CHAPTER - 1

INTRODUCTION

1.1 PURPOSE

In todays scenario movement in stock market affect the growth of the economy to a large extent. Stock market moves in response to the investment made by the investors in various financial instruments. But as the investment in various instruments involves the risk, more people are not ready to invest in the market. But in order to fasten the growth of the economy more and more money should be channelised into the market. This requires that the people must be provided with such a financial instrument which balances their risk and return. Mutual fund units are one of the share market instrument which minimizes risk and provide a good return. All we need to do is to spread the awareness among investors about mutual fund to foster the growth of economy. 1.2 OBJECTIVES The objectives of research are as follows To study the various type of mutual funds related with individual needs and wants To know how the mutual funds earn profit by providing various types of portfolio management. The basic purpose is to know about the mutual funds industry and to know the behavior of the Indian investors regarding different investment tools. To know the awareness of mutual funds among different groups of investors.

1.3 RESEARCH METHODOLOGY Every project work is based on certain methodology, which is a way to systematically solve the problem or attain its objectives. It is a very important guideline and lead to completion of any project work through observation, data collection and data analysis. Accordingly, the methodology used in the project is as follows: Defining the objectives of the study Create a framework keeping objectives in mind Collecting the data. Analysis of data

Conclusion, findings and suggestions.

1.3.1 RESEARCH DESIGN The nature of research is descriptive. This research covers the nature of mutual fund firms and how they provide benefit to small and medium investor and it also incorporates the way of earning profit by investing indirectly in stock market that those who have less time and money. The research tries to describe the functioning of mutual fund industries. 1.3.2 DATA COLLECTION Primary data As the research is descriptive in nature concerning with different types of Mutual Fund are the requirement of investors. Primary data collected for my project by the questionnaires and personal interaction with the existing mutual fund investors and prospective investors. Secondary data To obtain secondary data I have used following sources. Business today Websites Economic times

1.3.3 SAMPLING 1.3.3.1 Sampling units The sampling units for my project were the existing mutual fund investors . 1.3.3.2 Sampling size The sampling size for my project was 150.

1.3.3.3Sampling method

Since the chance of any particular unit in the population being selected is unknown so I have used non-probability sampling. I have used convenience sampling. Significance The highlight of my project is to examine the importance and growth of mutual funds and evaluate the operations of mutual funds. Small investors face a lot of problems in the share market, limited resources, lack of professional advice, lack of information etc. Mutual funds have come as a much needed help to these investors. It is a special type of institutional device or an investment vehicle through which the investor pool their savings which are to be invested under the guidance of a team of experts in wide variety of portfolios of Corporate securities in such a way, so as to minimize risk, while ensuring safety and steady return on investment.

1.3.4 LIMITATIONS This project is limited in scope as the survey is conducted with a shortage of time. The answer given by the respondents may be biased. Due to several reason or could be attached to a particular bank or brand. Due to ignorance factor some of the respondents were not able to give correct answers. The respondents were not disclosing their exact portfolio because they have a fear in their minds that they can come under tax slabs.

CHAPTER - 2 LITERATURE REVIEW

2.1 LITERATURE REVIEW

Literature on mutual fund performance evaluation is enormous. A few research studies that have influenced the preparation of this paper substantially are discussed in this section. Sharpe, William F. (1966) suggested a measure for the evaluation of portfolio performance. Drawing on results obtained in the field of portfolio analysis, economist Jack L. Treynor has suggested a new predictor of mutual fund performance, one that differs from virtually all those used previously by incorporating the volatility of a fund's return in a simple yet meaningful manner. Michael C. Jensen (1967) derived a risk-adjusted measure of portfolio performance (Jensens alpha) that estimates how much a managers forecasting ability contributes to funds returns. As indicated by Statman (2000), the e SDAR of a fund portfolio is the excess return of the portfolio over the return of the benchmark index, where the portfolio is leveraged to have the benchmark indexs standard deviation. S.Narayan Rao , et. al., evaluated performance of Indian mutual funds in a bear market through relative performance index, risk-return analysis, Treynors ratio, Sharpes ratio, Sharpes measure , Jensens measure, and Famas measure. The study used 269 open-ended schemes (out of total schemes of 433) for computing relative performance index. Then after excluding funds whose returns are less than risk-free returns, 58 schemes are finally used for further analysis. The results of performance measures suggest that most of mutual fund schemes in the sample of 58 were able to satisfy investors expectations by giving excess returns over expected returns based on both premium for systematic risk and total risk. Bijan Roy conducted an empirical study on conditional performance of Indian mutual funds. This paper uses a technique called conditional performance evaluation on a sample of eighty-nine Indian mutual fund schemes .This paper measures the performance of various mutual funds with both unconditional and conditional form of CAPM, Treynor-Mazuy model and Hendrickson-Merton model. The effect of incorporating lagged information variables into the evaluation of mutual fund managers performance is examined in the Indian context. The results suggest that the use of conditioning lagged information variables improves the performance of mutual fund schemes, causing alphas to shift

towards right and reducing the number of negative timing coefficients. Mishra (2002) measured mutual fund performance using lower partial moment. In this paper, measures of evaluating portfolio performance based on lower partial moment are developed. Risk from the lower partial moment is measured by taking into account only those states in which return is below a prespecified target rate like risk-free rate. Kshama Fernandes(2003) evaluated index fund implementation in India. In this paper, tracking error of index funds in India is measured .The consistency and level of tracking errors obtained by some well-run index fund suggests that it is possible to attain low levels of tracking error under Indian conditions. At the same time, there do seem to be periods where certain index funds appear to depart from the discipline of indexation. K. Pendaraki et al. studied construction of mutual fund portfolios, developed a multi-criteria methodology and applied it to the Greek market of equity mutual funds. The methodology is based on the combination of discrete and continuous multi-criteria decision aid methods for mutual fund selection and composition. UTADIS multi-criteria decision aid method is employed in order to develop mutual funds performance models. Goal programming model is employed to determine proportion of selected mutual funds in the final portfolios. Zakri Y.Bello (2005) matched a sample of socially responsible stock mutual funds matched to randomly selected conventional funds of similar net assets to investigate differences in characteristics of assets held, degree of portfolio diversification and variable effects of diversification on investment performance. The study found that socially responsible funds do not differ significantly from conventional funds in terms of any of these attributes. Moreover, the effect of diversification on investment performance is not different between the two groups. Both groups underperformed the Domini 400 Social Index and S & P 500 during the study period. Source: - www.moneycontrol.com

CHAPTER - 3 COMPANY: AN OVERVIEW

3.1 COMPANY PROFILE Sharekhan is one of leading retail brokerage firms in the country. It is the retail broking arm of the Mumbai- based SSKI Group, which has over eight decades of

experience in the stock broking business. Sharekhan offers its customers a wide range of equity related services including trade execution on NSE, BSE, Derivatives, depository service, online trading, investment advice etc. Sharekhan has been awarded as the most preferred brokerage house for the year 2004 by CNBC-Awaaz. The firms online trading and investment site www.sharekhan.com was launched on Feb. 8, 2000. The site gives access to superior content and transaction facility to retail customers across the country. Known for its jargon-free, investor friendly language and high quality research, the site has registered base of over 1 lakh customers. The number of trading members currently stands at over 50,000. While online trading currently accounts for 22 per cent of the volumes traded online. The content-rich and research oriented portal has stood out among its contemporaries because of its steadfast dedication. The objectives has been to let customers make informed decisions and to simplify the process of investing in stocks. On April 17, 2002 Sharekhan launched Speed trade; a net- based executable application that emulates the broker terminals along with host of other information relevment to the day traders. This was for the first time that a net-based trading station of this caliber was offered to the traders. In the last six months speed trade has been become a de facto standard for the Day trading community over the net. Sharekhans ground network includes over 250 centers in 123 cities in India, of which 20 are fully-owned branches. Sharekhan has always believed in investing in technology to build its business. The company has used some of the best-known names in the IT industry, like sun Microsystems, oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette, revising, financial technologies India Ltd, spider software PVT. Ltd. to build its trading engine and content. The mariachi family holds a majority stake in the company. HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group ventures into institutional broking and corporate finance 18 year ago. Presently SSKI is one of the leading players in institutional broking and corporate finance activities. SSKI hold a sizeable portion of the market in each of these segments. SSKIs institutional broking arm accounts for 7% of the market for foreign institutional portfolio investment and 5% of all domestic institutional portfolio investment in the country. It has 60 institutional clients spread over India, Far East, UK and US. Foreign institutional investors generate about 65% o0f the organizations revenue. With a daily turnover of over US$ 2 million. The corporate finance section has a list of very prestigious clients and has many first to its credit, in terms of the size of deals, sector tapped etc. the group has placed over US$ 1billion in private equity deals. Some of the clients include BPL cellular holding, Gujarat Pipavav, essar, Hutchison, planet Asia, and shoppers.

3.1.1 SHAREKHAN, WHO? SHAREKHAN, WHAT We reckon such questions generally come to the uninitiated, and perhaps that's why you're here on this page in the first place!

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SSKI, a veteran equities solutions company with over 8 decades of experience in the Indian stock markets. If you experience our language, presentation style, content or for that matter the online trading facility, you'll find a common thread; one that helps you make informed decisions and simplifies investing in stocks. The common thread of empowerment is what Sharekhan's all about! Sharekhan is also about focus. Sharekhan does not claim expertise in too many things. Sharekhan's expertise lies in stocks and that's what he talks about with authority. So when he says that investing in stocks should not be confused with trading in stocks or a portfolio-based strategy is better than betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets. And these beliefs are reflected in everything Sharekhan does for you! To sum up, Sharekhan brings to you a user- friendly online trading facility, coupled with a wealth of content that will help you stalk the right shares. Those of you who feel comfortable dealing with a human being and would rather visit a brickand-mortar outlet than talk to a PC, you'd be glad to know that Sharekhan offers you the facility to visit (or talk to) any of our share shops across the country. In fact Sharekhan runs India's largest chain of share shops with over hundred outlets in more than 80 cities! What's a share shop? How do you locate a share shop in your city? Hit this link to find out.

3.1.2 REASONS TO CHOOSE SHAREKHAN.COM When beginning your foray in investing in shares, you need a lot of things - from the right tools and the right information at your disposal, to assistance when you need it and advice on investing. We've been in this business for over 80 years now, and with us you get a host of

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services and tools that are difficult to find in one place anywhere else. The Sharekhan First Step program, built specifically for new investors like you, is testament to our commitment to being your guide throughout your investing lifecycle. Experience SSKI has more than eight decades of trust and credibility in the Indian stock market. In the Asia money brokers poll held recently, SSKI won the Indias best broking house for 2004 award*. Ever since it launched Sharekhan as its retail broking division in February 2000, it has been providing institutional- level research and broking services to individual investors. Technology With our online trading account you can bye and sell shares in an instant from any pc with a internet connection. You will get access to our powerful online trading tools that will help you take complete control over your investment in share. Accessibility Sharekhan provides ADVICE, EDUCATION, TOOLS AND EXECUTION services for investors these services are accessible through our centers across the country (over 250 locations in 123 cities) over the internet (through the website www.sharekhan.com ) as well as over the Voice TOOL. Knowledge In a business where the right information at the right time can translate into direct profits, you get access to a wide range of information on our content- rich portal, Sharekhan.com. You will also get a useful set of knowledge-based tools that will empower you to take informed decisions. Convenience You can call our Dial-N-Trade number to get investment advice and execute your transaction. We have a dedicated call center to provide this service via a toll free number from anywhere in India.

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3.1.3 SERVICES PROVIDED BY SHAREKHAN Chart-3.01 Services by Sharekhan

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(SOURCE: HTTP://WWW.SHAREKHAN.COM/SERVICES/)

3.1.3 SERVICES BY SHAREKHAN 3.1.3.1 Customer Service 14

Sharekhan, one of India's leading brokerage houses, is the retail arm of SSKI. With over 510 share shops in 170 cities, and India's premier online trading portal www.sharekhan.com, our customers enjoy multi-channel access to the stock markets. Sharekhan provides facility for online trading in Equities, IPO and Futures and Options, Mutual Fund trading and Commodity trading. Further Sharekhan provides the facility for the Portfolio management services. We provide market based recommendations for equities and futures and options via E mail, SMS and over the phone (Dial-N-Trade). Information of the various companies and corporate actions of the companies are available on our website. We also provide the contract note for the trades done on daily basis. For further queries you may contact our Customer Service Number 1800227500, 022-66621111 or 39707500, you can even access the link "Chat" and chat with our executive for your online query from Monday to Friday between 10.00 a.m. to 5.00 p.m. or you may revert to us via e-mail and we shall assist you accordingly. 3.1.3.2 Investment Advice Sharekhan has dedicated research team for fundamental and technical research. Our analysts constantly track the pulse of the market and provide timely investment advice to you in the form of daily research emails, online chat, printed reports and SMS on your phone. The power of compounding is what makes investing in stocks very attractive. In very simple terms it means that the returns on the principal earn returns too. In other words, Rs100 that earns mere returns of 15% per annum becomes Rs250 in ten years whereas Rs100 compounding at 15% per annum turns out to be Rs405 in ten years! As you stretch the time horizon, your money appreciates further. Compounding at 15% per annum Rs100 becomes Rs405 in ten years, Rs810 in 15 years and Rs1, 640 in 20 years. Hence the longer the duration of investment, the better are the returns. For instance, if you had invested Rs1, 000 in HLL in March 1990, it would have been worth Rs40, 000 in March 2001, i.e. it would have increased 40 times in 11 years.

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3.1.3.3 New To Investing In Shares Have you been wondering about how all this works? Well, you don't need to fret any more - the Sharekhan First Step is a brand new program designed especially for those who are new to investing in shares. All you have to do is open a Sharekhan First Step account and we'll guide you through the investing process. 3.1.3.4 Sharekhan as Your Guide Been in the business for over 80 years, Sharekhan can provide you with the assistance and the advice like no one else could. We've created special information tools for you, to help answer any queries you may have. All you have to do is sign up to receive all the tools you need to understand the markets and invest in shares! From the right tools and right information at your disposal to the host of services besides training, you can trust Sharekhan to be your true guide to the financial jungle. 3.1.4 Benefits Secure order by voice tool n- trade. Automated portfolio to keep track of the value of your actual purchases. 24x7 voce tool access to your trading account. Personalized price and account alert delivered instantly to your cell phone and email address. Special personal inbox for and order and trade conformations. Online customer service via web chat. Any time ordering.

3.1.5 BASIC SERVICES 3.1.5.1 Opening a DP account with Sharekhan

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You can open a Depository Participant (DP) account, either through a Sharekhan branch or through a Sharekhan Franchisee center. There is no fee for opening DP accounts with Sharekhan. However a nominal deposit (refundable) is charged towards services which will be adjusted against all future billings.

All investors have to submit their proof of identity and proof of address along with the prescribed account opening form. Proof of identity: You can submit a copy of Passport, Voters ID card, Driving license or PAN card with photograph Proof of address: You can submit a copy of Passport, Voters ID card, Driving license, PAN card with photograph, Ration card or Bank passbook as proof of address. You must remember to take original documents to the DP for verification.

Passport-size photograph. The above are mandatory requirements as per Securities and Exchange Board of India.

3.1.5.2 Dematerialization Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in his account with the DP. Features: Holdings in only those securities that are admitted for dematerialization by National Securities Depository Ltd (NSDL) can be dematerialized. Structure of holding in the securities should match with the account structure of the depository account. Now shares in different order of names can also be demitted. If the shares are in the name of X and Y, the same cannot be dematerialized into the account of either X or Y alone. However if the shares are in the name of X first and Y second, and the account is in the name of Y first and X second, then these shares can be dematerialized in this account. Only those holdings that are registered in the name of the account holder can be dematerialized. Physical shares which have not been transferred and are still there with a

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transfer deed cannot be demitted. Only a few companies have been given the permission to offer Transfer-cum-Demat. The list of these companies can be viewed here.

3.1.5.3 Rematerialisation Rematerialisation is the process by which a client can get his electronic holdings converted into physical certificates. The client has to submit the rematerialisation request to the DP with whom he has an account along with a Demat request form. The physical shares will be posted by the company directly to the clients. 3.1.5.4 Trades For all sales made by clients, the shares will have to be given to the broker, so that the Pay In can be made by the broker to the stock exchange concerned. For that it's essential that the shares be transferred to the account of the broker well before the deadline date. You must confirm with your broker the settlement date and settlement number and then submit your instructions to your DP. Also it's important to give the instructions to your DP as early as possible.

3.1.6 PRODUCTS 3.1.6.1 Commodities The process of economic liberalization in India began in 1991. As part of this process, several capital market reforms were carried out by the capital market regulator Securities and Exchange

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Board of India. One such measure was to allow trading in equities-based derivatives on stock exchanges in 2000. This step proved to be a shot in the arm of the capital market and volume soared within three years The success of the capital market reforms motivated the government and the Forward Market Commission (the commodities market regulator) to kick off similar reforms in the commodities market. Thus almost all the commodities were allowed to be traded in the futures market from April 2003. To make trading in commodity futures more transparent and successful, multi-commodity exchanges at national level were conceived and were allowed to start future trading in commodities online. A lot of water has flown since then. Today commodities exchanges have become an integral part of Indian financial system. Their volumes have gone through the roof; from a humble Rs 5000 crores in 2003 today it stands north of Rs 27 lakh crores per year. This rise in volumes has been led by bullion (gold and silver) trading. Simultaneously, MCX has emerged as the second largest commodity exchange in the world in terms the number of silver contracts traded. Similarly it is the third largest commix in the world today considering the number of gold contracts traded. There is yet another feather in the cap of Indian commixes; while the American commixes still continue to have open outcry system, Indian ones have begun in style, with every aspect of trading fully computerized. Thus you have trading engines which match buy and sell orders at the nanosecond basis. Coming to commodities, today Indian investors can trade in a great number of commodities on these bourses, and the list is getting bigger by the day. No wonder then that the commodity futures market is being viewed as a significant business segment by many businessmen, investors, institutions, brokers, banks et al. In spite of all this flurry of activity during past threefour years, the awareness about commodities remains low. Many investors are still not aware that they can invest in commodities as diverse as gold, silver, jeera, and cotton with the click of a mouse, right from the confines of their living room. No doubt many are unaware that commodities are completely related to their interest. The subsequent web pages are prepared to spread the word about commodities as well as to advise the seasoned traders about the latest news and analysis in commodities world. It is expected that these pages will help novice and

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experienced investors / traders / hedgers/ arbitrageurs to get the best mileage out of investing in commodities. 3.1.6.2 Classic Account This account allows the client to trade through our website www.sharekhan.com & is suitable for the retail investor who is risk- averse & hence prefers to invest in stock or who do not trade too frequently. Dematerialization and trading in the Demat mode is the safer and faster alternative to the physical existence of securities. Demat as a parallel solution offers freedom from delays, thefts, forgeries, settlement risks and paper work. This system works through depository participants (DPs) who offer Demat services and the securities are held in the electronic form for the investor directly by the depository. Sharekhan Depository Services offers dematerialization services to individual and corporate investors. We have a team of professionals and the latest technological expertise dedicated exclusively to our Demat department, apart from a national network of franchisee, making our services quick. At Sharekhan, our commitment is to provide a complete Demat solution which is simple, safe and secure. Features Online trading account for investing in equity & derivations via www.sharekhan.com Live terminal (NSE ONLINE, BSE) Integration of on- line trading, saving Bank & Demat Account. Instant cash transfer facility against purchase & sale of shares. Competitive transaction charges. Instant order & trade confirmation by E-mail. Streaming quotes.(cash & Derivatives) Personalized market watch. Single screen interface for cash & derivatives & more. Provision to enter price trigger & view the same online in market watch.

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3.1.6.3 Dial-N-Trade Free with our Classic Account, Dial-n-trade is an exclusive service for trading shares from your landline telephone or cell-phone. Features of Dial-n-Trade that enable you to trade effortlessly Two dedicated numbers for placing your orders with your cell phone or landline. Toll free number: 1-800-22-7050. For people with difficulty in accessing the toll-free number, we also have a Reliance number 30307600 which is charged at Rs. 1.50 per minute for STD calls. Automatic funds transfer with phone banking (for Citibank and HDFC bank customers) Simple and Secure Interactive Voice Response based system for authentication No waiting time. Enter your TPIN to be transferred to our telebrokers You also get the trusted, professional advice of our telebrokers After hours order placement facility between 8.00 am and 9.30 am (timings to be extended soon)

3.1.6.4 IPO-Online You can apply all the forthcoming IPO online hassle free.

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Table-3.01 CHARGE STRUCTURE Charge Account opening Brokerage Classic Account Rs. 500/= Intraday : 0.05% 0.025%

Delivery :

Table-3.02 DEMAT ACCOUNT CHARGES Account opening charges Rs. NIL with margin Cheque Rs of 50,000 Table-3.03 COMMODITIES CHARGES Account opening charges RS. 200/=

Tie up banks with Sharekhan Tie up with NINE banks for online money transfer our tie up banks is.

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HDFC

IDBI

ICICI BANK

CITIBANK

OBC

UNION BANK OF INDIA

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INDUSIND BANK

AXIS BANK

BANK OF INDIA

YES BANK

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CHAPTER - 4 ABOUT MUTUAL FUND

4.1 ABOUT MUTUAL FUNDS 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 invested by the fund manager in different types of securities depending upon the objective of the scheme. These could range from shares to debentures to money market instruments. The income earned through these investments and the capital appreciations realized by the scheme are shared by its unit holders in proportion to the

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number of units owned by them (pro rata). Each Mutual Fund scheme has a defined investment objective and strategy. A mutual fund is the ideal investment vehicle for todays complex and modern financial scenario. Markets for equity shares, bonds and other fixed income instruments, real estate, derivatives and other assets have become mature and information driven. Price changes in these assets are driven by global events occurring in faraway places. A typical individual is unlikely to have the knowledge, skills, inclination and time to keep track of events, understand their implications and act speedily. An individual also finds it difficult to keep track of ownership of his assets, investments, brokerage dues and bank transactions etc. A mutual fund is the answer to all these situations. It appoints professionally qualified and experienced staff that manages each of these functions on a full time basis. The large pool of money collected in the fund allows it to hire such staff at a very low cost to each investor. In effect, the mutual fund vehicle exploits economies of scale in all three areas - research, investments and transaction processing. But every coin has a flip side. With mutual funds, you have no control on the investments of the fund; and, more importantly, the downside of diversification is that a fund can hold so many stocks that a tremendously great performance by a stock will make very little difference to a fund's overall performance. Now if you think that the world of Mutual Funds is intimidating, complicated and definitely not for you then think once again.

4.2 WORKING OF MUTUAL FUND Chart-4.01 Mutual Fund Working

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SOURCE: http://aMutual Fundiindia.com/services

4.3 ADVANTAGES OF MUTUAL FUND

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If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forma and avenues of investing, particularly for the investor who has limited resources available in terms of capital and ability to carry out detailed research and market monitoring. The following are the major benefits offered by mutual funds to all investors: i) Portfolio Diversification Mutual Funds spread the investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) by investing in a number of companies across a broad cross-section of industries and sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns and reduces the risk with far less money than you can do on your own. For example during one period of time equities might underperform but bonds and money market instruments might do well enough to offset the effect of a slump in the equity markets. . ii) Professional Management Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money. The investment professional has experience in making investment decisions. It is the Fund Manager's job to (a) find the best securities for the fund, given the fund's stated investment objectives; and (b) keep track of investments and changes in market conditions and adjust the mix of the portfolio, as and when required. iii) 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.

iv) Affordability

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Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy. v) Variety Mutual funds offer a tremendous variety of schemes. This variety is beneficial in two ways: first, it offers different types of schemes to investors with different needs and risk appetites; secondly, it offers an opportunity to an investor to invest sums across a variety of schemes, both debt and equity. vi) Tax Benefits In case of Individuals and Hindu Undivided Families a deduction up to Rs. 9,000 from the Total Income will be admissible in respect of income from investments specified in Section 80L, including income from Units of the Mutual Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax. vii) Transparency Open-ended mutual funds disclose their Net Asset Value (NAV) daily and the entire portfolio monthly. This level of transparency, where the investor himself sees the underlying assets bought with his money, is unmatched by any other financial instrument.

viii). 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

4.4 DISADVANTAGES OF MUTUAL FUNDS

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While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and his advisor will do well to be aware of few shortcomings of using the mutual fund as an investment vehicle. i) No control over costs Investor pays the investment management fees as long as he remains within the fund. Fees are usually payable as a percentage of the value of his investments, whether the fund value is rising or declining. The investor also pays the fund distribution cost, which he would not incur in direct investment. ii) Managing a Portfolio of Funds Availability of a large number of options from mutual funds can actually mean too much choice for the investor. He may again need advice on how to select a fund to achieve his objectives. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees as though he/she is. iii). Dilution. Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund's top holdings still doesn't make much of a difference in a mutual fund's total performance.

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4.5 REGULATORY FRAMEWORK 4.5.1 Regulatory jurisdiction of SEBI SEBI is the apex regulatory of capital market. SEBI has enacted the SEBI (mutual fund) Regulations 1996, which provide the scope of the regulations of the mutual fund in India. All mutual funds are required to be mandatory registered with SEBI .The structure and formation of mutual funds appointment of key functionaries, operation of mutual funds accounting and disclosure norms rights and obligation of functionaries and investors, investment restrictions, compliance and penalties are all defined under the SEBI regulations. Mutual fund has to send half yearly compliance report to SEBI and provide all information about their operations. 4.5.2 Regulatory jurisdiction of RBI RBI is the monitory authority of the country and is also the regulatory of the banking system. SEBI is the regulator of all mutual funds. The present position is that RBI is involved with the mutual fund industry only to the limited extent of being the regulator of the sponsors of bank sponsored mutual funds. 4.5.3 Role of Ministry of Finance in Mutual Fund The Finance ministry is the supervisor of both RBI and SEBI. The Ministry of Finance is also the appellate authority under SEBI Regulations. Aggrieve parties can make appeals to the Ministry of Finance on the SEBI ruling relating to the mutual funds. 4.5.4 Role of Companies ACT in Mutual Fund Against the AMC or the trustee company can be addressed to the AMC and the trustee company may be structured as limited companies, which may come under the regulatory purview of the Company Law Board .The provision of the Company Act 1956 is applicable to these companies. Any grievance against the AMC or the trustee company can be addressed to the Company Law Board for redressal.

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4.5.5 Role of Stock Exchanges If a mutual fund is listed its schemes on stock exchanges, such listing are subject to the listing regulation of stock exchanges. Mutual funds have to sign the listing agreement and abide by its provisions, which primarily deal with periodic notification and disclosure of information that may impact the trading of listed units. 4.6 THE PROCEDURE OF REGISTERING A MUTUAL FUND WITH SEBI WHA T An applicant proposing to sponsor a Mutual fund in India must submit an application in Form A along with a fee of Rs.25, 000. The application is examined and once the sponsor satisfies certain conditions such as being in the financial services business and possessing positive net worth for the last five years, having net profit in three out of the last five years and possessing the general reputation of fairness and integrity in all business transactions, it is required to complete the remaining formalities for setting up a Mutual fund. These include inter alia, executing the trust deed and investment management agreement, setting up a trustee company/board of trustees comprising two- thirds independent trustees, incorporating the asset management company (AMC), contributing to at least 40% of the net worth of the AMC and appointing a custodian. Upon satisfying these conditions, the registration certificate is issued subject to the payment of registration fees of Rs.25.00 lacs for details; see the SEBI (Mutual funds) Regulations, 1996.

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4.7 ORGANISATIONS OF MUTUAL FUND There are many entities involved and the diagram below illustrates the organizational set up of a mutual fund:

Unit Holders Sponsors Trustees The Mutual Fund Custodians SEBI

Organization of mutual fund It may be noticed that the sponsor, AMC, The trustee, the transfer agent, the custodian, SEBI and the unit holder are the main parties of mutual funds. 4.7.1 Sponsor The sponsor is the company which sets up mutual fund as per the provision laid down by the SEBI.

AMC Transfer Agents

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4.7.2 Asset management company (AMC) The AMC manages the funds of the various schemes and employs a large Number of professional for investment , research and agent servicing. The AMC also comes out with new schemes periodically. It plays a key role in the running of a mutual fund and operates under the supervisions and guidelines of trustees. 4.7.3 Trustee The trustees are the important links in the working of any mutual fund. Trustees are people with long experience, excellence, integrity and name. they play the crucial responsibility of safe guarding the investors interest. They do this by a constant monitoring of the operations of the various Schemes. 4.7.4 Transfer Agents The transfer agents are responsible for the investor servicing functions. They maintain the record of investors in mutual fund. They process investors application record details provided by investor on the application form send out to investors details regarding their investment in mutual fund, send out periodical information on the performance of mutual fund. Process dividend pay out to investors, in corporated changes in information as communicated by investors, and keep investor record up-to-date. By recording new investor and removing investor who has withdrawn their funds. 4.7.5 Custodians The custodians are responsible for the security head in the mutual fund portfolio they discharge an important back office function. They insure in that securities that are bought are delivered and transfer to the books of the mutual fund and that funds are paid out when a mutual funds by buys the securities. They keep the investment account the mutual fund and also the collect the dividend and interest payment due to the mutual fund investment. The custodian also track corporate action like bonus issue right offer and offer for sale, buy back open offer of acquisition. On the advise of fund manager they act on these corporate action.

34

STRUCTURE OF MUTUAL FUND Chart 4.02 Mutual Fund Structure

SOURCE: http://aMutual Fundiindia.com 4.8 MUTUAL FUND CLASSIFICATION Chart 4.03 Mutual Fund Classification

(SOURCE: http://aMutual Fundiindia.com)

35

4.8.1 By Structure i) Open-Ended 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. Hence, the unit capital of the schemes keeps changing each day. Such schemes thus offer very high liquidity to investors and are becoming increasingly popular in India. Please note that an open-ended fund is not obliged to keep selling/issuing new units at all times, and may stop issuing further subscription to new investors. On the other hand, an open-ended fund rarely denies to its investor the facility to redeem existing units. ii) Closed-ended 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 exit routes is provided to the investor. Closed-ended schemes are usually more illiquid as compared to open-ended schemes and hence trade at a discount to the NAV. This discount tends towards the NAV closer to the maturity date of the scheme. iii) Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV based prices.

36

4.8.2 By Investment Objective i) Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time. ii) Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income. iii) Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth. iv) Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. v) Gilt Fund These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and economic factors as is the case with income or debt oriented schemes.

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vi) Index Funds Index Funds replicate the portfolio of a particular index such as the BSE sensitive index, S&P NSE 50 index(Nifty).These schemes invest in the securities in the same weight age comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as Tracking Error in technical terms. Necessary disclosure in this regard is made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges. vii) Large-cap funds large cap funds are those mutual funds, which seek capital appreciation by investing primarily in stocks of large blue chip companies. viii) Mid-cap funds Mid cap funds are those mutual funds, which invest in small / medium sized companies. As there is no standard definition classifying companies ix) Equity Fund Equity mutual funds are also known as stock mutual funds. Equity mutual funds invest pooled amounts of money in the stocks of public companies. x) Exchange Traded Fund Exchange Traded Funds (ETFs) represent a basket of securities that is traded on an exchange, similar to a stock. Hence, unlike conventional mutual funds. xi) Value fund Value funds are those mutual funds that tend to focus on safety rather than growth, and often choose investments providing dividends as well as capital appreciation.

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xii) Money Market Fund A money market fund is a mutual fund that invests solely in money market instruments. Money market instruments are forms of debt that mature in less than one year and are very liquid. xiii) Sector Fund Sector mutual funds are those mutual funds that restrict their investments to a particular segment or sector of the economy. xiv) Debt fund They invest only in debt instruments, and are a good option for investors averse to idea of taking risk associated with equities. Therefore, they invest exclusively in fixed-income instruments like bonds, debentures, Government of India securities; and money market instruments such as certificates of deposit (CD), commercial paper (CP) and call money. Put your money into any of these debt funds depending on your investment horizon and needs. xv) Arbitrage fund They generate income through arbitrage opportunities due to mis-pricing between cash market and derivatives market. Funds are allocated to equities, derivatives and money markets. Higher proportion (around 75%) is put in money markets, in the absence of arbitrage opportunities. 4.8.3 On the basis of Load i) Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. ii) No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

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4.9 NET ASSET VALUE Net Asset Value (NAV) represents a fund's per share market value. This is the price at which investors buy (bid price) fund shares from a fund company and sell them (redemption price) to a fund company. Dividing the total value of all the cash and securities in a funds portfolio, less any liabilities, by the number of shares outstanding, derives it. The NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio's securities. NAV: Net Assets of the Scheme/ Number of Units Outstanding Or (Market Value of Investment + Receivables + Other Accrued Income + Other Assets Accrued Expenses Other Payables Other Liabilities)/Number of Units Outstanding on the Valuation Date For the purpose of NAV calculation, the day on which NAV is calculated by a fund is known as the Valuation Date. NAV of all schemes must be calculated and published at least every Wednesday for Closed-end schemes and daily for Open-end schemes. The days NAV must be posted on A MUTUAL FUND website by 8:00 p.m. that day. This applies to both Open-end & Closed-end schemes. The funds NAV is affected by these 4 factors: Purchase & Sale of investment securities Valuation of all investment securities held Other assets & liabilities Units sold or redeemed

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4.10 PRICING OF UNITS Although NAV per unit defines the fair value of the investors holding in the fund, the fund may not repurchase the investors units at the same price as NAV. There can be entry or exit loads. The Sale price is NAV + Entry Load and the Repurchase price is NAV Exit Load. SEBI requires that fund must ensure that repurchase price is not lower than 93% of NAV (95% in the case of a closed-end fund). On the other side, the fund may sell new units at a price that is different from the NAV, but the sale price cannot be higher than 107% of NAV. Also, the difference between the repurchase price and the sale price of the unit is not permitted to exceed 7% of the sale price. Sale Price: Applicable NAV * (1 + Entry Load) Repurchase Price: Applicable NAV * (1 Exit Load)

4.11 WAYS TO MINIMIZE THE RISK WHILE INVESTING Any kind of investment we make is subject to risk. In fact we get return on our investment purely and solely because at the very beginning we take the risk of parting with our funds, for getting higher value back at a later date. Partition itself is a risk. Well known economist and Nobel Prize recipient William Sharpe tried to

segregate the total risk faced in any kind of investment into two parts - systematic (Systemic) risk and unsystematic (Unsystemic) risk. Systematic risk is that risk which exists in the system. Some of the bigges examples o f systematic risk are inflation , r e c e s s i o n , war, political situation etc. Inflation erodes returns generated from all investments e.g. If return from fixed deposit is 8 per cent and if inflation is 6 per cent then real rate of return from fixed deposit is reduced by 6 per cent. Similarly if returns generated from equity market is 18 per cent and inflation is Economic cycles, war and political situations have effects on all forms of investments. Also these exist in the system and there is no way to stay away from still 6 per cent then equity returns will be lesser by the rate of inflation.

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them. It is like learning to walk. Anyone who wants to learn to walk has to first fall; you cannot learn to walk without falling. Similarly anyone who wants to invest has to first face systematic risk; there can never make any kind of investment without systematic risk. Suppose we invest in stock market and the market falls, then only our investment in particular bank and

equity gets affected OR if we have placed a fixed deposit in bank goes bankrupt, than we only lose money placed in that bank.

While there is no way to keep away from risk, we can always reduce the impact of

risk. Diversification helps in reducing the impact o f unsystematic risk. If our investment is distributed across various asset classes the impact of unsystematic risk is reduced. If we have placed fixed deposit in several banks, then even if one of the banks goes bankrupt our entire fixed deposit investment is not lost. Similarly if our equity investment is in Tata Motors, HLL, Infosys, adverse news about Infosys will only impact investment in Infosys, all other stocks will not have any impact. To reduce the impact of systematic risk, we should invest regularly.Byinvesting regularly we average out the impact of risk. Mutual fund, as an investment vehicle gives us benefit of both diversification and averaging.

4.12 COMPARISION OF INVESTMENT PRODUCTS

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Investors tend to constantly compare one form of investment with another. There are 2 kinds of comparisons possible among different investment options.
1. By Nature of Investment: Investor looks for the Best returns on different options.

However, to determine which option is better, the comparison should be made in terms of other benefits that the investor ought to look for in any investment.

Return

Safety Convenience

Volatility

Liquidity

Equity FI Bonds Corporate Debentures Company Fixed Deposits Banks Deposits PPF Life Insurance Real Estate Mutual Funds

High Moderate Moderate

Low High Moderate

High Moderate Moderate

High Moderate Low

Moderate

Low

Low

Low

Low Moderate Low High High

High High High Moderate High

Low Low Low High Moderate

High Moderate Low Low High

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2. By Performance: The comparison on the basis of performance highlights the flexibility

offered by mutual funds from the investors perceptive. An investor can choose from a wide variety of funds to suit his risk tolerance, investment horizon & investment objective.

Investment Equity FI Bonds Corporate Debentures Company Fixed Deposits Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds Objective Capital Appreciation Income Income Income Income Income Risk Cover Inflation Hedge Inflation Hedge Capital Growth, Income

Risk Tolerance High Low High-Medium-Low High-Medium-Low Generally Low Low Low Low Low High-Medium-Low

Investment Horizon Long Term Medium-Long Term Medium-Long Term Medium Flexible-All Times Long Term Long Term Long Term Long Term Flexible-All Times

4.13 RISK RETURN GRID

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Risk ToTolerance/Return Expected Low

Focus

Suitable Products

Benefits offered by MUTUAL FUNDs

Debt

Bank/ Company FD, Debt based Funds

Liquidity, Better Post-Tax returns

Medium

Partially Debt, Partially Equity

Balanced Funds, Some Diversified Equity Funds and some debt Funds, Mix of shares and Fixed Deposits

Liquidity, Better Post-Tax returns, Better Management, Diversification

High

Equity

Capital Market, as Sectoral)

Diversification, Liquidity, Tax free dividends

Equity Funds (Diversified as well Expertise in stock picking,

BANKS V/S MUTUAL FUNDS BANKS 45 MUTUAL FUNDS

Returns Administrative Expenses Risk Investment Options Network Liquidity Quality of Assets Interest calculation

Low High

Better Low

Low Less High penetration At a cost Not transparent Minimum balance between 10th & 30th. of every month

Moderate More Low but improving Better Transparent Everyday

Guarantee

Maximum Rs.1 lakh on deposits

None

4.14 MUTUAL FUND INDUSTRY 4.14.1 The Phases of Growth

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The Indian mutual industry has come a long way since the inception of UTI in 1963. The evolution of the industry can be classified broadly into four phases, which mark its transition from a period when UTI ruled the roost to a period of competition and increased awareness among investors. i) First Phase (1964-87) This phase begin with the inception of the Unit Trust of India (UTI). It remained the only mutual fund player in the country till 1987. UTI started its operation in July 1964 with a view to encouraging savings and investments and participation in income, profits and gains accruing to the corporation from acquisition, holding, management and disposal of securities. In short, it was set up by Indian government with a view to augment small savings in the country and to channelize these savings to the capital markets. UTI witnessed a slow and steady growth over the 1970s and the 1980s and by the end of 1988 it had an AUM of Rs.67bn. It still continues to be the largest player in the domestic mutual fund industry with an AUM of Rs. 23,500 crore as on March 31, 2008. ii) Second Phase (1987-1993) Enter Public sector Mutual Funds Public sector mutual funds set up by public sector banks, Life insurance Corporation of India (LIC) and the General insurance Corporation of India (GIC) entered in the market in 1987. The first non mutual fund was the SBI Mutual Fund established in June 1987, followed by Canara bank Mutual Fund in December 1987, Punjab National Bank Mutual Fund in August 1989, India Bank Mutual Fund in Nov 1989, Bank of India Mutual Fund in June 1990 and Bank of Baroda Mutual Fund in Oct 1992. LIC set up its mutual Fund in June 1989 while GIC established its Mutual Fund in Dec 1990. During this period, the total asset of the industry grew to about Rs. 610bn with the total number of schemes increasing to about 167 by the end of 1994.

iii) Third Phase of (1993-2003) Private players enter the scene This phase marked the entry of private sector funds. The phase also signaled the intensification of competition. Both domestic and foreign players entered the market, offering a wide variety of schemes to investors. Kothari Pioneer Mutual Fund was the first private sector fund to establish 47

in association with the foreign fund. Private players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros and Capital International entering the market. The total AUM by the end of Jan 31, 2003 increased to $ 34,927mn from $23,260mn in March 1995 with a CAGR of 6.92%.In Feb 2003 UTI ACT 1963 was replaced and UTI was bifurcated into two separate entities: Specified undertaking of Unit Trust of India, which is still under the Govt. of India and the UTI Mutual Fund Ltd. This was done in the wake of the sever payment crisis that UTI suffered on account of its assured return schemes of US-64 that finally resulted in an adverse impact on the India capital markets. US-64 was the first scheme launched by UTI with a significant equity exposure and the returns of which were not linked to the market. However, the industry has overcome that shock and is hoped to have learnt its lesson. 4.15 MAJOR MUTUAL FUND COMPANIES IN INDIA i) Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of Kotak Mahindra Bank Limited (KMBL). It is presently having more than 1,99,800 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities. ii) HDFC Mutual Fund HDFC Asset Management Company Ltd (AMC) was incorporated under the Companies Act, 1956, on December 10, 1999, and was approved to act as an Asset Management Company for the HDFC Mutual Fund by SEBI vide its letter dated June 30, 2000. HDFC Mutual Fund was setup with two sponsors namely Housing Development Finance Corporation Limited and Standard Life Investments Limited. iii) Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crores. The sponsors of UTI Mutual

48

Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds. iv) Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. v) Reliance Mutual Fund Reliance Mutual Fund (RMUTUAL FUND) was established as trust under Indian Trusts Act, 1882. The sponsor of RMUTUAL FUND is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. vi) ABN AMRO Mutual Fund ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank AG is the custodian of ABN AMRO Mutual Fund. vii) Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 crores.

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viii) Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian. ix) HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. x) ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya & ING. The AMC, ING Investment Management Pvt. Ltd. was incorporated on April 6, 1998. xi) Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore.

xii) State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes. xiii) Tata Mutual Fund

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Tata Mutual Fund (TMUTUAL FUND) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and Tata Trustee Company Pvt. Ltd. Tata Asset Management Limited's is one of the fastest in the country with more than Rs. 7,703 Crores (on April 30, 2005).

xiv) Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20, 1999. xv) Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

xvi) Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMUTUAL FUND).

51

xvii) Escorts Mutual Fund It is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The Trustee Company with the name Escorts Asset Management Limited. xviii) Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India Private Ltd. with the corporate office in Mumbai.

xix) LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. .The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

xx) GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

4.16 THE PLAYERS IN MUTUAL FUND INDUSTRY The players in the Indian Mutual Funds Industry are similar to some extent to the players in other financial services industry. The players are as follows: 52

SEBI The Securities Exchange Board of India (SEBI) is the regulatory authority for all the mutual funds sponsored by the public/private sector banks, financial institutions, private sector companies, non- banking finance companies and foreign institutional investors. SEBI has laid down the rules and regulations regarding the obligations of the entities involves in a mutual fund, its establishment and launch of different schemes, investments and valuation, financial reporting, conduct and operations of mutual funds. Asset Management Company (AMC) Its role is highly significant in the mutual funds operation. They are the fund managers i.e. they invest the investors money in various securities after proper research and analysis. They also look after the administrative functions of a mutual fund for which they charge management fee. Intermediaries They act as a link between the mutual fund companies and the investors. The intermediaries include brokers, sub- brokers, and investment houses. The other intermediary- registrar and transfer agents perform activities, which are associated with maintaining records concerning units already issued or to be issued by the company. The registrar also performs other activities such as dividend payment, investor grievance, etc.

Investors Investors subscribe to the units issued by the mutual funds in the hope of getting a return commensurate with the risk involved. SEBI protects the interest of the investors through the guidelines laid down under SEBI (Disclosure and Investor Protection) Guidelines, 2000. The mutual fund investor mainly includes individual, HUF, corporate and trusts.

53

CHAPTER - 5 ANALYSIS & FINDINGS

5.1 ANALYSIS

54

The questionnaires were sending to 150 people. I have analyzed my survey on the basis of these responded feedbacks. Once the questionnaires were filled up the next were that comes up is analysis of the data. Q. What is the most important reason for not investing in mutual funds? Table 5.01 Reason For Not Investing In MF Basis Lack of Awareness. Lack of Trust Inconvenience. Others % result 30% 22% 28% 20%

Chart-5.01 Reason For Not Investing In MF

Analysis There is lack of awareness about 30% from the prospective view of the investors. Lack of trust as per the research is about 22%. In mutual fund there is 28% inconvenience which is reflected through the investors. And 20% are related to other category Q. Time Period for investment? Table-5.02 Time Period Of Investment

55

Basis Less than 1 year 1-2 years 2-5 years More than 5 years

% Result 51% 13% 19% 17%

Chart-5.02 Time Period Of Investment

LESS THAN 1 YEAR

1 7%

1 TO 2 YEARS
51 %

1 9% 1 3%

2 TO 5 YEARS MORE THAN 5 YEARS

Analysis: There are 51% investors who invest in mutual fund or less than one year There are 13% investors who invest in mutual fund 1-2 years. . There are 19% investors who invest in mutual fund 2-5 years. There are 17% investors who invest in mutual fund for more than 5 years.

Q. Where you purchase your mutual fund ? Table- 5.03 Purchase Of MF Through Intermediaries Basis Direct from the AMC 56 % Result 33%

Brokers Brokers & sub brokers Other Sources

28% 25% 14%

Chart-5.03 Purchase Of MF Through Intermediaries

Analysis There are 33% investors buy forms directly from the AMC. There are 28% investors buy forms directly from the Brokers. There are 25% investors buy forms directly from the Brokers & Sub Brokers. There are 14% investors buy forms directly from the Other Sources.

57

Q. Are you aware about the tax benefits? Table-5.04 Awareness Of Tax Benefits Basis YES NO % Result 45% 55%

Chart-5.04 Awareness Of Tax Benefits

Analysis There are 55% investors in market who are not aware about the tax benefit. There are 45% investors in market who are aware about the tax benefit .

58

Q. what is your basic purpose for investments Table-5.05 Purpose Of Investment Basis Tax Benefits Returns Risk Cover % Result 30% 50% 20%

Chart-5.05 Purpose Of Investment

Analysis There are 30 % investors who are investing for tax benefit. There are 50 % investors who are investing for Returns. There are 20 % investors who are investing for risk cover..

Q In which of the following funds do you invest?

59

Table- 5.06 Type Of Portfolio Basis Equity XSectoral Balanced Diversified % Result 20% 20% 10% 50% Chart-VI Type Of Portfolio

Analysis There are 20% investors who are invested in equity based fund. There are 50% investors who are invested in diversified sector based fund. There are 10% investors who are invested in equity balanced fund. There are 20% investors who are invested in sectorial based fund.

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Q. What % of your income do you invest in financial market? Table-5.07 Percentage Of Income Invested In Financial Market Basis Below 10% 10%-30% 30%-50% % Result 10% 60% 10%

Chart-5.07 Percentage Of Income Invested In Financial Market

Analysis There are 30% investors who invest invest below the 10% of their income. There are 60% investors who invest invest in between the 10%-305 of their income. There are 10% investors who invest in between the 30%-50% of their income.

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Q. How do you select and choose mutual fund Table-5.08 Choice Of MF Basis Brand Name High Dividend High Nav Past Performance Advertisements Chart- 5.08 Choice Of MF % Result 39% 17% 15% 22% 7%

Analysis There are 39% investors who invest in Mutual Fund by their brand name. There are 17% investors who invest in Mutual Fund by their high dividend. There are 39% investors who invest in Mutual Fund by their high NAV. There are 22% investors who invest in Mutual Fund by their past performance. There are 7% investors who invest in Mutual Fund by their brand advertisements.

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5.2 INTERPRETATION AND FINDINGS Interpretation At the survey conducted upon 150 people, 100 are already mutual fund investors & are interested to invest in future and the remaining 50 are not interested in it. So there is enough scope for the advisors to convert those 50 participants into investors through their convincing power and great communication skills. Now, when those 50 people were asked about the reason of not investing in mutual funds, then most of the people held their ignorance responsible for that. They lacked knowledge and information about the mutual funds. Out of the 100 investors who already have the knowledge about the mutual fund. Findings There are 81% investors who are aware about the tax benefits related to the Mutual Fund. Service class people are more inclined to invest in Mutual Fund. There are 30% investors who invest in between 10%-30% of their income. There are 10% investors who invest in between 10% of their income. There are 60% investors who invest in between 30%-50% of their income. There are 39% investor who invest in Mutual Fund by their brand name,17% by their high dividend, 39% by their high NAV, 22% by their past performance, 7% by their brand advertisements. There are 81% investors who are aware about tax benefit associated with Mutual Fund, 19% are not aware about the tax benefit. There are 51% investors who invest for less than 1 year, 13% for 1-2 years, 19% for less than 5 years and 17% for greater than 5 years. About 50% investors want to invest in diversified sector fund because they are helpful in reducing the risk. Most of the investors (55%) want to purchase from the sub broker and Broker. It was found out that more businessman were inclined towards investing in the current account. On the other hand service class people and retire fellow prefer more either saving or fixed deposits. People with high income and who are young enough to take risk prefer shares and mutual fund.

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People are interested in knowing what the returns of their investment are. Similar large numbers of people are equally interested in the safety of their funds. There are the people who want easy liquidity of money and these are basically the business people who have to deal in the ready cash on the time. Surprisingly while a large number of people are aware of the text benefit. A very small number (only few of them) are interested in it.

Large number of people are aware of mutual fund comparatively a very less number invest into it. On asking how they get knowledge of mutual fund, a large number of them attributed it to print media. Even today bank follow the role of investment advisor. Very few get information from the electronic media or relative friends.

64

CHAPTER - 6 SUGGESTION

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6.1 SUGGESTIONS 6.1.1 Investors point of view Being a prudent investors one should Ask ones agent to give details of different schemes and match the appropriate ones. Go to the company or the fund house regarding any queries if one is not satisfied by the agents. Investors should always keep eye on the performance of the schemes and other good scheme as well which are available in the market for the closed comparison. Never invest blindly in the investment before going the fact sheets, annual reports etc. of the company since according to the guidelines of the SEBI, the AMC are bound to disclose all the relevant data that is necessary for the investment purpose by the investor. 6.1.2Companies point of view Following measure can be taken by the company for getting higher investments in the mutual fund schemes. Educate the agents or the salesmen properly so that they can take up the queries of the customer effectively. Set up separate customer care division where the customer can any time pose their query regarding the scheme or the current NAV etc. these customer care units can work out in accordance with the requirements of the customer and facilitate him to choose the scheme that suits his financial requirements. Conduct seminar or programs on about mutual fund where each and every minute information about the product is outlined including the risk factor associated with the different classes of assets. Recruit appropriate number of agents for rural\urban and semi urban areas. Make customer care service faster. Choose appropriate media newspaper\magazines T.V. commercial etc. for making the product and educate the masses.

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Educate the rural people and portray the benefits of mutual fund investment rather than direct investments. Motivate the people in urban and semi urban areas towards mutual fund investments and design schemes which suit their level of income. AMCS must increase the awareness about their product through electronic media as well as and should not just constrained itself to the print advertisement. Those who do not read newspaper/magazine due to any reason may watch or listen to the advertisement.

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CHAPTER - 7 CONCLUSION

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7.1 CONCLUSIONS There is a great potential for investment in Mutual Fund as people want to save for various future obligation & Mutual Fund provides a Balanced Risk-Return portfolio. Since Rate of Interest on Bank deposit is falling people will be attracted towards investments in Mutual Funds because of high rate of returns & tax saving scheme of Mutual Fund. All the company is need to do is to educate the rural people and portray the benefits of mutual fund investment rather than direct investments and motivate the people in urban and semi urban areas towards mutual fund investments and design schemes which suit their level of income because comparatively people of small towns are less aware of other investment avenues viz Mutual Fund and people of young age group are ready to take risk and they can be targeted for investment in Mutual Fund. So AMCS must increase the awareness about their product through electronic media as well as and should not just constrained itself to the print advertisement because those who do not read newspaper/magazine due to any reason may watch or listen to the advertisement and Educate the agents or the salesmen properly so that they can take up the queries of the customer effectively.

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BIBLIOGRAPHY For Books 1) Pathak ,V.K ,Indian Financial System , 3rd Edition, 2003, Vol.2 2) Kothari, C.R,Research methodology, 3rd edition, 1997, Vikas Publishing House Pvt. Ltd, New Delhi, For Research Papers, Published articles, Magazines, Periodicals, Journals, Newspapers etc. 1) Nayak Mahesh, THE BEST MUTUAL FUND TAX SAVER, Article, September 14 2010, Page Numbers 2) Capital Gains Tax -Emergency Tax Planning Guide Review of Article, July 142010, Business Today Online published material on World Wide Web 1. www.mutualfundsindia.com, July 152010, Mutual Fund Concept 2. www.reliancemoney.com, July 17 2010, Reliance Products 3. www.moneycontrol.com , July 222010,Tax Saving Fund

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ANNEXURE

QUESTIONNAIRE
Name Age . Occupation.. Designation Name of Organization... Contact No. . E-mail id: Annual Income Below 10,000/10,000- 100000/Above 100000/-

Q.1. Have you invested/are you interested in investing the financial market ? ( ) Yes ( ) Bank Deposits ( ) Government Bond ( ( ) No ) Mutual Fund ( ) Equity market If yes, then among the following in which of the financial product do you invest?

Q.2.What is the most important thing you take into account while making any investments? ( ) Risk factor ( ) Return ( ) Both

Q.3. Do you know about different options available for investing in the financial market ? ( ) Yes ( ) No

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Q.4. Have you ever invested/are you interested to investing the MUTUAL FUND ? ( ) Yes ( ) No

If no, what is the most important reason for not investing in mutual funds? i). i.) ii.) iii.) If yes, (a) what is your basic purpose for investments ( ) Liquidity ( ( ) debt ( ) balanced ) risk covering ( ( ) tax benefits ( ( ) returns Lack of Awareness. Lack of Trust Inconvenience. Others

) capital appreciation ( ) sectoral

(b) in which of the following funds do you invest? ) Equity

( ) Diversified

Q.5. Do you know about the various types of mutual fund available in the market? ( ) Yes ( ) No

Q.6. Do you have any knowledge of the tax benefit? ( ) Yes ( ) No

Q.7. According to you which is the most suitable stage to invest in mutual fund? o Young unmarried stage o Married with young children stage o Married with older children stage o Pre retirement stage o Post retirement stage

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Q. where do you find yourself as a mutual fund investor? o Totally ignorant o Partial knowledge of mutual fund o Aware only of any specific scheme in which you invested o Fully aware Q.10 How do you select and choose mutual fund. o Brand name o High dividend o High NAV o Advertisement o Past performance o Others Q.11 What % of your income do you invest in financial market? o Below 10% o 10%-30% o 30%-50% o above 50% Q.12 How do you manage your investment portfolio? o Self o Consult with broker o Financial Advisors o Consult with friend, relatives etc. o Others Q.13 Where you purchase your mutual fund? o Direct from the AMC 73

o Brokers only o Brokers, sub brokers o Other sources Q.14. Time Period for investment? o Less than 1 year o 1-2 years o 2-5 years o More than 5 years

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