Educational Qualification:

Contact Number:

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Q.1. Which are the various investment options where you have already invested? (Tick
them)

a) Mutual Funds

b) Bank Deposits

c) Insurance (Life & Non Life)

d) Equity

e) Real Estate

f) Gold

Q.2.What is your annual income?

a) Above Rs 5 lakhs

b) Rs 4 lakhs – Rs5 lakhs

c) Rs 3 lakhs – Rs 4lakhs

d) Rs 2 lakhs – Rs3 lakhs

Q.3.What is the investment horizon which you aim for achieving your financial goal?

a) More than 5 Years

b) 3 Years to 5 Years

c) 1 Year to 3 Years

d) Up to 1 Year

Q.4.What Portion of your annual income you invest in the various investment avenues
available?
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a) Less than 20%

b) 20% to 30%

c) 30% to 50%

d) Above 50 %`

Q.5.What you look for the most when you invest in any of the options?

a) Safety

b) Yield/Return

c) Risks

d) Time Horizon

Q.6.How do you select and choose the mutual funds?

a) Brand Name

b) Financial Advisor’s Advise

c) Influence of Peer group & Friends

d) Past Performance

Q.7.What is the main objective of the investment?

a) Tax Planning

b) Capital Appreciation

c) Securing Lifestyle of family & Financial Liability

d) Source of Income

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Q.8. Are you an active investor in the share market

a) Yes
b) No

Q.9.During the FY 2006-2007 (Pre Recession) period what option you preferred to
invest?

a) Mutual Funds

b) Bank Deposits

c) Insurance (Life & Non Life)

d) Equity

e) Real Estate

f) Gold

Q.10. How has Global economic slowdown changed your investment pattern?

a) Mutual Funds

b) Bank Deposits

c) Insurance (Life & Non Life)

d) Equity

e) Real Estate

f) Gold

Q.11 Why do people invest in mutual funds?

a) Diversification

b) Return Potential

c) Flexibility
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d) Well Regulated

Q.12 How do people evaluate the scheme of mutual funds?

a) On The basis of NAV

b) Advertisements

c) Past performance

d) Any other

Q.13 In which scheme do people like to invest?

a) Growth

b) Balanced

c) Specific

Q.14 Which is the most professional Mutual Fund companies according to you?

a) ICICI

b) HDFC

c) RELIANCE

d) DSP BLACKROCK

e) TATA

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 BIBLIOGRAPHY

WEBSITES

 Prudential ICICI Asset Management Company: www.pruicici.com

 Securities and Exchange Board of India (SEBI): www.sebi.gov.in

 HDFC Mutual Funds: www.hdfcfund.com

 Reliance Mutual Funds: www.reliancemoney.com

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  SBI Mutual Funds: www.sbifund.com

PRINTED LITERATURE

 ICICI Prudential Fact Sheet

 ICICI PRU AMC’s Catalogues

 ICICI PRU AMC’s Knowledge Bytes

 Journals/Newspapers

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