Anand Rathi

SUMMER INTERNSHIP PROJECT
A REPORT ON DESCRIPTIVE STUDY OF MUTUAL

FUNDS AND STUDY OF INVESTORS PERCEPTION
ABOUT INVESTMENT IN MUTUAL FUNDS
Undertaken at
ANAND RATHI SECURITIES

LTD.
JAMMU.
Submitted By
JIMY GANHAR
ROLL NO. 15/MBA/06
Submitted To
Dr. Ravi Kumar Gupta

H.O.D
DESCRIPTIVE STUDY OF MUTUAL FUNDS 1

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STUDENT’S DECLARATION
I, Jimy Ganhar, student of M.B.A , here by declare that

project entitled “Descriptive Study of
Mutual Funds and Study of Investors
Behaviour of Investment in Mutual
Funds “ submitted in the partial fulfillment of the
degree for Master of Business Administration to
“VCE,ROHTAK“ is of my own accurate work.
I further declare that all the facts and figures

furnished in this project report are the outcome of my
own intensive research and findings.
Submitted By
Jimy Ganhar

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ACKNOWLEDGEMENT
“Expression of feelings by words

makes them less significant when
it comes to make statement of
gratitude”
It gives me pleasure to express my most profound regards and
sense of great indebtedness and sincere gratitude to my Company
Guide Mr. Devinder Singh Jamwal (Regional Manager, Anand
Rathi Securities ltd. Jammu).
I would thank to my project guide Dr. Ravi Kumar Gupta for

his guidance in preparing this report.
I would also like to thank my co employees who gave

guidance and support during the completion of the project.
Jimy Ganhar

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CONTENTS
CHAPTER 1 1.0 Summary

1.1 Company Profile
CHAPTER 2 2.0 INTRODUCTION
2.1 Overview of Indian Mutual Fund Industry

2.2 About Mutual Funds
2.3 How Mutual Funds is Structured
2.4 Mutual Funds History
2.5 Types of Mutual Funds
2.6 Mutual Funds v/s Banks
2.7 Benefits of Investment in Mutual Funds
2.8 Accounting and Valuation
3.0 MAJOR PLAYERS

CHAPTER 3
3.1 About major Mutual Funds Companies
3.2 Competition in Mutual Fund Industry
CHAPTER 4 OBJECTIVES AND METHODOLOGY

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4.1 Significance of the Study

4.2 Managerial Usefulness of the Study
4.3 Objectives
4.4 Scope of the Study
4.5 Methodology
CHAPTER 5 5.1 DATA ANALYSIS AND INTERPRETATION
5.2 FINDINGS
5.3 LIMITATIONS
CHAPTER 6 6.1 Annexure

6.2 Bibliography

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SUMMARY
Indian Stock market has undergone tremendous changes over the

years. Investment in Mutual Funds has become a major alternative among
Investors. The project has been carried out to have an overview of Mutual
Fund Industry and to understand investor’s perception about Mutual Funds in
the context of their trading preference, explore investor’s risk perception &
find out their preference over Top Mutual funds.
The methodology used was data collection using Schedule.
Secondary data was collected from Internet and Books . Primary Data was
collected through survey among existing clients along with the other
investors. The procedure adopted to select sample was simple random
sampling
The research design is analytical in nature. A

questionnaire was prepared and distributed to Investors. The
investor’s profile is based on the results of a questionnaire that the
Investors completed. The Sample consists of 100 investors from
various broker’s premises. The target customers were Investors
who are trading in the stock market. The area of survey was
restricted to people residing in JAMMU.

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COMPANY PROFILE
ORGANIZATION HISTORY
• Company Profile
• Milestones
• AR Core Strengths
• Management Team
About AnandRathi
AnandRathi (AR) is a leading full service securities firm providing the entire
gamut of financial services. The firm, founded in 1994 by Mr. AnandRathi,
today has a pan India presence as well as an international presence through
offices in Dubai and Bangkok. AR provides a breadth of financial and
advisory services including wealth management, investment banking,
corporate advisory, brokerage & distribution of equities, commodities,
mutual funds and insurance, structured products - all of which are supported
by powerful research teams.
The firm's philosophy is entirely client centric, with a clear focus on

providing long term value addition to clients, while maintaining the highest
standards of excellence, ethics and professionalism. The entire firm activities
are divided across distinct client groups: Individuals, Private Clients,
Corporate and Institutions and was recently ranked by Asia Money 2006 poll
amongst South Asia's top 5 wealth managers for the ultra-rich.
In year 2007 Citigroup Venture Capital International joined the group as a

financial partner.

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Equity & Derivatives Brokerage

AnandRathi provides end-to-end equity solutions to institutional and individual investors.
Consistent delivery of high quality advice on individual stocks, sector trends and
investment strategy has established us a competent and reliable research unit across the
country.
Clients can trade through us online on BSE and NSE for both equities and derivatives.
They are supported by dedicated sales & trading teams in our trading desks across the
country. Research and investment ideas can be accessed by clients either through their
designated dealers, email, web or SMS
Milestones
1994:
Started activities in consulting and Institutional equity sales with staff of 15
1995:
Set up a research desk and empanelled with major institutional investors
1997:
Introduced investment banking businesses
Retail brokerage services launched

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1999:
Lead managed first IPO and executed first M & A deal
2001:
Initiated Wealth Management Services
2002:
Retail business expansion recommences with ownership model
2003:
Wealth Management assets cross Rs1500 crores
Insurance broking launched
Launch of Wealth Management services in Dubai
Retail Branch network exceeds 50
2004:
Commodities brokerage and real estate services introduced
Wealth Management assets cross Rs3000crores
Institutional equities business re-launched and senior research team put in place
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Retail Branch network expands across 100 locations within India
2005:
Real Estate Private Equity Fund Launched
Retail Branch network expands across 200 locations within India
2006:
AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange
(DGCX)
Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money
2006 poll
Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High
Net worth Individuals (HNI) Category
Ranked 9th in the Retail Category having more than 5% market share
Completes its presence in all States across the country with offices at 300+ locations
within India
2007:Citigroup Venture Capital International picks up 19.9% equity stake
Retail customer base crosses 100 thousand
Establishes presence in over 350 locations
AR Core Strengths
Breadth of Services

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In line with its client-centric philosophy, the firm offers to its clients the entire spectrum
of financial services ranging from brokerage services in equities and commodities,
distribution of mutual funds, IPO’s and insurance products, real estate, investment
banking, merger and acquisitions, corporate finance and corporate advisory.
Clients deal with a relationship manager who leverages and brings together the product
specialists from across the firm to create an optimum solution to the client needs.
Management Team
AR brings together a highly professional core management team that comprises of

individuals with extensive business as well as industry experience.
In-Depth Research
Our research expertise is at the core of the value proposition that we offer to our clients.
Research teams across the firm continuously track various markets and products. The aim
is however common - to go far deeper than others, to deliver incisive insights and ideas
and be accountable for results.
Management Team
The senior Management comprises a diverse talent pool that brings together
rich experience from across industry as well as financial services.

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Mr. Anand Rathi - Group Chairman

Chartered Accountant
Past President, BSE
Held several Senior Management positions with one of India's largest
industrial groups
Mr. Pradeep Gupta - Vice Chairman

Plus 17 years of experience in Financial Services
Mr. Amit Rathi - Managing Director

Chartered Accountant & MBA
Plus 11 years of experience in Financial Services
ACQUISITION:
ANZ Grind lays : $ 1.34 bn from August 2000.
Hong Kong Consumer Bank: $ 1.32 bn
Thailand Nakornthan Bank : $ 320 million
Indonesians Bank Per-Mata : $ 366 million from Oct. 2004.
Korea First Bank : $ 3.3 bn from Apr. 2005.
Standard Chartered PLC is listed on both the London Stock Exchange and
the Stock Exchange of Hong Kong and is in the top 25 FTSE-100
companies, by market capitalization. Top 100 companies list, no other bank

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present except Bank of America’s position 69th and position of standard

chartered bank is 74th.
Offices of ANANDRATHI are in 197 cities across 28 states & it has also
branches in Dubai & Bangkok with more than 44000 employees. It has daily
turnover in excess of Rs.4bn. It has 1, 00,000+ clients nationwide. It is also
leading distributor of IPO’s.
In India where ANANDRATHI is present in 21 STATES:
Andhra Pradesh
Assam
Bihar
Chhattisgarh
Delhi
Goa
Gujrat
Haryana
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra
Orissa
Punjab
Rajasthan
Tamil Nadu
Uttar Pradesh
Uttaranchal
West Bengal

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LIST OF PRODUCTS :
 Demat Accounts
 Mutual Funds
 Derivatives
 Commodities
 Bonds
 Trading Account
 Insurance
MISSION

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To be India's first Multinational providing complete financial

services solution across the globe
VISION
Providing integrated financial care driven by the relationship of
trust and confidence.
INTRODUCTION
Investment in share markets are influenced by the analysis &
reasoning which help in predicting the market to some extent. Over the past
years a number of technical & theories for analysis have evolved, these
combined with modern technology guides the investor. The big players in the

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market, like Foreign Institutional Investors, Mutual Funds, etc. have the
expertise for various analytical tools & make use of them. The small
investors are not in a position to benefit from the market the way Mutual
Funds can do. Generally a small investor’s investments are based on market
sentiments, inside information, through grapevine, tips & intuition. The small
investors depend on brokers and brokerage house for his investments. They
can invest through the Mutual Funds who are more experienced and expert in
this field than a small investor himself.
In recent years a large number of players have entered into his

market. The project has been carried out to have an overview of Mutual Fund
Industry and to understand investor’s perception about Mutual Funds in the
context of their trading preference, explore investor’s risk perception & find
out their preference over Top Mutual
INDUSTRY PROFILE
Structure of the Indian Mutual Fund industry
The largest categories of Mutual Funds are the ones floated by the private
sector and by Foreign Asset Management Companies. The largest of these
are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of
assets managed by this category of AMCs is in excess of Rs.350 bn.

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Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of
India which has a total corpus of Rs.700 bn collected from more than 20
million investors. The UTI has many funds/schemes in all categories i.e.
equity, balanced, income etc. with some being open-ended and some being
closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which
is a balanced fund, is the biggest scheme with a corpus of about Rs.200 bn.
UTI was floated by financial institutions and is governed by a special Act of
Parliament. Most of its investors believe that the UTI is government owned
and controlled, which, while legally incorrect, is true for all practical
purposes.
The second largest categories of mutual funds are the ones floated by
nationalized banks. Canbank Asset Management floated by Canara Bank and
SBI Funds Management floated by the State Bank of India are the largest of
these. GIC AMC floated by the General Insurance Corporation and Jeevan
Bima Sahayog AMC floated by the LIC are some of the other prominent
ones. The aggregate corpus of funds managed by this category of AMCs is
about Rs.200 bn.
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 then invested in capital market instruments such as
shares, debentures and other securities. The income earned through
these investments and the capital appreciation realized is shared by
its unit holders in proportion to the number of units owned by
them. Thus a Mutual Fund is the most suitable investment for the
common man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.
The flow chart below describes broadly the working of a mutual
fund

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AMC
Saving
s
Trus Investment
t s
Unit
Unit s Return
holders s
Registrar
Trust
SEBI
Custodian AMC
• The structure of Mutual Funds in India is governed by SEBI (Mutual

Fund) Regulations, 1996.
• It is mandatory to have a three tier structure of Sponsor – Trustee – Asset

Management Company.
• The trust is established by a Sponsor or more than one sponsor who is like
a promoter of a company. He appoints the Trustees who are responsible to
the investors of the fund.
• The Trustees of the mutual fund hold its property for the benefit of the
unit holders.
• Asset Management Company (AMC) approved by SEBI is the business

face of the mutual fund as it manages all the affairs of the fund by making
investments in various types of securities.

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• Custodian, who is registered with SEBI, holds the securities of various

schemes of the funds in its custody.
WHY MUTUAL FUNDS
An investor normally prioritizes his investment needs before undertaking an
investment. So different goals will be allocated different proportions of the total
disposable amount. Investments for specific goals normally find their way into the
debt market as risk reduction is of prime importance. This is the area for the risk-
averse investors and here, mutual funds are generally the best option. The
reasons are not difficult to see.
One can avail of the benefits of better returns with added benefits of anytime
liquidity by investing in open-ended debt funds at lower risk. Many people have
burnt their fingers by investing in fixed deposits of companies who were assuring
high returns but have gone bust in course of time leading to distraught investors
as well as pending cases in the Company Law Board.
This risk of default by any company that one has chosen to invest in, can be
minimized by investing in mutual funds as the fund managers analyze the
companies’ financials more minutely than an individual can do as they have the
expertise to do so. They can manage the maturity of their portfolio by investing in
instruments of varied maturity profiles. Since there is no penalty on pre-mature
withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the prices

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of the securities as a result of interest rate variation and one can benefits from
any such price movement.
Apart from liquidity, these funds have also provided very good post-tax returns on
year to year basis. Even historically, we find that some of the debt funds have
generated superior returns at relatively low level of risks. On an average debt
funds have posted returns over 10 percent over one-year horizon. The best
performing funds have given returns of around 14 percent in the last one-year
period. In nutshell we can say that these funds have delivered more than what
one expects of debt avenues such as post office schemes or bank fixed deposits.
Though they are charged with a dividend distribution tax on dividend payout at 10
percent (plus a surcharge of 10 percent), the net income received is still tax free
in the hands of investor and is generally much more than all other avenues, on a
post tax basis.
Moving up in the risk spectrum, we have people who would like to take some risk
and invest in equity funds/capital market. However, since their appetite for risk is
also limited, they would rather have some exposure to debt as well. For these
investors, balanced funds provide an easy route of investment. Armed with the
expertise of investment techniques, they can invest in equity as well as good
quality debt thereby reducing risks and providing the investor with better returns
than he could otherwise manage. Since they can reshuffle their portfolio as per
market conditions, they are likely to generate moderate returns even in
pessimistic market conditions.

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This risk of default by any company that one has chosen to invest in, can be
minimized by investing in mutual funds as the fund managers analyze the
companies’ financials more minutely than an individual can do as they have the
expertise to do so. They can manage the maturity of their portfolio by investing in
instruments of varied maturity profiles. Since there is no penalty on pre-mature
withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity.
Moreover, mutual funds are better placed to absorb the fluctuations in the prices
of the securities as a result of interest rate variation and one can benefits from
any such price movement.
Next come the risk takers. Risk takers by their very nature, would not be averse
to investing in high-risk avenues. Capital markets find their fancy more often than
not, because they have historically generated better returns than any other
avenue, provided, the money was judiciously invested. Though the risk
associated is generally on the higher side of the spectrum, the return-potential
compensates for the risk attached.
Capital markets interest people, albeit not all for there are several problems
associated. First issue is that of expertise. While investing directly into capital
market one has to be analytical enough to judge the valuation of the stock and
understand the complex undertones of the stock. One needs to judge the right
valuation for exiting the stock too. It is very difficult for a small investor to keep
track of the movements of the market. Entrusting the job to experts, who watch
the trends of the market and analyze the valuations of the stocks will solve this
problem for an investor. Mutual funds specialize in identification of stocks through

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dedicated experts in the field and this enables them to pick stocks at the right
moment. Sector funds provide an edge and generate good returns if the particular
sector is doing well.
Next problem is that of funds/money. A single person can’t invest in multiple high-
priced stocks for the sole reason that his pockets are not likely to be deep
enough. This limits him from diversifying his portfolio as well as benefiting from
multiple investments.
Here again, investing through MF route enables an investor to invest in
many good stocks and reap benefits even through a small investment.
This not only diversifies the portfolio and helps in generating returns
from a number of sectors but reduces the risk as well. Though
identification of the right fund might not be an easy task, availability of
good investment consultants and counselors will help investors take
informed decision.
How are the Mutual Funds Structured?
The Mutual Funds are structured in two forms: Company form and Trust
form.

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• Company Form: These forms of mutual funds are more popular in

US.
• Trust Form: In India, mutual funds are organized as Trusts. The Trust
is either managed by a Board of Trustees or by a Trustee Company.
There must be at least 4 members in the Board of Trustees and at least
2/3 of the members of the board must be independent.
Trustee of one mutual fund cannot be a trustee of another mutual fund.
Unit Trusts – Constituents:
A Mutual Fund is set up in the form of a Trust which has the following
constituents:-
1. Fund Sponsor
2. Mutual Fund as Trust
3. Asset Management Company
4. Other Fund Constituents
4.1. Custodian and Depositors
4.2. Brokers
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4.3. Transfer Agent
4.4. Distributors
FUND SPONSOR
What a promoter is to a company, a sponsor is to a mutual fund. The sponsor

initiates the idea to set up a mutual fund. It could be a financial services
company, a bank or a financial institution. It could be Indian or foreign. It
could do it alone or through a joint venture. In order to run a mutual fund in
India, the sponsor has to obtain a license from SEBI. For this, it has to satisfy
certain conditions, such as on capital and profits, track record (at least five
years in financial services), default-free dealings and a general reputation for
fairness. The sponsor must have been profit making in at least 3 years of the
above 5 years.
The Sponsor appoints the Trustees, Custodian and the AMC with the prior
approval of SEBI and in accordance with SEBI Regulations.
Like the company promoter, the sponsor takes big-picture decisions related
to the mutual fund, leaving money management and other such nitty-gritty to
the other constituents, whom it appoints. The sponsor should inspire
confidence in you as a money manager and, preferably, be profitable.
Financial muscle, so long as it is complemented by good fund management,
helps, as money is then not an impediment for the mutual fund- it can hire
the best talent, invest in technology and continuously offer high service
standards to the investors.
In the days of assured return schemes, sponsors also had to fulfill return
promises made to the unit holders. This sometimes meant meeting shortfalls
from their own pockets, as the government did for UTI. Now that assured
return schemes are passed, such bailouts won’t be required. All things

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considered, choose sponsors who are good money managers, who have a
reputation for fair business practices and who have deep pockets.
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, 1908. The Trust appoints the Trustees who
are responsible to the investors of the fund.
TRUSTEES
Trustees are like internal regulators in a mutual fund, and their job is to
protect the interests of the unit holders. Trustees are appointed by the
sponsors, and can be either individuals or corporate bodies. In order to
ensure they are impartial and fair, SEBI rules mandate that at least two-thirds
of the trustees be independent, i.e., not have any association with the sponsor.
Trustees appoint the AMC, which subsequently, seeks their approval for the
work it does, and reports periodically to them on how the business being run.
Trustees float and market schemes, and secure necessary approvals. They
check if the AMCs investments are within defined limits and whether the
fund’s assets are protected. Trustees can be held accountable for financial
irregularities in the mutual fund.
Rights of the Trustees:
 Trustees appoint the AMC in consultation with the sponsor and

according to the SEBI Regulations.
 All Mutual Fund Schemes floated by the AMC have to be approved by

the Trustees.
 Trustees can seek information from the AMC regarding the operations
and compliance of the mutual fund.

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 Trustees can seek remedial actions from AMC, and in cases can
dismiss the AMC.
 Trustees review and ensure that the net worth of the AMC is according
to the stipulated norms, every quarter.
Obligations of the Trustees:
 Trustees must ensure that the transactions of the mutual fund are in
accordance with the trust deed.
 Trustees must ensure that the AMC has systems and procedures in
place.
 Trustees must ensure due diligence on the part of AMC in the

appointment of constituents and business associates.
 Trustees must furnish to the SEBI, on half yearly basis a report on the
activities of the AMC.
 Trustees must ensure compliance with SEBI Regulations.
ASSET MANAGEMENT COMPANY (AMC)
An AMC is the legal entity formed by the sponsor to run a mutual fund. The
AMC is usually a private limited company in which the sponsors and their
associates or joint venture partners are the shareholders. The trustees sign an
investment agreement with the AMC, which spells out the functions of the
AMC. It is the AMC that employs fund managers and analysts, and other
personnel. It is the AMC that handles all operational matters of a mutual fund
– from launching schemes to managing them to interacting with investors.

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The people in the AMC who should matter the most to you are those who
take investment decisions. There is the head of the fund house, generally
referred to as the Chief Executive Officer (CEO). Under him comes the
Chief Investment Officer (CIO), who shapes the fund’s investment
philosophy, and fund managers, who manages its schemes. They are assisted
by a team of analysts, who track markets, sectors and companies.
Although these people are employed by the AMC, its you, the unit holders,
who pays their salaries, partly or wholly. Each scheme pays the AMC an
annual ‘fund management fee’, which is linked to the scheme size and results
in a corresponding drop in your return. If a scheme’s corpus is up to Rs.100
crores it pays 1.25% of its corpus a year; on over Rs.100 crores, the fee is 1%
of the corpus. So, if a fund house has two schemes, with a corpus of Rs.100
crores and Rs.200 crores respectively, the AMC will earn Rs.3.25 crore
(1.25+2) as fund management fee that year.
If an AMCs expenses for the year exceed what it earns as fund management
fee from its schemes, the balance has to be met by the sponsor. Again,
financial strength comes into play: a cash-rich sponsor can easily pump in
money to meet short falls, while a sponsor with less financial clout might
force the AMC to trim costs, which could well turn into an exercise in cutting
corners.
Regulatory requirements for the AMC:
 Only SEBI registered AMC can be appointed as investment managers

of mutual funds.
 AMC must have a minimum net worth of Rs.10 crores at all times.
 An AMC cannot be an AMC or Trustee of another Mutual Fund.
 AMCs cannot indulge in any other business, other than that of asset
management

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 At least half of the members of the Board of an AMC have to be

independent.
 The 4th schedule of SEBI Regulations spells out rights and obligations
of both trustees and AMCs.
Obligations of the AMC:
 Investments have to be according to the investment management

agreement and SEBI regulations.
 The actions of its employees and associates have to be as mandated by

the trustees.
 AMCs have to submit detailed quarterly reports on the working and

performance of the mutual fund.
 AMCs have to make the necessary statutory disclosures on portfolio,

NAV and price to the investors.
Restrictions on the AMC:
 AMCs cannot launch a scheme without the prior approval of the

trustees.
 AMCs have to provide full details of the investments by employees

and Board members in all cases where the investment exceeds Rs.1
lakh.
 AMCs cannot take up any activity that is in conflict with the activities
of the mutual fund.
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Conditions under which two AMCs can be merged:
SEBI Regulations require the following:
 SEBI and Trustees of both the funds must approve of the merger.
 Unit holders should be notified of the merger, and provided the option
to exit at NAV without load.
Conditions under which an AMC can be taken over:
SEBI approval is required for the change of ownership and unit holders
have to be informed of the takeover.
Scheme take over: If an existing mutual fund scheme is taken over by

another AMC, it is called as scheme take over. The two mutual funds
continue to exist. Trustee and SEBI approval and notification of the unit
holders are required for scheme take over.
CUSTODIAN
A custodian handles the investment back office of a mutual fund. Its
responsibilities include receipt and delivery of securities, collection of
income, distribution of dividends and segregation of assets between the
schemes. It also track corporate actions like bonus issues, right offers, offer
for sale, buy back and open offers for acquisition. The sponsor of a mutual
fund cannot act as a custodian to the fund. This condition, formulated in the
interest of investors, ensures that the assets of a mutual fund are not in the

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hands of its sponsor. For example, Deutsche Bank is a custodian, but it

cannot service Deutsche Mutual Fund, its mutual fund arm.
BROKERS
Role of Brokers in a Mutual Fund:
 They enable the investment managers to buy and sell securities.
 Brokers are the registered members of the stock exchange.
 They charge a commission for their services.
 In some cases, provide investment managers with research reports.
 Act as an important source of market information.
REGISTRAR OR TRANSFER AGENTS
Registrars, also known as the transfer agents, are responsible for the investor
servicing functions. This includes issuing and redeeming units, sending fact
sheets and annual reports. Some fund houses handle such functions in-house.
Others outsource it to the Registrars; Karvy and CAMS are the more popular
ones. It doesn’t really matter which model your mutual fund opt for, as long
as it is prompt and efficient in servicing you. Most mutual funds, in addition
to registrars, also have investor service centers of their own in some cities.
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Some of the investor – related services are:-
 Processing investor applications.
 Recording details of the investors.
 Sending information to the investors.
 Processing dividend payout.
 Incorporating changes in the investor information.
 Keeping investor information up to date.
DISTRIBUTORS
Role of Selling and Distribution Agents:
 Selling agents bring investor’s funds for a commission.

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 Distributors appoint agents and other mechanisms to mobilize funds

from the investors.
 Banks and post offices also act as distributors.
 The commission received by the distributors is split into initial

commission which is paid on mobilization of funds and trail
commission which is paid depending on the time the investor stays
with the fund.
HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY
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. The history of mutual funds in India can be broadly
divided into four distinct phases.

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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)
1987 marked the entry of non- UTI, public sector mutual funds set up by
public sector banks and Life Insurance Corporation of India (LIC) and
General Insurance Corporation of India (GIC). SBI Mutual Fund was the
first non- UTI Mutual Fund established in June 1987 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 established its mutual fund in June 1989 while GIC had
set up its mutual fund in December 1990.
At the end of 1993, the mutual fund industry had assets under management
of Rs.47,004 Crores.
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.

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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 – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities. One is the Specified
Undertaking of the Unit Trust of India with assets under management of
Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme, assured return and certain other schemes. 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 assets under management 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.153108 Crores under 421 schemes.
The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT

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Note:
While UTI was bifurcated into UTI Mutual Fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The
Assets under management of the Specified Undertaking of the Unit Trust of
India has therefore been excluded from the total assets of the industry as a
whole from February 2003 onwards.
The Assets Under Management of UTI was Rs. 67bn. by the end
of 1987. The performance of mutual funds in India through figures is
appreciable. 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

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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 scandal, the losses by disinvestments and of course
the lack of transparent rules in the whereabouts rocked confidence among the
investors.
Funds now have shifted their focus to the recession free sectors
like pharmaceuticals, FMCG and technology sector. Funds performances are
improving. Funds collection, which averaged at less than Rs100bn per
annum over five-year period spanning 1993-98 doubled to Rs210bn in 1998-
99. In the 2000 mobilization had exceeded Rs300bn. Total collection for the
financial year ending March 2000 reached Rs450bn.
India had been at the first stage of a revolution that has already
peaked in the U.S. The U.S. boasts of an Asset base that is much higher than
its bank deposits. In India, mutual fund assets are not even 10% of the bank
deposits, but this trend is beginning to change. The figures indicate that in
the first quarter of the year 1999-2000 mutual fund assets went up by 115%
whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial
Express September, 99) This is forcing a large number of banks to adopt the
concept of narrow banking wherein the deposits are kept in Gilts and some
other assets which improves liquidity and reduces risk. The basic fact lies
that banks cannot be ignored and they will not close down completely. Their
role as intermediaries cannot be ignored. It is just that Mutual Funds are
going to change the way banks do business in the future
TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its
investment objective.

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By Structure:
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. The key feature of open-
end schemes is liquidity.
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.
Interval Funds
Interval funds combine the features of open-ended and close-ended schemes.

They are open for sale or redemption during pre-determined intervals at NAV
related prices.
By Investment Objective:
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

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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.
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.
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.
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

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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.
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.
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.
Other Schemes:
Tax Saving Schemes
These schemes offer tax rebates to the investors under specific provisions of
the Indian Income Tax laws as the Government offers tax incentives for
investment in specified avenues. Investments made in Equity Linked Savings
Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of
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the Income Tax Act, 1961. The Act also provides opportunities to investors to
save capital gains u/s 54EA and 54EB by investing in Mutual Funds,
provided the capital asset has been sold prior to April 1, 2000 and the amount
is invested before September 30, 2000.
Special Schemes
Industry Specific Schemes
Industry Specific Schemes invest only in the industries specified in the offer
document. The investment of these funds is limited to specific industries like
InfoTech, FMCG, and Pharmaceuticals etc.
Index Schemes
Index Funds attempt to replicate the performance of a particular index such

as the BSE Sensex or the NSE 50.
Sectoral Schemes:- Sectoral Funds are those, which invest exclusively in a

specified industry or a group of industries or various segments such as 'A'
Group shares or initial public offerings.
BANKS V/S MUTUAL FUNDS:
Mutual Funds are now also competing with commercial banks in the race for
retail investor’s savings and corporate float money. The power shift towards
mutual funds has become obvious. The coming few years will show that the
traditional saving avenues are losing out in the current scenario. Many
investors are realizing that investments in savings accounts are as good as
locking up their deposits in a closet. The fund mobilization trend by mutual
funds indicates that money is going to mutual fund in a big way.

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India is at the first stage of a revolution that has already peaked in the U.S.
The U.S. boasts of an Asset base that is much higher than its bank deposits.
In India, mutual fund assets are not even 10 per cent of the bank deposits, but
this trend is beginning to change. This is forcing a large number of banks to
adopt the concept of narrow banking wherein the deposits are kept in Gilts
and some other assets which improves liquidity and reduces risk. The basic
fact lies that banks cannot be ignored and they will not close down
completely. Their role as intermediaries cannot be ignored. It is just that
mutual funds are going to change the way banks do business in the future.
CATEGORY BANKS MUTUAL FUNDS

Returns Low High
Administrative exp. High Low
Risk Low Moderate
Investment options Less More
Network High penetration Low but improving
Liquidity At a cost Better
Quality of assets Not transparent Transparent
Interest calculation Minimum balance Everyday
between 10th & 30th of
every month
Guarantee Maximum Rs.1 lakh on None
deposits
BENEFITS OF MUTUAL FUND INVESTMENT

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Professional Management
Mutual Funds provide the services of experienced and skilled
professionals, backed by a dedicated investment research team that analyses
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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.
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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 manager's 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
high-grade 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.
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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.
RISKS ASSOCIATED WITH MUTUAL FUNDS
The most important relationship to understand is the risk-return trade-off. Higher
the risk greater the returns/loss and lower the risk lesser the returns/loss.

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Hence it is upto you, the investor to decide how much risk you are willing to take.
In order to do this you must first be aware of the different types of risks involved
with your investment decision.
MARKET RISK
Sometimes prices and yields of all securities rise and fall. Broad outside
influences affecting the market in general lead to this. This is true, may it be big
corporations or smaller mid-sized companies. This is known as Market Risk. A
Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost
Averaging (“RCA”) might help mitigate this risk.
CREDIT RISK
The debt servicing ability (may it be interest payments or repayment of principal)
of a company through its cashflows determines the Credit Risk faced by you. This
credit risk is measured by independent rating agencies like CRISIL who rate
companies and their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’
rating is considered poor credit quality. A well-diversified portfolio might help
mitigate this risk.

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INFLATION RISK
Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100
tomorrow.” “Remember the time when a bus ride costed 50 paisa?” “Mehangai Ka
Jamana Hai.”
The root cause , Inflation. Inflation is the loss of purchasing power over time. A lot
of times people make conservative investment decisions to protect their capital
but end up with a sum of money that can buy less than what the principal could at
the time of the investment. This happens when inflation grows faster than the
return on your investment. A well-diversified portfolio with some investment in
equities might help mitigate this risk.
INTEREST RATE RISK
In a free market economy interest rates are difficult if not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest
rates rise the prices of bonds fall and vice versa. Equity might be negatively
affected as well in a rising interest rate environment. A well-diversified portfolio
might help mitigate this risk.
POLITICAL RISK

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Changes in government policy and political decision can change the investment
environment. They can create a favorable environment for investment or vice
versa.
LIQUIDITY RISK
Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid
securities. You have been reading about diversification above, but what is it?
Diversification The nuclear weapon in your arsenal for your fight against Risk. It
simply means that you must spread your investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits etc.) and
different sectors (auto, textile, information technology etc.). This kind of a
diversification may add to the stability of your returns,
ACCOUNTING AND VALUATION
Net Asset Value (NAV)
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
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unit in the fund. It is calculated simply by dividing the net asset value of the
fund by the number of units. However, most people refer loosely to the NAV
per unit as NAV, ignoring the “per unit”. We also abide by the same
convention.
Calculation of Net Asset Value
The most important part of the calculation is the valuation of the assets
owned by the fund. Once it is calculated, the NAV is simply the net value of
assets divided by the number of the units outstanding. The detailed
methodology for the calculation of the net asset value is given below:
NAV = Market value of investments
+ Current assets and other assets
+ Accrued income
- Current liabilities and other liabilities
- Accrued expenses
BETA RATIO
A high beta is good or bad depending on the state of the market. If the market
sentiments are bullish, i.e., the market is seeing a rise in general, then a high
beta stock is better and if the market sentiment is bearish then low beta is
preferred.
A beta of 1 indicates that the security's price will move with the market. A
beta less than 1 means that the security will be less volatile than the
market. A beta greater than 1 indicates that the security's price will be
more volatile than the market.
R_SQUARED
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A statistical measure that represents the percentage of a fund's or

security's movements that are explained by movements in a benchmark
index. R-squared values range from 0 to 100. An R-squared of 100 means
that all movements of a security are completely explained by movements in
index
A higher R-squared value will indicate a more useful beta figure.
SHARP RATIO
High returns are generally associated with a high degree of volatility. The
Sharpe ratio represents this trade off between risk and returns. At the same
time it also factors in the desire to generate returns, which are higher than
those from risk free returns.
The greater a portfolio's Sharpe ratio, the better its risk-adjusted

performance is.
Sharpe Index = (Ri – Rf) / Si

Where,
Ri = Return on Fund.
Rf = Risk free rate of Return.
Si = Standard Deviation of the fund.
EXPENSE RATIO
The percentage of total fund assets that is used to cover expenses associated
with the operation of a mutual fund. This amount is taken out of the fund's
assets and lowers the return that fund holders achieve. These expenses
include management fees and operating expenses

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. So lesser the expense ratio the better it is for the investors
GROWTH IN INDIAN MUTUAL FUND INDUSTRY

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CHAPTER-3
MAJOR PLAYERS IN MUTUAL FUNDS INDUSTRY
ABN AMRO Mutual Fund

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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 A G is the custodian of ABN AMRO Mutual Fund.
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.
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.
HDFC Mutual Fund
HDFC Mutual Fund was setup on June 30, 2000 with two sponsor namely
Housing Development Finance Corporation Limited and Standard Life
Investments Limited.
HSBC Mutual Fund
HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and
Capital Markets (India) Private Limited as the sponsor. The Board of

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Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual
Fund.
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 and ING. The AMC,
ING Investment Management (India) Pvt. Ltd. was incorporated on April 6,
1998.
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. The Trustee Company formed is Prudential
ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management
Company Limited incorporated on 22nd of June, 1993.
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.
State Bank of India Mutual Fund
State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to
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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.
Tata Mutual Fund
Tata Mutual Fund (TMF) 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 its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited
is one of the fastest in the country with more than Rs. 7,703 Crores (as on
April 30, 2005) of AUM.
Kotak Mahindra Mutual Fund
Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of

KMBL. It is presently having more than 1,99,818 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.
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 Crore. The sponsors of UTI Mutual

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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.
Reliance Mutual Fund
Reliance Mutual Fund (RMF) was established as trust under Indian Trusts
Act, 1882. The sponsor of RMF 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.
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.
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

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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.
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
(MSMF). This is the first close end diversified equity scheme serving the
needs of Indian retail investors focusing on a long-term capital appreciation.
Escorts Mutual Fund
Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance
Limited as its sponsor. The Trustee Company is Escorts Investment Trust
Limited. Its AMC was incorporated on December 1, 1995 with the name
Escorts Asset Management Limited.
Alliance Capital Mutual Fund
Alliance Capital Mutual Fund was setup on December 30, 1994 with
Alliance Capital Management Corp. of Delaware (USA) as sponsorer. The
Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital

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Asset Management India (Pvt.) Ltd. with the corporate office in Mumbai.
Benchmark Mutual Fund
Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial
Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt.
Ltd. as the Trustee Company. Incorporated on October 16, 2000 and
headquartered in Mumbai, Benchmark Asset Management Company Pvt.
Ltd. is the AMC.
Canbank Mutual Fund
Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank
acting as the sponsor. Canbank Investment Management Services Ltd.
incorporated on March 2, 1993 is the AMC. The Corporate Office of the
AMC is in Mumbai.
Chola Mutual Fund
Chola Mutual Fund under the sponsorship of Cholamandalam Investment &

Finance Company Ltd. was setup on January 3, 1997. Cholamandalam
Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC
Limited.
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.
GIC Mutual Fund
GIC Mutual Fund, sponsored by General Insurance Corporation of India

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(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.
Fidelity Investments
Fidelity Investments was founded in 1946. Fidelity Investments is an

international provider of financial services and investment resources that
help individuals and institutions meet their financial objejectives

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COMPETITION IN MUTUAL FUNDS INDUSTRY
The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline of
the companies floated by nationalized banks and smaller private sector
players.
Many nationalized banks got into the mutual fund business in the early
nineties and got off to a good start due to the stock market boom
prevailing then. These banks did not really understand the mutual fund
business and they just viewed it as another kind of banking activity. Few
hired specialized staff and generally chose to transfer staff from the parent
organizations. The performance of most of the schemes floated by these
funds was not good. Some schemes had offered guaranteed returns and
their parent organizations had to bail out these AMCs by paying large
amounts of money as the difference between the guaranteed and actual
returns. The service levels were also very bad. Most of these AMCs have
not been able to retain staff, float new schemes etc. and it is doubtful
whether, barring a few exceptions, they have serious plans of continuing
the activity in a major way.
The experience of some of the AMCs floated by private sector Indian

companies was also very similar. They quickly realized that the AMC
business is a business, which makes money in a long term and requires
deep-pocketed support in the intermediate years. Some have sold out to
foreign owned companies, some have merged with others and there is
general restructuring going on.
The foreign owned companies have deep pockets and have come in here
with the expectation of a long haul. They can be credited with introducing
many new practices such as new product innovation, sharp improvement
in service standards and disclosure, usage of technology, broker education
and support etc. In fact, they have forced the industry to upgrade itself
and service levels of organizations like UTI have improved dramatically
in the last few years in response to the competition provided by these.

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CHAPTER 4: OBJECTIVES AND METHODOLOGY
Significance:
Significance of the project is to find out prospect investors of Mutual Funds

and also to provide key information about the investor’s perception and
preferences by Mutual Fund industry. The study will help in getting
information about their performance at distributors as well as at their own
investment center or why people go for Mutual Fund for investments. Study
will also helps in finding out the problems related to distribution.
Managerial Usefulness of Study:
 The study also provides the problems related to distribution of Mutual

Fund so that they can improve the service rendered by them as a
distributor.
 The study will also give information about prospective investors both
individual as well as institutional clients in areas of surrey where they
can get lead.
 The study provides the complete information about all close

competitors in Mutual Fund investment.
 It provides the AMC a feedback from customers regarding their

problems and perception about investing in mutual funds so that they
can improve their services

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Objectives:
 To study the Mutual funds industry in detail
 To study the Investment procedure in Mutual funds
 To study the Accounting and Valuation methods of Mutual

Funds
 To study in brief various Mutual funds promoted by Religare
 To study the investors Preference regarding Investment in

Mutual Funds
Scope of the Study:
 In current scenario, the bank rates have been cut down rapidly due to
severe competition, so people are not going for contemporary deposits
because that cannot provide them the better returns or the desired interest
rates. So, they can look for some other investment options like Mutual
Funds, which can provide them higher returns in medium to long term
and can easily meet their financial goals.
 To look out for new prospective customers who are willing to invest in
Mutual Funds.
Methodology:
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RESEARCH METHODOLOGY
I decided to do the project in two parts. The first part of the project is
comprised of the study of Mutual Funds as a whole and the second part deals
with the investors perception regarding their investment preferences about
investment in Mutual Funds.
The first part of the project i.e. descriptive study is comprising an
overall study of Mutual funds as what it is ,why to invest and where to
invest,risk factor associated with it ie,an overview of whole Mutual fund
industry.
The second part of the project that is related to investors perception
about investment in Mutual funds available in market. Indian Stock market
has undergone tremendous changes over the years. Investment in Mutual
Funds has become a major alternative among Investors. The project has been
carried out to understand investor’s perception about Mutual Funds in the
context of their trading preference and explore investor’s risk perception .
The first part of the project relating the study of Mutual funds is collected
through secondary data obtained from internet & books whereas the second
part relating the Investors perception about investment in Mutual Funds is
covered using primary data.
SOURCE OF DATA COLLECTION
Both Primary and Secondary data are required
Primary data is the first hand information collected directly from the
respondents . The tool used here is questionnaire. Primary Data is collected
through survey among existing clients along with the other investors
Secondary data is collected through internet , books
I had prepared a questionnaire for collecting information about second part

of the project.
Top Performers for the Quarter Ended 22nd November 2006

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Qrtly Return Annual

Category Scheme
% Return %
OpenEnded
EquityDerivative JM Arbitrage Advantage Fund 1.70 NA
EquityDiversified DBS Chola Opportunities Fund 31.53 49.34
EquityELSS Birla Sun Life Tax Relief 96 22.43 50.17
EquityIndex Bank BeES 37.51 46.35
FOF Kotak Equity FOF 15.27 45.81
SectoralAuto J M Auto Sector Fund 16.96 27.22
SectoralBank UTI Banking Sector Fund 32.93 39.76
SectoralBasic UTI Petro Fund 7.97 21.43
SectoralFMCG Prudential ICICI FMCG Fund 8.94 36.67
SectoralHealthcare J M Healthcare Sector Fund 2.50 14.99
SectoralInfrastructure Tata Infrastructure Fund 23.58 73.52
SectoralMedia and
Reliance Media and Entertainment Fund 14.05 42.12
Entertainment
SectoralPharma Reliance Pharma Fund 6.57 29.72
SectoralPower Reliance Diversified Power Sector Fund 25.96 66.96
SectoralServices Prudential ICICI Services Industries Fund 29.47 NA
SectoralTMT DSP Merrill Lynch Technology.com Fund 27.24 52.55
FOF FT India Life Stage Fund of Funds The 40s Plan 5.69 17.37
Gilt Prudential ICICI Gilt fund Investment Plan PF 6.22 10.76
Income Cancigo 7.75 20.57
Liquid J M Short Term Fund Institutional Plan 1.86 6.10
MIP ABN AMRO Monthly Income Plan 5.99 11.39
Balanced Principal Child Benefits FundCareer Builder 17.98 43.71
FOF Birla AAF Moderate Plan 11.15 28.70
CloseEnded
EquityDiversified UTI MEP Unit Scheme 20.12 54.65
EquityELSS Franklin India Taxshield 99 17.43 48.22
Franklin Templeton Fixed Tenure Fund Series IV
Income 7.65 NA
(60 Month Plan)
Prudential ICICI FMP Series 28 3 Month Plan
Liquid 1.97 NA
FII Option
Benchmark Split Capital Fund Preferred Units
Balanced 8.98 21.96
(Class A)
FOF Kotak Flexi FOF

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DEBT FUNDS
EQUITY FUNDS

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INCOME FUNDS
ELSS FUNDS

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DATA
ANALYSIS
AND
INTERPRET
ATION

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INVESTMENT IN MUTUAL FUNDS
9%
yes
28% no
63% earlier,now
stopped
Interpretation:- The major part of the sample taken has invested in the
Mutual Funds. The demand for the mutual funds have increased in the past
few years with many Foreign players entering in the Indian market, Fidelity,
Franklin Templeton, DSP Meryll Lynch to name few. Still there are few who
are not investing in MF.

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EXPERIENCE IN THE MARKET
Experience
Less Than a Year

26%
1-4 Years
53%
21% More Than 4

Years
Interpretation:- The experience in the market was the factor which

influenced the investments. There are very few who have experience of less
than a year. These are those investors who entered into the market after
noticing the rise in the market. The achievement of 12,000 mark by SENSEX
was motivational force in this. Major part was having vast experience that is
of more than 4 years. These are the ones who have been in the market and
saw it rising to conquer the 10.000 peak

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Trading Preference of the Investors
Trading Preference
16% 28%
Speculation
Investment
Both
56%
Interpretation:- The presence in the market is because of two reasons.

Either the investors prefer to speculate and benefit out of it or it is simply to
have it as one more investment avenue just like the fixed deposits, etc. Main
purpose of investment in MF by people was not to speculate. They
considered it as a safer avenue for investment rather than going to Share
Market which is much risky as compared to MF. Few still prefer to speculate
and wait for NAVs to appreciate.
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Average Investment Period of Investors
Average Investment Period
50% 42%
23% 25%
10%
S1
0%
Less Than 3-9 Months 9 months - More Than
3 months 2 Year 2 Year
Investment Period
Less Than 3-9 Months 9 months - More Than

Series1 23% 10% 42% 25%
Interpretation:- The investment period is very important to increase the

profits. The timing must be right enough to benefit from fluctuations. The
smart investor decides it in advance for how much time he would be keeping
his money in the market and when he should leave squaring-up. Many people
consider the investment for 9 months – 2 years as a right option. Still some

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want to be invested for over 2 years. The least responded to the 3-9 months
period.
Factors Influencing the Investment Decision of Investors
Factors Influencing Investment
40%
32% 30%
30%
20% 20%
10% 10%
6%
2%
0%
Broke News Magzi Frien Self Other
Series1 32% 10% 6% 20% 30% 2%
Interpretation:- There are many factors which influence the investment

decision of the investors. It may be the current news (political, technological,
financial, etc.), Magazines, friends, etc. in the study it proved that many
people trust the brokers most for the investment decisions. These are the ones
who have less experience. The “Self-Evaluation” is the next major factor.
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The experienced person trust himself thereafter he/she invests. Magazines

and current News also matters. Any bad news can make a person change
his/her decision.
RISK TAKING
Moderate
High
Low
0% 20% 40% 60%
Interpretation:- “The higher the Risk, the more the Profits”. The people
need to take the risk to enjoy the benefits. Some investors were willing to
take lower risk and this was the reason they gave for investing in the MF.
Most of the people would like moderate level of risk in there investments.

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Expected Rise in Income
Expected Rise In Income
8%
12%
Upto 15%
48%
15-25%
25-35%
32% More than 35%
Interpretation:- The optimism is shown in the attitude of the respondents.

The confidence was appreciable with which they are looking forward to a
rise in their investments. Major part of the sample feels that the rise would be
of around 15%. Only 8% of the respondents were confident enough to expect
a rise of upto 35%.

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Preference In Mutual Funds
Preference in Mutual Funds

Equity Balanced Income Money Market
ELSS SIP Others
2% 19%
17%
15% 18%
9%
20%
Interpretation:- There are different types of mutual funds available in the

market according to the needs of the investors. There are Equity funds, SIP,
Income Funds, Balanced Funds, etc. The highest sought after fund is the
Income fund which offers a regular income through investments in the Govt.
Bonds. The risk is also low in this. It was followed by the Equity Fund which
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offers higher returns but it is riskier also. Some people would like to have
Equity Linked Saving Schemes (ELSS). This provides some exemption in
the Tax also.
Investor’s willingness to take Loss
Loss Willing To Take
60% 53%
50%
40% 35%
Percentage 30%
20%
12%
10%
0%
Less than 5% 5-10% More Than
10%
Category
Interpretation:- The willingness to bear the loss was not high. Most of the
investors were not willing to bear a loss of more than 5%. Very few agreed to

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be able to bear a loss of more than 10%. The desire for having profits is
higher but nobody was ready to take loss.
Types of Schemes
Type of Schemes
44%
56%
Closed Ended Funds Open Ended Funds
Interpretation:- The schemes offered in the market are of two types, closed
ended and open ended. The more demand was for the Close ended funds with
a locking period of around 2-3 years. The exit load refrain the person from
quitting earlier.

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BRAND NAME EFFECTIVENESS
56%
60%
50%
40%
30% 23% 21%

20%
10%
0%
Interpretation:- From the data collected it is clear that most of the

people are not influenced by the company name while investing in
a Fund

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INFLUENCE
60% 56%
50%
40%
30%
23% 21%
20%
10%
0%
BY NAV RETURNS Both
Interpretation:- From the data collected it is clear that most of

people look at the returns that the Mutual funds are providing .They
look at the returns not the current NAV
However there is some class of people who look at these
parameters and their percentage is 23% and some consider both
factors while investing in funds and their percentage is 21%.

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FINDINGS
The study done was a tool to analyze the present setup and to
know the investors perception regarding investment in Mutual Funds . The
study proved fruitful and many facts came to the light. The following were
the findings of the study:
• People with less experience were inclined towards investment in the

Mutual Funds. It attracted as a safer avenue as compared to share
market.
• 48% respondents reflected confidence and optimism in the context of

their investments.
• Mutual Funds are more of an investment option than the speculative

avenue. People tend to gain through long investments rather than
through short term.
• Income funds and ELSS are among the few top funds
.
• People are not willing to take much risk and bear loss.
• Broker’s advice matters to as much as 32% of the people. Major part

of people preferred self-evaluation as best.

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Most of the people look at the returns that are given by a Funds56% are
in this favour and only 23% people are there who consider Fund name
and current NAV of the fund before investing into a Mutual Fund
Experience was the main factor that made a person invest in mutual funds
LIMITATIONS
There were certain limitations faced during the study.
 Some people were not willing to disclose the investment profile
 .The biased ness was being taken care of.
 The area of sample was decided after taking into consideration the
major factors like
 Availability of investors
 Approachability,
 Time available with investor for interaction, etc.

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ANNEXURE – 1
QUESTIONNAIRE
Name: ...…………………….. Occupation: ………………………

Phone: ...……………………..
Investment Presently Held:
Please list the value of the assets in your total investments portfolio :( in Rs.)
Stocks: ______ Mutual Funds: _______

Bonds: ______ Bullion: _______
Options: ______ Govt. Securities:_______
Real Estate: ______ Bank Deposits: _______
(1) Over the next 3-5 years, do you expect your annual income to
change?
Increase Decrease Remain the
same

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(2) Do you invest in Mutual Funds?
Yes No Earlier,
now stopped
(3) What is your Experience in the market?

Less than a year 1-4 years More than
4 years
(4) What is your Trading Preference?

Speculation Investment Both
(5) What is your Average investment period?

Less than 3 months. 3 to 9 months.
9 months to 2 year. More than 2 year.
(6) Factors influencing the investment decisions?

Advice from Broker Current news Reviews in
Financial Magazines Advice from Friends Self
Evaluation Others___________
(7) How much Risk are you willing to take?

High Low Moderate
(8) What is your preference in Mutual Funds?

A. Equity. B. Income
C. Money Market Funds D. ELSS
E. Balanced Funds F. SIP
G. Others

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(9) How much Appreciation do you expect from your

Investments?
up to 15% 15%-25% 25%-35% more than
35%
(10) How much loss are you willing to take?

High Moderate Low
(11) Which type of Mutual funds do you prefer?

Open Ended Schemes Closed Ended Schemes
(12) Do you get influenced by the name of Company promoting Mutual

Funds?
No Yes
(13) Do u get influenced by the returns given by a fund or by the current

NAV of a fund?
By NAV By Returns Both
(14) Any suggestions:

……………………………………………………………........
…………………………………………………………………

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BIBLIOGRAPHY
Sites visited
1. www.anand rathi .in
2. www.mutualfundsindia.com
3. www.indiainfoline.com
4. www.amfiindia.com
5. www.sebi.gov.in
Books Referred
amfi Mutual Fund

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PAR T – B

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ON THE JOB
TRAINING
CONTENTS
Title of the On Job Training
Objectives
Target/ Task Assigned
Strategies Applied
Achievements
Limitations

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Conclusion
Corporate learning
Recommendations
ON THE JOB TRAINING
Title
To generate leads by telecalling, canopies, presentations at various

Banks or corporate offices & also by personal meetings and to
close the deal along with the handling of the customer’s queries
regarding share trading, account opening and maintenance,
software installation and demonstration .
Objectives

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• To create awareness among the people about the different

products offered by the company in the market through
telecalling, canopies, presentations etc.
• To generate leads for endorsement of deals.
• To accompany the ‘relationship manager’ on his visits to the

prospective clients.
• To open demat accounts.
• To learn how to work in a team.
• To acquaint myself with the work culture.
• To understand the operating terminals of both equity &

commodity market.
• To learn the trading procedures of equity & commodity

market.
Target/Task
• Overall Target: To generate business and gain experience in the tenure

of two months of summer internship project.

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Strategy
To achieve a goal successfully one needs to sketch a perfect roadmap or

strategy to the destination and also need to follow the path strictly. The
strategies applied to achieve the above mentioned targets are –
1 Hunt for prospective customers through following Marketing Strategies:-
 Telecalling
 Arranging Canopy
 Personal Visits
 Clients References
 Promotional Activities
 Database provided by the co. or yellow pages.
Achievements
 Applauded for managing the task of Account Opening efficiently.

.
 Opened 10 D-Mat and Trading Accounts which is an achievement.
 Given business of Rs. 4,00,000 through margin money .
 Generated revenues for the organization by performing heavy trading

on behalf of the self developed clients.
I took an active part in CANOPY ACTIVITY at ANAND RATHI, JAMMU.

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LIMITATION
 Being a service industry, the quality is main concern in

differentiation and it is not exactly measurable.
CONCLUSIONS
• In a nutshell, I have learned various practical aspects of trading in the

stock market.
• I have made about 50-100 calls per day in the initial days of training
so as to generate maximum leads.
• In addition, I did personal meetings with clients in order to close the

deals.
• I handled the queries of both the new & existing clients of the
company pertaining to different issues like opening of accounts,
trading procedures etc.
• I also assisted in executing trades from the existing clients so as to get

brokerage for the company.
• I also took part in canopy activity at ANAND RATHI, JAMMU

I also took part in presentations at various banks.

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CORPORATE LEARNINGS
To be a part of Anand Rathi was the best opportunity for me to had:
 A practical exposure of Financial world.
 Independently handling of clients.
 Came to know the practical problems of clients.
 Learnt the technical procedures and analysis of various research
systems, such as marketing research and equity research.
 Learnt corporate culture.
Recommendations
What I recommend firstly there should be
[1] First Aid Kit for New Entrant into Securities Market
this will be a new step towards a good service provider in this

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field. After all, this market depends on the after sales service.
After seeing such a boost in the share market, not only our
Adult generation but also the young generation is also so
much excited to enter the share market. Now the actual
problem starts specially with the young ones in excitement
initially they invests the money & due to lack of experience
they loose big block of money in one go & later they blames
the company about the loss. So, to make them train in the
field we should provide them the initial precautions that they
should take while enter into the market.
“The More You Care For Your Customer More The Faith
Will Get Develop From Customer Side”
[2] Provision for Class Room training for the new

investors for the above reason same thing to boost there
moral and to give them some thing related to the market will
help them. Also some tips can also be given to these investor
during the session as a precautions.
[3] Toll Free Number customers generally want to call to

the respective branch for asking some problems or give
orders, a customer can save the money by dialing on the toll
free number. It gives a feeling to the customer that company
care for them.
[4] Customer Care for general query handle initially

customer want to solve his or her problem at the moment as
it arises. Our relationship manager many times don’t have
that much time to discuss all that details on phone, they may

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sometime get busy with the meeting with client. So for

general query handle we can have a separate section.
(5) More Appointments of Relationship managers There should

be more appointments pf RM so that every customer get
equalized attention
Note:
The recommendations which I have listed here above are
strictly based on the knowledge of the securities market that
I have acquired during my training of two months duration.
All the recommendations are for the improvement in the
functioning of the front end operations of the Anand Rathi
securities Ltd. (Jammu Branch).
The recommendations are purely based on the problems that
I had faced as a Management Trainee.

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SUMMER INTERNSHIP PROJECT

A REPORT ON DESCRIPTIVE STUDY OF MUTUAL

ANAND RATHI SECURITIES

Dr. Ravi Kumar Gupta

DESCRIPTIVE STUDY OF MUTUAL FUNDS 1

I, Jimy Ganhar, student of M.B.A , here by declare that

I further declare that all the facts and figures

DESCRIPTIVE STUDY OF MUTUAL FUNDS 2

“Expression of feelings by words

I would thank to my project guide Dr. Ravi Kumar Gupta for

I would also like to thank my co employees who gave

DESCRIPTIVE STUDY OF MUTUAL FUNDS 3

CHAPTER 1 1.0 Summary

CHAPTER 2 2.0 INTRODUCTION

2.1 Overview of Indian Mutual Fund Industry

3.0 MAJOR PLAYERS

CHAPTER 4 OBJECTIVES AND METHODOLOGY

DESCRIPTIVE STUDY OF MUTUAL FUNDS 4

4.1 Significance of the Study

CHAPTER 5 5.1 DATA ANALYSIS AND INTERPRETATION

CHAPTER 6 6.1 Annexure

DESCRIPTIVE STUDY OF MUTUAL FUNDS 5

Indian Stock market has undergone tremendous changes over the

The methodology used was data collection using Schedule.

The research design is analytical in nature. A

DESCRIPTIVE STUDY OF MUTUAL FUNDS 6

The firm's philosophy is entirely client centric, with a clear focus on

In year 2007 Citigroup Venture Capital International joined the group as a

DESCRIPTIVE STUDY OF MUTUAL FUNDS 7

Equity & Derivatives Brokerage

Started activities in consulting and Institutional equity sales with staff of 15

Set up a research desk and empanelled with major institutional investors

Introduced investment banking businesses

Retail brokerage services launched

DESCRIPTIVE STUDY OF MUTUAL FUNDS 8

Lead managed first IPO and executed first M & A deal

Initiated Wealth Management Services

Retail business expansion recommences with ownership model

Wealth Management assets cross Rs1500 crores

Insurance broking launched

Launch of Wealth Management services in Dubai

Retail Branch network exceeds 50

Commodities brokerage and real estate services introduced

Wealth Management assets cross Rs3000crores

Retail Branch network expands across 100 locations within India

Real Estate Private Equity Fund Launched

Retail Branch network expands across 200 locations within India

2007:Citigroup Venture Capital International picks up 19.9% equity stake

Retail customer base crosses 100 thousand

Establishes presence in over 350 locations

DESCRIPTIVE STUDY OF MUTUAL FUNDS 10

AR brings together a highly professional core management team that comprises of

DESCRIPTIVE STUDY OF MUTUAL FUNDS 11

Mr. Anand Rathi - Group Chairman

Mr. Pradeep Gupta - Vice Chairman