Index

Chapter-I
Introduction Need (for the study) Objectives Scope Research Methodology Limitations

Page No:

Chapter-II
Review of literature

Chapter-III
Profile of the industry Profile of organization

Chapter-IV
Data analysis and interpretation

Chapter-V
Findings Recommendations Conclusion

Bibliography

A PROJECT REPORT ON PERFORMANCE OF MUTUALFUNDS AT ICICI PRUDENTIAL INSURANCE

By, B.YADAIAH MBA II YEAR

INTRODUCTION

The emergence of the capital market of the center stage of the indian financial system from its marginal role a decade carlier the indian capital market witnessed during the same period a sigtnificant institutional development in the form of a diversified structure of mutualfunds. A mutual fund is a fund special type of investment institution that act as an investment condit.it pools the savings particularly of the relatively small investors,and invest them in a well diversified portfolio of sound investment mutual funds issued securities to the investors (unit holders)in accordance with the quantum of money invested by them. Different investments avenues are available to investors.mutual funds also offer good investment opportunities to the investor should compose the risk and expected yields after adjustment of tax on various istruments while taking investment decisions .the investors may seek advise from experts and consultants including agents and distributors of mutual funds schemes while investment decisions. The profits or losses are shaerd by yhe investors in proportion to their investment. the mutual funds narmally come out of with a number of schemes with different investments objectives wich are launched from time to time a mtutual fund is required to be registered with securities and exchange board of india(sebi) with regulates securities markets before it can collcted funds from public.

DEFINITION

Mutual funds is a collection of stocks/bonds work as a company that brings together a group of people and invests their money in stocks , bonds and other securities. each investor own shares ,which represents a portion of the holdings of the fund.

OBJECTIVES OF THE STUDY

To give investment suggestions to the clients of ICICI prudential insurance.

In order to explain the basic features and types of mutual funds.

To assess the risk and return of different schemes.

NEED OF THE STUDY

Todays investors are more smarter, cautious and want to make profits with make less risk in a shorter period of time ,the most popular and easiest way of achieving this

objective by investors is to in mutual funds, as there is a great demand for this investment ,and hence this particular topic is selected.

Usually investors confuse with different schemes and types of mutual funds.

It is necessary for investor to have a prior knowledge about different investment patterns . This type of studies is useful to investor for making better investment decisions.

Mutual fund companies can be able to benefit from this sort of studies gauge the performance of different schemes and to alter their portfolios their potential growth future possi0bilities.

RESEARCH METHODOLOGY

Primary data primary data is not available.

Secondary data. Various books related to investments . news papers

SCOPE OF THE STUDY

The topic that the research has taken for the study is performance of mutual funds with special reference to ICICI prudential insurance,

The scope of the study includes creating awareness to the investors about the different investment schemes.

It was done for a period of last 3 financial years ( 2007 to 2010).

CHAPTER II REVIEW OF LITRATURE

REVIEW OF LITERATURE:
Origin of mutual funds As with many other innovative financial products, Mutual Funds, as an attractive investment source started in the USA. MF is an investment company created under the Investment Company Act of 1940 that pools the resources of investors to buy a variety of securities, depending on the fund's stated objectives and management style. The investments typically are chosen by a professional manager. Mutual funds offered diversification and convenience even to small investors, and the thousands of mutual funds that came to be established cater to every conceivable investment need and taste. What is Mutual Fund?

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 are 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 flow chart below describes broadly the working of a mutual fund: Mutual funds organization in India: Risk-Return Grid: Sponsor: There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund in India:

Sponsor is the person who acting alone or in combination with another body corporate establishes a mutual fund. Sponsor must contribute at least 40% of the net worth of the Investment Managed and meet the eligibility criteria prescribed under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996.The Sponsor is not responsible or liable for any loss or shortfall resulting from the operation of the Schemes beyond the initial contribution made by it towards setting up of the Mutual Fund. Mutual Funds Organisation in India: Trust: The Mutual Fund is constituted as a trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1910. Trustee:

Trustee is usually a company (corporate body) or a Board of Trustees (body of individuals). The main responsibility of the Trustee is to safeguard the interest of the unit holders and inter alia ensure that the AMC functions in the interest of investors and in accordance with the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, the provisions of the Trust Deed and the Offer Documents of the respective Schemes. At least 2/3rd directors of the Trustee are independent directors who are not associated with the Sponsor in any management. Asset Management Company: The Trustee as the Investment Manager of the Mutual Fund appoints the AMC. The AMC is required to be approved by the Securities and Exchange Board of India (SEBI) to act as an asset management company of the Mutual Fund. At least 50% of the directors of the AMC are independent directors who are not associated with the Sponsor in any manner. The AMC must have a net worth of at least 10 crore at all times. Registrar or Transfer agent: The AMC if so authorized by the Trust Deed appoints the Registrar and Transfer Agent to the Mutual Fund. The Registrar processes the application form; redemption requests and dispatches account statements to the unit holders. The Registrar and Transfer agent also handles communications with investors and updates investor records. Performance of Mutual Funds in India In the year 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. People rarely understood, and of course investing was out of question. But yes, some 24 million shareholders were accustomed with guaranteed high returns by the beginning of liberalization of the industry in 1992. This good record of UTI became marketing tool for new entrants. The expectations of investors touched the sky in profitability factor. However, people were miles away from the preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate about the performance of mutual funds in India through figures. From Rs. 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. The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandals, the losses by disinvestments and of course 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 percent of their net asset value. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. Some of them were like relaxing investment restrictions into the market, introduction of open-ended funds, and paving the gateway for mutual funds to launch pension schemes. 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.

Calculation of NAV Asset value is equal to Sum of market value of shares/debentures

+ Liquid assets/cash held, if any + Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid Total market value of all MF holdings - All MF liabilities NAV of MF = ------------------------------------------------------------No. Of MF units or shares (OR) Market value of Scheme's Investments + Receivables Accrued Income + Other Assets - Accrued Expenses - Payables - Other Liabilities NAV of MF = --------------------------------------------------------------------No. Of Units outstanding under the Scheme Details on the above items For liquid shares/debentures, valuation is done on the basis of the last or closing market price on the principal exchange where the security is traded For illiquid and unlisted and/or thinly traded shares/debentures, the value has to be estimated. For shares, this could be the book value per share or an estimated market price if suitable benchmarks are available. For debentures and bonds, value is estimated on the basis of yields of comparable liquid securities after adjusting for liquidity. The value of fixed interest bearing securities moves in a direction opposite to interest rate changes Valuation of debentures and bonds is a big problem since most of them are unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and some of the AMCs are believed to take advantage of this and adopt flexible valuation policies depending on the situation. Interest is payable on debentures/bonds on a periodic basis say every 6 months. But, with every passing day, interest is said to be accrued, at the daily interest

rate, which is calculated by dividing the periodic interest payment with the number of days in each period. Thus, accrued interest on a particular day is equal to the daily interest rate multiplied by the number of days since the last interest payment date. Usually, dividends are proposed at the time of the Annual General meeting and become due on the record date. There is a gap between the dates on which it becomes due and the actual payment date. In the intermediate period, it is deemed to be "accrued". Expenses including management fees, custody charges etc. are calculated on a daily basis. Every mutual fund shall compute and carry out valuation of its investments in its portfolio and publish the same in accordance with the valuation norms specified in Eighth Schedule. It should be published at least in two daily newspapers at intervals of not exceeding one week.

Calculation of Unit Price While determining the prices of the units, the mutual fund shall ensure that the repurchase price is not lower than 93% of the Net Asset Value and the sale price is not higher than 107% of the Net Asset Value. Provided that the repurchase price of the units of a close ended scheme shall not be lower than 95% of the Net Asset Value: Provided further that the difference between the repurchase price and the sale price of the unit shall not exceed 7% calculated on the sale price. The price of units shall be determined with reference to the last determined Net Asset Value as mentioned in sub-regulation. Regulatory bodies of Mutual Funds in India SEBIREGULATIONS

To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities are governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. The general power of superintendence and direction over AMC is vested with the trustees. According to SEBI Regulations, two thirds of the directors of trustee company or board of trustees must be independent. They should not be associated with the sponsors. 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. ROLE OF AMC (Asset Management Company) Disintermediation appears simple in theory, but could be complex in practice. For, it is physically impossible for people with funds to pool the resources and centrally invest the money, without assistance from experts. Thus evolved the agency companies called asset management companies whose role is, in theory, to assist the investors in wisely investing a pool of funds. Typically, instead of investors a going in search of an AMC, the latter went looking for investors. Thus, an AMC will think of collecting money for a mutual fund and float an investment scheme. Anyone desirous of contributing is invited to do so. While floating the scheme, the boundary rules for investment whether in shares or bonds and the management objectives of the AMC are clearly spelt out. Association of Mutual Funds in India (AMFI) Technical terms associated with Mutual Fund: Net Asset Value (NAV) Net Asset Value 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. Sale Price Repurchase or Back-end Load Is a charge collected by a scheme when it buys back the units from the unit holders.

Expense Ratio: AMCs charge an annual fee, or expense ratio that covers administrative expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio means the AMC charges Rs1.50 for every Rs100 in assets under management. A fund's expense ratio is typically to the size of the funds under management and not to the returns earned. Normally, the costs of running a fund grow slower than the growth in the fund size - so, the more assets in the fund, the lower should be its expense ratio. Load: Some AMCs have sales charges, or loads, on their funds (entry load and/or exit load) to compensate for distribution costs. Funds that can be purchased without a sales charge are called no-load funds Asset Management Company: - A company formed and registered under the companies act,1956.an AMC undertakes to formulate mutual fund schemes, distribute units, invest the funds in capital/money markets and distribute income as per agreement Back End Load:- A Fee charged by a mutual fund from unit holders at the time of redemption of units. Bottom-up investing: - An investment strategy which concentrates on the fundamentals of individual stocks before considering the industrial and economic scenario Capital Appreciation: - an increase in the value of an asset, such as shares, debentures, bonds and other type of investment. Conversion Privilege: - The right of a unit holder of a mutual fund to switch from one scheme to another scheme.

PUBLIC OFFER PRICE: Units multiplied by latest NAV gives the market value. But in some cases / for some schemes it is not applicable straightly. Maintenance of a scheme and servicing investors come at a cost to Asset Management Company. This is particularly more in case of select schemes which have additional overheads. For such schemes investors will have to pay extra premium called Load. This load can be either the time of investment called Entry load or at the time of redemption. (Exit load) or both. The entry load / exit load is normally between 1 to3 %

With both together it can't be more than 7% NAV plus or minus load is called Public Offer Price. POP = NAV*(1 +/-load) For a subscription: NAV of a scheme X Entry load POP Amount invested Units allotted For a Redemption NAV of a scheme X Entry load POP Amount invested Units allotted Rs 1 0 2% Rs.9.8 [10*(1-0.02)] Rs. 10,000 1020.410 [10000/9.8] 2% Rs. 10.20 [10*(1 +0.02}] Rs. 10,000 980.392 [10,000/10.20] Rs. 1 0

The Indian Mutual Fund Industry The Current State AUM Base and Growth Relative to the Global Industry India has been amongst the fastest growing markets mutual funds since 2004in the five-year period from 2004 to 2010 (as of December) the Indian mutual fund industry grew at 29 percent CAGR as against the global average of 4 percent3. Over this period, the mutual fund industry in mature markets like the US and France grew at 4 percent, while some of the emerging markets viz. China and Brazil exceeded the growth witnessed in the Indian market. However, despite clocking growth rates that are amongst the highest in the world, the Indian mutual fund industry continues to be a very small market; comprising 0.32 percent share of the global AUM of USD 18.97 trillion as of December 20104.

AUM to GDP Ratio: The ratio of AUM to Indias GDP gradually increased from 6 percent in 2005 to 11 percent in 2009. Despite this however, this continues to_ be significantly lower than the ratio in developed countries. Where the AUM accounts for 20-7 0 percent of the GDP. Share of Mutual Funds in Household Financial Savings Investment in mutual funds in India comprised 7.7 percent of the gross household financial savings in FY 2010, a significant increase from 1.2 percent in FY2004. The households in India continue to hold 55percent of their savings in fixed deposits with banks, 18 percent in insurance and 10 percent in currency as of FY20106. In 2010, the UK had more than thrice the investments into mutual funds a factor of total household savings (26 percent), than India had in the same time period. As of December 2010, UK households held 61 percent of the total savings in bank deposits,11.6percentin equities and 1 percent in bonds7. 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. Share of Mutual Funds in Households Gross Financial Savings in India 3. ICI data 4. ICI and AMFI data 5 .AMFI and CSO data 6 .RBI data 7. Data monitor Report, December 2010 Composition of Households Gross Financial Savings in India in FY 2010 Profitability The increase in revenue and profitability in the Indian Mutual fund industry has not been commensurate with The AUM growth in the last 5 years. The AUM grew at 35 percent CAGR in the period from March 2005 to 2009, while the profitability of AMCs which is defined As PBT as a percentage of the AUM declined from 24 Bps in FY 2004 to14 bps in FY 20110.

During FY 2004 and FY 2010, the investment Management fee as a percent of average AUM was in the range of 55 to 58 bps (small increase to 64 bps in FY 2006) due to the industry focus on the underlying asset mix comprising relatively low margin products being targeted at the institutional segment9.The operating expenses, as a percentage of AUM, rose from 41 bps in FY 2004 to 113 bps in FY 2010 largely due to the increased spend on marketing distribution and administrative expenses impacting AMC margins10. Rising cost pressures and decline in profitability have impacted the entry plans of global players eyeing an Indian presence. The growth in AUM accompanied by a decline in Profitability necessitates an analysis of the underlying characteristics that have a bearing on the growth and Profitability of the Indian mutual fund industry.

The Indian Mutual Fund Industry Key Characteristics Customers:

The Indian mutual fund industry has significantly high ownership from the institutional investors. Retail investors comprising 96.86 percent in number terms held approximately 37 percent of the total industry AUM as at the end of March 2010-11, significantly lower than the retail participation in the US at 82 percent of AUM as at December 2010-12. 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Out of a total population of 1.15 billion, the total number of mutual fund investor accounts in India as of 31 March 2010 was 42 million (the actual number of investors is estimated to be lower as investors hold Multiple folios) 13. In the US, an estimated 92 million individual investors owned mutual funds out of a total population of 05 million14 in 2010. As per the Invest India Incomes and Savings Survey 2007 of individual wage earners in the age group 18 to 59 years conducted by IIMS Data works, only 1.6 percent invested in mutual funds. Ninety percent of the savers interviewed were not aware of mutual funds or of investing in mutual funds through a Systematic

Investment Plan (SIP). The mutual fund penetration among the paid Indian workforce with annual household income less than INR 90,000 was 0.1 percent. In the last few years, the retail investor participation, in particular, in Tier 2 and Tier 3 towns, has been on the rise aided by the buoyant equity markets.

Customer Benefits with Mutual Funds:

Investment in Mutual Funds is attractive to customers owing to tax benefits The tax benefits associated with investment in mutual funds is the key drivers for customers. Customers consider mutual funds as a medium of ensuring financial independence and security. Since most mutual fund schemes carry easy liquidity options, customers believe that mutual funds are a avenue of savings thereby eliminating the need for borrowing money in case of financial exigencies. Liquidity for the future is deemed to be of utmost importance in making any investment decision. Consistency in fund performance and brand equity influence customers to make relevant selection of mutual fund schemes Customers believe that fund performance is necessary but is not a sufficient condition to drive their selection of mutual fund products. Selection of mutual funds by a customer is a function of both the fund performance and brand equity of the fund house. Customers are of the view that the key differentiator at the time of selection of a fund is the positive outlook on performance even if the numbers do not reveal a spectacular historic performance. The brand equity of a mutual fund includes factors like perception of the brand capability drawn from its performance in other sectors. Simplification of Processes to Increase the Quantum of Investments Customers obtain the requisite confidence in their investment process when distributors explain the concepts and the meaning of key terms used in mutual fund application forms in simple terms. Further, this reinforces confidence in the distributors capabilities and quality of advice provided that facilitate the decision process for investment in a mutual fund scheme. Customers also expressed the view that a single common application form could be used for all mutual fund investments across multiple mutual fund houses.

Simplifying the process for redemption of funds was also identified as a means for further increasing investments in mutual funds.

Products
The Indian mutual fund industry is in a relatively nascent stage in terms of its product offerings, and tends to compete with products offered by the Government providing fixed guaranteed returns. As of December 2010, the total number of mutual fund schemes was 1,002 in comparison to 10,349 funds in the US. Debt products dominate the product mix and comprised 49 percent of the total industry AUM as of FY 200915, while the equity and liquid funds comprised 26 percent and 22 percent respectively. Open-ended funds comprised 99 percent of the total industry AUM as of March 2009. As of December 2010, the US mutual fund market Comprised money market funds, equity funds, debt/ bond funds and hybrid funds at 40, 39, 16 and 5 percent of the total AUM respectively16. 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. Source: AMFI data Growth Rate (Five year CAGR) across Fund Categories SEBI ICI, CIA SEBI ICI Fact books 2009 While traditional vanilla products dominate in India, new product categories viz. Exchange Traded Funds (ETFs), Gold ETFs, Capital Protection and Overseas Funds have gradually been gaining popularity. As of March 2009, India had a total of 16 ETFs (0.3 percent of total AUM) while the US had a total of 728 ETFs as of December 201017.

Markets
While the mutual fund industry in India continues to be metro and urban centric, the mutual funds are beginning to tap Tier 2 and Tier 3 towns as a vital component of their growth strategy. The contribution of the Top 10 cities to total AUM has gradually declined from approximately 92 percent in 2005 to approximately 80 percent currently18.

Distribution Channels
As of March 2009, the mutual fund industry had 92,499 registered distributors as compared to approximately 2.5 million insurance agents19. The Independent Financial Advisors (IFAs) or Individual distributors, corporate employees and corporate comprised 73, 21 and 6 percent respectively of the total distributor base. Banks in general, foreign banks and the leading new private sector banks in particular, dominate the mutual fund distribution with over 30 percent AUM share. National and Regional Distributors (including broker dealers) together with IFAs comprised 57 percent of the total AUM as of 2007. The public sector banks are gradually enhancing focus on mutual fund distribution to boost their fee income20.

Industry Structure
The Indian mutual fund industry currently consists of 38 players that have been given regulatory approval by SEBI. The industry has witnessed a shift has changed drastically in favour of private sector players, as the number of public sector players reduced from 11 in 2001 to 5 in 2009. 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

The public sector has gradually ceded market share to the private sector. Public sector mutual funds comprised 21 percent of the AUM in 2009 as against 72 percent AUM share in 200122. The industry concentration has been stagnant in the four-year period from 2005 to 2010; the top 5 players comprising 50-52 percent of industry AUM. However, as of March 2009, the share of Top 5 players increased to 58 percent, as against 38 percent in the US. The AUM share of the Top 10 players has consistently been in the vicinity of 75 percent.23 the mutual fund houses based on product portfolio and distribution strategy, the key elements of competitive strategy, can be segmented into three categories: The market leaders having presence across all product segments Players having dominant focus on a single product segment - debt or equity Players having niche focus on an emerging product category or distribution channels. The market leaders have focused across product categories for a more diversified AUM base with an equitable product mix that helps maintain a consistent AUM size. Although the Indian market has relatively low entry barriers given the low minimum net worth required to venture into mutual fund business, existence of a strong local brand and a wide and deep distribution footprint are the key differentiators.

Operations
The Indian mutual fund industry while on a high growth path needs to address efficiency and customer centricity. AMCs have successfully been using outsourced service providers such as custodians, Registrar and Transfer Agents (R&T) and more recently, fund accountants, so that mutual funds can focus on 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss Cooperative core aspects of their business such as product development and distribution. Functions that have been outsourced are custody services, fund services, registrar and transfer services aimed at investor servicing and cash management. Managing costs and ensuring investor satisfaction continue to be the key goals for all mutual funds today.

However, there is likely to be scope for optimizing operations costs given the trend of rising administrative and associated costs as a percentage of AUM.

Regulatory Framework
The Indian mutual fund industry in terms of regulatory framework is believed to match up to the most developed markets globally. The regulator, Securities and Exchange Board of India (SEBI), has consistently introduced several regulatory measures and amendments aimed at protecting the interests of the small investor that augurs well for the long term growth of the industry. The implementation of Prevention of Money Laundering (PMLA) Rules, the latest guidelines issued in December 2010, as part of the risk management practices and procedures is expected to gain further momentum. The current Anti Money Laundering (AML) and Combating Financing of Terrorism (CFT) measures cover two main aspects of Know Your Customer (KYC) and suspicious transaction monitoring and reporting. The regulatory and compliance ambit seeks to dwell on a range of issues including the financial capability of the players to ensure resilience and sustainability through increase in minimum net worth and capital adequacy, investor protection and education through disclosure norms for more information to investors, distribution related regulations aimed at introducing more transparency in the distribution system by reducing the information gap between investors and distributors, and by improving the mechanism for distributor remuneration. The success of the relatively nascent mutual fund industry in India, in its march forward, will be contingent on further evolving a robust regulatory and compliance framework that in supporting the growth needs of the industry ensures that only the fittest and the most prudent players survive.

Low Levels of Customer Awareness

Low customer awareness levels and financial literacy pose the biggest challenge to channelizing house hold savings into mutual funds. IIMS Data works data released in 2007 establishes that low awareness levels among retail investors has a direct bearing on the low mutual fund off take in the retail segment. The general lack of understanding of mutual fund products amongst

Indian investors is pervasive in metros and Tier 2 cities alike and majority of them draw little distinction in their approach to investing in mutual Funds and direct stock market investments. A large majority of retail investors lack an understanding of risk-return, asset allocation and Portfolio diversification concepts. Low awareness of SIPs in India has resulted in a majority of the customers in vesting in a lump sum manner.

Limited Focus on Increasing Retail Penetration

The Indian mutual fund industry had limited focus on building retail AUM And has only recently stepped up efforts to augment branch presence in Tier 2 and Tier 3 towns. Players have historically garnered AUM by targeting the institutional segment that comprises 63 percent AUM share at March 2010. Large ticket size, tax arbitrage available to corporate on investing in Money market mutual funds, easy accessibility to institutional customers concentrated in Tier1 cities are the factors instrumental in mutual fund houses focusing on the institutional segment. Building retail AUM Requires significant distribution capability and a wide foot print to be able to penetrate into Tier 2 and Tier 3 towns, which AMC shave recently started focusing on. Institutional AUM, however, makes the industry Vulnerable to the possibility of sudden red emption pressures that impact the fund performance.

Limited Focus beyond the Top 20 Cities

The mutual fund industry has continues to have limited penetration beyond the top 20 cities. Cities beyond Top 20 only comprise approximately10percentoftheindustryAUMasperindustry Practitioners. There tail population residing in Tier 2 and Tier 3 towns, even if aware and willing, are unable to invest in mutual funds owing to limited access to suitable distribution channels and investor servicing. The distribution net work of most mutual fund houses is largely focused on the Top 20 cities given the high cost associated with deeper penetration in to Tier 2 and Tier 3 towns. However, some of the mutual fund houses have begun focusing on cities beyond the Top 20 by, an Indian Partnership and a member firm of the KPMG net work of independent member firms affiliated with KPMG

International, a Swiss Perhaps most frustrating has been the reality that mutual funds have made relatively little impact in attracting new household financial savings. - A leading mutual fund in India Investor education and awareness has made limited inroads in increasing customer investments in mutual funds Efforts across AMCs and distributors have largely remained disjointed. - A mid-sized mutual fund in India Most AMCs have focused on growing AUMs primarily through institutional clients which is much easier than penetrating the retail base. - A large national distributor Investor education by AMCs is primarily on focused on metros. - A large IFA AMCs must focus on investor education so that they can challenge distributors. - A large AMC We need to focus beyond the Top 20 cities to increase retail penetration. - A leading national distributor. Building their branch presence and strengthening distribution reach through non-branch channels.

Limited Innovation in Product Offerings

The Indian mutual fund industry has largely been product-led and not sufficiently customer focused. The popularity of NFO triggered Proliferation of schemes with a large number of non-differentiated products. The industry has had a limited focus on innovation and new Product development, there by catering to the limited needs of the customer. Products that cater specifically to customer life stage needs such as education, marriage, and housing are yet to find their way in the Indian market. Despite the regulations for Real Estate Mutual Funds (REMF) being introducedin2010, the market is still awaiting the first REMF launch. Further, relatively ascent product categories viz. multi-manager funds that are among the most popular hybrid funds globally have not growing. India owing to the prevailing taxation structure. The Indian mutual fund industry offers limited investment options viz. Capital guarantees products for the Indian investors, a large majority of whom are risk averse. The Indian market is still to witness the launch of

green funds, socially responsible investments, fund of hedge funds, enhanced money market funds, renewable and energy/climate change funds. Product innovation is expected to be limited Banks The public sector network of nationalized banks and post offices likely to increase their focus on the distribution of mutual funds Entry of public sector banks as mutual fund manufacturers expected to increase their focus on mutual fund distribution Private banks providing financial advice to HNIs expected to marginally increase their market share. IFAs IFAs expected to emerge as a dominant channel in a scenario of robust stock market growth, focusing on increasing penetration, and will therefore have to focus on initiatives to develop and support this channel (for example, recruitment and training support).

Limited Flexibility in Fees and Pricing Structures

The fee structure in the Indian mutual fund industry enjoys little flexibility unlike developed markets where the level of management fees depend on a variety off actors such as the investment objective of the fund, fund assets, fund performance, the nature and number of services that a fund offers. While the expenses have continuously risen, the management fee level shave remained stagnant. Distributors are compensated for their services through affixed charge in the form of entry load and additional fees as considered appropriate by the AMC. Regardless of the quality of advice and service provided, the commission payable by the mutual fund customer to the distributors is fixed.

Limited Customer Engagement

Mutual fund distributors have been facing questions on their competence, degree of engagement with customer and the value provided to the customer. Fees should only be on trail basis so that advisors are compensated based on ongoing advice and service provided. - A large IFA There is a tendency to push select products during specific economic cycles. Debt products are seldom sold during a stock market boom. - A large regional distributor AMCs must focus on investor education so that they can challenge distributors. - A large AMC Market - A case study In the US mutual fund market, financial advisors are professionals who help Investors define the reinvestment goals, select suitable funds based on risk appetite, and provide ongoing advice and service. These financial advisors are compensated for their services, in part, through a specific fee, known as a12b-1 fee, which is included in funds expense ratio. In addition, no-load funds are sold directly to investors are sold to invest to rethought financial advisors who charge investors separately for the investment advice and service provided, the by providing flexibility to the investor, based on the level of advice and services ought. Advisors are compensated for providing these services through a combination of frontendor back-end loads and 12b-1fees.Investors who opt not to use a financial advisor worthose who pay the financial advisor directly for services rendered, purchase no-load funds, which Have neither front-nor back-end loads. And have either low or no12b-1fees. In the absence of a frame work to regulate distributors, both the distributors and the mutual fund houses have exhibited limited interest in continuously engaging with customer spots closure of sale as the commissions and incentives had been largely in the form of up front fees from product sales (although trail commissions have also been paid in limited in stances regardless of the service rendered).As a result of the limited engagement, there have been rising in stances of miss-selling to customers.

Limited Focus of the Public Sector Network on Distribution of Mutual Funds Public sector banks with a large captive customer base, significant reach beyond the Top 20 cities in semi- urban and rural areas, and the potential to build there tail invest or base, have so far played a very limited role in Mutual funds distribution. The India Post net work operating the largest postal net work in the world majority of which is in rural areas, is stated to have 250 post offices selling mutual funds office AMCs only; further most of the post offices selling mutual funds are located in tier1 and tier2 cities which are already been catered to, by national level and other distributors 24. India Post with its customer base of 170 million account holders and branch net work of over154, 000 branches, doubling the size of all bank branches put to gether is a formidable channel which has been under utilized to date for mutual fund distribution25. The postal net work also serves as a means to facilitate inclusive and equitable growth to all regions and social groups by providing them with access to financial products such as mutual funds. Further the credibility enjoyed by the Nationalized Banks, Regional Rural Banks and Cooperative Banks in the rural hinter land has not been fully leveraged to target the retail segment. Multiple Regulatory Frameworks Governing Financial Services Sector Verticals The regulatory and compliance requirements vary across verticals within The financial services sectors specifically mutual funds, insurance and pension funds each of which are governed by an independent regulatory frame work and are competing for the same share of the customers wallet. The mutual fund industry lacks a level playing field in comparison with other verticals with in the financial services sector. AMFI must focus on defining the industry vision and long-term strategic direction. - A mid-sized AMC Valuations in the Indian mutual fund industry should be based on EBITDA multiples and not on the basis of AUM alone. - A large AMC PAN card being made mandatory is a deterrent to industry growth. - A large national distributor AMCs do not contribute to training costs for distributors. - A mid-sized national distributor Manufacturers need to increase the level of engagement with customers and play a much larger role beyond sales.

Industry profitability may reduce further as revenues shrink and operating costs escalate Increase investors, and also as operating costs escalate due to the focus on penetrating retail population beyond Tier 2 cities. Decline in investment management fees is expected as risk averse customers prefer investments in debt products. Increase in distribution costs as players attempt to set up their own branch presence in smaller towns Existing players are likely to review business strategy and explore exit/ mergers in case of no significant competitive advantage, thereby resulting in industry consolidation Competition is expected to intensify further with the entry of global players who are facing stagnant growth in global markets. This is expected to result in a fall in market shares of the Top 10 players and result in a further squeeze on margins. Co-existence of large players with diversified portfolios and some niche plays expected.

Constitution and management of Asset Management Company

Eligibility criteria for appointment of an asset management company. The sponsor or the trustee if so authorized by the trust deed will appoint an asset management company which should be approved by SEBI.

Mutual funds regulations and operations:

The key personnel of the asset management company have not been found guilty of moral turpitude or convicted of an economic offence or violation of securities laws; The board of directors of the asset management company should have at least 50% directors, who are not associates of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees; The chairman of the asset management company is not a trustee of any mutual fund; The asset management company has a net worth of not less than hundred million rupees. Appointment of a custodian the mutual fund has to appoint a custodian to carry out the custodial

services for the schemes of the fund and notify that SEBI of the same within 15 days of the appointment. No custodian, in which the sponsor or its associates hold 50% or more of the voting rights of the share capital of the custodian, or where 50% or more of the directors of the custodian represent the interest of the sponsor, or its associates, shall act as custodian for a mutual fund constituted by the same sponsor or any of its associate or subsidiary companies. Schemes of mutual fund for launching a scheme the asset management company needs to obtain an approval from the trustees and a copy of the offer document needs to be filed with SEBI. The offer document should contain disclosures which are adequate in order to enable the investors to make informed investment decisions. Advertisements in respect of every scheme should be submitted to SEBI within seven days from the date of issue. Every close-ended scheme shall be listed on a recognized stock exchange within six months from the closure of the subscription. Investment objectives and valuation policies. The monies collected under any scheme of a mutual fund can be invested only in transferable securities in the money market, or in the capital market or in privately placed debentures or securitized debts. The monies collected under a money market scheme can be invested only in money market instruments in accordance with the directions issued by the Reserve Bank of India. The investments made by the schemes of mutual fund shall be subject to the investment restriction specified in the SEBI Regulations. The fund cannot borrow, except to meet temporary liquidity needs of the mutual funds for the purpose of repurchase, redemption of units or payment of interest or dividend to the unit holders. The funds of the scheme should not be used in option trading or in short selling or carry forward transactions. The mutual funds may enter into derivative transactions for the purpose of hedging and portfolio rebalancing purposes.

The regulatory and compliance framework for mutual funds is likely to get aligned with the frameworks across the financial services spectrum.

In summary, the Indian mutual fund industry is expected to Distributors likely to explore the possibility of innovations such as a common online platform and the usage of debit and credit cards for transactions.

AMCs are expected to invest in channel innovation such as Mobile and Internet services. Mobile telephony enabling mobile transactions for the purchase and sale of mutual funds and SMS-based services is expected to revolutionize the industry.

Given that customer awareness is the pre-requisite for the achievement of the industry growth potential, there is a need for planning, financing and executing initiatives aimed at increasing financial literacy and enhancing investor education across the entire country through a sustained collaborative effort across all stakeholders.

Financing a Sustainable Nationwide Customer Awareness Program

Creation of the Mutual Fund Education Fund a common corpus of funds from AMCs and distributors through mandatory levy on the investment management fee earned by AMCs and on the commissions earned by distributors from mutual fund sales This Fund should be suitably ring-fenced and managed/ administered by the industry association.

Conducting a Nationwide Customer Awareness Program

NISM along with the industry association to design the content for promoting customer awareness programs on mutual funds

 AMCs with support from CII, AMFI and NISM should rollout customer awareness campaigns and provide infrastructure, content and speakers for running the campaigns on a pan-India basis over a sustained period of five years Social marketing firms and media companies to design effective and meaningful mass media campaigns in multiple languages using television, hoardings, flyers, street plays and other mechanisms to reach the masses.

Promoting Financial Planning Awareness in Educational Institutions

NISM to take the lead in developing and finalizing a Financial Planning course within the next three months. The course should encompass modules on mutual funds, and other financial products along with concepts like risk management, asset allocation and portfolio diversification to meet multiple needs. This course should be incorporated in the curriculum across all schools and colleges, as a mandatory course starting from Class 8 up to the graduation level, followed by an examination. This will require a directive from the Ministry of HRD, Government of India, and will need to be facilitated by the education boards and the universities. NISM should be the nodal agency and should work in a collaborative manner with AMCs, CII and AMFI by adopting the train the trainer concept to train teaching faculty in schools and colleges across India. The India Post and public sector banks could also be used to promote customer awareness by using their infrastructure for conducting awareness programs and campaigns. Investor associations, self help groups and other affinity groups should be identified to facilitate investor workshops in cities and towns across the country. New Products and Pricing to Attract Risk The objective of product innovation by AMCs should be driven by the need to introduce simple products to attract and retain risk averse and first time investors to start investing in mutual funds.

Introduction of Customer-Friendly Products and Product Features

AMCs through AMFI should conduct a nationwide survey of customer needs across liquidity, risk, frequency and quantum of contribution to determine product variants and features that meet customer needs Allow investible surplus of investors to be invested at any time in ongoing schemes with a flexible SIP option Introduce simple products that have features of capital protection with returns that are higher than traditional products and limit market risk Focus on design of products around women and children related needs, given the growing dominance of women in influencing investment decisions in households across the country. Further commodity related, crop related and agriculture oriented fund products may be conceptualized and developed by cater to segment specific needs. Focus on product appeal for the low income group by keeping ease of investment and minimum thresholds within affordable limits Encourage the introduction of customized ETFs for retail and institutional customers Regulatory framework to allow niche players to co-exist with players having a diversified product portfolio without raising requirements for minimum net worth. These requirements are common at the industry level, irrespective of product portfolio mix Enable mutual fund investments through mobile telephony.

Pricing Flexibility
Pricing innovations should focus on distributor compensation and administration Enable flexibility in regulations to allow customers to pay for the advice and service rendered by the distributors through varying arrangements based on the method of purchase, degree of service provided and the timeframe for payment. Some options

include exploring the possibility of introducing a multiple share class structure with pricing options for front-end load, back-end load and fixed annual fee as a percentage of all investments. Training of the Public Sector Employee Base Training of employees in the public sector network including India Post, Nationalized Banks, Regional Rural Banks and Cooperative Banks, on sale of mutual funds and basic financial planning concepts through the Train the Trainer approach, so that they may be inducted as trainers to support customer awareness campaigns run by NISM and AMFI.

Opening Up of the Public Sector Branch Network in Tier 3 and Tier 4 Towns
Commence sale of mutual funds through the branch network of India Post, Nationalized Banks, Regional Rural Banks and Cooperative Banks by focusing on Tier 2 and Tier 3 towns initially India Post to sell mutual fund products of all SEBI registered AMCs instead of limiting the customer to five AMCs only as is currently prevalent Boost the presence of Investor Service Centers (ISCs) through R&T Agents in Tier 2 and Tier 3 towns and utilize their presence to promote customer awareness of mutual funds.

Focus on Increasing Customer Engagement Pre and Post Completion of the Investment
AMCs to focus on growing the IFA channel and encourage them to reach out to and engage with customers on their mutual fund needs on an ongoing basis pre and post completion of their investment AMCs to focus on enhancing the marketing and advisory capabilities of all distributors so that they win the trust and confidence of customers AMCs and distributors to focus on establishing base level financial planning capabilities to facilitate the transition from distribution to advice.

Strengthening of Associations Strengthening of AMFI AMFI to play an active role in bringing all the stakeholders together and evolving a strong vision for the mutual fund industry across all dimensions aspirational AUM growth and profitability, retail penetration, products and pricing, distribution channels, operations and customer service, enabled by a supporting regulatory framework Augment the employee base of AMFI so as to support NISM in conducting nation-wide customer awareness campaigns.

Development of a Common Online Platform AMFI to coordinate the roll out of a common online platform for AMCs which will result in increasing reach, reducing distribution costs and making transactions free from operational issues.

Facilitating Distributor Education and Mandatory Certification CII and AMFI to support NISM in the promotion of distributor awareness programs AMFI to include additional financial planning modules in the distributor certification and make certification valid for a two-year period, thereby necessitating a bi-annual renewal AMFI to facilitate annual up dation of the course curriculum in line with the latest products being adopted by the industry AMFI to facilitate issue of identity card with distributor certification which should be mandated to be provided to the customer at the time of closing the mutual fund sale.

Building an Industry Data Repository AMFI to build a data warehouse which tracks the financial performance of all AMCs in India across key parameters such as revenue and profitability, and performance of all mutual funds schemes in addition to tracking AUM growth and composition AMFI to publish data on the financial health of all AMCs in a consolidated manner through the Provide a listing on the AMFI website of all certified distributors who have received AMFI certification and update the list based on certification renewals.

Creation of an Association of Distributors Creation of a SEBI recognized association of distributors of mutual fund products with a clearly defined charter and role. Sector Constitution of a Steering Committee of Financial Services Regulators under the Ministry of Finance It is proposed that the Government of India should constitute a Steering Committee under the aegis of the Ministry of Finance comprising the Financial Services Regulators for mutual funds and capital markets, pension, insurance, banking and other verticals along with representation from CBDT. The Committees objective should be defined as achieving harmonization in policies and procedures across multiple regulatory frameworks in the Financial Services Sector. Areas Requiring Harmonization Outsourcing of funds management by insurance companies to AMCs independent of the assets under management, by removing the threshold of INR 80 billion which exists currently

 Allow PSUs to invest larger surpluses in mutual funds and open up investment in private sector and foreign mutual funds.

Various mutual fund schemes in India:

The various types of mutual fund schemes marketed in India based on the objective of the scheme are:

Aggressive growth scheme, which seeks maximum capital gains in a short time by a higher level of trading of the underlying securities.

Balanced scheme with the primary objectives of conservation of capital, income generation and long-term growth having a portfolio mix of debentures, shares and money market instruments. His scheme is ideal for investors looking for a combination of income and moderate growth.

Growth scheme, which aims at increasing the value of investments over a period of time rather than a flow of regular dividend. This scheme is most suited for investors seeking growth over longer term.

Growth and income scheme, which attempts to combine long-term capital growth with a steady stream of income.

 Income scheme, which seeks a high level of current income by investing in income producing securities, including both equities and debt instruments. This scheme is most suited for retired people and others with a need for capital stability and regular income. This scheme is most suited for retired people and others with a need for capital stability and regular income.

Tax saving scheme, which offers investors a tax rebate of a certain percentage of investment made in a tax saving scheme, i.e. such schemes invest primarily in securities specified in the Income Tax Act of India and offer benefits of deferring the tax liability. The returns are primarily in the form of capital appreciation. Mutual fund schemes in India can also be classified according to the areas of investment on the following lines:

Industry specific scheme, which attempts to invest the pool in certain specified industrial sectors, for instance, the scheme may envisage investment in 100% export-oriented units and companies with substantial export income.

Specific area scheme, which seeks investment in a specific area, usually a country or state, country funds floated by various international fund management companies.

Bond scheme, which seeks investment in bonds, debentures and debt-related instruments to generate regular flow of income.

Primary market scheme, which aims at investing only in primary market issues, and to realize capital appreciation through disinvestment.

 Special scheme, which attempts to replicate the performance of a particular index such as the Stock Exchange, Mumbai (BSE) Sensex or the National Stock Exchange of India (NSE) 50. Such schemes are ideal for investors who are satisfied with a return approximately equal to that of an index.

Money market schemes provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposits, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market.

Investment restrictions Mutual funds are not permitted to:

Invest more than 15% of its net asset value (NAV) in debt instruments issued by a single issuer, which are rated not below investment grade by a credit rating agency authorized to carry out such activity under the Act. This investment limit may be extended to 20% of the NAV of the scheme with prior approval of the board of trustees, and the board of the AMC. The same limit is not applicable for investments in Government of India securities and money market instruments. Invest more than 10% of its NAV in unrated debt instruments issued by a single issuer, and the total investment in such instruments shall not exceed 25% of the NAV of the scheme. All such investments shall be made with the prior approval of the board of trustees and the board of AMC. Invest more than 10% of its NAV in the equity shares, or equity related instruments of any company. However, the same shall not be applicable in the case of investments in index funds or sector or industry specific schemes. Invest more than 5% of its NAV in the unlisted equity shares or equity-related investments in the case of open-ended schemes and 10% of its NAV in the case of closeended schemes.

Invest under all its schemes more than 10% of the companys paid up capital carrying voting rights. Transfer investments from one scheme to another unless such transfers are at prevailing market rates. Engage in short sales or carry forward transactions. Mutual funds should take and give delivery of securities purchased and sold by them. Invest in any unlisted/security issued by way of private placement of/by an associate or group company of the sponsor. Invest in listed securities of group companies of the sponsor, which exceeds 30% of the net assets of all schemes of the mutual fund. Code of conduct SEBI has prescribed the code of conduct to be followed, as follows: Trustees and asset management companies must ensure the dissemination to all unit holders of adequate, accurate, explicit and timely information fairly presented in a simple language about the investment policies, investment objectives, financial position and general affairs of the scheme. Trustees and asset management companies should avoid excessive concentration of business with brokerage firms, affiliates and also excessive holding of units in a scheme among a few investors. Trustees and asset management companies must avoid conflicts of interest in managing the affairs of the schemes, and keep the interest of all unit holders paramount in all matters. Trustees and asset management companies must ensure scheme-wise segregation of cash and securities accounts. Mutual fund schemes should not be organized, operated, managed or the portfolio of securities selected, in the interest of sponsors, directors of asset management companies, members of board of trustees or directors of the trustee company, associated persons or in the interest of a special class of unit holders rather than in the interest of all classes of unit holders of the scheme. Trustees and asset management companies shall carry out the business and invest in accordance with the investment objectives stated in the offer documents and take investment decisions solely in the interest of unit holders.

Trustees and asset management companies must not use any unethical means to sell, market or induce any investor to buy their schemes. Other regulations Securities and Exchange Board of India (Mutual Funds) Regulations 1996, as amended provides for: Standard offer documents, scheme balance sheets, revenue accounts, method of valuation of traded and non-traded securities, advertisement and half yearly and yearly publication of financial results. Imposition of penalties on mutual funds, payable by AMCs, after due investigation of their failure to comply with the guidelines. Restriction of: - initial issue expenses to 6% of funds raised under the scheme - annual operational expenses including investment management fee subject to the following limits: on the first Rs. 1,000 million of the average weekly net assets: 2.50% on the next Rs. 3,000 million of the average weekly net assets: 2.25% on the next Rs. 3,000 million of the average weekly net assets: 2.00% on the balance: 1.75% annual investment management fees to a maximum of 1.25% of the average weekly net asset value for net assets up to Rs. 1,000 million and 1% for the amount exceeding Rs. 1,000 million. Disclosures and reporting requirements SEBI requires every mutual fund to submit the following periodic reports:

The custodian - The transfer agents

Mutual funds should ensure full compliance of all the risk management practices within a period of six months. Advisers, custodians, transfer agents, trustees and distributors The

trustee A mutual fund is constituted in the form of a trust and the instrument of trust shall be in the form of a deed, duly registered under the provisions of the Indian Registration Act, 1910 executed by the sponsor in favour of the trustees named in such an instrument. The trustee is ultimately responsible for the operations of the mutual fund, safeguarding of its assets and hence should ensure that the activities of the AMC are being carried out in the interest of investors, and are in accordance with the provisions of the regulations. The distributor Mutual funds in India are marketed by mass scale publicity through advertisements and promotion. In India, the concept of investment salesmen, investment counseling and investment planning is limited to large cities and people at large seek to buy mutual fund units based on the marketing and perception of the sponsors. Mutual funds in India either use the same channel and distribution set up of brokers and subbrokers, created by capital market players or they thrive on the network created by Unit Trust of India (UTI). Mutual funds, which are promoted by commercial banks, use their branch network for market reach and distribution. However, this is not very effective as the branch personnel lack the necessary skill sets and are disinterested due to concern over cannibalization of funds from their deposit base. Private sector mutual funds have their own accredited agents and enlisted brokers, who are the main retailers of the scheme. For every new scheme it is necessary that a fresh mandate is given to each of the enlisted agents and brokers to elicit their personal involvement in marketing the scheme. The compensation these agents receive varies from 1% to 2%. Most fund groups charge this to the investors over and above the net asset value by way of an entry load or exit load. The amounts recovered by the schemes by way of load is used to cover the cost of raising/redeeming funds on a continuous basis, sales/promotional/marketing expenses, costs associated with liquidating the schemes investment portfolio, payments to brokers for distribution related services and/or any other similar expenditure. The concept of trailer commission has recently become very popular with the advent of open-ended funds. The Association of Mutual Funds of India (AMFI) has also started a certification programme for all mutual fund distributors. SEBI has also passed a relevant circular making it compulsory for all mutual fund distributors and agents to pass the AMFI certification programme.

CHAPTER III INDUSTRY PROFILE

INDUSTRY PROFILE:

The origin of mutual fund industry in India began with the introduction of the concept of mutual fund by UTI in the year 1963. Though the growth was initially slow, it accelerated from the year 1987 when non-UTI players entered the industry. In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality-wise as well as quantity-wise. Before, the monopoly of the market had seen an ending phase, the Assets Under Management (AUM) was Rs. 67bn. The private sector entry to the fund family rose the AUM to Rs. 470 bn in March 1993 and till April 2004,it reached the height of 1,540bn. Putting the AUM of the Indian Mutual Funds Industry into comparison, the total of it is less than the deposits of SBI alone, constitute less than 11% of the total deposits held by the Indian banking industry. The main reason of its poor growth is that the mutual fund industry in India is new in the country. Large sections of Indian investors are yet to be educated with the concept of mutual funds. Hence, educating the investor of the benefits of mutual fund investing is a responsibility of all mutual fund companies, and provides great opportunities for growth. The Indian mutual fund industry can be broadly put into four phases according to the development of the sector. Each phase is briefly described as under.

First Phase - 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 crores of assets under management.

Second Phase - 1987-1993 (Entry of Public Sector Funds) Entry of non-UTI mutual funds. SBI Mutual Fund was the first followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank

Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC in 1989 and GIC in 1990. The end of 1993 marked Rs.47, 004 as assets under management.

Third Phase - 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993. The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds. Fourth Phase - February 2003 - Current 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 growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153110 crores under 421 schemes. Next Phase 2010 & Beyond Challenges & Prospects The thesis will address the outlook for the Indian mutual fund industry with the entry of several foreign players (Prudential U.K., Franklin Templeton, Fidelity, Blackrock, HSBC, AXA, ING, Prudential USA, etc) and several Indian players (Reliance, HDFC, IDBI, ICICI, Kotak Mahindra etc). Further, the regulator of the Indian mutual fund industry, SEBI (Security & Exchange Board of India) has introduced several new rules and changed existing rules (like abolition of entry load). The thesis will examine the implication, the prospects and challenges for the Indian mutual fund industry in the changed competitive landscape and regulatory framework. Mutual funds have been around for a long-time, dating back to the early 19th century. The first modern American mutual fund opened in 1924, yet it was only is the 1990s that mutual funds became mainstream investments, as the number of households owning them nearly tripled during that decade. With recent surveys showing that over 88% of all investors participate in mutual funds, youre probably already familiar with these investments, or perhaps even own some. In any case, its important that you know exactly how these investments work and how you can use them to your advantage. A mutual fund is a special type of a company that pools together money from many investors and invest it on behalf of the group, in accordance with a stated set of objectives. Mutual fund raise the money by selling shares of the fund to the public; much like any other company can sell stock in it self to the public. Funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investments vehicles, such as such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell

their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the security held by the fund. HOW IS MUTUAL FUND SET UP?

A mutual fund is a set up in the form of a trust, which has sponsor, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unit holders. Asset Management Company (AMC) approved by Securities Exchange board of India (SEBI) manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI regulations by the mutual fund. SEBI regulations require that at least two third of the directors of trustee company or board of trustees must be independent i.e., they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme. However, Units Trust of India (UTI) is not registered with SEBI (as on January 15, 2002). The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank. The history of mutual funds in India can be broadly divided into four distinct phases.

GROWTH IN ASSETS UNDER MANAGEMENT

MUTUAL FUND AS AN INVESTMENT OPTION: We have already mentioned that like all other investments in equities and debts, the investments in mutual fund also carry risk. However, investments through mutual funds are considered better due to the following reason: Your investment will be managed by professional financial manager who are in a better position to assess the risk profile of the investments. Your small investment cannot be spread into equity shares of various good companies due to high price of such shares. Mutual fund are in a much better position to effectively spread your investment across various sectors and among several products available in the market. This is called risk diversification and can effectively shield the steep slide in the value of your investment.

Types of Mutual Fund Scheme: Mutual fund schemes may be classified on the basis of its structure and its investment objective. Open-end Funds: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. The key feature of open-end schemes is liquidity.

Closed-end Funds: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exists route is provided to the investor. Net Asset Value: The performance of a particular scheme of a mutual fund is denoted by Net Asset Value (NAV). Mutual funds invest the money collected from the investors in securities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changes every day, NAV of a scheme also varies on dayto-day basis. The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme on any particular date. For example, if the market value of securities of a mutual fund scheme is Rs.200 lakhs and the mutual fund has issued 10 lakhs units of Rs.10 each to the investors, then the NAV per unit of the fund is Rs.20 NAV is required to be disclosed by the mutual funds on a regular basis daily or weekly depending on the type of scheme. The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value, represented by the ownership of one unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the per unit. We also abide by the same convention. NAV = (Total Assets Total Liabilities) / No. of Shares Outstanding What are the Types of Mutual Funds? Mutual funds can be classified based on their objectives as :

 Sector Equity Scheme Diversified Equity Scheme Hybrid Scheme Income Scheme Money Market Scheme

Sector Equity Scheme: These Schemes invest in shares of companies in a specific sector. This could be an industry or a group of industries or various segments such as A Group shares.

Diversified Equity Scheme: These Schemes invest in shares of companies across different Sector of the Economy.

Hybrid Scheme: These Schemes invest in a mix of share and fixed income instruments.

Income Schemes: These schemes invest in fixed income instruments such as bonds issued by corporate and financial institutions, and government securities.

Money Market Schemes: These schemes invest in short term instruments such as certificate of deposits, Treasury bill and short-term bonds.

ADVANTAGES OF MUTUAL FUND: Professional Management: Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own. Convenient Administration: Investing in a Mutual fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient. Return Potential: Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities. Low Costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors. Liquidity: In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closed-end schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund. Transparency: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the

proportion invested in each class of assets and the fund managers investment strategy and outlook. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience. Affordability: Investors individually may lack sufficient funds to invest in highgrade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. Choice of Schemes: Mutual Funds offer a family of schemes to suit your varying needs over a lifetime. Well Regulated: All Mutual funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI. Future Scenario: The asset base will continue to grow at an annual rate of about 30 to 35% over the next few years as investors shift their assets from banks and other traditional avenues. Some of the older public and private sector players will either close shop or be taken over. Out of ten public players five will sell out, close down or merge with stronger players in three to four years. In the private sector this trend has already started with two mergers and one takeover. Here too some of them will down their shutters in the near future to come. But this does not mean there is no room for other players. The market will witness a flurry of new players entering the arena. There will be a large number of offers from various asset management companies in the time to come. Some big names like Fidelity, principal, and Old Mutual etc., are looking at Indian market seriously. One important reason for it is that most major players already have presence here and hence these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in India as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value (NAV). SEBI is working out the norms for enabling the existing mutual fund schemes to trade in derivatives. Importantly, many market players have called on the Regulator to initiate the process immediately, so that the mutual funds can implement the changes that are required to trade in Derivatives. Growth of the Mutual Fund Industry in India While the Indian mutual fund industry has grown in size by about 320% from March, 1993 (Rs.470 billion) to December, 2004 (Rs. 1505 billion) in terms of AUM, the AUM of the sector excluding UTI has grown over 8 times from Rs. 152 billion in March 1999 to Rs. 1295 billion as at December 2004 (Sec Chart 1). Mutual Fund Structure The SEBI (Mutual Funds) Regulations 1993 define a mutual fund (MF) as a fund established in the form of a trust by a sponsor to raise monies by the Trustees through the sale of units to the public under one or more schemes for investing in securities in accordance with these regulations. These regulations have since been replaced by the SEBI (Mutual Funds) Regulations, 1996. The structure indicated by the new regulations is indicated as under. A mutual fund comprises four separate entities, namely sponsor, mutual fund trust, AMC and custodian. The sponsor establishes the mutual fund and gets it registered with SEBI. The mutual fund needs to be constituted in the form of a trust and the instrument of the trust should be in the form of a deed registered under the provisions of the Indian Registration Act, 1910. The sponsor is required to contribute at least 40% of the minimum net worth (Rest, 10 cores) of the asset management company. The board of trustees manages the MF and the sponsor executes the trust deeds in favour of the trustees. It is the job of the MF trustees

to see that schemes floated and managed by the AMC appointed by the trustees are in accordance with the trust deed and SEBI guidelines. Banks V/s Mutual Funds

BANKS Returns Low Administrative exp.High Risk Low Investment options Less Network High penetration Liquidity At a cost Quality of assets Not transparent Interest calculation Minimum balance between 10th. & 30th. Of every Guarantee month Maximum Rs. 1 lakh on deposits

MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent Everyday None

COMPANY PROFILE

INTRODUCTION:
ICICI Prudential Life Insurance Company is a joint venture

between ICICI Bank, a premier financial powerhouse and Prudential plc, a leading international financial services group headquartered in sector insurance companies to begin operation in December 2000 after receiving approval from Insurance Regulatory Development Authority(IRDA).

ICICI Prudentials equity base stands at RS.9.25 billon with ICICI Bank and prudential plc holding 74% and 26% stake respectively. In the financial year ended March 31, 2005,the company garnered RS 1584 Core and wrote nearly 615000 polices. The company has a network about 56000 advisors; As well as 7 bank assurance and 150 corporate agent tie ups. For the post four years, ICICI prudential has retained its position as the no 1 Private Life Insurer in the country, with a wide range of flexible products that meet the needs of the Indian customer at every step in life

VISION

Our vision: To make ICICI prudential the dominant Life and pensions player built on trust by world class people and service. This we hope to achieve by: Under the needs of customers and offering them superior products and services. Leveraging technology to service customers quickly, efficiently and conveniently. Developing and implementing superior risk management and investment strategies to offer sustainable and stable returns to our policy holder. Providing an enabling environment to foster growth and learning for our employees. And above all, building transparency in all our dealings.

The success of the company will be founded in its unflinching commitment to 5 core values Integrity, customer first, Boundary less, Ownership and passion. Each of the values describe what the company stands for, the qualities of our people and the way we work. We do believe that we are on the threshold of an exciting new opportunity, where we can play a significant role in redefining and reshaping the sector. Given the quality of our parentage and the commitment of our team, there are no limits to our growth.

THE COMPLETE BANK ICICI Bank

ICICI Bank (NYSE:IBN) is Indias second largest bank with an asset base of RS.106812 core. 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 growing customer base of more than 7 million customer accounts and 5 million bondholders 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 core 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 Moodys and the only Indian company to be awarded an investment credit rating. The Bank enjoys the highest AAA (or equivalent) rating from all leading Indian rating agencies.

Prudential plc Established in 1848, prudential plc is a leading international financial services company in the UK, with around US$250 billion funds under management, and more than 16 million customers worldwide. Prudential has brought to market an integrated range of financial services products that now includes life assurance, pensions, mutual funds, banking, investment management and general insurance. In Asia, prudential is UKs largest life insurance company with a vast6 network of 22 life and mutual fund operations in twelve countries China, Hongkong, India, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, Taiwan, Thailand and Vietnam. Since 1923, prudential

has championed customer centric products and services, supported by over 60,000 staff and agents across the region.

Distribution: ICICI prudential has one of the largest distribution networks amongst private life insurance in India, having commenced operations in 69 cities and towns in India, they are Agra, Ahmadabad, Ajmer, Alahabad, Amrutsar, Aurangabad, Bangalore, Bareilly, Bhatinda, Bhopal, Bhuvaneshwar, calicut, chandigarh, Chennai, coimbatore, Dehradun, Durgapur, Faridabad, Goa, Guntur, Gurgoan, Guwahati, Hyderabad, Hubli, Indore, Jaipur, Jalandhar, Jamnagar, Jamshedpur, Jodhpur, Kanpur, Karnal, Kochi, Kolkata, Kolhapur, Kota, Kottyam, Lucknow, Ludhiana, Madurai, Mangalore, Meerut, Mumbai, Mysore, Nagpur, Nasik, Nodia, New Delhi, Patiala, Pune, Raipur, Rajkot, Ranchi, Rourkela, Simla, Siliguri, Surat, Thane, Thrissur, Trichy, Trivandrum, Udaipur, Vadodara, Vapi, Varanasi, Vashi, Vijayawada and Vizag. The company has seven bank assurance tie-ups, having agreements with ICICI Bank, Federal Bank, south Indian Bank, Bank of India, Lord Krishna Bank and some cooperative banks, as well as over 160 corporate agents and brokers. It has also tied up with organizations like Dhan for distribution of salaam Zindagi, a policy for the socially and economically underprivileged sections of society. ICICI prudential has recruited and trained about 50,000 insurance Advisors to interface with and advice customers. Further, it leverages its state-of-the-art IT infrastructure to provide superior quality of service to customer PRODUCTS

Saving plans Child plan Protection plan Retirement plan

ICICI prudential life insurance offers a range of innovative, customer-centric products that meet the ends of customer at every life stage. Its 20 products can be Enhanced with up to 6 riders, to create a customized solution for each policyholder.

Savings Solutions Secure plus is a transparent and feature-packed savings plan that offers 3 levels of

protection. terms. Protection plan: We all hope to live a full life till a ripe old age to ensure our childerns sustenance and healthy growth. But if a sudden disability or illness strikes? Besides the grief and the plan, such an event also completely disrupts life for all the people who are financially Cash plus is a transparent, feature-packed savings plan that offers 3 levels of Save and protect is a traditional endowment savings plan that offers life protection Invest Shield Gold is a Market linked plan that provides capital guarantee on the

protection as well as liquidity options. along with adequate returns. invested premiums and declared bonus interest along with limited premium payment

dependent on us. Our life insurance policies offer a comprehensive range of protection benefits. Life Guard- A low cost of high protection plan that offers protection over a

specified period. Riders- Additional benefits that one can add on to the policy. The rider can be opted

for at the time of talking the basic policy. Additional premium is charged for each rider. An insurance policy can be tailor made to provide protection to you and your loved ones. If something were to happen to you, it can help:

Safeguard your better half: ensure lifes continuity for your loved one. Dear and Near ones: ensure your childrens education continues undisrupted. Un for seen circumstances: bear the cost of fighting an illness, disability, etc.

Child plan: As a responsible parent, you will always ensure a hassle-free, successful life for your child. However, life is full of uncertainties and even the best laid plans go wrong. Heres how you give your child a 100% safe and assured tomorrow, whatever the uncertainties. Smart kid child plans are designed to provide flexibility and to safeguard your childs future education and lifestyle, taking all possibilities into account.

Presenting Smart Kid Child plans. Leave nothing to chance Smart Kid Child plans offers three products: Unit-Linked Regular Premium II Unit Linked Single Premium II Regular Premium Smart Kid.

Retirement Plan: Most of you picture yourselves enjoying the fruits of labor after retirement, going on your dream vacation, or helping your childrens career take wing. But do you realize that financing all this will most likely depend partly on your personal saving? Because personal savings and investment represent a significant source of retirement income for many people, you can never save too much. Currently you are at a stage where you are juggling many roles, as nurturing parents, dutiful caregivers to elders, supportive life partners, while trying to maintain a career. It is too easy to get carried away handling and solving the day-to-day problems to not look into your retirement need. It may also seem too far away to be of concern. But a look at the issues below will make the need for some strategic planning at this stage amply clear. Today, thanks to a healthier lifestyle and advances in medicine, the average Indian lives longer. This makes the challenge of accumulating enough money for retirement even more difficult, since it may have to last longer. Also, with the falling interest rate

scenario and the raising costs of medical expenses retirement means monetary uncertainty for most of us. More so, because there is also the ever-persistent evil of inflation, which erodes your purchasing power. Therefore, the message is simple-put time on your sides and start Early. We, at ICICI prudential life insurance believe in the philosophy of providing meaningful and comprehensive insurance solutions to plan your retirement. Our insurance are the most optional tools to plan your retirement because they give you safety, Liquidity, Tax benefits, Health cover and life protection and thus ensure that you are comprehensively covered. ICICI prudential presents Retirement solutions that combine the best of investment and insurance. These solutions are developed to ensure your peace of mind for the years to come. Solutions that give you the power to maintain your lifestyle need for as long as you live. Life Time Pension II: A regular premium linked deferred pension plan that gives you the freedom to choose the amount of premium, and invest in market-linked funds, to generate potentially higher returns. Secure plus pension: A regular premium deferred pension plan that gives you the flexibility to choose between 3 levels of sum assured for the same level of total annual contribution. Life Link Pension II:

A single premium linked deferred pension plan that gives you the freedom to choose the amount of premium, and invest in market-linked funds, to generate potentially higher returns. Forever Life: A regular premium deferred pension plan that helps you save for your retirement while providing you with life insurance protection. Depending on you specific need our retirement solutions give you the: o o o o o o o Power to choose the retirement date Power to choose the potential level Power to increase your investments Power to investment in a plan based on your priorities Power to receive you pension in 5 different ways Power to choose your annuity provider Power to add-on flexible riders at a nominal extra premium

MANAGEMENT

Board of Directors The ICICI prudential Life Insurance Company Limited Board comprises reputed people from the finance industry both from India and abroad. Mr.K.V.Kamath, Chairman Mr.Mark Norbom Mrs. Lalita D. Gupta

Mrs.Kalpana Morparia Mrs. Chanda Kochnar Mr.Kevin Holmgren Mr.M.P. Modi Mr.R.Narayanan Ms.Shikha Sharma, Managing Director Management Team Ms. Shikha Sharama, Managing Director Mr. Sandeep Batra, Chief Financial Officer & Company secretary Mr. Shubhro J. Mitra, Chief Human Resources Mr. Puneet Nanda, Head-Investments Ms. Anita Pai, Chief customer Service and Operatio

Chapter IV

DATAANALYSIS AND INTERPRETATION:

Portfolio Analysis of Reliance Growth Fund (As on 30th Nov 2007) Reliance Asset Management Company Ltd. Reliance mutual fund, promoted by the Anil Dhirubhai Ambani (ADAG) group, is one of the fastest growing mutual funds in India having doubled its assets over the last one year. In March, 2006, the Reliance mutual fund emerged as the largest private sector fund house in the country, overtaking Prudential ICICI which has been holding that position

for many years. As of end August 2006, Reliance mutual fund has Rs 28,753 crore of assets under management. Reliance Equity Fund, launched by Reliance MF in early 2006, is the largest mutual find scheme in the country with a fund size of over Rs 5,500 crore. Investment Category: Open Ended Equity Growth Scheme Investment Objective: The scheme aims at long term growth of capital through research based investment approach. The funds will be invested in Equity and equity related instruments, and there will be an exposure to debt and money market instruments also. Investment Style:

Selection of stocks would be dependent on blend potential specially in Mid Cap space in the given segment. Selective Exposure to Large Cap continuously reassessing valuations and accordingly adjusting the portfolio.

Date of Allotment Fund Managers Fund Size

: 25th September, 1995 : Sunil Singhania : Rs. 3555.73 Crore

Minimum Application Amount Resident Indians: Non-Resident Indians: Loading Charges Maximum Entry Load: Maximum Exit Load : 2.00% Nil Rs.5000 Rs.5000

15.33%

Debt, Derivatives & Call Asset Allocation

Equity

Portfolio Characteristics (As on 30/11/07) Average Mkt Cap (Rs Cr) Market Capitalization Giant 4,447.19 % of Portfolio

13.01 Large Mid 14.89 47.36

Plan and Options Growth Plan Growth & Bonus options Dividend Plan Dividend Payout & Re-investment Options

Bench Mark Top 10 Holdings

: BSE Sensex

Company Other Equities JSW Steel Ltd. Reliance Industries Ltd. Bharat Earth Move Divas Lab Lupin Jaiprakash Associates Ltd. Cambridge Solution Reliance Communication Who can invest in this scheme?

Nature EQ EQ EQ EQ EQ EQ EQ EQ EQ

% Hold 18.68 5.07 3.65 3.40 3.06 2.90 2.06 2.03 2.01

Individuals NRI Association of Persons Partner Ship Firm Societies OCBs Minors Company Trust FIIs

Sector Allocation

13.02 Metals & Metal Products Energy Health Care Technology 6.36 Chemicals 4.53 Basic/Engineering Financial Services Services Automobile Diversified FMCG Textiles 7.18 6.71 6.47

4.52 4.18 3.52 3.44 2.55 1.49

From the portfolio facts of the Reliance Growth Fund it is clear that the asset allocation pattern of the fund is to invest 85%-100% in Equities and up to 15% in debt and derivative instruments or other assets. Out of its total investment fund manager in equities it has invested around 3.65% of its total assets in its own company i.e. Reliance Industries Ltd. and followed by Bharat Earth Movers. The fund manager was concentrating mainly in the sectors such as Steel, Pharmaceuticals, Technology, and Textiles etc. The fund manager has a selective exposure to Large Cap, continuously reassessing valuations and accordingly adjusting the portfolio.

From the above chart we can say that in compare to the scheme category the Reliance Growth Fund has been giving comparatively good return. Even when scheme has given negative return as a whole it has also given negative but lesser than scheme due to its efficiency. Last 5 years, as a whole Equity Diversified scheme has given return of 42.18% where as the fund has given 60.49% of return. Last 3years, the scheme has given 40.10% of return whereas the fund has given 83.22% of return, last 2 years the scheme has given 40.59% of return as a whole but the fund has given 111.645 of return. This is

due to the fund managers efficiency in forecasting the time and the sectors where he invested the money. But in last 1 year the fund has not performed well due to market fall. But recently in last 6 months it again recovered from that & return reached up to 6.87% than of schemes return of 6.36%. Performance (Return %) of the scheme as on 30th Nov 07

So, from the above graph we can observe that this fund has been giving good return during last 2 & 3 years compare to the SENSEX return. This is due to fund managers efficiency in investing to the growth sectors like IT, Healthcare, Metal, Energy etc. During this time frame the fund gave the return of 83.32% & 111.64% respectively in compare to SENSEX return of 50.90% & 97.90% respectively. But during last 1 year time period due to fall in the price of the specific sector, the fund has given lower return (12.96%) than the SENSEX return (15.90%) which resulted the fall in the value of the overall portfolio in the market. Analyst Review about this fund RELIANCE Growth Fund is a mid-cap focused fund that can provide a kicker to your returns; but it comes with a fairly high risk profile. The fund has consistently made the best of bull markets, with an aggressive investment strategy that milks the potential of momentum stocks. Investors with a penchant for risk can consider adding the fund to their portfolio, as it has consistently demonstrated the ability to deliver market- and competition-beating returns, especially in buoyant market conditions. But its investment style and mid-cap focus could make for volatile returns. Therefore, it may be advisable to limit it to a small portion of your portfolio. It should not be the only equity fund you invest in and may be unsuitable for first-time investors in equity funds. Mid-cap stocks with a market capitalizations ranging from Rs 1,000 to Rs 5,000 crore make up the bulk of the Reliance Growth Fund's portfolio. The fund adheres roughly to a

70:30 mix between mid-cap and large-cap stocks. Its stock choices are adventurous and unconventional. The fund seems to follow an investment approach that focuses on individual stocks, rather than on sectoral allocations. At times, this leads to concentrated exposures to select sectors. In recent months, for instance, the portfolio has been overweight in capital goods stocks, the sector accounting for 21 per cent of assets by April-end. The fund's performance record is impressive. Over a five-year period, it has delivered a substantial out-performance of the CNX Midcap 200 index. This is an impressive record because the CNX Midcap 200 has been a much more difficult index to beat than Sensex or Nifty. Reliance Growth Fund has managed a 27 per cent compound annual return on its NAV since January 2000, compared to the Midcap 200's returns of 20 per cent. On a year-to-year basis, the fund's performance has been impressive in bullish phases, but not very consistent. Reliance Growth Fund figured among the top performing equity funds in 2010, 2009 and 2010 years when the market was in a buoyant or a bullish phase. In the bear markets of 2007 and 2010, the fund shed considerable value and lagged a number of its peers. The track record makes the fund unsuitable for a conservative investor interested in containing downside risk. Portfolio Analysis of Prudential ICICI Dynamic Plan (As on 30th Nov, 2010) Prudential ICICI Asset Management Company Limited Prudential ICICI Mutual Fund is the largest private sector mutual fund in India with assets of over Rs.34,119 crore under management as of Aug 2010. The asset management company, Prudential ICICI Asset Management Company Limited, is a joint venture between Prudential Plc, Europe's leading insurance company and ICICI Bank, India's premier financial institution.

Prudential Plc holds 55 per cent of the asset management company and the balance by ICICI Bank. In a span of just over six years, Prudential ICICI Asset Management Company has emerged as one of the largest asset management companies in the country. Investment Category Investment Objective : Open Ended Equity Growth Scheme : The scheme aims to invest primarily in equities and for

defensive consideration in fixed income securities including money market instruments with the aim of generating capital appreciation. The actual percentage of investments in will be decided after considering the prevailing market and economic condition Investment Style

Selection of Stocks would be dependent upon growth potential in the given segment. The choice of stocks is restricted to those companies with large market capitalization between 2500-5000 crores. The top 10 holders of the fund are holding around 56.66% of net assets of the fund. Date of Allotment Fund Managers Fund Size Application Amount Minimum Investment: Rs. 5000 Subsequent Investment: Rs. 500 Minimum Withdrawal : Rs. 500 : 31st October, 2010 : Sankaran Naren : Rs. 2218.23 crores

Minimum Balance Loading Charges:

: Rs. 5000

Entry Load: 2.25 % for investment up to Rs. 4.999 Cr. Exit Load Options : : Nil

Growth option Dividend option

FINDINDS

FLEXIBILITY: investors also benefit from the convenience and flexibility offered by mutual funds . investors can switch their holdings from debt to equity scheme and vice versa.

 TAXBENIFITS: many of the mutual funds offer the benefits of tax exemption to the investors.

STABILITY: the investors having from mutual funds because the total investments of money they should not invest total amount, they invest some money in government bonds.

EXPENSES: cost control not in hands of investors, investor has to pay invest management fee and fund distribution costs as a percentage of the value of is investments irrespective if the performance of the fund.

SUGGESTIONS
Mainly the mutual funds are managed by professionals so from them the investors will get good returns with less risk, then the investors know the performance of mutual funds.

Investors who wan t good returns with in few years its better to invest in mutual funds and they better to use Sharpemodel , and Treynormodel.

The share market change directions quickly ,it is not occur in mutual funds.

CONCLUSION
As my part of my study it has been understood that how market has been performing since last few financial years what are up and downs and why . I have also analyzed briefly the mutual fund industry in India , growth pattern , the schemes available to invest for a investor and future possibilities , potential growth etc.