Summer Training Report

Submitted in

The Partial fulfilment of

Master of Business Administration

Session 2018-2019

Submitted by: Under Guidance of:

Km. Shakshi Chaudhary Dr. Sandeep Kapoor

MBA III Semester

Roll No 1706870045

MEERUT INSTITUTE OF ENGINEERING

AND TECHNOLOGY, MEERUT

1
 CERTIFICATE

This is to certify that Km. Shakshi Chaudhary, a student of Masters of

Business Administration (2017-2019), Meerut Institute Of Engineering and
Technology, University of AKTU,has undertaken the summer internship project
under my guidance for the project title “Mutual Fund”.

To the best of my knowledge, this research work is original and no part of this
report has been submitted by the student earlier to any institution / university.

Mentor’s signature Candidate’s signature

2
 DECLARATION

I, Km. Shakshi Chaudhary the student of Master of Business Administration, MEERUT

INSTITUTE OF ENGINEERING AND TECHNOLOGY,MEERUT- Semester 3rd (2018-19)

hereby declare that, I have completed this project on “A STUDY ON MUTUAL FUND.” It

is based on primary and secondary data found by me in various books and websites.

The submitted information is true & original to the best of my knowledge.

Date: Student’s Signature

Place:
(Km. Shakshi Chaudhary)

Roll No. 1706870045

3
 ACKNOWLEDGEMENT

Every project big or small is successful largely due to the effort of a number of
wonderful people who have always given their valuable advice or lent a helping
hand. I sincerely appreciate the inspiration; support and guidance of all those
people who have been instrumental in making this project a success.

The internship opportunity I had with PLUTUS ADVISORY SERVICES ltd.

was a great chance for learning and professional development. Therefore, I
consider myself as a very lucky individual as I was provided with an
opportunity to be a part of it. I am also grateful for having a chance to meet so
many wonderful people and professionals who led me though this internship
period .

I also to express my love and sincere thanks to my family members for their
support and advice during various stage of work. I also extend my gratitude to
the respondents of my survey for their kind co-operation. But last not the least I
thank God almighty for giving me the support for the completion of the task.

I express my deepest thanks to MR. ISHMEET SIR for giving necessary

advices and precious guidance which were extremely valuable for my study
both theoretically and practically. I choose this moment to acknowledge their
contribution gratefully.

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 EXECUTIVE SUMMARY

A mutual fund is a scheme in which several people invest their money for a common

financial cause. The collected money invests in the capital market and the money, which they

earned, is divided based on the number of units, which they hold.

The mutual fund industry started in India in a small way with the UTI Act creating what was

effectively a small savings division within the RBI. Over a period of 25 years this grew fairly

successfully and gave investors a good return, and therefore in 1989, as the next logical step,

public sector banks and financial institutions were allowed to float mutual funds and their

success emboldened the government to allow the private sector to foray into this area.

The advantages of mutual fund are professional management, diversification, economies of

scale, simplicity, and liquidity.

The disadvantages of mutual fund are high costs, over-diversification, possible tax

consequences, and the inability of management to guarantee a superior return.

The biggest problems with mutual funds are their costs and fees it include Purchase fee,

Redemption fee, Exchange fee, Management fee, Account fee & Transaction Costs. There are

some loads which add to the cost of mutual fund. Load is a type of commission depending on

the type of funds.

Mutual funds are easy to buy and sell. You can either buy them directly from the fund

company or through a third party. Before investing in any funds one should consider some

factor like objective, risk, Fund Manager’s and scheme track record, Cost factor etc.

5
There are many, many types of mutual funds. You can classify funds based Structure (open-

ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth,

income, money market) etc.

A code of conduct and registration structure for mutual fund intermediaries, which were

subsequently mandated by SEBI. In addition, this year AMFI was involved in a number of

developments and enhancements to the regulatory framework.

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.

Reliance Mutual Fund, UTI Mutual Fund, ICICI Prudential Mutual Fund, HDFC Mutual

Fund and Birla Sun Life Mutual Fund are the top five mutual fund company in India.

Reliance mutual funding is considered to be most reliable mutual funds in India. People want

to invest in this institution because they know that this institution will never dissatisfy them at

any cost. You should always keep this into your mind that if particular mutual funding

scheme is on larger scale then next time, you might not get the same results so being a careful

investor you should take your major step diligently otherwise you will be unable to obtain the

high returns.

6
 NEED FOR THE STUDY

The main purpose of doing this project was to know about mutual fund and its functioning.

This helps to know in details about mutual fund industry right from its inception stage,

growth and future prospects.

It also helps in understanding different schemes of mutual funds. Because my study depends

upon prominent funds in India and their schemes like equity, income, balance as well as the

returns associated with those schemes.

The project study was done to ascertain the asset allocation, entry load, exit load, associated

with the mutual funds. Ultimately this would help in understanding the benefits of mutual

funds to investors.

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 OBJECTIVE:

To give a brief idea about the benefits available from Mutual Fund investment.

To give an idea of the types of schemes available.

To discuss about the market trends of Mutual Fund investment.

To study some of the mutual fund schemes.

To study some mutual fund companies and their funds.

Observe the fund management process of mutual funds.

Explore the recent developments in the mutual funds in India.

To give an idea about the regulations of mutual funds.

8
 CONTENTS

SR. No. TOPICS

1. COMPANY PROFILE

2. INTRODUCTION OF MUTUAL FUND

3. WORKING OF MUTUAL FUND

4. MUTUAL FUND IN INDIA

5. RELIANCE MUTUAL FUND vs. UTI MUTUAL

FUND

6. MUTUAL FUND vs. OTHER INVESTMENT

7. FUTURE PROSPECT OF MUTUAL FUNDS IN

INDIA

8. MUTUAL FUND JARGON

9. RESEARCH METHODOLOGY

10. FINDINGS AND SUGGESTION

11. CONCLUSION

12. QUESTIONNAIRE

13. BIBLIOGRAPHY

9
10
 COMPANY PROFILE

Plutus Investment Advisory Services Private Limited is a Private

incorporated on 02 May 2008. It is classified as Non-govt company and
is registered at Registrar of Companies, Chennai. Its authorized share
capital is Rs. 20,000,000 and its paid up capital is Rs. 799,800.It is
inolved in Activities auxiliary to financial intermediation, except insurance
and pension funding.[This Group includes activities involved in or closely
related to financial inter-mediation other than insurance and pension
funding but not themselves involving financial inter-mediation].

Plutus Investment Advisory Services Private Limited's Annual General

Meeting (AGM) was last held on 26 September 2016 and as per records
from Ministry of Corporate Affairs (MCA), its balance sheet was last filed
on 31 March 2016.

11
 Directors of PLUTUS INVESTMENT ADVISORY SERVICES
PRIVATE LIMITED

Name Designation Date of Appointment

RANGARAJAN RADESH 02 May 2008

Managing Director

GOVINDARAJ 02 May 2008

Director

COMPANY DETAILED

CIN U67190TN2008PTC067611

Company PLUTUS INVESTMENT ADVISORY SERVICES

Name PRIVATE LIMITED

Company Active
Status

RoC RoC-Chennai

Registration 67611
Number

Company Company limited by Shares

Category

Company Sub Non-govt company

Category

Class of Private
Company

Date of 02 May 2008

Incorporation

Age of 10 years, 5 month, 21 days

Company

12
CIN U67190TN2008PTC067611

Activity Activities auxiliary to financial intermediation,

except insurance and pension funding.[This Group
includes activities involved in or closely related to
financial inter-mediation other than insurance and
pension funding but not themselves involving
financial inter-mediation].
Click here to see other companies involved in same
activity.

Restoring faith in financial services

Another myth they want to explode is that financial advice is full of aggressive
salespeople. ‘We had someone from a life company here recently asking why we
didn’t use these pushy techniques. But that’s not us,’ says Yiend. ‘We tell clients
what the options are and say what we think they should do, but all decisions are up
to them.’

Partridge adds: ‘We aim to restore faith in financial services. The old-school sales
approach is one reason why people have lost that faith. We want to distinguish
ourselves from that.’

The mass-market approach feeds into this aim. ‘We have an open door policy which
is very different to other IFAs,’ says Partridge. ‘Everyone is trying to capture that
high-net-worth client and while we do have high-net-worth clients, we feel we are
really good at getting into that mass affluent area. We don’t want to reach a point
where we say we don’t need certain clients. We’re very happy for the other IFAs to
focus exclusively on high-net-worth clients, they can fight among themselves.’

Selling personality

Plutus has some lively characters among its staff, evidenced by their willingness to
be photographed in sporting apparel on the street outside their Cannon Street office.
The photographer had her hands full as the rugby balls started flying around!

The office, which overlooks St Paul’s Cathedral, is certainly a fun place to work, but
Plutus has a shrewd understanding of how to market these exuberant personalities
as a way of tapping into the mentality of younger clients brought up in the age of
celebrity.

All of Plutus’ nine staff have active lives outside work which involve an array of
exciting hobbies and activities from playing national level rugby and netball, to
triathlons and cross-country cycle rides. Forbes has taken part in the extreme
Marathon des Sables, one of the most gruelling events in the world.

13
All these exploits and some fun, Apprentice-style shots of the team walking across
the Millennium Bridge, feature prominently on a ‘meet the team’ section which has
become the most popular page on the firm’s website.

Breaking away from Twenty20 allowed these personalities to flourish, they say.
‘While at Twenty20, we all had a similar work ethos and way of dealing with clients,’
says Partridge. ‘We wanted to do something that was different and, being part of a
large [firm], it was difficult to get your personality across and do what you thought
was right.

‘It’s not just that we have hobbies, our personalities do make us different. If clients
are a similar age to us, that makes us very different to the average IFA. We want to
focus on that. People in their late 40s and early 50s will have advisers of similar
ages. [Under that age], there is a big gap full of people who do not know where to
go. That’s where we fit in.’

To enhance the ‘personality effect’, partners enter themselves into individual awards
as well as corporate ones. For example, Yiend was listed recently in the Square Mile
30under30 awards and Partridge was nominated in the Jaguar Women in the City
awards.

Advising young clients

Advising such a young client base requires a very different outlook. ‘One new client
chose us recently because we are young, up-and-coming and he wanted to go
through his journey with us,’ says Partridge. ‘We’re a growth company and they can
grow with us.’

Yiend adds: ‘We’re here for the journey. It is good seeing the changes. I have a
couple of clients who arrived as young, self-employed musicians earning about
£20,000 from teaching, so they needed help on that side. Now they have jobs in the
West End, and their salaries have tripled. For us, it is profitable as long as they can
cover our retainer. We take a long-term view. And we know that some clients may
not make us huge money now, but in five or 10 years’ time they will.’

Having said that, the firm makes a respectable profit already. Yiend says: ‘We are
keen on keeping costs low. That is the beauty of starting in a recession – everyone
was on top of the costs. We have fixed overheads for compliance and the back office
system, so the main expense is rent.’

Partridge adds: ‘Part of the reason why costs look so good is the retainer system.
Because we have that relationship, clients tend to do more with us. Each client will
not just do one piece of business, but four, five or six.’

Access to online portal and investment committee

The firm offers three levels of retained service which reflect the number of face-to-
face meetings clients receive, once, twice or four times a year. For this, they pay
between £30 and £100 a month plus a 1%-3% implementation fee scale and 0.5%
trail on investments.

14
Clients also receive access to an online portal, where they can view and update their
fact-finds and get valuations. There is also a 24-hour response promise for any
query.

Plutus uses Brewin Dolphin as a discretionary manager where it had £16 million
under management at last count. However, it created its own proposition, named the
Plutus Investment Committee (PIC), last year. This comprises four members of staff
who review client portfolios on a quarterly basis. They allocate clients into risk-based
portfolios and report back quarterly with changes, if necessary, which the clients
need to approve by email. PIC offers all clients the chance to have their portfolio
managed on a quarterly basis irrespective of the amount of investment that the client
makes.

Croxford has the IMC qualification but the firm does not have discretionary status
yet, it is looking at gaining that in the future, says Yiend.

The PIC service has just completed its fourth quarter and its balanced portfolio has
returned 14.55% as at 23 March, beating the 12.34% returned by its benchmark, the
FTSE APCIMS balanced portfolio. So far, the firm has added £3 million to PIC, with
an end-of-year target of £5 million.

Short on qualifications

Only three of the partners, Yiend, Forbes and Richards, are currently registered
advisers.

New staff member, Tom Diaper, started a week ago, and will become the fourth
registered adviser when the firm receives direct authorisation. (This is scheduled to
happen in April, currently it is with network Financial Limited). Another member of the
team, Gemma Stanbridge is set to be the fifth registered adviser.

Yiend admits that the biggest gap in the firm’s new model credentials is
qualifications. Currently only Forbes and Diaper have reached level four, Stanbridge
is four exams away and Yiend is still three exams away – he admits ‘it’s hard work’!

20% annual growth

Plutus aims to add £1 million a month to assets under management and keep
growing at the current rate of 20% a year or faster.

Partridge says: ‘One of our key aims is to develop Plutus Connections (with lawyers
and accountants), which will be a brand in itself, and there is a Nest project planned
for the summer. We think there’s a huge opportunity there.’

Yiend says: ‘When we go directly authorised our fixed costs will go up initially. But it
will give us more control and help us to grow, so over two to three years, we will
become more cost efficient again. Also you need to be independently authorised to
form connections with solicitors.’

15
16
17
 INTRODUCTION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an investor

with an investable surplus. He can invest in Bank Deposits, Corporate Debentures, and Bonds

where there is low risk but low return. He may invest in Stock of companies where the risk is

high and the returns are also proportionately high. The recent trends in the Stock Market have

shown that an average retail investor always lost with periodic bearish tends. People began

opting for portfolio managers with expertise in stock markets who would invest on their

behalf. Thus we had wealth management services provided by many institutions. However

they proved too costly for a small investor. These investors have found a good shelter with

the mutual funds.

 A mutual fund is created by the monetary contribution of numerous investors who

form a common fortune. Depending on the amount added by each investor, they
become owners of a corresponding part of the fortune in the form of units.

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CONCEPT OF MUTUAL FUND:

A mutual fund is a common pool of money into which investors place their contributions that

are to be invested in accordance with a stated objective. The ownership of the fund is thus

joint or “mutual”; the fund belongs to all investors. A single investor’s ownership of the fund

is in the same proportion as the amount of the contribution made by him or her bears to the

total amount of the fund Mutual Funds are trusts, which accept savings from investors and

invest the same in diversified financial instruments in terms of objectives set out in the trusts

deed with the view to reduce the risk and maximize the income and capital appreciation for

distribution for the members. A Mutual Fund is a corporation and the fund manager’s interest

is to professionally manage the funds provided by the investors and provide a return on them

after deducting reasonable management fees.

The objective sought to be achieved by Mutual Fund is to provide an opportunity for lower

income groups to acquire without much difficulty financial assets. They cater mainly to the

19
needs of the individual investor whose means are small and to manage investors portfolio in a

manner that provides a regular income, growth, safety, liquidity and diversification

opportunities

. DEFINITION:

“Mutual funds are collective savings and investment vehicles where savings of small (or

sometimes big) investors are pooled together to invest for their mutual benefit and returns

distributed proportionately”.

“A mutual fund is an investment that pools your money with the money of an unlimited

number of other investors. In return, you and the other investors each own shares of the fund.

The fund's assets are invested according to an investment objective into the fund's portfolio of

investments. Aggressive growth funds seek long-term capital growth by investing primarily

in stocks of fast-growing smaller companies or market segments. Aggressive growth funds

are also called capital appreciation funds”.

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Why Select Mutual Fund?

The risk return trade-off indicates that if investor is willing to take higher risk then

correspondingly he can expect higher returns and vise versa if he pertains to lower risk

instruments, which would be satisfied by lower returns. For example, if an investors opt for

bank FD, which provide moderate return with minimal risk. But as he moves ahead to invest

in capital protected funds and the profit-bonds that give out more return which is slightly

higher as compared to the bank deposits but the risk involved also increases in the same

proportion.

Thus investors choose mutual funds as their primary means of investing, as Mutual funds

provide professional management, diversification, convenience and liquidity. That doesn’t

mean mutual fund investments risk free.

This is because the money that is pooled in are not invested only in debts funds which are less

riskier but are also invested in the stock markets which involves a higher risk but can expect

higher returns. Hedge fund involves a very high risk since it is mostly traded in the

derivatives market which is considered very voliatile.

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RETURN RISK MATRIX

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23
 HISTORY OF MUTUAL FUNDS IN INDIA

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at

the initiative of the Government of India and Reserve Bank. The history of mutual funds in

India can be broadly divided into four distinct phases.

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.

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THIRD PHASE – 1993-2003 (ENTRY OF PRIVATE SECTOR FUNDS):

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund

industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year

in which the first Mutual Fund Regulations came into being, under which all mutual funds,

except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged

with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and

revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI

(Mutual Fund) Regulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds

setting up funds in India and also the industry has witnessed several mergers and acquisitions.

As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805

crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way

ahead of other mutual funds.

FOURTH PHASE – 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.

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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.

GROWTH IN ASSETS UNDER MANAGEMENT

The graph indicates the growth of assets under management over the years.

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 ADVANTAGES OF MUTUAL FUNDS

If mutual funds are emerging as the favorite investment vehicle, it is because of the many

advantages they have over other forms and the avenues of investing, particularly for the

investor who has limited resources available in terms of capital and the ability to carry out

detailed research and market monitoring. The following are the major advantages offered by

mutual funds to all investors:

1. Portfolio Diversification:

Each investor in the fund is a part owner of all the fund’s assets, thus enabling him to hold a

diversified investment portfolio even with a small amount of investment that would otherwise

require big capital.

2. Professional Management:

Even if an investor has a big amount of capital available to him, he benefits from the

professional management skills brought in by the fund in the management of the investor’s

27
portfolio. The investment management skills, along with the needed research into available

investment options, ensure a much better return than what an investor can manage on his

own. Few investors have the skill and resources of their own to succeed in today’s fast

moving, global and sophisticated markets.

3. Reduction/Diversification Of Risk:

When an investor invests directly, all the risk of potential loss is his own, whether he places a

deposit with a company or a bank, or he buys a share or debenture on his own or in any other

from. While investing in the pool of funds with investors, the potential losses are also shared

with other investors. The risk reduction is one of the most important benefits of a collective

investment vehicle like the mutual fund.

4. Reduction Of Transaction Costs:

What is true of risk as also true of the transaction costs. The investor bears all the costs of

investing such as brokerage or custody of securities. When going through a fund, he has the

benefit of economies of scale; the funds pay lesser costs because of larger volumes, a benefit

passed on to its investors.

5. Liquidity:

Often, investors hold shares or bonds they cannot directly, easily and quickly sell. When they

invest in the units of a fund, they can generally cash their investments any time, by selling

their units to the fund if open-ended, or selling them in the market if the fund is close-end.

Liquidity of investment is clearly a big benefit.

6. Convenience And Flexibility:

28
Mutual fund management companies offer many investor services that a direct market

investor cannot get. Investors can easily transfer their holding from one scheme to the other;

get updated market information and so on.

7. Tax Benefits:

Any income distributed after March 31, 2002 will be subject to tax in the assessment of all

Unit holders. However, as a measure of concession to Unit holders of open-ended equity-

oriented funds, income distributions for the year ending March 31, 2003, will be taxed at a

concessional rate of 10.5%.

In case of Individuals and Hindu Undivided Families a deduction upto 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.

8. Choice of Schemes:

Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.

9. 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.

29
10. 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.

30
 TYPES OF MUTUAL FUNDS SCHEMES IN INDIA

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position,

risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a

collection of many stocks, an investors can go for picking a mutual fund might be easy. There

are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual

funds in categories, mentioned below:

31
A). BY STRUCTURE

1. Open - Ended Schemes:

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.

2. Close - Ended Schemes:

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.

3. Interval Schemes:

Interval Schemes are that scheme, which combines the features of open-ended and close-

ended schemes. The units may be traded on the stock exchange or may be open for sale or

redemption during pre-determined intervals at NAV related prices.

32
B). BY NATURE

1. Equity Fund:

These funds invest a maximum part of their corpus into equities holdings. The structure of the

fund may vary different for different schemes and the fund manager’s outlook on different

stocks. The Equity Funds are sub-classified depending upon their investment objective, as

follows:

• Diversified Equity Funds

• Mid-Cap Funds

• Sector Specific Funds

• Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the

risk-return matrix.

2. Debt Funds:

The objective of these Funds is to invest in debt papers. Government authorities, private

companies, banks and financial institutions are some of the major issuers of debt papers. By

investing in debt instruments, these funds ensure low risk and provide stable income to the

investors. Debt funds are further classified as:

• Gilt Funds: Invest their corpus in securities issued by Government, popularly known as

Government of India debt papers. These Funds carry zero Default risk but are associated with

Interest Rate risk. These schemes are safer as they invest in papers backed by Government.

33
• Income Funds: Invest a major portion into various debt instruments such as bonds,

corporate debentures and Government securities.

• MIPs: Invests maximum of their total corpus in debt instruments while they take minimum

exposure in equities. It gets benefit of both equity and debt market. These scheme ranks

slightly high on the risk-return matrix when compared with other debt schemes.

• Short Term Plans (STPs):

Meant for investment horizon for three to six months. These funds primarily invest in short

term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion

of the corpus is also invested in corporate debentures.

• Liquid Funds:

Also known as Money Market Schemes, These funds provides easy liquidity and

preservation of capital. These schemes invest in short-term instruments like Treasury Bills,

inter-bank call money market, CPs and CDs. These funds are meant for short-term cash

management of corporate houses and are meant for an investment horizon of 1day to 3

months. These schemes rank low on risk-return matrix and are considered to be the safest

amongst all categories of mutual funds.

3. Balanced Funds:

As the name suggest they, are a mix of both equity and debt funds. They invest in both

equities and fixed income securities, which are in line with pre-defined investment objective

of the scheme. These schemes aim to provide investors with the best of both the worlds.

Equity part provides growth and the debt part provides stability in returns.

34
Further the mutual funds can be broadly classified on the basis of investment

parameter viz, Each category of funds is backed by an investment philosophy, which is pre-

defined in the objectives of the fund. The investor can align his own investment needs with

the funds objective and invest accordingly.

C). BY INVESTMENT OBJECTIVE:

Growth Schemes:

Growth Schemes are also known as equity schemes. The aim of these schemes is to provide

capital appreciation over medium to long term. These schemes normally invest a major part

of their fund in equities and are willing to bear short-term decline in value for possible future

appreciation.

Income Schemes:

Income Schemes are also known as debt schemes. The aim of these schemes is to provide

regular and steady income to investors. These schemes generally invest in fixed income

securities such as bonds and corporate debentures. Capital appreciation in such schemes may

be limited.

Balanced Schemes:

Balanced Schemes aim to provide both growth and income by periodically distributing a part

of the income and capital gains they earn. These schemes invest in both shares and fixed

income securities, in the proportion indicated in their offer documents (normally 50:50).

Money Market Schemes:

35
Money Market Schemes aim 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.

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:

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to

time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings

Scheme (ELSS) are eligible for rebate.

Index Schemes:

Index schemes attempt to replicate the performance of a particular index such as the BSE

Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that

36
constitute the index. The percentage of each stock to the total holding will be identical to the

stocks index weight age. And hence, the returns from such schemes would be more or less

equivalent to those of the Index.

Sector Specific Schemes:

These are the funds/schemes which invest in the securities of only those sectors or industries

as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer

Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the

performance of the respective sectors/industries. While these funds may give higher returns,

they are more risky compared to diversified funds. Investors need to keep a watch on the

performance of those sectors/industries and must exit at an appropriate time.

37
DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:

1. No Control over Costs:

An investor in a mutual fund has no control of the overall costs of investing. The investor

pays investment management fees as long as he remains with the fund, albeit in return for the

professional management and research. Fees are payable even if the value of his investments

is declining. A mutual fund investor also pays fund distribution costs, which he would not

incur in direct investing. However, this shortcoming only means that there is a cost to obtain

the mutual fund services.

2. No Tailor-Made Portfolio:

Investors who invest on their own can build their own portfolios of shares and bonds and

other securities. Investing through fund means he delegates this decision to the fund

managers. The very-high-net-worth individuals or large corporate investors may find this to

be a constraint in achieving their objectives. However, most mutual fund managers help

investors overcome this constraint by offering families of funds- a large number of different

schemes- within their own management company. An investor can choose from different

investment plans and constructs a portfolio to his choice.

3. Managing a Portfolio Of Funds:

Availability of a large number of 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, quite similar to

the situation when he has individual shares or bonds to select.

4. The Wisdom of Professional Management:

38
That's right, this is not an advantage. The average mutual fund manager is no better at picking

stocks than the average nonprofessional, but charges fees.

5. No Control:

Unlike picking your own individual stocks, a mutual fund puts you in the passenger seat of

somebody else's car.

6. 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.

7. Buried Costs:

Many mutual funds specialize in burying their costs and in hiring salesmen who do not make

those costs clear to their clients.

8. Fluctuating Returns:

Like many other investments without a guaranteed return, there is always the possibility that
the value of your mutual fund will depreciate. Equity mutual funds experience price
fluctuations, along with the stocks that make up the fund. The Federal Deposit Insurance
Corporation (FDIC) does not back up mutual fund investments, and there is no guarantee of
performance with any fund. Of course, almost every investment carries risk. But it's
especially important for investors in money market funds to know that, unlike their bank
counterparts, these will not be insured by the FDIC.

39
 NET ASSET VALUE (NAV)

Since each owner is a part owner of a mutual fund, it is necessary to establish the value of his

part. In other words, each share or unit that an investor holds needs to be assigned a value.

Since the units held by investor evidence the ownership of the fund’s assets, the value of the

total assets of the fund when divided by the total number of units issued by the mutual fund

gives us the value of one unit. This is generally called the Net Asset Value (NAV) of one unit

or one share. The value of an investor’s part ownership is thus determined by the NAV of the

number of units held.

Calculation of NAV:

Let us see an example. If the value of a fund’s assets stands at Rs. 100 and it has 10 investors

who have bought 10 units each, the total numbers of units issued are 100, and the value of

one unit is Rs. 10.00 (1000/100). If a single investor in fact owns 3 units, the value of his

ownership of the fund will be Rs. 30.00(1000/100*3). Note that the value of the fund’s

investments will keep fluctuating with the market-price movements, causing the Net Asset

Value also to fluctuate. For example, if the value of our fund’s asset increased from Rs. 1000

to 1200, the value of our investors holding of 3 units will now be (1200/100*3) Rs. 36. The

investment value can go up or down, depending on the markets value of the fund’s assets.

40
 MUTUAL FUND FEES AND EXPENSES:

Mutual fund fees and expenses are charges that may be incurred by investors who hold

mutual funds. Running a mutual fund involves costs, including shareholder transaction costs,

investment advisory fees, and marketing and distribution expenses. Funds pass along these

costs to investors in a number of ways.

1. TRANSACTION FEES

I) Purchase Fee:

It is a type of fee that some funds charge their shareholders when they buy shares. Unlike a

front-end sales load, a purchase fee is paid to the fund (not to a broker) and is typically

imposed to defray some of the fund's costs associated with the purchase.

ii) Redemption Fee:

It is another type of fee that some funds charge their shareholders when they sell or redeem

shares. Unlike a deferred sales load, a redemption fee is paid to the fund (not to a broker) and

is typically used to defray fund costs associated with a shareholder's redemption.

iii) Exchange Fee:

Exchange fee that some funds impose on shareholders if they exchange (transfer) to another

fund within the same fund group or "family of funds."

2. PERIODIC FEES:

I) Management Fee:

41
Management fees are fees that are paid out of fund assets to the fund's investment adviser for

investment portfolio management, any other management fees payable to the fund's

investment adviser or its affiliates, and administrative fees payable to the investment adviser

that are not included in the "Other Expenses" category. They are also called maintenance

fees.

ii) Account Fee:

Account fees are fees that some funds separately impose on investors in connection with the

maintenance of their accounts. For example, some funds impose an account maintenance fee

on accounts whose value is less than a certain dollar amount.

3. OTHER OPERATING EXPENSES:

Transaction Costs:

These costs are incurred in the trading of the fund's assets. Funds with a high turnover ratio,

or investing in illiquid or exotic markets usually face higher transaction costs. Unlike the

Total Expense Ratio these costs are usually not reported.

LOADS:

Definition of a load:

Load funds exhibit a "Sales Load" with a percentage charge levied on purchase or sale of

shares. A load is a type of Commission (remuneration). Depending on the type of load a

mutual fund exhibits, charges may be incurred at time of purchase, time of sale, or a mix of

both. The different types of loads are outlined below.

Front-end load:

42
Also known as Sales Charge, this is a fee paid when shares are purchased. Also known as a

"front-end load," this fee typically goes to the brokers that sell the fund's shares. Front-end

loads reduce the amount of your investment. For example, let's say you have Rs.10, 000 and

want to invest it in a mutual fund with a 5% front-end load. The Rs.500 sales load you must

pay comes off the top, and the remaining Rs.9500 will be invested in the fund. According to

NASD rules, a front-end load cannot be higher than 8.5% of your invest.

Back-end load:

Also known as Deferred Sales Charge, this is a fee paid when shares are sold. Also known as

a "back-end load," this fee typically goes to the brokers that sell the fund's shares. The

amount of this type of load will depend on how long the investor holds his or her shares and

typically decreases to zero if the investor holds his or her shares long enough.

Level load / Low load:

It's similar to a back-end load in that no sales charges are paid when buying the fund. Instead

a back-end load may be charged if the shares purchased are sold within a given time frame.

The distinction between level loads and low loads as opposed to back-end loads, is that this

time frame where charges are levied is shorter.

No-load Fund:

As the name implies, this means that the fund does not charge any type of sales load. But, as

outlined above, not every type of shareholder fee is a "sales load." A no-load fund may

charge fees that are not sales loads, such as purchase fees, redemption fees, exchange fees,

and account fees.

43
SELECTION PARAMETERS FOR MUTUAL FUND

Your objective:

The first point to note before investing in a fund is to find out whether your objective matches

with the scheme. It is necessary, as any conflict would directly affect your prospective

returns. Similarly, you should pick schemes that meet your specific needs. Examples: pension

plans, children’s plans, sector-specific schemes, etc.

Your risk capacity and capability:

This dictates the choice of schemes. Those with no risk tolerance should go for debt schemes,

as they are relatively safer. Aggressive investors can go for equity investments. Investors that

are even more aggressive can try schemes that invest in specific industry or sectors.

Fund Manager’s and scheme track record:

Since you are giving your hard earned money to someone to manage it, it is imperative that

he manages it well. It is also essential that the fund house you choose has excellent track

record. It also should be professional and maintain high transparency in operations. Look at

the performance of the scheme against relevant market benchmarks and its competitors. Look

at the performance of a longer period, as it will give you how the scheme fared in different

market conditions.

44
Cost factor:

Though the AMC fee is regulated, you should look at the expense ratio of the fund before

investing. This is because the money is deducted from your investments. A higher entry load

or exit load also will eat into your returns. A higher expense ratio can be justified only by

superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from

your modest returns.

Also, Morningstar rates mutual funds. Each year end, many financial publications list the

year’s best performing mutual funds. Naturally, very eager investors will rush out to purchase

shares of last year's top performers. That's a big mistake. Remember, changing market

conditions make it rare that last year's top performer repeats that ranking for the current year.

Mutual fund investors would be well advised to consider the fund prospectus, the fund

manager, and the current market conditions. Never rely on last year's top performers.

Types of Returns on Mutual Fund:

There are three ways, where the total returns provided by mutual funds can be enjoyed by

investors:

• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all

income it receives over the year to fund owners in the form of a distribution.

• If the fund sells securities that have increased in price, the fund has a capital gain. Most

funds also pass on these gains to investors in a distribution. If fund holdings increase in price

but are not sold by the fund manager, the fund's shares increase in price. You can then sell

your mutual fund shares for a profit

45
Funds will also usually give you a choice either to receive a check for distributions or to

reinvest the earnings and get more shares.

RISK FACTORS OF MUTUAL FUNDS:

1. The Risk-Return Trade-Off:

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.

Hence it is up to 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.

2. 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.

3. Credit Risk:

The debt servicing ability (may it be interest payments or repayment of principal) of a

company through its cash flows determines the Credit Risk faced by you. This credit risk is

measured by independent rating agencies like CRISIL who rate companies and their paper. A

‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality.

A well-diversified portfolio might help mitigate this risk.

46
 4. 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 coasted 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

happen when inflation grows faster than the return on your investment. A well-diversified

portfolio with some investment in equities might help mitigate this risk.

5. 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.

6. Political / Government Policy Risk:

Changes in government policy and political decision can change the investment Environment.

They can create a favourable environment for investment or vice versa.

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 6. 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.

48
49
WORKING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The money is

invested in various instruments depending on the objective of the scheme. The income

generated by selling securities or capital appreciation of these securities is passed on to the

investors in proportion to their investment in the scheme. The investments are divided into

units and the value of the units will be reflected in Net Asset Value or NAV of the unit. NAV

is the market value of the assets of the scheme minus its liabilities. The per unit NAV is the

net asset value of the scheme divided by the number of units outstanding on the valuation

date. Mutual fund companies provide daily net asset value of their schemes to their investors.

NAV is important, as it will determine the price at which you buy or redeem the units of a

scheme. Depending on the load structure of the scheme, you have to pay entry or exit load.

50
 STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual Fund have to be constituted. In India open

and close-end funds operate under the same regulatory structure i.e. as unit Trusts. A Mutual

Fund in India is allowed to issue open-end and close-end schemes under a common legal

structure. The structure that is required to be followed by any Mutual Fund in India is laid

down under SEBI (Mutual Fund) Regulations, 1996.

The Fund Sponsor:

Sponsor is defined under SEBI regulations as any person who, acting alone or in combination

of another corporate body establishes a Mutual Fund. The sponsor of the fund is akin to the

promoter of a company as he gets the fund registered with SEBI. The sponsor forms a trust

and appoints a Board of Trustees. The sponsor also appoints the Asset Management

51
Company as fund managers. The sponsor either directly or acting through the trustees will

also appoint a custodian to hold funds assets. All these are made in accordance with the

regulation and guidelines of SEBI.

As per the SEBI regulations, for the person to qualify as a sponsor, he must contribute at least

40% of the net worth of the Asset Management Company and possesses a sound financial

track record over 5 years prior to registration.

Mutual Funds as Trusts:

A Mutual Fund in India is constituted in the form of Public trust Act, 1882. The Fund sponsor

acts as a settler of the Trust, contributing to its initial capital and appoints a trustee to hold the

assets of the trust for the benefit of the unit-holders, who are the beneficiaries of the trust.

The fund then invites investors to contribute their money in common pool, by scribing to

“units” issued by various schemes established by the Trusts as evidence of their beneficial

interest in the fund.

It should be understood that the fund should be just a “pass through” vehicle. Under the

Indian Trusts Act, the trust of the fund has no independent legal capacity itself, rather it is the

Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the

trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unit-

holders are the beneficial owners of the investment held by the Trusts, even as these

investments are held in the name of the Trustees on a day-to-day basis. Being public trusts,

Mutual Fund can invite any number of investors as beneficial owners in their investment

schemes.

52
Trustees:

A Trust is created through a document called the Trust Deed that is executed by the fund

sponsor in favour of the trustees. The Trust- the Mutual Fund – may be managed by a board

of trustees- a body of individuals, or a trust company- a corporate body. Most of the funds in

India are managed by Boards of Trustees. While the boards of trustees are governed by the

Indian Trusts Act, where the trusts are a corporate body, it would also require to comply with

the Companies Act, 1956. The Board or the Trust company as an independent body, acts as a

protector of the of the unit-holders interests. The Trustees do not directly manage the

portfolio of securities. For this specialist function, the appoint an Asset Management

Company. They ensure that the Fund is managed by ht AMC as per the defined objectives

and in accordance with the trusts deeds and SEBI regulations.

The Asset Management Companies:

The role of an Asset Management Company (AMC) is to act as the investment manager of

the Trust under the board supervision and the guidance of the Trustees. The AMC is required

to be approved and registered with SEBI as an AMC. The AMC of a Mutual Fund must have

a net worth of at least Rs. 10 Crores at all times. Directors of the AMC, both independent and

non- independent, should have adequate professional expertise in financial services and

should be individuals of high morale standing, a condition also applicable to other key

personnel of the AMC. The AMC cannot act as a Trustee of any other Mutual Fund. Besides

its role as a fund manager, it may undertake specified activities such as advisory services and

financial consulting, provided these activities are run independent of one another and the

AMC’s resources (such as personnel, systems etc.) are properly segregated by the activity.

53
The AMC must always act in the interest of the unit-holders and reports to the trustees with

respect to its activities.

Custodian and Depositories:

Mutual Fund is in the business of buying and selling of securities in large volumes. Handling

these securities in terms of physical delivery and eventual safekeeping is a specialized

activity. The custodian is appointed by the Board of Trustees for safekeeping of securities or

participating in any clearance system through approved depository companies on behalf of

the Mutual Fund and it must fulfill its responsibilities in accordance with its agreement with

the Mutual Fund. The custodian should be an entity independent of the sponsors and is

required to be registered with SEBI. With the introduction of the concept of dematerialization

of shares the dematerialized shares are kept with the Depository participant while the

custodian holds the physical securities. Thus, deliveries of a fund’s securities are given or

received by a custodian or a depository participant, at the instructions of the AMC, although

under the overall direction and responsibilities of the Trustees.

Bankers:

A Fund’s activities involve dealing in money on a continuous basis primarily with respect to

buying and selling units, paying for investment made, receiving the proceeds from sale of the

investments and discharging its obligations towards operating expenses. Thus the Fund’s

banker plays an important role to determine quality of service that the fund gives in timely

delivery of remittances etc.

54
Transfer Agents:

Transfer agents are responsible for issuing and redeeming units of the Mutual Fund and

provide other related services such as preparation of transfer documents and updating

investor records. A fund may choose to carry out its activity in-house and charge the scheme

for the service at a competitive market rate. Where an outside Transfer agent is used, the fund

investor will find the agent to be an important interface to deal with, since all of the investor

services that a fund provides are going to be dependent on the transfer agent.

REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA:

The structure of mutual funds in India is guided by the SEBI. Regulations, 1996.These

regulations make it mandatory for mutual fund to have three structures of sponsor trustee and

asset Management Company. The sponsor of the mutual fund and appoints the trustees. The

trustees are responsible to the investors in mutual fund and appoint the AMC for managing

the investment portfolio. The AMC is the business face of the mutual fund, as it manages all

the affairs of the mutual fund. The AMC and the mutual fund have to be registered with

SEBI.

SEBI REGULATIONS:

• As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual

funds to protect the interest of the investors.

• SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored

by private sector entities were allowed to enter the capital market.

55
• The regulations were fully revised in 1996 and have been amended thereafter from time to

time.

• SEBI has also issued guidelines to the mutual funds from time to time to protect the

interests of investors.

• All mutual funds whether promoted by public sector or private sector entities including

those promoted by foreign entities are governed by the same set of Regulations. The risks

associated with the schemes launched by the mutual funds sponsored by these entities are of

similar type. There is no distinction in regulatory requirements for these mutual funds and all

are subject to monitoring and inspections by SEBI.

• SEBI Regulations require that at least two thirds of the directors of trustee company or

board of trustees must be independent i.e. they should not be associated with the sponsors.

• Also, 50% of the directors of AMC must be independent. All mutual funds are required to

be registered with SEBI before they launch any scheme.

• Further SEBI Regulations, inter-alia, stipulate that MFs cannot guarantee returns in any

scheme and that each scheme is subject to 20 : 25 condition [I.e. minimum 20 investors per

scheme and one investor can hold more than 25% stake in the corpus in that one scheme].

• Also SEBI has permitted MFs to launch schemes overseas subject various restrictions and

also to launch schemes linked to Real Estate, Options and Futures, Commodities, etc.

56
 ASSOCIATION OF MUTUAL FUNDS IN INDIA (AMFI)

With the increase in mutual fund players in India, a need for mutual fund association in India

was generated to function as a non-profit organisation. Association of Mutual Funds in India

(AMFI) was incorporated on 22nd August, 1995.

AMFI is an apex body of all Asset Management Companies (AMC) which has been

registered with

Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional

SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It

functions under the supervision and guidelines of its Board of Directors.

Association of and healthy market with ethical lines enhancing and maintaining standards. It

follows the principle of both protecting and promoting the interests of mutual funds as well as

their unit holders.

The Objectives of Association of Mutual Funds in India:

The Association of Mutual Funds of India works with 30 registered AMCs of the country. It

has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The

objectives are as follows:

•This mutual fund association of India maintains high professional and ethical standards in all

areas of operation of the industry.

• It also recommends and promotes the top class business practices and code of conduct

which is followed by members and related people engaged in the activities of mutual fund

and asset management. The agencies who are by any means connected or involved in the

57
field of capital markets and financial services also involved in this code of conduct of the

association.

• AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund

industry.

• Association of Mutual Fund of India do represent the Government of India, the Reserve

Bank of India and other related bodies on matters relating to the Mutual Fund Industry.

• It develops a team of well qualified and trained Agent distributors. It implements a

programme of training and certification for all intermediaries and other engaged in the mutual

fund industry.

• AMFI undertakes all India awareness programme for investors in order to promote proper

understanding of the concept and working of mutual funds.

• At last but not the least association of mutual fund of India also disseminate informations

on Mutual Fund Industry and undertakes studies and research either directly or in association

with other bodies.

AMFI Publications:

AMFI publish mainly two types of bulletin. One is on the monthly basis and the other is

quarterly. These publications are of great support for the investors to get intimation of the

knowhow of their parked money.

58
59
 MUTUAL FUNDS IN INDIA

In 1963, the day the concept of Mutual Fund took birth in India. Unit Trust of India invited

investors or rather to those who believed in savings, to park their money in UTI Mutual Fund.

For 30 years it goaled without a single second player. Though the 1988 year saw some new

mutual fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to

satisfactory level. People rarely understood, and of course investing was out of question. But

yes, some 24 million shareholders were accustomed with guaranteed high returns by the

beginning of liberalization of the industry in 1992. This good record of UTI became

marketing tool for new entrants. The expectations of investors touched the sky in profitability

factor. However, people were miles away from the preparedness of risks factor after the

liberalization.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling

in the year 1992. Those days, the market regulations did not allow portfolio shifts into

alternative investments. There was rather no choice apart from holding the cash or to further

continue investing in shares. One more thing to be noted, since only closed-end funds were

floated in the market, the investors disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992 stock market

scandal, the losses by disinvestments and of course the lack of transparent rules in the

whereabouts rocked confidence among the investors. Partly owing to a relatively weak stock

market performance, mutual funds have not yet recovered, with funds trading at an average

discount of 1020 percent of their net asset value.

60
The securities and Exchange Board of India (SEBI) came out with comprehensive regulation

in 1993 which defined the structure of Mutual Fund and Asset Management Companies for

the first time.

The supervisory authority adopted a set of measures to create a transparent and competitive

environment in mutual funds. Some of them were like relaxing investment.

Restrictions into the market, introduction of open-ended funds, and paving the gateway for

mutual funds to launch pension schemes.

The measure was taken to make mutual funds the key instrument for long-term saving. The

more the variety offered, the quantitative will be investors.

Several private sectors Mutual Funds were launched in 1993 and 1994. The share of the

private players has risen rapidly since then. Currently there are 34 Mutual Fund organizations

in India managing 1, 02,000 crores.

At last to mention, as long as mutual fund companies are performing with lower risks and

higher profitability within a short span of time, more and more people will be inclined to

invest until and unless they are fully educated with the dos and don’ts of mutual funds.

Mutual fund industry has seen a lot of changes in past few years with multinational

companies coming into the country, bringing in their professional expertise in managing

funds worldwide. In the past few months there has been a consolidation phase going on in the

mutual fund industry in India. Now investors have a wide range of Schemes to choose from

depending on their individual profiles.

MUTUAL FUND COMPANIES IN INDIA

61
The concept of mutual funds in India dates back to the year 1963. The era between 1963 and

1987 marked the existence of only one mutual fund company in India with Rs. 67bn assets

under management (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By

the end of the 80s decade, few other mutual fund companies in India took their position in

mutual fund market.

The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual

Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual

Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of

1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started

penetrating the fund families. In the same year the first Mutual Fund Regulations came into

existence with re-registering all mutual funds except UTI. The regulations were further given

a revised shape in 1996.

Kothari Pioneer was the first private sector mutual fund company in India which has now

merged with Franklin Templeton. Just after ten years with private sector players penetration,

the total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

62
Major Mutual Fund Companies in India:

• ABN AMRO Mutual Fund,

• Birla Sun Life Mutual Fund,

• Bank of Baroda Mutual Fund,

• HDFC Mutual Fund,

•HSBC Mutual Fund,

• ING Vysya Mutual Fund,

• Prudential ICICI Mutual Fund,

• St ate Bank of India Mutual Fund,

• Tata Mutual Fund,

• Unit Trust of India Mutual Fund,

• Reliance Mutual Fund,

• Standard Chartered Mutual Fund,

• Franklin Templeton India Mutual Fund,

• Morgan Stanley Mutual Fund India,

• Escorts Mutual Fund,

• Alliance Capital Mutual Fund,

• Benchmark Mutual Fund,

• Can bank Mutual Fund,

63
• Chola Mutual Fund,

• LIC Mutual Fund,

• GIC Mutual Fund.

For the first time in the history of Indian mutual fund industry, Unit Trust of India Mutual

Fund has slipped from the first slot. Earlier, in May 2006, the Prudential ICICI Mutual Fund

was ranked at the number one slot in terms of total assets.

In the very next month, the UTIMF had regained its top position as the largest fund house in

India.

Now, according to the current pegging order and the data released by Association of Mutual

Funds in India (AMFI), the Reliance Mutual Fund, with a January-end AUM of Rs 39,020

crore has become the largest mutual fund in India On the other hand, UTIMF, with an AUM

of Rs 37,535 crore, has gone to second position. The Prudential ICICI MF has slipped to the

third position with an AUM of Rs 34,746 crore.

It happened for the first time in last one year that a private sector mutual fund house has

reached to the top slot in terms of asset under management (AUM). In the last one year to

January, AUM of the Indian fund industry has risen by 64% to Rs 3.39 lakh crore.

According to the data released by Association of Mutual Funds in India (AMFI), the

combined average AUM of the 35 fund houses in the country increased to Rs 5,512.99 billion

in April compared to Rs 4,932.86 billion in March.

Reliance MF maintained its top position as the largest fund house in the country with Rs

74.25 billion jump in AUM to Rs 883.87 billion at April-end.

64
The second-largest fund house HDFC MF gained Rs 59.24 billion in its AUM at Rs 638.80

billion.

ICICI Prudential and state-run UTI MF added Rs 46.16 billion and Rs 57.35 billion re

respectively to their assets last month. ICICI Prudential`s AUM stood at Rs 560.49 billion at

the end of April, while UTI MF had assets worth Rs 544.89 billion.

The other fund houses which saw an increase in their average AUM in April include -Canara

Robeco MF, IDFC MF, DSP BlackRock, Deutsche MF, Kotak Mahindra MF and LIC MF.

65
66
 RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND

RELIANCE MUTUAL FUND UTI MUTUAL FUND

When started? Established in 1995 Established in 1964

Currently No. 1 company in India. First Mutual Fund company

in India.

How they come into Registered with SEBI as trust By the UTI act passed by the
business? under Indian trust Act 1882. parliament in 1963.

Minimum investment Rs. 500.0 Rs. 1000.0

Investment Equity: Equity:

Bank: 8-15% Financial service: 16-22%

Software: 8-19% Energy: 12-18%

Petroleum products: 4-8% Consumer goods: 08-14%

Pharmaceuticals: 6-10%

Invest in 12-20 sectors which Invest in 7-15 sector which

includes: Auto, Auto Ancillaries, include: IT, Telecom,
Finance, Industrial Capital Goods, Automobile, Cement
Telecom-Services, Power, Products, Derivatives,
Construction Project, Hotels, Textile, Metals etc.
Retailing, Media & Entertainment,
Transportation etc.

Main Funds. UTI Dividend yield fund, Reliance Diversified Fund,

67
 UTI Opportunity Fund. Reliance Equity Opportunity
Fund,

Reliance regular saving

funds.

Type of fund offered Equity fund, Debt Fund, Sector Equity fund, Index fund,
specific fund and Gold exchange Asset fund, Balanced fund,
traded fund. Debt fund(Income, Liquid)

Numbers of schemes 106 schemes. 107 schemes.

offered

Distribution • Online and internet based • Tie-up with Post offices

distribution. branches.

• Reliance outlets and branches. • UTI outlets and Branches.

Is any other venue? • Life Insurance. • UTI Bank.

• General Insurance. • Pan card.

• Broking and distribution. • Bank Recruitment.

• Consumer Finance. • ULIP.

• Private Equity.

• Assets Reconstruction.

68
69
 MUTUAL FUNDS VS. OTHER INVESTMENTS

From investors’ viewpoint mutual funds have several advantages such as:

• Professional management and research to select quality securities.

• Spreading risk over a larger quantity of stock whereas the investor has limited to buy only a

hand full of stocks. The investor is not putting all his eggs in one basket.

• Ability to add funds at set amounts and smaller quantities such as $100 per month

• Ability to take advantage of the stock market which has generally outperformed other

investment in the long run.

• Fund manager are able to buy securities in large quantities thus reducing brokerage fees.

However there are some disadvantages with mutual funds such as:

• The investor must rely on the integrity of the professional fund manager.

• Fund management fees may be unreasonable for the services rendered.

• The fund manager may not pass transaction savings to the investor.

• The fund manager is not liable for poor judgment when the investor's fund loses value.

• There may be too many transactions in the fund resulting in higher fee/cost to the investor -

This is sometimes call "Churn and Earn".

• Prospectus and Annual report are hard to understand.

• Investor may feel a lost of control of his investment dollars.

70
There may be restrictions on when and how an investor sells/redeems his mutual fund shares.

Company Fixed Deposits versus Mutual Funds:

Fixed deposits are unsecured borrowings by the company accepting the deposit. Credit rating

of the fixed deposit program is an indication of the inherent default risk in the investment.

The moneys of investors in a mutual fund scheme are invested by the AMC in specific

investments under that scheme. These investments are held and managedin-tr us t for the

benefit of scheme’s investors. On the other hand, there is no such direct correlation between a

company’s fixed deposit mobilisation, and the avenues where these resources are deployed.

A corollary of such linkage between mobilisation and investment is that the gains and losses

from the mutual fund scheme entirely flow through to the investors. Therefore, there can be

no certainty of yield, unless a named guarantor assures a return or, to a lesser extent, if the

investment is in a serial gilt scheme. On the other hand, the return under a fixed deposit is

certain, subject only to the default risk of the borrower.

Both fixed deposits and mutual funds offer liquidity, but subject to some

differences:

The provider of liquidity in the case of fixed deposits is the borrowing company. In mutual

funds, the liquidity provider is the scheme itself (for open-end schemes) or the market (in the

case of closed-end schemes).

71
The basic value at which fixed deposits are enchased is not subject to a market risk. However,

the value at which units of a scheme are redeemed depends on the market. If securities have

gained in value during the period, then the investor can even earn a return that is higher than

what he anticipated when he invested. But he could also end up with a loss.

Early encashment of fixed deposits is always subject to a penalty charged by the company

that accepted the fixed deposit. Mutual fund schemes also have the option of charging a

penalty on “early” redemption of units (through by way of an ‘exit load’) If the NAV has

appreciated adequately, then even after the exit load, the investor could earn a capital gain on

his investment.

Bank Fixed Deposits verses Mutual Fund:

BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment option Less More

Network High penetration Low but improving

Liquidity At a cost Better

Quality of Assets Not Transparent Transparent

Interest calculation Quarterly Every Month

i.e. 3rd 6th 9th & 12th.

Guarantor Guarantor is needed. Guarantor is not needed.

72
Account Needed Not Needed.

Bonds and Debentures versus Mutual Funds:

As in the case of fixed deposits, credit rating of the bond / debenture is an indication of the

inherent default risk in the investment. However, unlike FD, bonds and debentures are

transferable securities.

While an investor may have an early encashment option from the issuer (for instance through

a “put” option), generally liquidity is through a listing in the market.

Implications of this are:

•If the security does not get traded in the market, then the liquidity remains on paper. In this

respect, an open-end scheme offering continuous sale / re-purchase option is superior.

• The value that the investor would realise in an early exit is subject to market risk. The

investor could have a capital gain or a capital loss. This aspect is similar to a MF scheme.

It is possible for a professional investor to earn attractive returns by directly investing in the

debt market, and actively managing the positions. Given the market realities in India, it is

difficult for most investors to actively manage their debt portfolio. Further, at times, it is

difficult to execute trades in the debt market even when the transaction size is as high as Rs 1

crore. In this respect, investment in a debt scheme would be beneficial.

Debt securities could be backed by a hypothecation or mortgage of identified fixed and / or

current assets (secured bonds / debentures). In such a case, if there is a default, the identified

assets become available for meeting redemption requirements. An unsecured bond /

73
debenture is for all practical purposes like a fixed deposit, as far as access to assets is

concerned. The investments of a mutual fund scheme are held by a custodian for the benefit

of investors in the scheme. Thus, the securities that relate to a scheme are ring-fenced for the

benefit of its investors.

Life Insurance versus Mutual Fund:

Life insurance is a hedge against risk – and not really an investment option. So, it would be

wrong to compare life insurance against any other financial product.

Occasionally on account of market inefficiencies or miss-pricing of products in India, life

insurance products have offered a return that is higher than a comparable “safe” fixed return

security – thus, you are effectively paid for getting insured! Such opportunities are not

sustainable in the long run.

74
75
 FUTURE PROSPECT OF MUTUAL FUNDS IN INDIA

Finances expert believe that the future of Mutual Funds in India will be very bright the

mutual fund industry of India will reach Rs 40,90,000 crore, taking into account the total

assets of the Indian commercial banks. In the coming 10 years the annual composite growth

rate is expected to go up by 13.4%.

• 100% growth in the last 6 years.

• Number of foreign AMC's are in the queue to enter the Indian markets like Fidelity

Investments, US based, with over US$1trillion assets under management worldwide.

• Our saving rate is over 23%, highest in the world. Only channelizing these savings in

mutual funds sector is required.

• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are

concentrating on the 'A' class cities. Soon they will find scope in the growing cities.

• Mutual fund can penetrate rural like the Indian insurance industry with simple and limited

products.

• SEBI allowing the MF's to launch commodity mutual funds.

• Emphasis on better corporate governance

Looking at the past developments and combining it with the current trends it can be

concluded that the future of Mutual Funds in India has lot of positive things to offer to its

investors.

76
77
 MUTUAL FUND JARGON

_______________________________________________________

Net Asset Value (NAV):

Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per

unit NAV is the net asset value of the scheme divided by the number of units outstanding on

the Valuation Date.

Sale Price: Sale price is the price you pay when you invest in a scheme. Also called Offer

Price. It may include a sales load.

Repurchase Price:

Is the price at which a close-ended scheme repurchases its units and it may include a back-

end load. This is also called Bid Price.

Redemption Price:

It is the price at which open-ended schemes repurchase their units and close-ended schemes

redeem their units on maturity. Such prices are NAV related.

Sales Load: It is a charge collected by a scheme when it sells the units. Also called as ‘Front-

end’ load. Schemes that do not charge a load are called ‘No Load’ schemes.

Repurchase or ‘Back-end’ Load:

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

78
79
 RESEARCH METHODOLOGY

Research as a care full investigation or enquiry especially through search for a new facts in

any branch of knowledge” Research is an academic activity and such as the term should be

used in technical sense. The manipulation of things , concepts or symbols for the purpose of

generalizing to extend ,correct or verify knowledge ,whether that knowledge through

objective.

ANALYTICAL RESERCH:

In this project work, analytical research is used. In this project has to use facts or information

.Already used available, and analyze these to make a critical evolution of the material.

METHODS OF DATA COLLECTION:

In this project work primary and secondary data sources of data has been used.

Primary data:

Primary data collect through observation, or through direct communication or doing

experiments.

Secondary data:

Secondary data means already available through books, journals, magazines, newspaper.

Analysis:

For the proper analysis of data Quantitative Technique such as percentage method was used.

80
DATA ANALYSIS AND INTERPRETATION:

Table 1:- Showing the occupation of respondent.

Occupation No. Of respondents Percentage

Professional 8 16
Business 10 20
Service 19 38
Agriculture 2 4
Retired 6 12
Others 5 10
Total 50 100

Professional
Buisiness
Service
Agriculture
Retired
others

Interpretation

Majority of the respondents are service oriented amounting to so to38%

so that the mutual fund companies should try to concentrate more on this
segment and try to attract the other categories such as professional, business,
agriculture, retired, and others as they are accounting for just 20% and 16%

81
TABLE 2: According to you Systematic Investment Planning (SIP) is a
good way of investment for long term.

9
8
7
6
5 Series 1
4
Series 2
3
2
1
0
Yes No

Interpretation:-

8 person respondent for yes and 2 person respondent for no.

TABLE 3: Can we beat the inflation while doing investment in fixed.

deposit

10

6
Series 1
4 Series 2

0
Yes No

Interpretation:-

9 person respondent for yes and 2 for no.

82
TABLE 4: Diversified Portfolio is Safe or Risky

7
6
5
4
Series 1
3
Series 2
2
1
0
Safe Risky

Interpretation:-

6 person respondent for safe and 4 person respondent for risky.

TABLE 5: Are you interested to start your investment with plutus

advisory services private ltd.

7
6
5
4 Series 1
3
Series 2
2
1
0
Yes No

Interpretation:-

4 person respondent for yes and 6 person respondent for no.

83
Table 6: showing the investors investing different avenues.

Avenues No. Of respondents Percentage

Bank deposits 17 34
Mutual funds 6 12
Shares 10 20
Debentures 2 4
Bank fixed Deposits 8 16
Chit funds 7 14
Total 50 100

bank deposit
mutual fund
shares
debentures
bank fixed
deposit
chit funds

Interpretation:-

The above table depict that 34% of respondents

prefer to invest in bank deposit due to safety 20% shares 16% in
bank fixed deposit, 14% in chit funds, 12% in mutual funds and 4% in
debentures.

84
Table 7:showing the regular investors .

Invest Pattern No. Of respondents Percentage

Short – term 19 38
Long – term 31 62
Total 50 100

Sales

short
term
long term

Interpretation:-

The above table shows that around 62% the respondents

prefer for long-term investment and 38% for short-term investment.

85
Table 8: showing the factors influencing investment.

Factors No. Of respondents Percentage

Convenience 12 24
Safety 19 38
Income 12 24
Rate of 4 8
interest/preference
Tax benefits 3 6
Total 50 100

convenience

safety

income

rate of
interest/preference
tax benfits

Interpretation:-
The above table shows that most of the investors
about 38% invest for the purpose of safety followed by 24%
convenience and income and rest for rate of interest/preference
and tax benefits that 8% and 6% respectively.

86
Table 8 showing the investment in mutual funds.

Investment in No. Of respondents Percentage

mutual funds
Yes 6 12
No 44 88
Total 50 100

Sales

yes
no

Interpretation:-

The above table depict that 88% of the respondents are not
satisfied with the returns on mutual fund and only 12% of the respondents are
satisfied with return on mutual funds.

87
88
 FINDING AND SUGGESTION
 Majority of respondent are from services sector followed by
businessman, the professional, retired people and other.


 Nearly half of the respondent is in the income range of 5000-
10000, around 10 to 5% of the respondents from higher income
group.


 Majority of respondent neglect the mutual funds, debentures,
bank fixed deposits and chit funds.

 Half of the respondents are regular investor.


 Many respondents prefer the long term investment.


 Source of information plays a key role in inverting an
avenue, majority of respondents follow their own experience.

 Majority of respondents must consider the safety and income.


 Most of the people are investing in avenues due to risk
involved in mutual funds.


 The overall performance of mutual funds is average compare
to other avenues.

89
 SUGGESTION

 There should be awareness created to know about the

Mutual Funds and some tools should be used to convince to invest
in Mutual Funds.

 To provide good services at the time of redemption of the money.


 The investor is not having any knowledge about Mutual
Funds. So the company should tell them and they may be ready to
invest their money in Mutual Funds.


 The company can increase its market in the areas of Mutual
Funds also. It can be done through targeting the equity market
customers and convincing them to invest in Mutual Funds also.

90
91
 CONCLUSION

Mutual Funds now represent perhaps most appropriate investment opportunity for most

investors. As financial markets become more sophisticated and complex, investors need a

financial intermediary who provides the required knowledge and professional expertise on

successful investing. As the investor always try to maximize the returns and minimize the

risk. Mutual fund satisfies these requirements by providing attractive returns with affordable

risks. The fund industry has already overtaken the banking industry, more funds being under

mutual fund management than deposited with banks. With the emergence of tough

competition in this sector mutual funds are launching a variety of schemes which caters to the

requirement of the particular class of investors. Risk takers for getting capital appreciation

should invest in growth, equity schemes. Investors who are in need of regular income should

invest in income plans.

The stock market has been rising for over three years now. This in turn has not only protected

the money invested in funds but has also to help grow these investments.

Reliance India mutual funds provide major benefits to a common man who wants to make his

life better than previous.

India's largest mutual fund, UTI, still controls nearly 80 per cent of the market. Also, the

mutual fund industry as a whole gets less than 2 per cent of household savings against the 46

per cent that go into bank deposits. Some fund managers say this only indicates the sector's

potential.

92
93
 QUESTIONNAIRE

Name: _________________ Age: ______

Occupation: ____________.

Q.1) What kind of investments do you prefer most?

 Equity

 Mutual Funds

 Insurance

 Bank FDs

 Bank RDs

 Real Estate

 Gold

Q.2) Have you ever invested your money in Equity Market/Mutual Fund?

 Yes

 No

Q.3) Are you aware that you can save on taxes by investing in Mutual Funds?

 Yes

 No

94
Q.4) Do you think investments in equity has given better returns compare to other

investment tools?

 Yes

 No

Q.5) Would you be interested to know more about Equity/Mutual Fund investments?

 Yes

 No

95
96
 BIBLIOGRAPHY

QUESTIONNAIRE

Name: _________________ Age: ______

Occupation: ____________.

Q.1) What kind of investments do you prefer most?

 Equity

 Mutual Funds

 Insurance

 Bank FDs

 Bank RDs

 Real Estate

 Gold

Q.2) Have you ever invested your money in Equity Market/Mutual Fund?

 Yes

 No

Q.3) Are you aware that you can save on taxes by investing in Mutual Funds?

 Yes

 No

97
Q.4) Do you think investments in equity has given better returns compare to other

investment tools?

 Yes

 No

Q.5) Would you be interested to know more about Equity/Mutual Fund investments?

 Yes

 No

98