QUESTION 1: Discuss the Mutual Funds and its development in India:

Mutual fund is a financial tool used for investing in capital market. It creates a pool of money
by accepting investments from people, be it individuals or corporate houses or NRIs and invests
it in capital market instruments like shares, debentures, stocks etc. The pool of money is
generated from investors who share common financial goal namely capital appreciation and /
or dividend earning. When you invest money in a mutual fund scheme, you get units of mutual
fund as per its NAV i.e. net asset value. Investing in mutual fund is beneficial as it will help
you in diversifying your portfolio, this investment is backed by professionals who help you
take wise investment decisions.

Types of Mutual Funds scheme:

1. Based on Structure-
Open-ended funds and Close-ended funds

2. Based on Financial Instruments-

• Equity Funds
• Debt Funds
• Hybrid Funds

The Indian Mutual Funds industry started back in 1963 with the formation of the Unit Trust of
India (UTI), which is now called Axis Bank. The development of Mutual Funds in India
happened in a phased manner, as under:

Phase I (1963-1987): Growth of UTI: The concept of mutual fund was launched in India with
the establishment of Unit Trust of India in 1963. It was establishment by an act of parliament.
The first scheme introduced by UTI was US-64 IN 1964, which was the pioneer scheme of the
industry in the country. UTI enjoyed the monopoly and continued to provide good returns.
Until 1978, the UTI functioned under the control of the Reserve Bank of India (RBI).in 1978.
The control transferred to the industrial development Bank of India (IDBI). Since, it was the
only one player during that time, as a result, the growth of the industry was synonymous with
the growth of UTI.
Phase II (1987-1992): Entry of public sector funds: in 1987, the government allowed the
public sector banks and insurance companies to enter the industry due to the liberalization.
The state bank of India, was the first bank to set up a mutual fund in November 1987.after
that this step was followed by Canara bank (Dec87), LIC (June89), Punjab national bank
(aug89), Indian bank(nov89),bank of India (Jun 90), GIC(Dec90), Bank of Baroda(Oct92).
Thus, this period was clearly evident the entry of eight new mutual funds, six by public sector
banks and two by the insurance corporations.

Phase III (1993-1996): Emergence of private funds: A hallmark period in the mutual fund
industry began in 1993 with the entry of private sector and SEBI regulation in the mutual
fund industry. The private sector funds came with them latest innovations, investment
management techniques and investor servicing techniques. Kothari Pioneer (now merged
with Franklin Templeton mutual fund) was the first private sector fund to enter in the market
in 1993 as a country’s first open ended growth –oriented mutual fund. In 1993-94, five
private sector funds launched their schemes followed by six others in 1994-95.

Phase IV (1996-1999): Growth and SEBI regulations: In this phase SEBI set the regulations
and uniform standard for all mutual funds operating in India to protect the investors.
Liberalization of the economy had increased the competition and growth of the mutual fund
industry.

Phase V (1999-2004): This phase was concerned with the growth in terms of both amount
mobilized from small investors and assets under management. Earlier UTI functioned and
controlled under a separate law of the Indian Parliament but during this phase, UTI was also
under the control of SEBI regulations. After that all the new schemes launched by erstwhile
UTI had to be SEBI approved. In 2004 SEBI granted mutual funds to invest in overseas
securities.

Present stage of the industry: The industry observed a wave of mergers and acquisitions. The
UTI scam in 1998 decline the overall asset under management of the industry but the industry
recovered over the years. The mutual fund industry showed the unprecedented growth from
2005 to 2007 with a rate of 32%,62% and 68% respectively. The AUM (Asset Under
Management) in this industry is Rs. 1,314,532 crore in sep.2015. In 2012-2013, the total
gross resources mobilized by mutual fund are Rs.7,267,885 crore in which the resources
mobilized by public sector funds Rs. 5,987889 crore and private sector mutual funds
Rs.633,350 crore and mobilization of resources by UTI Rs.646,646 crore. According to the
monthly number released by the AMFI, the Indian mutual fund industry’s AUM rose by
Rs.208.40 bn to Rs.12.02 trillion in Feb.2015. According to PwC report, AUM-to-GDP ratio
in India only 7%.

Let us understand the structure and working of best mutual fund to invest in India. The
structure of mutual funds in India is designed by SEBI, thus determining it to be very well
crafted and regulated. The regulations laid by SEBI has made the operations and working of
this industry very transparent and SEBI working closely towards protecting the investor’s
interest. The mutual fund industry operates on 4 tier structure as under:

Sponsor: A sponsor is a corporate body acting alone or with another corporate body who
establishes the mutual fund. This sponsor must contribute to 40% to the asset management
companies’ net worth.

Board of Trustees: Board of trustee is an independent third-party board who are responsible
to working towards protecting the interest of the unit-holders by holding and overlooking the
property owned by the mutual fund.

Asset Management Company (AMC): The AMC are the fund managers of the investor. This
body is responsible to invest the investor’s money in various capital market instruments.

Custodian: The SEBI regulation specifies that all mutual funds must park their securities with
SEBI registered custodian bank.

Over decades, the Indian Mutual Fund Industry has seen a lot of development and growth. It
has become more organized and transparent in terms of its functioning, since the inception
few mutual fund companies have been offering top notch mutual fund schemes. If you wish
to invest in mutual funds, you can invest in these top equity funds of 2019: SBI Bluechip
Fund, SBI Magnum Multicap Fund, Axis Bluechip Fund, ICICI Prudential Bluechip Fund,
UTI-ST Income fund.

QUESTION 2: What is NAV in mutual Funds and how do we calculate it? Explain it
with an example of Indian company.
The net asset value (NAV) represents the net value of an entity and is calculated as the total
value of the entity’s assets minus the total value of its liabilities. Most commonly used in the
context of a mutual fund or an exchange-traded fund (ETF), the NAV represents the per
share/unit price of the fund on a specific date or time.

NAV in Mutual Funds refer to Net Value Assets. It represents a fund’s per unit market value.
This is the price at which investors buy fund units from a fund company or sell it back to the
fund house. The NAV of a fund is calculated by the mutual fund house itself or by an
accounting firm hired by the mutual fund.

The Formula for a Fund's Net Asset Value

The formula for a mutual fund's NAV calculation is straightforward:

NAV = (Assets - Liabilities) / Total number of outstanding shares

QUESTION 3: Is it risky to go for Mutual Funds? If yes, then please elaborate with

an example.

The fundamental reason which makes mutual fund investments risky lies in the fact that it

puts money in a variety of investment instruments – debt, equity and corporate bonds,

among others. Since the prices of these investment instruments tend to fluctuate in

response to several factors, investors may be subjected to loss.

It mainly happens because of the fall in the NAV of these investments. However, mutual

fund investors can make the most of the risk-reward arrangement of the investment tool by

identifying the risk involved in mutual funds beforehand.

Types of Risk in Mutual Funds

In a broader sense, mutual fund risk can be categorised as – systematic risk and
unsystematic risk. Here is a list of risks associated with mutual funds investment.
Risks involved with equity mutual funds

▪ Volatility Risk

Typically, equity-based funds invest in the shares of companies that are listed on stock

exchanges. The value of such funds is based on companies’ performance, which often gets

affected due to the prevalent microeconomic factors.

Such factors include – a change in government directives, SEBI regulations, economic

cycle, RBI policies, etc. Notably, these factors influence the stock price and may either

increase or decrease the share value.

▪ Liquidity Risk
Mutual funds with a long-term and rigid lock-in period like ELSS often come with

liquidity risk. Such a risk signifies that investors often find it challenging to redeem their

investments without incurring a loss.

For instance, ELSS comes with a rigid lock-in-period during which investors cannot do

much with their investment. Furthermore, often lack of buyers in the market makes it

challenging to redeem investments at a time considered suitable by investors.

Risks involved with debt mutual funds

▪ Interest risk

Interest risk in mutual fund investment manifests in the form of varying interest value and
haunts investors throughout the investment horizon. It is mostly rooted in the uncertainties

pertaining to the capital an investor is likely to avail at the end of the investment horizon.

In other words, if the interest rate changes, the price of the debt instrument will also

change. For instance, when the rate of interest increases the price of bonds decreases and

in turn, the value of bonds also decreases.

▪ Credit risk
Credit risk in mutual fund investment often results from a situation, wherein, the issuer of

the scheme fails to pay the promised interest. In case of debt funds, typically, fund

managers include investment-grade securities with high credit ratings.

However, to enhance the rate of returns, the fund manager includes lower credit -rated

securities. Such a move often increases the risk of not getting paid as promised.

▪ Inflation Risk

It can be best described as the risk of losing one’s purchasing power, mainly due to the

rising inflation rate. Typically, investors are exposed to the impact of this risk when the

rate of returns earned on investments fails to keep up with the increasing inflationary rate.

For instance, if the rate of returns is 5% and the rate of inflation is 3%, then investors are

left with only 2% returns.

▪ Concentration risk

This mutual fund risk is also prevalent among investors. It can be described as the

situation when investors tend to put all their money into a single investment scheme or in

one sector. For instance, investing entirely in just one company’s stocks often bears a

substantial risk of losing capital if caught amidst bad market situations.

▪ Currency Risk

The said risk pertains to the fear that a decrease in the exchange rate will decrease the

investment returns. To elaborate, it is believed that when the value of foreign currency -

denominated funds increases, it will result in a decrease in foreign currency. It will

directly lower the rate of returns when exchanged into INR.

▪ Rebalancing risk

Mutual fund investments are rebalanced frequently by the fund managers and are closely

monitored. However, regular reinvestments are often accompanied by the risk of losing out
on growth opportunities in their investments.
Though risks associated with mutual funds are many, one can mitigate the same by

planning their investments smartly.

QUESTION 4: Is a Mutual Fund with low or high NAV better?

Ideally, most would say the one with the lower NAV would work better. After all the lower
the NAV, the larger the number of units you get, isn't it?

But is it so? Not really. Assuming that both the schemes belong to the same category and
have an identical portfolio, it wouldn't really matter whether the NAV is higher or lower.
Yes, a lower NAV would give you more units, and a higher NAV would put lesser number of
units in your hand, but remember the value of your investment in both cases would be same.

So how is that you should decide between the two if NAV does not really matter? You should
ideally look at the performance of the scheme, the customer service provided by the MF and
the fund manager.

Let us see some numbers:

Both schemes are the same kind and you invest Rs 9,000 in both.

Scheme 1: The NAV here is Rs 20. You will get 9000/20 = 450 units here.

Scheme 2: The NAV here is Rs 90. You will get 9000/90= 100 units here.

Now assume that the market moves up 10 percent.

Scheme 1: The NAV goes up to Rs 22.

Scheme 2: The NAV goes up to Rs 99.

Now let's see the market value of the investments.

The market value of investments of the Scheme 1 would be 9,900 = (450*22) and it would be
the same amount of 9900 in scheme 2 = (100*99). This shows that you get the same returns
of 10 percent in both the schemes. So, the NAV (higher or lower) should not be an important
factor, while choosing between schemes.
But can you ignore the NAV completely? Certainly not. Keep in mind that a higher NAV
would probably work against you when you get dividends as the payout is on the face value
of the scheme. What this means is that a scheme with higher NAV has fewer number of units.
Hence when you have a higher NAV you get a lower absolute dividend. But remember that
the total returns will not be affected.

So in short, NAV is not the best parameter to decide which scheme to buy.

QUESTION 5: What are the tax benefits in mutual funds?

Mutual Funds can provide earnings in two forms- Capital Gains and Dividends. While capital
gains are taxable at the hands of investors, the tax on mutual funds dividends, called
Dividend Distribution Tax (DDT) is paid by the fund house (Asset Management Company)
on behalf of the investors.
A capital gain refers to the difference between the value at which an investor purchased the
units of a mutual fund scheme and the value at which he/she sold or redeemed them.
The mutual funds capital gains taxation depends on the type of mutual fund scheme and the
investment tenure.
The period over which investors stay invested in a mutual fund scheme is known as the
holding period. The holding period plays a critical role in determining the tax implications of
an investment.

Long-Term Holding Period

In the case of equity mutual funds, a holding period of 12 months or more is regarded as
‘long term’. However, in the case of debt funds, the investment is considered long term if the
holding period exceeds 36 months.
Short-Term Holding Period
Equity investments are considered ‘short term’ if the holding period is less than 12 months.
Debt funds held for less than 36 months are regarded as short term.

Funds Short-term Long-term

Equity funds Less than 12 12 months and

months more
 Balanced funds (equity- Less than 12 12 months and
oriented) months more

Balanced funds (debt-oriented) Less than 36 36 months and

months more

Debt funds Less than 36 36 months and

months more

The longer you hold onto your mutual fund units, the more tax-efficient they become. The tax
on long-term gains is comparatively lower than that of the tax on short-term gains.
Equity-Linked Savings Scheme (ELSS) is a type of equity fund and the only mutual fund
scheme which qualifies for a tax deduction of Rs. 1.5 lakh per annum under Section 80C of
the Income Tax Act. An ELSS comes with a lock-in period of 3 years which means an
investment made in it cannot be withdrawn before 3 years.

QUESTION 6: What are the charges in mutual funds?

All Mutual funds come with some charges that are levied on the investors as a fee for
management of the fund money for investment in various equity and debt assets. It includes
the marketing and transactional costs associated with regular sale and purchase of the stocks
or other instruments.
An investor must be acquainted with these costs and relevant terms so as to make a better
investment choice. These costs are deducted from the final amount that an investor receives
after redeeming a plan.

Entry Load in Mutual Funds

Entry Load refers to mutual fund charges paid by investors when they ‘enter into a mutual
fund scheme for the first time. This is designed to cover the distribution expenses borne by
the fund house while promoting a mutual fund scheme.
Earlier entry load in India used to be around 2.25% of the value of the investment. But in
2009, the market regulator SEBI (Securities and Exchange Board of India) abolished entry
loads for all types of mutual funds in India. Thus, at present, investors in India need not pay
any entry load while investing in any mutual fund scheme.

Exit Load in Mutual Funds

Exit Load is one of the key mutual fund charges of a scheme. It is paid by an investor at the
time of redeeming the mutual fund units. This charge is put in place in order to discourage
investors from exiting the scheme. Exit loads are not mandatory for mutual fund investments.
However, if a fund house wants to, it can charge an exit load up to the maximum limit of 7%.
Exit load tends to vary from one scheme to another. Some fund houses charge a flat exit load
whereas others charge it on the basis of holding period – lower exit load for the investments
that are held for a longer period and higher exit load for the investments that are held for a
relatively shorter duration.
As per SEBI guidelines, a fund house is allowed to charge a maximum exit load of 7% of the
redemption amount. However, fund houses generally charge an exit load of 1% on
redemption value to keep the schemes attractive.

QUESTION 7: Is it a good time to invest in mutual funds? How do we decide it?

There are no rules that state mutual fund investors have to be earning individuals. Even
students can invest in mutual funds. There is no best time as such for investing in mutual
funds. Individuals can make investments in mutual funds as and when they wish. But it is
always better to catch the funds at a lower NAV rather than higher price. It will not only
maximize your returns but also lead to higher wealth accumulation. The following are three
scenarios that are suitable to make mutual fund investments:

a. Markets have hit the rock-bottom

b. Bond yields are the highest
c. Development in the realty sectors has plunged

Any or all of the above is an ideal situation, but this day never comes. It’s practically
impossible to define such a timeline. Thus, if he / she thinks he / she should do so, one should
not wait and should go ahead to invest in mutual funds.

QUESTION 8: Mutual Funds or Direct Equity – who is the winner according to

you?

A mutual fund is a pool of money from numerous investors who wish to save or make
money. It invests in diversified holdings & is professionally managed.
The increase in the value of the investments along with other incomes earned from it is then
distributed to the investors/ unit-holders in proportion to the number of units owned, after
deducting applicable expenses.

Direct equity investment can be very rewarding; however, the risk of loss in direct equity is
also very high.
It is not easy to understand equity. One needs to understand the underlying business before
investing in equity – more commonly referred to as stocks. Information related to equity is
contained in companies’ financial reports like balance sheet, P&L reports, annual reports etc.

Creating wealth is an exciting proposition, whereas the process of creating wealth requires
knowledge, skill, time & the ability to take risk.

Direct equity investing, though perceived as more dynamic by investors, is feasible only for
those investors who can understand the working of equity markets & have the time to track it
regularly.

For investors who do not have the skill & are not committed to devoting time & energy
towards their investments, the best option is to choose the indirect route by investing in
mutual funds (MFs).

According to me, mutual fund is the winner because I lack the time and expertise to manage
my funds so I would prefer them to be handled by a professional.

QUESTION 9: What would you recommend for a new investor under mutual
funds head and why?

• New investors should not invest on their own. Only investors with sound knowledge
about investment basics should take care of their investments themselves.
• New investors should find a mutual fund advisor nearby to help with their
investments. It is not easy to take care of investments on their own, especially if they
do not understand much about investments or mutual funds.
• They must invest through a mutual fund advisor/distributor, gain some confidence
and experience before thinking of investing on their own. They should also educate
themselves about mutual funds and the basics of investments before doing it.
• Adopt a goal-based investment approach.
 • Try to identify various financial goals. Try to identify a few important short-term or
long-term goals and start investing to achieve them. A number can be to each goal.
This will make it easier to find out how much needs to be invested to achieve the
target. Annual inflation can also be included to calculate a realistic target for a long-
term goal.

QUESTION 10: Prepare a project report on Merchant Banking Appraisal and Analysis
in Indian context along with its roles and responsibilities of Merchant Banker in India
with suitable examples.

Merchant banks are financial institutions and companies that deal with international finance
for multinational corporations. These banks differ from other types of financial institutions.
As such, they don't deal with the general public. They don't provide everyday financial
services such as checking accounts, bill payments, or basic investments and don't take
deposits or make withdrawals for their customers.

One such example of Merchant Bank is Bank of Baroda Capital Markets LTD.

BANK OF BORODA CAPITAL MARKETS LTD.

BOB Capital Markets Ltd. (BOBCAPS) is a wholly owned subsidiary of Bank of Baroda.

BOBCAPS is one of the Investment Banking Companies in India and is a SEBI registered

Category I Investment Banker. Company is shortly commencing Broking/E-broking

Business. BOBCAPS offers the entire spectrum of financial services that includes Initial

Public Offerings, Private Placement of Debt, Corporate Restructuring, Business Valuation,

Mergers & Acquisitions, Project Appraisal and Loan Syndication.

BOBCAPS also undertakes advisory services on Securitisation and Structuring of Debts.

THE TAGLINE OF BANK OF BARODA IS "INDIA'S INTERNATIONAL BANK".

STRENGTHS:

• Patronage of Bank of Baroda

• Excellent association with Banks and Financial Institutions
• Good relationship with fellow market intermediaries
• Large client base consisting of blue chip and midcap companies
• Good relationship with regulatory authorities
• Patronage of over 101 years old "Bank of Baroda" having more than 3000 branches
across India and 70 branches overseas.
• Excellent association with the concerned regulatory authorities.
• Good liaison with Banks and Financial Institutions.
• Strong relationship with fellow Market Intermediaries.
• Strong pool of clients consisting of Blue chip and mid cap companies.
• Experienced & qualified professionals wholly devoted towards their key areas

PHILOSOPHY: Client Servicing through Professionalism, Knowledge honesty and due

diligence.

BOARD OF DIRECTORS:

• Shri. R.K. Bakshi – CHAIRMAN

• Shri. T. R. Prashanth Kumar - MANAGING DIRECTOR AND CHIEF
EXECUTIVE OFFICER
• Shri. P. H. Ravi Kumar - INDEPENDENT DIRECTOR
• Shri. Raj Kumar Aggarwal - INDEPENDENT DIRECTOR
• Shri Pramod Singhvi – WHOLE TIME DIRECTOR

FINANCIAL SERVICES PROVIDED BY THE BANK:

1. INVESTMENT BANKING:
 • IPO / Rights Issue / FPO
• Mergers & Acquisition
• Private Placement of Debt / Equity
• Private Equity Advisory
• Corporate Advisory Services
• Project Appraisal / TEV Studies
• Debt Syndication
• Business Valuation

2. RETAIL BROKING:
• Online Trading
• Call and Trade
• Applying IPOs Online
• Applying MFs Online
• Back Office
• Retail Research

3. INSTITUTIONAL BROKING:
• Institutional Equity Broking Services
• Equity Research
• F & O Dealing and Sales

RECENT ACHIEVEMENTS OF BANK OF BARODA:

1. Bank of Baroda Ranked 21st amongst Best Indian Brands 2016 in Brand Equity – The
Economic Times.
2. Association of Business Communicators of India (ABCI) Awards
3. Association of Business Communicators of India (ABCI) Awards (2006)
4. Mookerjee gets The Rajiv Gandhi Sadbhawana Award.
5. Bank of Baroda receives “Bank of the year” Award.
6. Bank of Baroda receives Millennium National Rajbhasha Shield
 7. Bank of Baroda bags four Awards of ABCI for the year 2009
8. Bank of Baroda receives Skoch Challenger Award
9. Bank of Baroda bags Dalal Street- DSIJ PSU Award
10. Bank of Baroda conferred Silver Award by Dainik Bhaskar Group (DNA)

SHAREHOLDERS AS ON 31.03.2020:

INTERNATIONAL PRESENCE:

The bank has 107 branches/offices in 24 countries (excluding India) including 61

branches/offices of the bank, 38 branches of its 8 subsidiaries and 1 representative office
in Thailand. The Bank of Baroda has a joint venture in Zambia with 16 branches.

Among the Bank of Baroda's overseas branches are ones in the world's major financial
centres (e.g., New York, London, Dubai, Hong Kong, Brussels and Singapore), as well as a
number in other countries. The bank is engaged in retail banking via the branches of
subsidiaries in Botswana, Guyana, Kenya, Tanzania, and Uganda. The bank plans has
recently upgraded its representative office in Australia to a branch and set up a joint venture
commercial bank in Malaysia. It has a large presence in Mauritius with about nine branches
spread out in the country.

The Bank of Baroda has received permission or in-principle approval from host country
regulators to open new offices in Trinidad and Tobago and Ghana, where it seeks to establish
joint ventures or subsidiaries. The bank has received Reserve Bank of India approval to open
offices in the Maldives, and New Zealand. It is seeking approval for operations
in Bahrain, South Africa, Kuwait, Mozambique, and Qatar, and is establishing offices
in Canada, New Zealand, Sri Lanka, Bahrain, Saudi Arabia, and Russia. It also has plans to
extend its existing operations in the United Kingdom, the United Arab Emirates,
and Botswana.