A Project

On
“MUTUAL FUNDS AS A TOOL FOR FINANCIAL PLAN”
With special reference to
KOTAK MAHINDRA ASSET MANAGEMENT COMPANY
LTD.
BHUBANESWAR

PREPARED BY
Anupam jena
Roll no: 56316ut11008

Corporate Guide : Internal Guide :

Mr. Arabinda Sahoo Ms. Disha Bhatt

Deputy Manager (Sales) DAV SCHOOL OF BUSINESS
Bapuji Nagar, Bhubaneswar MANAGEMENT, Bhubaneswar

COMMITED TO EXCELLENCE
 DECLARATION

I do hereby declare that the project entitled “ MUTUAL FUND AS A

TOOL FOR FINANCIAL PLAN” is submitted as a part of my summer
internship program, carried out under the guidance of my internal guide
Ms. Disha Bhatt, my external guide Mr. Arabinda Sahoo and has not
been submitted to any other institute/university or any other organization
apart from Kotak Mahindra Asset Management Company Ltd. and DAV
School Of Business Management, Bhubaneswar.

ANUPAM JENA
5th SEMESTER
ROLL NO. – 56316UT11008

[2]
 ACKNOWLEDGEMENT

It is my pleasure to express a deep sense of gratitude, reverence and indebtness to

Mr. Arabinda Sahoo, Deputy Manager (Asset Management) Kotak Mahindra
Mutual Fund for giving me the opportunity for doing my summer training
program in his organization and for his prompt guidance, valuable suggestions
and constant direct inspiration, which helped me to complete this project.
I would also like to thank Mr. Jayaram Raju at Kotak Mahindra Asset
Management Company Ltd. For his mentorship to help me do the necessary
research work and thereby helping me in the final report.
With immense pride and sense of gratitude, I extend my sincere thanks to
Miss. Disha Bhatt Faculty DAV School Of Business Management
Bhubaneswar for her valuable suggestions and guidance throughout the period of
this project.
I am extreamly grateful to the teaching staff of DSBM (DAV School Of Business
Management) Bhubaneswar for their help and support in completion of the
project work. Last but not the least I would also thank to the other staff members
of Kotak Mutual Fund, Bhubaneswar, who have directly or indirectly helped me
in completing this project report
It was indeed a learning experience for me where I got the first hand experience
of the marketing field.

ANUPAM JENA
5th SEMESTER
ROLL NO. – 56316UT11008

[3]
 CERTIFICATE

This is to certify that Mr. ANUPAM JENA, Roll No. - 56316UT11008, a

student of BBA 5th semester has undergone his summer internship
programme at KOTAK MAHINDRA Asset Management Company Ltd.,
Bhubaneswar under my guidance. This is for the partial fulfilment of BBA
programme of DAV School Of Business Management, Bhubaneswar &
the project is a work of his own.

Miss. Disha Bhatt

Faculty
DSBM

[4]
[5]
 ABSTRACT
Kotak Mahindra is one of India's leading financial institutions,
offering complete financial solutions that encompass every sphere of
life.
In the past 25 years, there have been dramatic changes in how mutual
funds are sold to the investing public. Before 1980, all funds had a
single share class, and shares of a given fund were offered to all
investors. Most funds were sold through a broker, who provided
advice, assistance, and ongoing service to the fund buyer. The share-
holder paid for these distribution services through a front-end sales
charge when he or she bought the fund. Other funds sold shares
directly to investors without a sales charge. Investors in these funds
either did not receive advice and assistance or obtained and paid for
these services separately. Funds sold through financial professionals
such as brokers have since adopted alternatives to the front-end sales
charge. The alternative payment methods typically include a fee
based on assets that may also be in combination with a front-end or
back-end sales charge. In many cases, funds offer several different
share classes — all of which invest in the same underlying portfolio
of assets, but each share class may offer shareholders different
methods of paying for broker services. In addition, Financial planning
is a planned and systematic approach to provide for the financial
goals that will help people realise their needs and aspirations, and be
happy.
The objective of financial planning is to ensure that the right amount
of money is available at the right time to meet the various financial
goals of the investor. This would help the investor realize his
aspirations and experience happiness.

[6]
 CONTENTS
Sr.no CHAPTERS Pg.No

1. INTRODUCTION 9
2. OBJECTIVES OF STUDY 11-12
3. RESEARCH METHODOLOGY 14-15
4. CONCEPT OF MUTUAL 17-29
FUND
5. ORGANIZATION PROFILE 31-37
6. MUTUAL FUND AS A TOOL 39-41
7. FINDINGS & SUGGESTIONS

CONCLUSION 55-57
REFERENCE 58

CHAPTER-1
[7]
INTRODUCTION

[8]
 INTRODUCTION

Mutual funds have been a significant source of investment

in both government and corporate securities. It has been for decades
the monopoly of the state with UTI being the key player, with invested
funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned
insurance companies also hold a portfolio of stocks. Presently,
numerous mutual funds exist, including private and foreign companies.
Banks - mainly state-owned too have established Mutual Funds
(MFs). Foreign participation in mutual funds and asset management
companies is permitted on a case by case basis. 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 appreciations realized are shared by its unit holders in proportion
to the number of units owned by them. Thus a Mutual Fund is the
most suitable investment for the common man as it offers an
opportunity to invest in a diversified, professionally managed basket of
securities at a relatively low cost. The flow chart below describes broadly
the working of a mutual fund:

[9]
 CHAPTER-2
OBJECTIVES OF STUDY

[10]
 OBJECTIVES OF THE PROJECT
The objectives of the study on this topic are as follows:
 To find the awareness among the investor about the Mutual Fund.
 To find out the market position of different mutual funds.

 To study the scope of mutual fund industry.

 To come up with recommendations for investors and mutual fund

companies in India based on the above study.

 To find out the best way to boost the mutual fund industry.

PURPOSE OF THE PROJECT

Investment in mutual funds gives you exposure to equity and debt
markets. These funds are marketed as a safe heaven or as smart
investment vehicles for novice investors. 

The middle-class Indian investor who plays hot tips for a quick buck at
the bourses is the stuff of legends. The middle-class Indian investor who
runs out of luck and loses not only his money but his peace of mind too is
somewhat less famous by choice. Mutual funds, on the other hand, sell us
middling miracles. Consequently proof enough for a research on
Mutual Funds, which has exacting returns.

Every investor requires a healthy return on his/her investments. But

since the market is very volatile and due to lack of expertise they may
fail to do so. So a study of these mutual funds will help one to equip
with unwarranted knowledge about the elements that help trade
between risks and return thereby improving effectiveness.
[11]
A meticulous study on the scalability at which the mutual funds
operate along with diagnosis of the market conditions would endure
managing the investment portfolio efficiently. The study would also
immunize on risks and foresee healthy returns; incidentally in worst of
conditions it has given a return of 18 per cent

SCOPE OF THE PROJECT

The project covers the financial instruments mobilizing in the Indian
Capital market in particular the Mutual Funds. The mutual funds
analysed for their for their performance are
determined over a period of 5 years fluctuations and returns. The
elements taken into consideration for choosing some of the top funds
is on the basis of their respective sharp, beta, ratio. The project shelves
some of the top asset management companies operating in India,
segregated on the basis of their performance over a period of time.
Scooping further the project inundates the success ratio of the funds
administered by top AMC’s.

[12]
 CHAPTER-3
RESEARCH AND METHODOLOGY

[13]
 RESEARCH METHODOLOGY

A thorough study of literature on the mutual fund industry both in India

and abroad will be done. Different measures will be adopted to
understand and evaluate the risks and returns of funds efficiently and
effectively. An extensive study of various articles and publications of
SEBI, AMFI and government of India and other agencies with respect
to the demographics of the population of the country and
their investing pattern will be a part of the methodology
adopted.

PRIMARY OBJECTIVES:

 The research was done by taking sample investors of kotak mutual fund.
 Personal visits to different persons of different areas in the city.
 Questionnaire method

SECONDARY OBJECTIVES:

 Internet
 NISM book
 Newspaper

[14]
 LIMITATIONS

 Some of the persons were not responsive.

 Possibility of error in data collection happened because many investors
have not given actual answers.
 The research is confined to a certain part of Bhubaneswar.
 Some investors were reluctant to give their personal information which
affected the validity of all responses.

 Time factor stands on the way for which the analysis is made within a
limited period.

[15]
 CHAPTER-4
CONCEPT OF MUTUAL FUND

[16]
 CONCEPT OF MUTUAL FUND
A mutual fund is a trust that pools the shaving 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 share 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 lower cost.

The diagram below describes working of mutual fund:

2.1 OVERVIEW OF MUTUAL FUNDS

According to SEBI "Mutual Fund" means a fund established in the form of a

trust to raise monies through the sale of units to the public or a section of the public
under one or more schemes for investing in securities, including money market instruments;"To the
ordinary individual investor lacking expertise and specialized skill in dealing proficiently with the
securities market a Mutual Fund is the most suitable investment forum as it offers an opportunity to
invest in a diversified, professionally managed basket of securities at a relatively low cost. India has a
burgeoning population of middle class now estimated around 300 million. A typical Indian middle class
family can pool liquid savings ranging from Rs.2 to Rs.10 Lacs. Investment of this money in
Banks keeps the fund liquid and safe, but with the falling rate of  interest offered by Banks on

Deposits, it is no longer attractive. At best a small part can be  parked in bank deposits, but what are
the other sources of remunerative investment possibilities open to the common man?

[17]
Mutual Fund is the ready answer, as direct investment is out of the scope of these individuals. Viewed in this
sense India is globally one of the best markets for Mutual Fund Business, so also for Insurance business. This
is the reason that foreign companies compete with one another in setting up insurance and mutual fund
business shops in India. The sheer magnitude of the population of educated white-collar employees with
raising incomes and a well-
organized  stock market  at par with global  standards, provide unlimited  scope for developm
ent of financial services based on PMS like mutual fund and insurance. The alternative to mutual fund is
direct investment by the investor in equities and bonds or  corporate deposits. All investments whether
in shares, debentures or deposits involve risk: share value may go down depending upon the
performance of the company, the industry, state of capital market and the economy.

Generally, however, longer the term, lesser is the risk.Companies may default in payment of

interest/ principal on their debentures/bonds/deposits; the rate of interest on an investment may fall
short of the rate of inflation reducing the purchasing  power. While risk cannot be eliminated, skilful
management can minimize risk. Mutual Funds help to reduce risk through diversification and
professional management. The experience and expertise of Mutual Fund managers in selecting
fundamentally sound securities and timing their purchases and sales help them to build a diversified portfolio
that minimizes risk and maximizes returns.

To protect the interest of the investors SEBI (Securities Exchange Board of India) formulates policies and
regulate the mutual fund. It notified regulations in 1993 and issues guidelines from time to time. Mutual fund
either promoted by public or private sector entities including one promoted by foreign entity is governed by
these regulations.
[18]
SEBI approved Asset Management Company (AMC) manages the fund by making investment in various
types of securities. Custodian, registered with SEBI holds the securities of various schemes of the fund in its
custody.

According to SEBI regulations two third of the directors of the trustee companies or board of trustee must be
independent.

The Association of Mutual Fund In India (AMFI) reassures the investors in units of mutual funds that the
mutual funds function within the strict regulatory framework. Its objective is to increases the public
awareness of mutual fund industry.

TYPES OF MUTUAL FUND SCHEMES

Wide variety of mutual fund schemes exists to cater to the needs such as financial position, risk tolerance and
return expectations etc. It is easier to think of mutual funds in categories, mentioned below.

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.
Schemes that have a stipulated maturity period (ranging from 2 to 15 years) are called close ended schemes.
You can invest in the scheme at the time of the initial issue and thereafter you can buy or sell the units of the
scheme on the stock exchanges where they are listed. The market price at the stock exchange could vary
from the scheme’s NAV on account of demand and supply situation, unit holders’ expectations and other
market factors. One of the characteristics of the close-ended schemes is that they are generally traded at a
discount to NAV; but closer to maturity; the discount narrows. Some close-ended schemes give you an
additional option of selling your units to the Mutual Fund through periodic repurchase at NAV related prices.
SEBI Regulations ensure that at least one of the two exit routes are provided to the investor under the close
ended schemes.
3. Interval Schemes
These combine the features of open-ended and close-ended schemes. They may be traded on the stock
exchange or may be open for sale or redemption during predetermined intervals at NAV related prices.

(B) By Investment Objective

Growth Schemes
[19]
Aim to provide capital appreciation over the medium to long term. These schemes normally invest a majority
of their funds in equities and are willing to bear short term decline in value for possible future appreciation.
These schemes are not for investors seeking regular income or needing their money back in the short term.

Income Schemes
Income Schemes Aim 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.
Ideal for:

 Retired people and others with a need for capital stability and regular income.
 Investors who need some income to supplement their earnings.

Balanced Schemes

Aim to provide both growth and income by periodically distributing a part of the income and capital gains
they earn. They invest in both shares 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.
Ideal for:
 Investors looking for a combination of income and moderate growth.

Money Market / Liquid 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 interbank
call money. 

Returns on these schemes may fluctuate, depending upon the interest rates prevailing in the market.
Ideal for:
 Corporate and individual investors as a means to park their surplus funds for short periods or awaiting
a more favourable investment alternative.

[20]
Tax Saving Schemes (Equity Linked Saving Scheme - ELSS)
These schemes offer tax incentives to the investors under tax laws as prescribed from time to time and
promote long term investments in equities through Mutual Funds. Eligible for deduction under section
80C .Lock in period three years.Ideal for:

 Investors seeking tax incentives.

Special Schemes
This category includes index schemes that attempt to replicate the performance of a particular index such as
the BSE Sensex, the NSE 50 (NIFTY) or sector specific schemes which invest in specific sectors such as
Technology, Infrastructure, Banking, Pharmacy etc. Besides, there are also schemes which invest exclusively
in certain segments of the capital market, such as Large Caps, Mid Caps, Small Caps, Micro Caps, 'A' group
shares, shares issued through Initial Public Offerings (IPOs), etc.

Index fund 
Index fund schemes are ideal for investors who are satisfied with a return approximately equal to that of an
index.

Sectored fund schemes

Sectored fund schemes are ideal for investors who have already decided to invest in a particular sector or
segment.
Fixed Maturity Plan
Fixed Maturity Plans (FMPs) are investment schemes floated by mutual funds and are close ended with a
fixed tenure, the maturity period ranging from one month to three/five years. These plans are predominantly
debt-oriented, while some of them may have a small equity component. The objective of such a scheme is to
generate steady returns over a fixed-maturity period and protect the investor against market fluctuations.
FMPs are typically passively managed fixed income schemes with the fund manager locking into
investments with maturities corresponding with the maturity of the plan. FMPs are not guaranteed products.

Exchange Traded Funds

Exchange Traded Funds are essentially index funds that are listed and traded on exchanges like Index fund
schemes are ideal for investors who are satisfied with a return approximately equal to that of an
index. Globally, ETFs have opened a whole new panorama of investment opportunities to retail as well as
institutional investors. ETFs enable investors to gain broad exposure to entire stock markets as well as in

[21]
specific sectors with relative ease, on a real-time basis and at a lower cost than many other forms of
investing.
An ETF is a basket of stocks that reflects the composition of an index, like S&P CNX Nifty, BSE Sensex,
CNX Bank Index, CNX PSU Bank Index, etc. The ETF's trading value is based on the net asset value of the
underlying stocks that it represents. It can be compared to a stock that can be bought or sold on real time
basis during the market hours. The first ETF in India, Benchmark Nifty Bees, opened for subscription on
December 12, 2001 and listed on the NSE on January 8, 2002.

Capital Protection Oriented Schemes

Capital Protection Oriented Schemes are schemes that endeavour to protect the capital as the primary
objective by investing in high quality fixed income securities and generate capital appreciation by investing
in equity / equity related  instruments as a secondary objective. The first Capital Protection Oriented Fund in
India, Franklin Templeton Capital Protection Oriented Fund opened for subscription on October 31,
2006. Gold Exchange Traded Funds offer investors an innovative, cost-efficient and secure way to access the
gold market. Gold ETFs are intended to offer investors a means of participating in the gold bullion market by
buying and selling units on the Stock Exchanges, without taking physical delivery of gold. The first Gold
ETF in India, Benchmark GETF, opened for subscription on February 15, 2007 and listed on the NSE
on April 17, 2007.

Quantitative Funds
A quantitative fund is an investment fund that selects securities based on quantitative analysis. The managers
of such funds build computer based models to determine whether or not an investment is attractive. In a pure
"quant shop" the final decision to buy or sell is made by the model. However, there is a middle ground where
the fund manager will use human judgment in addition to a quantitative model. The first Quant based Mutual
Fund Scheme in India, Lotus Agile Fund opened for subscription on October 25, 2007.

Funds Investing Abroad

With the opening up of the Indian economy, Mutual Funds have been permitted to invest in foreign
securities/ American Depository Receipts (ADRs) / Global Depository Receipts (GDRs). Some of such
schemes are dedicated funds for investment abroad while others invest partly in foreign securities and partly
in domestic
securities. While most such schemes invest in securities across the world there are also schemes which are
country specific in their investment approach.

Fund of Funds (FOFs)

Fund of Funds are schemes that invest in other mutual fund schemes. The portfolio of these schemes

[22]
comprise only of units of other mutual fund schemes and cash / money market securities/ short term deposits
pending deployment. The first FOF was launched by Franklin Templeton Mutual Fund on October
17, 2003. Fund of Funds can be Sector specific e.g. Real Estate FOFs, Theme specific e.g. Equity
FOFs, Objective specific e.g. Life Stages FOFs or Style specific e.g. Aggressive/ Cautious FOFs etc.

ADVANTAGES OF MUTUAL FUND

If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages
they have over other forms and avenues of investing, particularly for investor who has limited resources
available in terms of capital and ability to carry out detailed research and market monitoring. The following
are the major advantages offered by mutual funds to all investors:

1. Portfolio Diversification: Mutual funds normally invest in a well-diversified portfolio or securities. Each
investor in a fund is a part owner of all the fund’s assets. This enables the investor to hold a diversified
investment portfolio even with a small amount of investment that would otherwise require a big capital.

2. Professional Management: Even if an investor has a big amount of capital available to the investor, he
benefits from the professional management skills brought in by the fund in the management of the
investor’s 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 by his own. Few
investors have the skills and resources of their own to succeed in today’s fast-moving, global and
sophisticated markets.

3. Reduction/ Diversification of Risk: An investor in a mutual fund acquires a diversified portfolio, no

matter how small his investment. Diversification reduces the risk of loss, as compared to investing
directly in one or two shares or debentures or other instruments. When an investor invests directly, all
the risk of potential loss is his own. A fund investor also reduces his risk in another way. While investing
in the pool of funds with other investors, any loss on one or two securities is also shared with other
investors. This 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 is also true of the transaction costs. A direct
investor bears all the costs of investing such as brokerage or custody of securities. When going through a
fund, the investor 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. Investment
in a mutual fund, on the other hand, is more liquid. An investor can liquidate the investment, by selling
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 the units to the fund if open-end, or selling them in the market if the fund is closed-end, and collects
funds at the end of a period specified by the mutual fund or the stock market.

6. Convenience and flexibility: Mutual fund management companies offer many investors cannot get.
Investors can easily transfer their holdings from one scheme to the other, get updated market
information.

DRAWBACKS OF MUTUAL FUND

While the benefits of investing through mutual funds far outweigh the disadvantages, an investor and
his advisor will do well to be aware of a few shortcomings of using the mutual funds as investment vehicles:

1. No control over Costs: An investor in a mutual fund has any control over the overall cost of
investing. He pays investment management fees as long as he remains with the fund, albeit in return
for the professional management and research. Fees are payable as a percentage of the value of his
investments, whether the fund value is rising or 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 benefits of mutual fund services. However, this cost is often
less than the cost of direct investing by the investors.

2. No Tailor-made portfolio: Investors who invest on their own can build their own portfolios of
shares, bonds and other securities. Investing through funds means the investor delegates this decision
to the fund manager. The very high-net-worth individuals or large corporate investors may find this to

be a constraint in achieving their objectives. However, most mutual funds help investor overcome this
constraint by offering families of schemes-a large number of different schemes- within the same fund.
An investor can choose from different investment plans and construct a portfolio of his choice.

3. Managing a Portfolio of funds: Availability of large number of funds can actually mean too much
choice for the investor. The investor may again need advice on how to select a fund to achieve his
objectives, quite similar to the situation when he has to select individual shares or bonds to invest in.

2.5 HISTORY OF MUTUAL FUND

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.

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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 July1993.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 and administrator  a n d   u n d e r   t h e   r u l e s   f r a m e d   b y Government of India and does
not come under the purview of the Mutual Fund Regulations.
[25]
MAJOR MUTUAL FUND COMPANIES IN INDIA

 ABN AMRO mutual fund

ABN AMRO mutual fund was setup on 15th April, 2004 with ABN AMRO trustee (India) Ltd. Was
incorporated on 4th November, 2003.Deutsche Bank A G is the custodian of ABN AMRO mutual
fund.

 BIRLA SUNLIFE Mutual Fund

BIRLA SUNLIFE 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 SUNLIFE mutual fund
follows a conservative long-term approach to investment. Recently it crossed AUM of
Rs.10,000crores.

 BANK OF BARODA Mutual Fund

BANK OF BARODA mutual fund or BOB mutual fund was setup on 30 th October, 1992 under the
sponsorship of Bank of Baroda. BOB asset Management Company limited is the AMC of BOB
mutual fund and was incorporated on 5th November, 1992.Deutsche bank AG is the custodian.

 FRANKLIN TEMPLETON INDIA Mutual Fund

The group, FRANKLIN TEMPLETON investments is a California (USA) based company with a
global AUM of US$409.2bn as of 30th April, 2005.It is one of the largest financial services groups in
the world. Investors can buy or sell the mutual fund through their financial adviser or through mail or
through their website.

 HDFC mutual fund

It was set up on 30th June, 2000 with two sponsors namely housing development finance corporation
limited and standard life investments limited.

 HSBC mutual fund

HSBC mutual fund was setup on 27 th May, 2002 with HSBC Securities and Capital Markets (India)
Pvt. Ltd as the sponsors. Board of Trustees, HSBC Mutual Fund acts as the trustee Company of
HSBC Mutual Fund.

 ING VYSYA Mutual Fund

[26]
 ING VYSYA mutual fund was set up on 11 th February, 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 6th April, 1998.

 ICICI PRUDENTIAL Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. Of UK, one of the largest life
insurance companies in the US. ICICI PRUDENTIAL mutual fund was setup on 13 th of October,
1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is ICICI
PRUDENTIAL 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 18th July 1996 with Sahara India Financial Corporation Ltd. as
the sponsor. Sahara Asset Management Company Private Limited incorporated on 31st August ,1995
works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 corers.

 STATE BANK OF INDIA Mutual Fund

STATE BANK OF INDIA mutual fund is the first bank sponsored Mutual Fund to launch offshore
fund, the India Magnum Fund with a corpus of nRs.225cr. approximately. Today it is the largest Bank
sponsored Mutual Fund in India. They have already launched 35 Schemes o0ut of which 15 have
already yielded handsome returns to investors. STATE BANK OF INDIA mutual fund has more than
Rs.5, 500 corers as AUM. Now it has an investor base of over 8lacs spread over 18 schemes.

 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
(MSIM) 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 (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.

[27]
  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. Ltd. Tata Asset Management Limited’s is
one of the fastest in the country with more than Rs.7, 703crores (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 (UTI) Mutual Fund

UTI Asset Management Company Private Ltd, established in 1963 manages the UTI Mutual Fund
with the support of UTI Trustee Company Pvt. Ltd. UTI Asset Management Company presently
manages a corpus of over Rs.20,000 crore. The sponsors of UTI Mutual Fund are Bank Of Baroda,
Punjab National Bank, State Bank of India and Life Insurance Corporation of India.

 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 contributed as a trust in accordance with
the provisions of the Indian Trust Act, 1882. The company started its business on 29 th April 1994.
The trustees of LIC mutual fund have appointed JEEVAN BIMA SAHAYOG Asset Management
Company Ltd.

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 organization. Association of mutual funds in India was incorporated on 22 nd
August, 1995.

AMFI is an apex body of all asset management companies (AMC) which has been registered with SEBI. Till
date all the AMCs are that have launched mutual fund schemes are its members. It functions under the
supervision and guideline of its board of directors.

[28]
AMFI has brought down the mutual fund industry to a professional and healthy market with ethical lines and
maintaining standards. It follows the principals of both protecting and promoting the interest of mutual funds
as well as unit holders.

Objectives of AMFI

 To define and maintain high professional and ethical standards in all areas of operation of mutual
fund industry.
 To recommend and promote best business practices and code of conduct to be followed by members
and others engaged in the activities of mutual fund and asset management including agencies
connected or involved in the field of capital markets and financial services.
 To interact with SEBI and to represent to SEBI on all matters concerning the mutual fund industry.
 To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the
mutual fund industry.
 To develop a cadre of well trained agent, distributers and to implement a programme of training and
certification of all intermediaries and other engaged in the industry.
 To undertake nationwide investor awareness programme so as to promote proper understanding of the
concept and working of mutual funds.
 To disseminate information on Mutual Fund Industry and to undertake studies and research directly
and in association with other bodies.

[29]
 CHAPTER-3
ORGANIZATION PROFILE

3.1 ORGANIZATIONAL PROFILE

ABOUT KOTAK MAHINDRA MUTUAL FUND

Kotak Mahindra is one of India's leading financial institutions, offering complete financial solutions that
encompass every sphere of life. From commercial banking, to stock broking, to mutual funds, to life
insurance, to investment banking, the group caters to the financial needs of individuals and corporate.

The group has a net worth of Rs.7, 911 corers and employs around 20,000 employees across its various
businesses, servicing around 7 million customer accounts through a distribution network of 1,716 branches,
franchisees and satellite offices across more than 470 cities and towns in India and offices in New York,
California, San Francisco, London, Dubai, Mauritius and Singapore.
[30]
Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned subsidiary of KMBL, is
the Asset Manager for Kotak Mahindra Mutual Fund (KMMF). KMAMC started operations in December
1998 and has over 10 Lac investors in various schemes. KMMF offers schemes catering to investors with
varying risk - return profiles and was the first fund house in the country to launch a dedicated gilt scheme
investing only in government securities.

Established in 1985, the Kotak Mahindra group has been one of India's reputed financial organizations. In
February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on
banking business by the Reserve Bank of India (RBI). This approval creates banking history since Kotak
Mahindra Finance Ltd. is the first non-banking finance company in India to convert itself in to a bank as
Kotak Mahindra Bank Ltd. The Bank offers comprehensive business solutions that include Trade Services,
Cash Management Service and Credit facilities, keeping in mind the needs of the business community. Kotak
Mahindra Bank has over 212 branches spread across 124 locations in the country offering both traditional
banking products and investment advisory services. The Bank has the products, the experience, the
infrastructure and most importantly the commitment to deliver pragmatic, end-to-end solutions that really
work.

PERFORMANCE

In terms of performance too, the fund house is doing well. Of its equity funds, Kotak Contra (Rs 593 corer)
and Kotak Mid-Cap (Rs 346 corer) were the largest funds in September 2005. Kotak Contra invests in
companies that are fundamentally sound but under-valued, and was launched in July 2005. Kotak
Opportunities invests in a mix of large and mid-cap companies, based on their performance and potential.
Both Kotak opportunities and Kotak mid-cap are doing quite well since their launch and are top quartile

performs for the past six months. Kotak Global India invests in Indian companies that are globally
competitive. This fund is a marginal underperformer to the average diversified equity fund. Its diversified
equity fund, Kotak 30 ,has been a middle of the road performer, since its launch in December 1998.On the
debt side, Kotak has been a pioneer, being the first AMC to introduce gilt funds in India in 1998.

Kodak’s FOF is an interesting offering. Kotak Equity FOF is a multi-manager fund of funds, which allows
investors the diversification across styles and fund houses.

Through a change in executives at mutual fund companies is a given, Kotak has seen more changes in its
CEO and equity fund manager in the past three-four years than the average AMC. Generally this is not a
good sign, but Kotak appears to have coped with these changes.

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3.2. KOTAK MAHINDRA MUTUAL FUND PRODUCTS
1. OPEN ENDED EQUITY GROWTH SCHEMES:
 KOTAK 50: It is an open-ended equity growth scheme that invests predominantly in large-
cap stocks, that are diversified across sectors and form a significant proportion of total
market capitalization. To generate capital appreciation from a portfolio of predominantly
equity and equity related securities. The portfolio will generally comprise of equity and
equity related instruments of around 50 companies which may go upto 59 companies but
will not exceed 59 at any point of time.
 KOTAK MID-CAP: An open-ended scheme that invests in mid-cap companies that have a
potential to become tomorrow's large-caps. The key focus of the fund is to identify potential
stocks that are likely to grow in the long term. The essence is to 'spot them young and watch
them grow'. It endeavors to take advantage of the successive waves of opportunity provided
by a transitioning economy. The portfolio is diversified across sectors, with adequate
flexibility to move within sectors.
 KOTAK OPPORTUNITIES: Kotak Opportunities is a diversified, equity, open-ended scheme
that has a flexibility to invest across market capitalization and sectors. As markets evolve &
grow, new opportunities of growth keep emerging. The investment strategy is to make
strategic use of debt and money market securities. The scheme invests atleast 60% in large
cap stocks and upto 40% in mid cap stocks.
 KOTAK CLASSIC EQUITY: Kotak classic equity is a diversified equity scheme that invests in
fundamentally strong companies, which are currently undervalued due to temporary / non-
recurring reasons, thus following the contrarian style of investing. The preference is for
bargain hunting rather than the momentum approach to stock picking. The investment
strategy is to have 65%-100% in equity and equity related securities, 0-35% in debt & money
market securities.
 KOTAK GLOBAL EMERGING MARKET FUND: Kotak Global Emerging Markets Scheme is an
open ended equity scheme with an investment objective of providing long term capital
appreciation by investing in an overseas mutual fund scheme that invests in a diversified
portfolio of securities as prescribed by SEBI from time to time in global emerging markets.
The scheme is currently invested in T.Rowe Price SICAV Funds Global Emerging Markets
which invests in companies operating in various emerging markets globally. The scheme is

[32]
 suitable for long term investors with a higher risk appetite and who wish to supplement
existing holdings with exposure to investment opportunities in globally emerging economies.
 KOTAK EQUITY ARBITRAGE FUND: An open ended equity oriented scheme that aims to
generate income and capital appreciation by predominantly investing in arbitrage
opportunities in the cash and derivatives segment of the equity market and in debt and
money market securities. The scheme evaluates the difference between price of a stock in
futures and spot market and enters into only those trades where there is a potential
arbitrage available. The fund manager may square off or roll over the positions depending on
the opportunities available. The scheme is suitable for investors who have an investment
horizon of 3 months and above and who want to participate in equity arbitrage market for
returns better than cash funds.
 KOTAK TAX SAVER: Kotak Tax Saver is a diversified equity scheme that invests in equity and
equity related securities and enables the investors to avail the income tax rebate, as
permitted from time to time. The investment strategy is to have 80-100% in equity and 0-
20% in debt and money market securities. This way the investor derives the dual benefit of
gaining returns from investment in equities while also availing the tax benefit. Kotak Tax
Saver scheme uses bottom-up stock selection to build its portfolio. Risk is being managed by
adequate diversification and by spreading investments over a range of industries and
companies. The portfolio offers a diversified mix across various sectors. As it is a close ended
architecture, the investor has to compulsorily lock in ones fund for 3 years.
 KOTAK EMERGING EQUITY SCHEME- This is an open ended equity growth scheme with an
investment objective to generate long term capital appreciation from a portfolio of equity
and equity related securities. The fund invests predominantly in mid and small cap
companies with an ideal investment horizon of 1-3 years.
 KOTAK SELECT FOCUS FUND- This is an open ended equity scheme with an investment
objective to generate long term capital appreciation from a portfolio of equity and equity
related securities, generally focused on a few selected sectors.

2. KOTAK DEBT SCHEMES

 KOTAK MONTHLY INCOME PLAN: Kotak Monthly Income Plan invests 80% - 100% in debt
and money market instruments and 0 - 20% in equity related instruments. The scheme
endeavors to provide safety of a debt fund with superior returns of equity product. To
ensure safety of a debt fund the scheme invests in top rated debt instruments thereby
ensuring good credit quality and liquidity.

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 KOTAK BOND: The Kotak Bond is a debt scheme, with a diversified portfolio, comprising
government, PSU and corporate bonds and offers two plans: Deposit Plan & Regular Plan.
Kotak Bond aims to generate reasonable returns at the same time reduce risk by investing in
corporate bonds with credit rating not below AA. Thus the fund has invested in a variety of
debt and money market instruments of various maturities while maintaining an optimal
maturity on the portfolio based on the prevailing market conditions.
 KOTAK LIQUID: A money market scheme that seeks to achieve the twin objective of superior
returns coupled with high level of liquidity. Achievement of objective is ensured through
investments in judicious mix of money market instruments, corporate bonds and sovereign
securities. The scheme is ideally suited for investors looking to park their short-term surplus
funds. Kotak Liquid has four investment plans: Regular Plan, Institutional Plan and
Institutional Premium Plan.
 KOTAK GILT INVESTMENT: Kotak Gilt is a scheme that allows the retail investor to invest in
the otherwise wholesale government securities market. It invests in government bonds and
treasury bills, giving a zero credit risk investment option. It recognizes that for retail investors
safety is of prime concern, giving them the liquidity of a savings account with attractive
returns.
Investment Plan (Regular) : Ideal for long-term investors, this plan aims to enhance returns
by investing in longer maturity instruments. The portfolio has no restriction on the maturity
of the security.
Investment Plan (PF & Trust) : This plan aims to generate risk-free returns through
investments in sovereign securities issued by the Central Government and/or a State
Government and/or reverse repos in such securities. The eligible investors are: Provident
Funds, Superannuation, Pension, Welfare and Gratuity Funds, Religious and Charitable Trusts
and Trustees of Private Trusts authorized to invest in Mutual Fund Schemes under their
trusts deeds.
 KOTAK GILT SAVING: Kotak Gilt is a scheme that allows the retail investor to invest in the
otherwise wholesale government securities market. It invests in government bonds and
treasury bills, giving a zero credit risk investment option. It recognizes that for retail investors
safety is of prime concern, giving them the liquidity of a savings account with attractive
returns.
Savings Plan: Savings Plan is ideal for a short-term investor. This plan invests in a portfolio of
securities with Weighted Average Maturity of less than four years.

[34]
 KOTAK FLEXI DEBT: Kotak Flexi Debt is an income scheme and seeks to maximize returns
through active management of a portfolio of Debt and money market securities. It invests
across maturity spectrum and across the yield curve in order to capitalize on high carry
income prevailing at the mid end of the yield curve. The scheme has invested in top rated
quality assets and has relatively lower risk/volatility profile, as the mark to market
component is relatively low. It is ideal for investors with medium term investment outlook
who want their portfolio to be managed smartly.
 KOTAK FLOATER LONG-TERM: Kotak Floater Long Term invests in a combination of floating
rate instruments, money market instruments and fixed rate instruments with an objective to
provide steady accruals to investors. The high credit quality of the portfolio and the accrual
nature of its composition make it ideal for investment with a very short-term perspective –
15 days.
 KOTAK MULTI ASSET ALLOCATION FUND: Kotak Multi Asset Allocation Fund is an open
ended debt scheme with an investment objective is to aims to generate income by
predominantly investing in debt and money market instruments, and to generate growth by
investing moderately in equities and achieve overall diversification by investing in gold. In
terms of asset allocation, the scheme aims to invest at least 75% to 90% in debt and money
market instrument, 5% to 20% in equity and equity related instruments and 5% to 20% in
Gold. The scheme takes exposure to gold through Gold Exchange Traded Funds (ETF).
 KOTAK BOND SHORT TERM: The Kotak Bond Short Term plan is a debt scheme, with a
diversified portfolio, comprising government, PSU and corporate bonds. Kotak Bond Short
term plan aims to generate reasonable returns at the same time reduce risk by investing in
corporate bonds with credit rating not below AA. Thus the fund has invested in a variety of
debt and money market instruments of various maturities while maintaining an optimal
maturity (average maturity of the portfolio not exceeding 3 years) on the portfolio based on
the prevailing market conditions. The scheme has growth option and monthly dividend re-
investment option.
 KOTAK FLOATER SHORT TERM: Kotak Floater Short Term invests predominantly in floating
rate securities and money market instruments in order to contain interest rate risk. The
scheme has greater exposure to money market instruments of high credit quality thereby
ensuring reasonable returns and lower mark to market component. The scheme is ideal for
an investment horizon of even less than a week.
 KOTAK INCOME OPPORTUNITIES FUND: The Kotak Income Opportunities Fund is an open
ended debt scheme that seeks to maintain reasonable liquidity within the fund. Kotak
[35]
 Income Opportunities Fund aims to generate income by investing in debt /and money
market securities across the yield curve and credit spectrum. Thus the fund has invested in a
variety of debt, money market instruments and government securities while maintaining an
optimal maturity on the portfolio based on the prevailing market conditions.
 KOTAK HYBRID FTP SERIES 1: Kotak Hybrid Fixed Term Plan - Series I, a close-ended debt
scheme with 24 months maturity. The Objective of the Scheme is to generate income and
reduce interest rate volatility by investing in Debt & Money Market securities that mature on
or before the maturity of the scheme, and also to generate capital appreciation by investing
in equity/ equity related securities. The scheme would invest in debt instruments like
debentures, bonds, securitized debt and government securities and money market
instruments like CPs, CDs, and T-bills. The scheme would also invest in equity & equity
related securities.

3. BALANCED SCHEME

 KOTAK BALANCE: A Scheme, investing in equity, debt and money market instruments. The
investment strategy is to have a 51% - 70% in equity portion and 30% - 50% in non-equity
portion.

4. FUND OF FUND SCHEMES

 KOTAK GOLD FUND: The Kotak Gold Fund of Fund is an open ended fund of fund scheme
which invests predominantly in units of Kotak Gold ETF Scheme. The investment objective of
the scheme is to generate returns by investing in units of Kotak Gold Exchange Traded Fund.
The scheme is suitable for investors who seek exposure to physical gold as an investment
and an asset class to diversify their portfolio. It is also suitable to those who find the
investments in Gold ETF's to be cumbersome for want of trading and demat account for
investing on the exchanges. It is also suitable to small investors who cannot invest in lot of
creation unit size of a Gold ETF or those habituated to dealing with mutual funds directly.
 KOTAK EQUITY: Kotak Equity FOF offers the gains from investing in several top-performing
equity schemes without the inconvenience of managing the portfolio and selecting the
mutual fund schemes himself by the investor. Kotak Equity FOF is a Fund of Funds that
invests primarily in diversified equity schemes (both large-cap and aggressive) from across
mutual fund houses in India. Thus, it is a single-asset class multi-manager Fund of Funds.

5. EXCHANGE TRADED FUND (ETF) SCHEMES

[36]
 KOTAK NIFTY ETF: An Open ended Exchange Traded Fund. The investment objective of
the scheme is to provide returns before expenses that closely correspond to the total
returns of the S&P CNX Nifty subject, to tracking errors. The scheme will invest in the
stocks that comprise the S&P CNX Nifty and in the same proportion as in the index.
 KOTAK SENSEX ETF: An Open ended Exchange Traded Fund. The investment objective of
the scheme is to provide returns before expenses that closely correspond to the total
returns of the BSE SENSEX subject to tracking errors. The scheme will invest in the stocks
that comprise the BSE Sensex and in the same proportion as in the index.
 KOTAK PSU BANK ETF: An Open ended Exchange Traded Fund. The investment objective
of the scheme is to provide returns that closely correspond to the total returns of CNX
PSU Bank Index, subject to tracking errors. The scheme will invest in the securities that
comprise the CNX PSU Bank Index and in the same proportion as in the Index.
 KOTAK GOLD ETF: An Open ended Exchange Traded Fund. The investment objective of
the scheme is to generate returns that are in line with the returns on investment in
physical gold, subject to tracking error. The Fund would invest in gold, and endeavor to
track the spot price of gold. The Fund would invest all the residual funds after investing in
gold, in debt and money market instruments.

[37]
 CHAPTER-4
MUTUAL FUND AS A TOOL

FINANCIAL PLANNING

Financial planning is a planned and systematic approach to provide for the financial goals that will help
people realise their needs and aspirations, and be happy.

For example, a father wants his son, who has just passed his 10th standard Board examinations, to become a
doctor. This is an aspiration. In order to realize this, formal education expenses, coaching class expenses,
hostel expenses and various other expenses need to be incurred over a number of years. The estimated
financial commitments towards these expenses become financial goals. These financial goals need to be met,
so that the son can become a doctor.
[38]
The objective of financial planning is to ensure that the right amount of money is available at the right time
to meet the various financial goals of the investor. This would help the investor realize his aspirations and
experience happiness.

LIFE CYCLE AND WEALTH CYCLE ANALYSIS

While working on a comprehensive financial plan, it is useful to have a perspective on the Life Cycle and
Wealth Cycle of the investor.
1. LIFE CYCLE ANALYSIS

These are the normal stages that people go through, viz.:

Childhood
During this stage, focus is on education in most cases. Children are dependents, rather than earning members.
Pocket money, cash gifts and scholarships are potential sources of income during this phase. Parents and
seniors need to groom children to imbibe the virtues of savings, balance and prudence. Values imbibed
during this phase set the foundation of their life in future.

Young Unmarried :The earning years start here. A few get on to high-paying salaries early in their career.
Others toil their way upwards. This is the right age to start investing in equity. Personal plans on marriage,
transportation and residence determine the liquidity needs. People for whom marriage is on the anvil, and
those who wish to buy a car / two-wheeler or house may prefer to invest more in relatively liquid investment
avenues. Others have the luxury of not having to provide much for liquidity needs. Accordingly, the size of
the equity portfolio is determined.

Young Married
Where both spouses have decent jobs, life can be financially comfortable. They can plan where to stay in /
buy a house, based on job imperatives, life style aspirations and personal comfort. Insurance is required, but
not so critical. Where only one spouse is working, life insurance to provide for contingencies associated with
the earning spouse are absolutely critical. In case the earning spouse is not so well placed, ability to pay
insurance premia can be an issue, competing with other basic needs of food, clothing and shelter.
Depending on the medical coverage provided by the employer/s, health insurance policy cover too should
be planned.
Many insurance companies have outsourced the claim settlement process. In such cases, the outsourced
service provider, and not the insurer, would
be the touch point for processing claims.
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Married with Young Children
Insurance needs – both life and health - increase with every child. The financial planner is well placed to
advise on a level of insurance cover, and mix of policies that would help the family maintain their life style
in the event of any contingency. Expenses for education right from pre-school to normal schooling
to higher education is growing much faster than regular inflation.
Adequate investments are required to cover this.

Married with Older Children

The costs associated with helping the children settle i.e. cost of housing, marriage etc are shooting up. If
investments in growth assets like shares and real estate, are started early in life, and maintained, it would help
ensure that the children enjoy the same life style, when they set up their independent families.

Pre-Retirement
By this stage, the children should have started earning and contributing to the family expenses. Further, any
loans taken for purchase of house or car, or education of children should have been extinguished. The family
ought to plan for their retirement -what kind of lifestyle to lead, and how those regular expenses will be met.

Retirement
At this stage, the family should have adequate corpus, the interest on which should help meet regular
expenses. The need to dip into capital should come up only for contingencies – not to meet regular expenses.

Wealth Cycle
This is an alternate approach to profile the investor. The stages in the Wealth Cycle are:
Accumulation
This is the stage when the investor gets to build his wealth. It covers the earning years of the investor i.e. the
phases of the life cycle from Young Unmarried to Pre-Retirement.

Transition
Transition is a phase when financial goals are in the horizon. E.g.house to be purchased, children’s higher
education / marriage approaching etc. Given the impending requirement of funds,investors tend to increase
the proportion of their portfolio in liquid assets viz. money in bank, liquid schemes etc.

Inter-Generational Transfer
[40]
During this phase, the investor starts thinking about orderly transfer of wealth to the next generation, in the
event of death. The financial planner can help the investor understand various inheritance and tax issues, and
help in preparing Will and validating various documents and structures related to assets and liabilities of the
investor.

Reaping / Distribution
This is the stage when the investor needs regular money. It is the parallel of retirement phase in the Life
Cycle. Sudden Wealth Winning lotteries, unexpected inheritance of wealth, unusually high capital gains
earned – all these are occasions of sudden wealth, that need to be celebrated.

[41]
 CHAPTER-5
WHY MUTUAL FUND

[42]
Why mutual fund?
Instrument Tax Benefit Return Duration

EPF √ 8.50% Long Term

PPF √ 8% Long Term

NSC √ 8% Long Term

FD’s – Banks √ 5.70 to 8.50% Short Term

& Post Office

Senior Citizen √ 9% Long Term

Savings
Scheme
Mutual Funds √ Market Linked Long Term &
Short Term
ULIP √ Market Linked Long Term

NPS √ Market Linked Long Term

Direct Equity √ Market Linked Long Term

Gold √ Market Linked Short Term

Real Estate √ Market Linked Long Term

STRUCTURE OF A MUTUAL FUND

[43]
The above diagram gives an idea on the structure of an Indian mutual fund.

Sponsor: Sponsor is basically a promoter of the fund. For example Bank of Baroda, Punjab National Bank,
State Bank of India and Life Insurance Corporation of India (LIC) are the sponsors of UTI Mutual Funds.
Housing Development Finance Corporation Limited (HDFC)  and Standard Life Investments Limited are the
sponsors of HDFC mutual funds. The fund sponsor raises money from public, who become fund
shareholders. The pooled money is invested in the securities. Sponsor appoints trustees.

Trustees: Two third of the trustees are independent professionals who own the fund and supervises the
activities of the AMC. It has the authority to sack AMC employees for non-adherence to the rules of the
regulator. It safeguards the interests of the investors. They are legally appointed i.e. approved by SEBI.

AMC: Asset Management Company (AMC) is a set of financial professionals who manage the fund. It takes
decisions on when and where to invest the money. It doesn’t own the money. AMC is only a fee-for-service
provider.
The above 3 tier structure of Indian mutual funds is very strong and virtually no chance for fraud.

Custodian: A Custodian keeps safe custody of the investments (related documents of securities invested). A
custodian should be a registered entity with SEBI. If the promoter holds 50% voting rights in the custodian
company it can’t be appointed as custodian for the fund. This is to avoid influence of the promoter on the

custodian. It may also provide fund accounting services and transfer agent services. JP Morgan Chase is one
of the leading custodians.

[44]
Transfer Agents: Transfer Agent Company interfaces with the customers, issue a fund’s units, help
investors while redeeming units. Provides balance statements and fund performance fact sheets to the
investors. CAMS is a leading Transfer Agent in India.

Making money from Mutual fund

Dividends: Dividends may be in the form of cash, stock or property. Most secure and stable companies offer
dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make
up for this. High-growth companies rarely offer dividends because all of their profits are reinvested to help
sustain higher-than-average growth.
Mutual funds pay out interest and dividend income received from their portfolio holdings as dividends to
fund shareholders. In addition, realized capital gains from the portfolio's trading activities are generally paid
out (capital gains distribution) as a year-end dividend.

Interest: The charge for the privilege of borrowing money, typically expressed as an annual percentage.
rate.  The amount of ownership a stockholder has in a company, usually expressed as a percentage. Interest is
commonly calculated using one of two methods: simple interest calculation, or compound interest
calculation. Lender make money from interest, borrowers pay it.  Someone who holds more than 5-10% of
the stock in a company is said to hold significant interests.

Capital Gain: Long-term capital gains are usually taxed at a lower rate than regular income. This is done to
encourage entrepreneurship and investment in the economy. Tax conscious mutual fund investors should
determine a mutual fund's unrealized accumulated capital gains, which are expressed as a percentage of its
net assets, before investing in a fund with a significant unrealized capital gain component. This circumstance
is referred to as a fund's capital gains exposure. When distributed by a fund, capital gains are a taxable
obligation for the fund's investors
Selecting a mutual fund

Investment objective & risk profile: The investment goal of the fund must coincide with that of the
investor. The objectives can be defined in terms of tax planning, regular income, high returns, long-term
planning, etc. Equity funds are more tax-efficient compared with debt funds, short-term debt funds aim at
regular income, whereas closed-ended equity funds aim at long-term capital appreciation.

The fund should be chosen according to the investor's risk tolerance. The objective of high returns is
generally associated with high risk. The Association of Mutual Funds in India (AMFI) defines three types of
risk tolerance levels: low risk or cautious, moderate risk or cautiously aggressive and high risk or aggressive.

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Low-risk investors should consider debt funds, which invest in government securities or high rated debt
papers. Moderate-risk investors should consider index funds, balanced funds and asset allocation funds.
High-risk investors should look for equity funds (diversified and specialised), offshore funds and mid-cap
funds.

Fund performance & management: Though the past performance of a fund does not define its future
performance, it is important to consider how it has performed with respect to its benchmark or other similar
funds. A fund should be compared with the same category of funds. So, the performance of a mid-cap fund
cannot be compared with that of a large-cap fund as the former is more volatile compared with the latter.
Past performance also helps in assessing the quality of fund management, the skills of the fund manager and
his team. The stock picking and market timing abilities of the manager can be judged by comparing the fund
performance with its benchmark.

The funds that perform better than their benchmarks are considered outperformers, whereas the funds that
yield less than their benchmarks are underperformers.

Fund size: The size is important because a very large fund often faces difficulties in the optimum
deployment of its corpus, which, in turn, negatively impacts its performance. On the other hand, a very
small-sized fund is constrained with the problems of high costs. Therefore, one should go for a mid-sized
fund as it ideally balances the investment flexibility and costs.

Fund costs: These involve the operating costs of running a fund and include marketing and selling expenses,
audit fees, custodian fees, etc. These costs can be gauged by looking at the fund's expense ratio, which is
reported in its annual report. The expense ratio should be compared with similar funds as those with high
ratios significantly impact the long-term investors due to the effect of compounding.

STEPS INVOLVED IN INVESTING IN A MUTUAL FUND

Step-1- Identifying the investment needs

 What are the investment objectives and needs?

 How much risk the investor is willing to take?
 What are the cash flow requirements?

Step-2-Choose the right mutual fund

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  The track record of performance over the last few years in relation to the appropriate
Benchmark and similar funds in the same category .
 How well the mutual fund is organized to provide efficient, prompt and personalized service.
 Degree of transparency as reflected in frequency and quality of their communications.

Step-3-Select the ideal mix of schemes

 Select the ideal mix of schemes.

 Investing in just 1 scheme may not meet all your investment needs. You may consider
investing in a combination of schemes to achieve your specific goals.

INVESTMENT STRATEGIES

 Systematic investment Plan: under this a fixed sum is invested each month on a fixed date of a
month. Payment is made through post dated cheques or auto debit facilities. The investors get fewer
units when the NAV is high and more units when the NAV is low. This is called as the benefit of
Rupee Cost Averaging.
 Systematic Transfer Plan: under this an investor invest in debt oriented form and give instruction to
transfer affixed sum, at a fixed interval to an equity scheme of the same mutual fund.
 Systematic Withdrawal Plan: if someone wishes to withdraw from mutual fund then he can
withdraw a fixed amount each month.

Investment in mutual fund through SIP

SIP- Systematic Investment Plan

 It is a method of investing a fixed sum, at a regular interval, in a mutual fund. It is very similar to
monthly saving schemes like a recurring monthly deposit / post office deposit.

Benefits of SIP:

1. SIP can be started with a minimum investment of Rs. 500/- per month or Rs. 1000/- per month.
2. It is good and effective way of creating wealth for long term.
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3. ECS facility is available in case of Investment through SIP.
4. A small withdrawal from the account doesn’t affect the bank balance of an individual as compared to a
hefty withdrawal.
5. It can be for a year, two years, three years etc. if a person at any point of time couldn’t be able to continue
its SIP, he may give instructions atleast 25 days before to the fund house. His SIP will be discontinued.
6. All type of funds except Liquid funds, cash funds and other funds who invest in very short fixed return
investments offers the facility of SIP.
7. Capital gains, if applicable, are taxed on a first-in first-out basis.As the investment made through SIP are
not at one time. Some units bought at high price and some at low price, so chances of making gain through
SIP is higher than the on time investment.

SIP of Rs. 1000 invested per month @ 8% per annum till the age of 60

Starting Age Total Amount Saved Value at the age of 60

25 4,20,000 23,09,175
30 3,60,000 15,00,295
35 3,00,000 9,57,367
40 2,40,000 5,92,947

Risks involved in mutual funds schemes:

 Call Risk. The possibility that falling interest rates will cause a bond issuer to redeem—or call—its
high-yielding bond before the bond's maturity date.
 Country Risk. The possibility that political events (a war, national elections), financial problems
(rising inflation, government default), or natural disasters (an earthquake, a poor harvest) will weaken
a country's economy and cause investments in that country to decline.

 Credit Risk. The possibility that a bond issuer will fail to repay interest and principal in a timely
manner. Also called default risk.

 Currency Risk. The possibility that returns could be reduced for Americans investing in foreign
securities because of a rise in the value of the U.S. dollar against foreign currencies. Also called
exchange-rate risk.

 Income Risk. The possibility that a fixed-income fund's dividends will decline as a result of falling
overall interest rates.

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  Industry Risk. The possibility that a group of stocks in a single industry will decline in price due to
developments in that industry.

 Inflation Risk. The possibility that increases in the cost of living will reduce or eliminate a fund's
real inflation-adjusted returns.

 Interest Rate Risk. The possibility that a bond fund will decline in value because of an increase in
interest rates.

 Manager Risk. The possibility that an actively managed mutual fund's investment adviser will fail to
execute the fund's investment strategy effectively resulting in the failure of stated objectives.

 Market Risk. The possibility that stock fund or bond fund prices overall will decline over short or
even extended periods. Stock and bond markets tend to move in cycles, with periods when prices rise
and other periods when prices fall.

 Principal Risk. The possibility that an investment will go down in value, or "lose money," from the
original or invested amount.

Risk-Return trade-off

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MEASURING RISKS

RISK MEASURE IMPLICATION IMPACT ON INVESTOR

High average maturity and More sensitive to interest rate Higher volatility in returns
modified duration changes
Low average maturity and Less sensitive to interest rate Lower volatility in returns
modified duration changes
Greater allocation to high Low risk default Lower yield with lower risk
credit rated instruments
Greater allocation to low Higher risk default Higher yield with greater risk
rated instruments

RISK MEASURES OF MUTUAL FUND

There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual
fund portfolios. They are 

 ALPHA
 BETA
 R-SRUARED RATIO
 STANDARD DEVIATION and
 SHARPE RATIO
These statistical measures are historical predictors of investment risk/volatility and are all major components
of modern portfolio theory (MPT). The MPT is a standard financial and academic methodology used for
assessing the performance of equity, fixed-income and mutual fund investments by comparing them to
market benchmarks.

Alpha
Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk)
of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess
return of the investment relative to the return of the benchmark index is its “alpha.” Simply stated, alpha is
often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's
return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%.
Correspondingly, a similar negative alpha would indicate an underperformance of 1%. For investors, the
more positive an alpha is, the better it is.

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Beta
Beta, also known as the "beta coefficient," is a measure of the volatility, or systematic risk, of a security or a
portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and you can
think of it as the tendency of an investment's return to respond to swings in the market. By definition, the
market has a beta of 1.0. Individual security and portfolio values are measured according to how they deviate
from the market.
A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta of less than
1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more
than 1.0 indicates that the investment's price will be more volatile than the market. For example, if a fund
portfolio's beta is 1.2, it's theoretically 20% more volatile than the market.

Conservative investors looking to preserve capital should focus on securities and fund portfolios with low
betas, whereas those investors willing to take on more risk in search of higher returns should look for high
beta investments. 

R-Squared
R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements
that can be explained by movements in a benchmark index. For fixed-income securities and their
corresponding mutual funds, the benchmark is the U.S. Treasury Bill, and, likewise with equities and equity
funds, the benchmark is the S&P 500 Index.
R-squared values range from 0 to 100. According to Morningstar, a mutual fund with an R-squared value
between 85 and 100 has a performance record that is closely correlated to the index. A fund rated 70 or less
would not perform like the index.

Standard Deviation:

Standard deviation measures the dispersion of data from its mean. In plain English, the more that data is
spread apart, the higher the difference is from the norm. In finance, standard deviation is applied to the
annual rate of return of an investment to measure its volatility (risk). A volatile stock would have a high
standard deviation. With mutual funds, the standard deviation tells us how much the return on a fund is
deviating from the expected returns based on its historical performance.

Sharpe Ratio

Developed by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted performance. It is
calculated by subtracting the risk-free rate of return (U.S. Treasury Bond) from the rate of return for an
investment and dividing the result by the investment's standard deviation of its return.The Sharpe ratio tells

[51]
investors whether an investment's returns are due to smart investment decisions or the result of excess risk.
This measurement is very useful because although one portfolio or security can reap higher returns than its
peers, it is only a good investment if those higher returns do not come with too much additional risk. The
greater an investment's Sharpe ratio, the better its risk-adjusted performance.

Mutual Funds Redemption Process

If you have bought the mutual funds from an agent or from the AMC directly, then you will have to fill up
the mutual fund redemption form . This form is available from the mutual funds AMC office (you can get
its office address from internet). You will have to go to their office in person. You can also go to the
nearest CAMS office and fill up the mutual fund redemption form directly from there.  It’s much
convenient to visit CAMS office and directly redeem more than one mutual funds in one go.

The redemption form is very easy to fill and all you need to put is your name, folio number (make sure
you put correct folio number, else it will create issue later) and the number of units (exact number or
ALL) you want to redeem. Just give this form to the CAMS processing assistant and they will put up your
request.

Important Points

2. NAV Applicable: If you give your redemption request before 3:00 pm, the same day closing
NAV will be applicable, else you will get next day NAV. So make sure you do the redemption
well before 3:00 pm if you want same day NAV.

3. Bank accounts: Where will you get the money when you redeem the mutual funds? You will
get the proceeds in your same account which is registered with your AMC (which you used to
pay at the time of buying). If that account is not active, then there are few run around like you
will have to attach the cancelled cheque of your new bank account or copy of pass-book etc
and if you don’t have that, then a declaration from the bank and sign of some bank manager
etc. So this can be a little frustrating if you are in urgent need of money. In my case my old
account was active so it was pretty easy for me.

4. CAMS do not handle all the AMC’s redemption: CAMS do not handle each and every
Mutual funds transaction. It can happen that you will have to go to the AMC office itself for
redemption. Like in my case I had to go to Sundaram AMC office to redeem my Sundaram
Tax Saver proceeds. So check with CAMS which all mutual funds they handle, you can shoot
an email to your city CAMS (their emails and addresses are there on CAMS website 

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 5. How much time it takes to get money? : It generally takes 3-4 working days to get the money
credited in your account. But in my case I got it in next 2 days itself. So if you redeem the funds on
Monday or Tuesday, you can safely assume that you will get the money by the weekend. But if you have
weekend falling in between, then it can take some time.

Process of redemption if have bought Mutual funds online:

If you bought your mutual funds from your demat account or some online brokers or if you activated your
online account after buying from agent, then you can redeem your mutual funds online itself just by
following the procedure mentioned by your online account. Most of the people who buy tax saving mutual
funds (ELSS funds) online can also redeem tax saver mutual funds online only.

Redemption of a mutual fund:

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CHAPTER-6
FINDINGS
SUGGESTIONS
CONCLUSION

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 FINDINGS

 Study found more young people are involved in financial activities. They more visit
banks. So its an opportunity for the mutual funds industries to attract people.
 Study says many time advisors don’t get timely updates from the AMCs, which leads
them not to offer some of the schemes that may give good returns.
 People like to invest in secured funds. Some of them have lack of trust or fear of loss
of money.
 Most people are not having the knowledge of schemes. It requires aggressive
marketing of funds. By this way the awareness level can be improved among people.
 Most of the respondents fall in the age group of 31-50 years.
 It was observed that the driving aspects of investments in mutual fund are fund
performance, service, returns, and tax benefits.
 The reason of not being aware about mutual funds schemes is lack of understanding of
the schemes by the agents.
 Regarding the service quality, investors are satisfied with kotak mutual fund
Bhubaneswar.
 There are some potential customers who showed their interest in investing in kotak
mutual fund due to its past performance and service quality.
 Different schemes are designed for different age groups.Ex:equity schemes are for the
young people aged between 25-35.Because they have the more risk taking ability than
the older.Older people can invest in debt schemes which are less riskier and have the
gilt funds(Government),where it gives the assurance of returns when the market is
bearish.So investors get number of choices to invest.
 The investors can redeem the investment easily if they desire by following the legal
rules of redemption that is directly going to the CAMS office.So it is convenient and
easy.

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 SUGGESTIONS

 Fund managers should conduct continuous investor awareness programs to make the
investors aware of the schemes of mutual funds and the return from the funds.
 Agents, service personnel must be able to correctly guide the investors in different
schemes as per their needs and requirements.
 Savings pooled by mutual funds are invested largely in industrial securities. Mutual
funds raise resources from a large number of small savers and make funds available to
industrial concerns who may find it a burden to raise finance directly from individual
savers. Thus by playing the role of financial intermediation mutual funds provides a
convenient and effective link between savings and investment.
 The mutual fund houses provide many types of schemes such as open-ended schemes,
closed-ended schemes, growth schemes, etc. so as to cater varying needs and
preferences of large number of investors. The choice of a fund depends upon the
investors risk profile; return requirements, expectations of returns, age bar etc. There
is no one size that fits all the investors. Each fund has its own size of corpus.
 Before making investments, IFA should first enquire about the risk tolerance, need
and time of the investors.
 SIP is one of the innovative product launched by AMCs which is an easy investment
option for the monthly salaried persons that provide facility for investment in EMI.
 The tax saving scheme and its benefits should be explained to the people well by the
IFA.
 Indians invest in order to secure the future and invest in those which will provide
them guaranteed return with low risk. High risk is not considered as a right decision.
So people need a right direction for investment options.
 Taxation is another area that most investors are unclear about. Financial planners who
are comfortable with the tax laws can therefore help the investor with tax planning, so
as to optimize the tax outflows.
 To increase the performance of funds, the funds must declare bonuses in favorable
times to help book profits in a tax friendly manner. It should also pay dividends
during the rising NAV’s

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 CONCLUSION

 Mutual funds play a very significant role in mobilizing the savings of those investors
who have surplus income and channelization of these savings in those avenues where
there is a demand of funds. These institutions employ their resources in such a manner
as to afford for their investors the combined benefit of low risk, steady return, high
liquidity and capital appreciation through diversification and expert management
 MF industry in India has a large untapped market in urban areas besides the virgin
markets in semi urban and rural areas. This market potential can be tapped by
scrutinizing investor behaviour to identify their expectations and find out the risk
preference and then apply to an investment strategy.
 Economic environments and markets are dynamic. Predictions about markets can go
wrong. With a prudent asset allocation, the investor does not end up in the unfortunate
situation of having all the investments in an asset class that performs poorly.
 Presently more and more funds are entering the industry. The availability of more
savings instruments with varied risk-return combination would make the investors
more choosy. So they should analyse the risk-return of all the schemes and invest
accordingly.
 Due to lack of adequate information about the corporate securities, the common
investor finds it difficult to participate and even if he does so his resources being
small, he can at best hold one or two companies securities. But mutual funds take care
of both these difficulties. The institutions issuing mutual funds employ expert
management investment analysis to allocate the assets in such way that the investors
get maximum returns. Diversification and expert investment knowledge ensure steady
and regular earnings to the funds.
 The present study is an attempt to help investors know more about the MF industry
and its advantages and by showing the performances help them to choose the scheme
that will best suit them and making a best financial plan which will provide
satisfaction to the investors that he/she get the desired return from the investment
made by them.

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 REFERENCE

Books

Financial services, Gordon,natarajan

Financial management, Sharma,gupta

NISM book

Journals

Monthly fund fact sheets

Search engine

www.google.com

Websites

www.mutualfundsindia.com

www.valueresearchonline.com

www.moneycontrol.com

www.kotakmutual.com

www.cafemutual.com

www.investopedia.com

www.amfiindia.com

www.investmart.com

www.nseindia.com

www.bseindia.com

www.mf.appuonline.com

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