Introduction of the Mutual Fund Industry in India

MUTUAL FUNDS: AN INTRODUCTION

A Mutual Fund is an investment tool that allows small investors access to a welldiversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund's Net sset !alue "N !# is determined each da$. The income earned through these investments and the capital appreciations reali%ed are shared b$ its unit holders in proportion to the number of units owned b$ them. Thus a &utual 'und is the most suitable investment for the common man as it offers an opportunit$ to invest in a diversified, professionall$ managed bas(et of securities at a relativel$ low cost.

&utual funds are financial intermediaries, which collect the savings of investors and invest them in a large and well-diversified portfolio of securities such as mone$ mar(et instruments, corporate and government bonds and equit$ shares of *oint stoc( companies.

&utual funds are conceived as institutions for providing small investors with avenues of investments in the capital mar(et. +ince small investors generall$ do not have adequate time, (nowledge, e,perience and resources for directl$ accessing the capital mar(et, the$ have to rel$ on an intermediar$, which underta(es informed investment decisions and provides consequential benefits of professional e,pertise. The raison d-.tre of mutual funds is their abilit$ to bring down the transaction costs. The advantages for the investors are reduction in ris(, e,pert professional management, diversified portfolios, and liquidit$ of investment and ta, benefits.

/$ pooling their assets through mutual funds, investors achieve economies of scale. The advantage that such a investing logic offers to an individual investor is the advantage of scale. collected corpus can be used to procure a diversified portfolio, indicating greater

returns as also create economies of scale through cost reduction. This principle has been effective world-wide as more and more investors are going the mutual fund wa$. This portfolio diversification ensures ris( minimi%ation. The criticalit$ of such a measure comes in when $ou factor in the fluctuations that characteri%e stoc( mar(ets. The interests of the investors are protected b$ the +E/0, which acts as a watchdog. &utual funds are governed b$ the +E/0 "&utual 'unds# 1egulations, 1223. 3

INTRODUCTION TO MUTUAL FUND INDUSTRY

The mutual fund industr$ in 0ndia began with the setting up of the Unit Trust 0n 0ndia "UT0# in 1245 b$ the 6overnment of 0ndia. 7uring the last 34 $ears, UT0 has grown to be a dominant pla$er in the industr$ with assets of over 1s.)5,545 8rores as of &arch 31, )999. The UT0 is governed b$ a special legislation, the Unit Trust of 0ndia ct, 1243. 0n

12:; public sector ban(s and insurance companies were permitted to set up mutual funds and accordingl$ since 12:;, 4 public sector ban(s have set up mutual funds. lso the two 0nsurance companies <08 and 608 established mutual funds. +ecurities E,change /oard

of 0ndia "+E/0# formulated the &utual 'und "1egulation# 1223, which for the first time established a comprehensive regulator$ framewor( for the mutual fund industr$. +ince then several mutual funds have been set up b$ the private and *oint sectors. &utual funds have been a significant source of investment in both government and corporate securities. 0t has been for decades the monopol$ of the state with UT0 being the (e$ pla$er, with invested funds e,ceeding 1s.399 bn. "U+= 19 bn.#. The state-owned insurance companies also hold a portfolio of stoc(s. >resentl$, numerous mutual funds e,ist, including private and foreign companies. /an(s--- mainl$ state-owned too have established &utual 'unds "&'s#. 'oreign participation in mutual funds and asset management companies is permitted on a case b$ case basis. UT0, the largest mutual fund in the countr$ was set up b$ the government in 1245, to encourage small investors in the equit$ mar(et. UT0 has an e,tensive mar(eting networ( of over 3?, 999 agents spread over the countr$. The UT0 scrips have performed relativel$ 5

well in the mar(et, as compared to the +ense, trend. @owever, the same cannot be said of all mutual funds. ll &'s are allowed to appl$ for firm allotment in public issues. +E/0 regulates the functioning of mutual funds, and it requires that all &'s should be established as trusts under the 0ndian Trusts ct. The actual fund management activit$ shall be conducted

from a separate asset management compan$ " &8#. The minimum net worth of an &8 or its affiliate must be 1s. ?9 million to act as a manager in an$ other fund. &'s can be penali%ed for defaults including non-registration and failure to observe rules set b$ their &8s. &'s dealing e,clusivel$ with mone$ mar(et instruments have to be registered with 1/0. ll other schemes floated b$ &'s are required to be registered with +E/0. 0n 122?, the 1/0 permitted private sector institutions to set up &one$ &ar(et &utual 'unds "&&&'s#. The$ can invest in treasur$ bills, call and notice mone$, commercial paper, commercial bills acceptedAco-accepted b$ ban(s, certificates of deposit and dated government securities having une,pired maturit$ up to one $ear.

MUTUAL FUND INDUSTRY IN INDIA

The end of millennium mar(s 34 $ears of e,istence of mutual funds in this countr$. The ride through these 34 $ears is not been smooth. 0nvestors opinion is still divided. Bhile some are for mutual funds others are against it.

UT0 commenced its operation fom *ul$ 1245. The impetus for establishing a formal institution came from the desire to increase the propensit$ of the middle and lower groups to save and to invest. UT0 came into e,istence during a period mar(ed b$ great political and economic uncertainit$ in 0ndia. Bith was on the borders and economic turmoil that ?

depressed the financial mar(et, entrepreneurs were hesitant to enter capital mar(et. Though the growth was slow, /ut it accelerated from the $ear 12:;, when non- UT0 pla$ers entered the industr$.

0n the past decade, 0ndian mutual fund industr$ had seen a dramatic improvement, both qualities wise as well as quantit$ wise. /efore, the monopol$ of the mar(et had seen an ending phaseC the ssent under &anagement" U&# was 1s.4;bn. The private sector U& to 1s.5;9bn in &arch 1223 and till pril )995D

entr$ to the fund famil$ raised the it reached the height of 1,?59bn.

>utting the

U& of the 0ndian &utual 'unds 0ndustr$ into comparison, the total of it is

less than the deposits of +/0 alone, constitute less than 11E of the total depostits held b$ the 0ndian ban(ing industr$.

The main reason of its poor growth is theat the mutual fund industr$ in 0ndia is new in the countr$. <arge sections of 0ndian investrors are $et to be intellect wih the concept. @ence, it is the prime responsibilit$ of all mutual fund companies, to mar(et the product correctl$ abreast of selling.

The mutual fund industr$ can be broadl$ put into four phases according to the development of the sector, Each phase is briefl$ described as under.

'irst >hase-1245-:;

Unit Trust of 0ndia"UT0# was established on 1243 b$

ct of >arliament. 0t was set up b$

the 1eserve /an( of 0ndia and functioned uned the 1egulator$ and admisnistrative control of the 1eserve /an( f 0ndia. 0n 12;: UT0 was de-lin(ed from 1/0 and the 0ndustrial 7evelopment /an( of 0ndia"07/0# too( ove the regulator$ and admistrative control in place of 1/0. The first scheme launched b$e UT0 was Unit +cheme 1245. t te end of 12:: UT0 had 1s.4,;99 crores of assets under management.

+econd phase 12:;-1223"entr$ of public sector funds#

The period 12:4-1223 can be termed as the period of public sector mutual funds ">&+s#. 'rom one pla$er in 12:? the number increased to : in 1223. Entr$ of non-UT0 mutual funds. +/0 mutual fund was the first followed 8anban( &utual 'und "7ec :;#, >un*ab National /an( &utual 'und " ug :2#, 0ndian /an( &utual 'und "Fct 29#, /an( of

/aroda &utual fund "oct 2)#. <08 in 12:2 and 608 in 1229. The end of 1223 mar(ed 1s. 5;,999 as assets under management. The industr$ was one-entit$ show till 12:4 when the UT0 monopol$ was bro(en when +/0 and /F0, <08, 608 etc. sponsored b$ public sector ban(s. +tarting with an asset base of 1s. 9.)?bn in 1245 the industr$ has grown at a compounded average growth rate of )4.35E to its current si%e of 1s. 1139bn.

Third phase 1229-)993 "entr$ of private sector funds#

Bhen the private sector made its debut in 1223-25, the stoc( mar(et was booming. lso,

1223 was the $ear in which the first &utual fund 1egulations came into being, under which all mutual funds, e,cept UT0 were to be registered and governed. The erstwhile Gothari >ioneer "now merged with 'ran(lin Templeton# was the first private sector mutual fund registered in *ul$ 1223. Fther >rivate sector mutual funds are &organ ;

+anle$, Hardine 'leming, H> &organ, 6eorge +oros and 8apital 0nternational along with the host of domestic pla$ers *oin the part$. The 1223 +E/0 "&utual 'und#

1egulations substituted b$ a more comprehensive and revised &utual 'ind regulations 1224. /ut for the equit$ funds, the period of 1225-24 was one of the worst in the histor$ of 0ndian &utual 'unds, /ut the $ear 1222 saw immense future potential and

developments in this sector. This $ear signaled the $ear of resurgence of mutual funds and the regaining of investor confidence in these &'-s. s at the end of Hanuar$ )993,

There were 33 mutual fund with total assets of 1s.1,)1,:9? crores. The Unit Trust of 0ndia with 1s. 55,?51 crores of assets under management was wa$ ahead of other mutual funds.

'ourth >hase I +ince 'ebruar$ )993

This phase had bitter e,perience for UT0. 0t was bifurcated into two separate entities. Fne is the +pecified Underta(ing of the Unit Trust of 0ndia with U& of 1s.)2,:3? crores "as on Hanuar$ )993#. The specified underta(ing of Unit Trust of 0ndia, functioning under an adminisratior and unde the rules framed b$ 6overnment of 0ndia and 7oes not come under the purview of the &utual 'und 1egulations.

The second is the UT0 &utual 'und <td, sponsored b$ +/0, >N/, /F/ and <08, 0t is registered with +E/0 and functions under the &utual 'und 1egulations. Bith the bifurcation of the erstwhile UT0 which had in &arch )999 more than 1s. ;4,999 crores of U& and with the setting up of a UT0 mutual fund, conforming to the +E/0 &utual 'und 1egulations, and with recent mergers ta(ing place among different private sector funds, the mutual fund industr$ has entered its current phase of consolidation and growth. s at the end of +eptember )995, There were )2 fund, Bhich manage assets of 1s. 1?319: crores under 5)1 +tructure of &utual 'unds in 0ndia. t the end of $ear )994 the U& crossed ),?9,999 crores.

GROWTH IN ASSETS UNDER MANAGEMENT

Growth of th Mutual Fund Indu!tr" #n Ind#a The mutual fund industr$ in 0ndia came into being in 1243 with the setting up of the Unit Trust of 0ndia "UT0#. 0n 12:;, >ublic +ector /an(s and 0nsurance 8ompanies opened their own mutual funds, thus starting the second phase in the growth of the mutual funds industr$. /$ the end of 12::, the industr$'s total assets under management " U&# 19

reached 1s.4billion. The industr$ registered a ma*or milestone in 1223 when the first private sector pla$er, the erstwhile Gothari >ioneer &utual 'und "now merged with 'ran(lin Templeton#, was set up. +ince then, several international pla$ers have also entered the fra$.

The industr$ has also witnessed a spate of mergers and acquisitions, the most recent ones being the acquisition of lliance &utual b$ /irla +un <ife, 608 &utual b$ 8anban( &utual, and +un 'J8 b$ >rincipal &utual.

Bhile the 0ndian mutual fund industr$ has grown in si%e b$ about 3)9E from &arch, 1223 "1s 5;9 billion# to 7ecember, )995 "1s 1?9? billion# in terms of U&, the U&

of the sector e,cluding UT0 has grown over : times from 1s.1?) billion in &arch 1222 to 1s.1)2? billion as at 7ecember )995 "+ee 8hart 1#. The latest phase in the industr$'s evolution began with the bifurcation of UT0. The 0ndian mutual fund industr$ has grown b$ about 5.) times from 1223 "1s. 5;9 billion# to )99? "1s. 122) billion# in terms of U&. The private sector was allowed entr$ to set up asset

management companies in 1223. There was a brief period of five $ears during which the asset growth was slow. The U& for the mutual fund industr$ started to grow rapidl$ U& of the sector e,cluding UT0 grew b$ over

after 122:. /etween 122: and )99? the

1? times from 1s.115 billion in 122: to 1s.1;3: billion as at )99?. Though 0ndia is a minor pla$er in the global mutual funds industr$, its U& has steadil$ increased, doubling from 1222 levels 11 U& as a proportion of the global

&UTU < 'UN7

6<F/ <<K >1F!EN 0N!E+T&ENT !ENUE

Borldwide, &utual 'und or Unit Trust as it is referred to in some parts of the world, has a long and.successful histor$. The popularit$ of &utual 'unds has increased manifold in developed financial mar(ets, li(e the United states. s at the end of &arch )994, in the

U+ alone there were :,99) mutual funds with total assets of over U+= 2.34 trillion

"1s.5);0a(h crores#.0n 0ndia, the mutual fund industr$ started with the setting up of the Unit Trust of 0ndia 0n 1245. >ublic sector ban(s and financial institutions were allowed to establish mutual funds in 12:;. +ince 1223, private sector and foreign institutions were permitted to set up mutual funds. 0n 'ebruar$ )993, following the repeal of the Unit Trust of 0ndia ct 1243 the erstwhile UT0 was bifurcated into two separate entities vi%. The

+pecified Underta(ing of the Unit Trust of 0ndia, representing broadl$, the assets of U+ 45 scheme, assured returns and certain other schemes and UT0 &utual 'und conforming to +E/0 &utual 'und 1egulations. s at the end of &arch )994, there were )2 mutual 1)

funds, which managed assets of 1s. ),31,:4) crores "U+=?) /illion# under ?2) schemes. This fast growing industr$ is regulated b$ the +ecurities and E,change /oard of 0ndia"+E/0#.

STRUCTURE OF T E INDIAN MUTUAL FUND INDUSTRY

The 0ndian &utual 'und industr$ is dominated b$ the Unit Trust of 0ndia which has a total corpus of ;99 /illion collected from over )9 million investors. The UT0 has man$ fundsA schemes in all categories i.e. Equit$, balanced, income etc. Bith some being open ended and some being closed ended. The Unit scheme 1245 commonl$ referred to as U+ 45, which is a balanced fund, is the biggest scheme with a corpus of about )99 billion. UT0 was floated b$ financial institutions and is governed b$ a special act of >arliament. &ost of its investors believe that the UT0 is government owned and controlled, which, while legall$ incorrect, is true for all practical purposes. The second largest categor$ of mutual funds are the ones floated b$ nationali%ed ban(s. 8anban( asset management floated b$ 8anara /an( and +/0 'unds &anagement floated 13

b$ +tate /an( of 0ndia are the largest of these. 608 8orporation and Heevan /ima +aha$og

&8 floated b$ 6eneral 0nsurance

&8 floated b$ the <08 are some of the other &8-s

prominent ones. The aggregate corpus of the funds managed b$ this categor$ of is around 1s.1?9

The third largest categor$ of mutual funds are the ones floated b$ the private sector and b$ foreign asset management companies. The largest of these are /irla 8apital &8 and

Gota(

&8 . The aggregate corpus of the assets managed b$ this categor$ of &8-s is

about 1s. 49 billion. Or$an#%at#on of A Mutual Fund There are man$ entities involved in organi%ation of &utual 'und. 7iagram given below illustrates the organi%ation set-up of a mutual fund.

15

The structure of mutual fund in 0ndia is governed b$ +E/0 "&utual fund# 1egulation, 1224.

Th S&on!or These regulation ma(e it mandator$ to a mutual fund to have thr 't# r
structure of S&on!or'Tru!t !'A!! t Mana$ ( nt Co(&an".

is promoter of the mutual fund appoints trustees, custodians and the

&8 with prior

approval of +E/0. The sponsor establishes the mutual fund and registers the same with +E/0. +ponsors must contribute at least 59E of the capital of the &8.

Tru!t) *oard of Tru!t !: Trustees hold a fiduciar$ responsibilit$ towards unit

holders b$ protecting their interests. Trustees float and 1?

mar(et schemes, and secure necessar$ approvals. The$ chec( if the

&8-s investments

are within well-defined limits, whether the fund-s assets are protected, and also ensure that unitholders get their due returns. The$ also review an$ due diligence b$ the &8.

'or ma*or decisions concerning the fund, the$ have to ta(e the unitholders-consent. The$ submit reports ever$ si, months to +E/0D investors get an annual report. Trustees are paid annuall$ out of the fund-s assets I 9.? percent of the wee(l$ net asset value

Fund Mana$ r!) AMC: The$ are the ones who manage mone$ of the investors. n
&8 ta(es decisions, compensates investors through dividends, maintains proper accounting and information for pricing of units, calculates the N !, and provides information on listed schemes. 0t also e,ercises due diligence on investments, and submits quarterl$ reports to the trustees. fund-s &8 can neither act for an$ other fund

nor underta(e an$ business other than asset management. 0ts net worth should not fall below 1s. 19 crore. nd, its fee should not e,ceed 1.)? percent if collections are below

1s. 199 crore and 1 percent if collections are above 1s. 199 crore. +E/0 can pull up an &8 if it deviates from its prescribed role.

Cu!tod#an: Fften an independent organi%ation, it ta(es custod$ of securities and other

assets of mutual fund. 0ts responsibilities include receipt and deliver$ of securities, collecting income-distributing dividends, safe(eeping of the units and segregating assets and settlements between schemes. Their charges range between 9.1?-9.) percent of the net value of the holding. 8ustodians can service more than one fund. &utual 'und is managed either trust compan$ or board of trustees. >rovisions of 0ndian Trust ct govern board of trustees and trust. 0f trustee is a compan$ , it is also sub*ect to 14

0ndian 8ompan$

ct. Trustees appoint

&8 in consultation with the sponsors and

according to +E/0 regulation. ll mutual fund scheme floated b$ &8 have to be

approved b$ trustees. Trustees review and ensure that net worth of the compan$ is according to stipulated norms, ever$ quarter. Though the trust is the mutual fund, the &8 is its operational face. The &8 is the first functionar$ to be appointed , and is involved in appointment of all other functionaries. The &8 structures the mutual fund products, mar(ets them and mobili%es fund,

manages the funds and services the investors. 0t see(s the service other functionaries in carr$ing out these functions. draft offer document is to be prepared at the time of launching the fund. T$picall$, it pre specifies the investment ob*ectives of the fund, the ris( associated, the costs involved in the process and the broad rules for entr$ into and e,it from the fund and other areas of operation. 0n 0ndia, as in most countries, these sponsors need approval from a regulator, +E/0 "+ecurities e,change /oard of 0ndia# in our case.

sponsor then hires an asset management compan$ to invest the funds according to the investment ob*ective. 0t also hires another entit$ to be the custodian of the assets of the fund and perhaps a third one to handle registr$ wor( for the unit holders "subscribers# of the fund.

0n the 0ndian conte,t, the sponsors promote the

sset &anagement 8ompan$ also, in

which it holds a ma*orit$ sta(e. 0n man$ cases a sponsor can hold a 199E sta(e in the 1;

sset &anagement 8ompan$ " &8#. E.g. /irla 6lobal 'inance is the sponsor of the /irla +un <ife sset &anagement 8ompan$ <td., which has floated different mutual

funds schemes and also acts as an asset manager for the funds collected under the schemes.

T"& ! of AMC! #n Ind#an Cont +t The following are the t$pes of &8s we have in 0ndia
&8s owned b$ ban(s &8s owned b$ financial institutions &8s owned b$ the 0ndian private sector companies &8s owned *ointl$ b$ 0ndian and foreign investors.

D#ff r nt AMC! Wor,#n$ #n Ind#a ar

Name of the &8 lliance 8apital nagram Bellington pple /irla 8apital 0nternational /an( of /aroda /an( of 0ndia 8anban( 0nvestment 8holamandalam 8a%enove 7undee 7+> &errill <$nch Escorts 'irst 0ndia 608 07/0 0nvestment 0ndfund &anagement <td. 0N6 0nvestment a0T8 Threadneedle Natur of Own r!h#& >rivate 'oreign >rivate 0ndian >rivate 0ndian >rivate 0ndian /an(s /an(s /an(s >rivate 'oreign >rivate 'oreign >rivate 'oreign >rivate 0ndian >rivate 0ndian 0nstitutions 0nstitutions /an(s >rivate 'oreign >rivate 'oreign 1:

1E<0 N8E 8apital &anagement>rivate 0ndian <td. Hardine 'leming Gota( &ahindra &organ +tanle$ >un*ab National /an( 1eliance 8apital +tate /an( of 0ndia +hriram +un 'J8 +undaram Newton Tata 8redit 8apital Templeton UT0 >rivate 'oreign >rivate 0ndian >rivate 'oreign /an(s >rivate 0ndian /an(s >rivate 0ndian >rivate 'oreign >rivate 'oreign >rivate 0ndian >rivate 0ndian >rivate 'oreign 0nstitutions

COM-ARISON OF MUTUAL FUNDS WITH THE *AN.S *an,! /)! Mutual Fund!
1eturns dministrative e,p. 1is( 0nvestment options Networ( <iquidit$ Lualit$ of assets 0nterest calculation 6uarantee *AN.S <ow @igh <ow <ess @igh penetration t a cost Not transparent &inimum balance MUTUAL FUNDS /etter <ow &oderate &ore <ow but improving /etter Transparent betweenEver$da$ None

19th.J39th.Ff ever$ month &a, 1s.1 la(h on deposits

Ca&#tal flow #n th

0ono("

&'s ma(e it possible for investors to assume ris(s in the e,pectation of the higher returns even if the investor cannot activel$ manage these investments and the associated ris(s. This increases the level of ris( capital that is available in the econom$ for funding enterprise. The &'s also add depth to the securit$ mar(ets 12

where the$ invest, thus contributing to liquidit$ and price discover$. This again is a significant factor in channelling more mone$ into the mar(ets, instead of this being loc(ed up in unproductive ph$sical capital li(e gold, real estate etc.

Sche!es and Units

0nvestment in a compan$ is normall$ represented b$ a certain number of shares. >eople invest in a compan$ b$ acquiring its sharesD the$ disinvest b$ selling its shares. The total outstanding shares of a compan$ multiplied b$ the face value of each share, constitutes the share capital of the compan$. Bhat shares are for a compan$, units are for a mutual fund scheme. Thus investors invest in a scheme b$ bu$ing its units. The$ disinvest b$ selling its units. The total outstanding units of a scheme multiplied b$ the face value of its units, constitutes the unit capital of the scheme. Ever$ scheme has an investment ob*ective or philosoph$ i.e. a promise b$ the &8 on

how the funds would be managed. 0nvestors in a scheme are essentiall$ bu$ing into this investment ob*ective or philosoph$. 0n realit$, the distinction among some of the stoc( fund ob*ectives discussed is not clearcut. The actual stoc(s that constitute a specific mutual fund portfolio depend on the anal$sis and perspective of the fund-s manager. @ence, a generic investment ob*ective "e.g. growth, income# can be interpreted and e,ecuted differentl$ b$ different managers. Fne compan$-s aggressive growth fund ma$ loo( li(e another compan$-s specialt$ fund, which ma$ loo( li(e another compan$-s world fund. 0t is important to read the fund-s prospectus and review the list of its top holdings before ma(ing $our final investment decision. )9

)1

Co!"any #rofiles of S$I and ICICI

STATE *AN. OF INDIA

+/0 &utual 'und is 0ndia-s largest ban( sponsored mutual fund and has an enviable trac( record in *udicious investments and consistent wealth creation.

))

The fund traces its lineage to +/0 - 0ndia-s largest ban(ing enterprise. The institution has grown immensel$ since its inception and toda$ it is 0ndia's largest ban(, patronised b$ over :9E of the top corporate houses of the countr$. +/0 &utual 'und is a *oint venture between the +tate /an( of 0ndia and +ociet$ 6eneral sset &anagement, one of the world-s leading fund management companies U+= 339 /illion worldwide. 0n eighteen $ears of operation, the fund has launched thirt$-two schemes and successfull$ redeemed fifteen of them. 0n the process it has rewarded it-s investors handsomel$ with consistentl$ high returns. total of over 3.? million investors have reposed their faith in the wealth generation e,pertise of the &utual 'und. +chemes of the &utual fund have consistentl$ outperformed benchmar( indices and have emerged as the preferred investment for millions of investors and @N0-s. Toda$, the fund manages over 1s. )9999 crores of assets and has a diverse profile of investors activel$ par(ing their investments across 59 active schemes. The fund serves this vast famil$ of investors b$ reaching out to them through networ( of over 199 points of acceptance, )4 investor service centers, 33 investor service des(s and ?) district organi%ers. that manages over

)3

+/0 &utual is the first ban(-sponsored fund to launch an offshore fund I 1esurgent 0ndia Fpportunities 'und. 6rowth through innovation and stable investment policies is the +/0 &' credo. .EY -ERSONNEL

Mr1 S" d Shaha2udd#n Mana$#n$ D#r 0tor

Mr1 G1S1 Su2ra(an#an SR1 3#0 -r !#d nt Cro!! S ll#n$

Mr1 D#d# r Tur&#n D"1 Ch# f E+ 0ut#/ Off#0 r

Mr1 G1 .anda!u2ra(an#an A!!t1 3#0 -r !#d nt ' Cu!to( r S r/#0

)5

Mr1 A0hal .1 Gu&ta Ch# f O& rat#n$ Off#0 r

Mr1 Gant# N1 Murth" Fund Mana$ r ' D 2t

Mr1 San4a" S#nha Ch# f In/ !t( nt Off#0 r

M!1 A&arna N#r$ud Ch# f R#!, Off#0 r

Mr1 R1 S1 Sr#n#/a! 5a#n 8hief &ar(eting Ffficer

)?

Mr1 A!huto!h - 3a#d"a 8ompan$ +ecretar$ J 8ompliance Fffice

0&>F1T N8E F' +/0 &UTU < 'UN7 1# +/0 &utual 'und helps in introducing a high degree of professional management
and mar(eting concept in to ban(ing

)# +/0 &utual 'und creates @ealth$ competition on general efficienc$ levels in the
industr$

)4

3# +/0 &utual 'und is alwa$s tr$ing to innovate the new products avenues, new
schemes, services etc.

&ore about +/0 &utual 'und

+/0 &utual 'und is 0ndia-s largest ban( sponsored mutual fund and has an enviable trac( record in *udicious investments and consistent wealth creation. The fund traces its lineage to +/0 - 0ndia-s largest ban(ing enterprise. The institution has grown immensel$ since its inception and toda$ it is 0ndia's largest ban(, patroni%ed b$ over :9E of the top corporate houses of the countr$.

+/0 &utual 'und is a *oint venture between the +tate /an( of 0ndia and +ociet$ 6eneral sset &anagement, one of the world-s leading fund management

companies that manages over U+= 339 /illion worldwide.

AWARDS AND ACHIE3EMENTS 67

);

LI--ER AWARD' l#&& r Ind#a fund award 89::;

97

ICRA MUTUAL FUND AWARD '9::;

<7

CN*C T3 6= ' CRISIL MUTUAL FUND OF YEAR AWARD '9::;

>7

CN*C AWAA? CONSUMER AWARD 8 9::@

):

A7

LI--ER AWARD' l#&& r Ind#a fund award '9::@

@7

CN*C T3 6= ' CRISIL MUTUAL FUND OF YEAR AWARD '9::@

;7

ICRA MUTUAL FUND AWARD '9::@

*u!#n !! O24 0t#/ !1

The >rimar$ Fb*ective of +/0 &utual 'und is to Enhance the 0nvestments in the countr$ through the >rovision of 7ifferent &utual 'und +chemes in a s$stematic and >rofessional &anner, and to >romote the 0nvestments 0n the &utual 'und )2

Frgani%ational goal

+/0 &utual 'und &ain goals are to a# 7evelop a 8lose 1elationship with 8ustomer b# Transform 0deas in to !iable and 8reative +olutions c# >rovide 8onsistentl$ high 1eturns to +hareholders, d# To 6row through diversification b$ leveraging off the e,isting client base.

*u!#n !! Fo0u!
+/0 &utual 'und mission is to be world class &utual 'und its &ain aim is to build 8ustomer 'ranchises across distinct business +o as to be the >referred >rovider of services in the +egments

That 'und Fperates in and to achieve health$ growth in profitabilit$, and consistenc$ The +/0 &utual 'und is 8ommitted to maintain the highest level of ethical standards, professional integrit$ and regulator$ compliance

+ubsidiaries and ssociates

+/0 /an( 39

+/0 &utual 'und

+/0 <ife insurance 8ompan$

+/0 +ecurities

+/0 N10 +ervices

Fther 8ompanies co- promoted b$ +/0

+/0 &utual 'und is >rofessionall$ managed organi%ation with a board of directors consisting of eminent persons who represent various fields including finance, ta,ation, construction and Urban polic$ and development. The board primaril$ focuses on strateg$ 'ormulation, polic$ and control, designed to deliver increasing value to the share holders

S * I MUTUAL FUND SCHEMES

6 EBUITY SCHEMES

31

The investments of these schemes will predominantl$ be in the stoc( mar(ets and endeavor will be to provide investors the opportunit$ to benefit from the higher returns which stoc( mar(ets can provide. @owever the$ are also e,posed to the volatilit$ and attendant ris(s of stoc( mar(ets and hence should be chosen onl$ b$ such investors who have high ris( ta(ing capacities and are willing to thin( long term. Equit$ 'unds include diversified Equit$ 'unds, +ectoral 'unds and 0nde, 'unds. 7iversified Equit$ 'unds invest in various stoc(s across different sectors while sectoral funds which are speciali%ed Equit$ 'unds restrict their investments onl$ to shares of a particular sector and hence, are ris(ier than 7iversified Equit$ 'unds. 0nde, 'unds invest passivel$ onl$ in the stoc(s of a particular inde, and the performance of such funds move with the movements of the inde,. &agnum 8F&& 'und

&agnum Equit$ 'und

&agnum 6lobal 'und &agnum 0nde, 'und &agnum &id8ap 'und &agnum &ulticap 'und &agnum &ultiplier >lus 1223

3)

&agnum +ector 'unds Umbrella

&+'U - '&86 'und &+'U - Emerging

/usinesses 'und

&+'U - 0T 'und &+'U - >harma 'und &+'U - 8ontra 'und

+/0

rbitrage Fpportunities 'und

+/0 /lue chip 'und +/0 0nfrastructure 'und - +eries 0 +/0 &agnum Ta,gain +cheme 1223 +/0 FNE 0ndia 'und

9 DE*T SCHEMES

33

7ebt 'unds invest onl$ in debt instruments such as 8orporate /onds, 6overnment +ecurities and &one$ &ar(et instruments either completel$ avoiding an$ investments in the stoc( mar(ets as in 0ncome 'unds or 6ilt 'unds or having a small e,posure to equities as in &onthl$ 0ncome >lans or 8hildren's >lan. @ence the$ are safer than equit$ funds. t the same time the e,pected returns from debt

funds would be lower. +uch investments are advisable for the ris(-averse investor and as a part of the investment portfolio for other investors. &agnum 8hildrenMs /enefit >lan &agnum 6ilt 'und &agnum 6ilt 'und "<ong Term# &agnum 6ilt 'und "+hort Term#

&agnum 0ncome 'und &agnum 0ncome >lus 'und &agnum 0ncome >lus 'und "+aving >lan# &agnum 0ncome >lus 'und "0nvestment >lan#

&agnum 0nsta 8ash 'und &agnum 0nsta8ash 'und -<iquid 'loater >lan &agnum 0nstitutional 0ncome 'und &agnum &onthl$ 0ncome >lan 35

&agnum &onthl$ 0ncome >lan 'loater &agnum N10 0nvestment 'und

+/0 7ebt 'und +eries

+7'+ 1? &onths 'und +7'+ 29 7a$s 'und +7'+ 13 &onths 'und +7'+ 1: &onths 'und +7'+ )5 &onths 'und +7'+ 49 7a$s 'und +7'+ 1:9 7a$s 'und

S*I -r (# r L#Cu#d Fund

3?

< *ALANCED SCHEMES

&agnum /alanced 'und invest in a mi, of equit$ and debt investments. @ence the$ are less ris($ than equit$ funds, but at the same time provide commensuratel$ lower returns. The$ provide a good investment opportunit$ to investors who do not wish to be completel$ e,posed to equit$ mar(ets, but is loo(ing for higher returns than those provided b$ debt funds.

&agnum /alanced 'und &agnum N10 0nvestment 'und - 'le,i sset >lan

S*I EBUITY SCHEMES DETAILS

34

MAGNUM GLO*AL FUND In/ !t( nt O24 0t#/

To provide the investors ma,imum growth opportunit$ through well researched investments in 0ndian equities, >87s and '87s from selected industries with high growth potential and /onds.

A!! t Allo0at#on
In!tru( nt Equit$, >artl$ 8onvertible 7ebentures, 'ull$ 8onvertible 7ebentures and /onds &one$ &ar(et instruments 9-)9E <FB Dof &ortfol#o :9-199E R#!, -rof#l @06@

S0h ( H#$hl#$ht!
1. n open-ended equit$ scheme investing in stoc(s from selected industries with high growth potential. ). &inimum 0nvestment 1s. )999 and in multiples of 1s. 1999 with 7ividend and 6rowth options available. N &one$ &ar(et 0nstruments will include 8ommercial >aper, 8ommercial /ills, 8ertificate of 7eposit, Treasur$ /ills, /ills

1ediscounting, 1epos, 6overnment securities having an une,pired maturit$ of less than 1 $ear, call or notice mone$, usance bills and an$ other such short-term instruments as ma$ be allowed under the regulations prevailing from time to time. 3;

Laun0h Dat : +eptember 39, 1225 Entr" Load

0nvestments below 1s. ? crores - ).)?E 0nvestments of 1s.? crores and above I N0<

E+#t Load
0nvestments below 1s ? crores OP 4 months - 1.99E and N0< thereafter. 0nvestments of 1s ? crores and above - N0<

S*I GILT FUND DETAILS

3:

S*I MAGNUM GILT FUND In/ !t( nt O24 0t#/

To provide the investors with returns generated through investments in government securities issued b$ the 8entral 6overnment and A or a +tate 6overnment

A!! t Allo0at#on
In!tru( nt 6overnment of 0ndia 7ated +ecurities +tate 6overnments 7ated +ecurities 6overnment of 0ndia Treasur$ /ills Dof &ortfol#o 199E 199E 199E R#!, -rof#l +overeign <ow +overeign

S0h ( H#$hl#$ht!
1. Fpen ended 6ilt +cheme. ). The scheme will invest in government securities onl$ with the e,ception of investments made in the call mone$ mar(ets. 0nvestment in 6overnment +ecurities signifies no ris( of default "%ero credit ris(# either in pa$ment of principal or even

interest on the investments made b$ the scheme. <ong-Term >lan - for investors with a long-term investment hori%on. This >lan will have two options "a# Luarterl$ 7ividend option and "b# 6rowth option The <ong Term >lan 7ividend >lan and the 6rowth >lan will each have three options for investment 1. 1egular 7ividend A 6rowth Fption C This option will be the e,isting option in this >lan wherein 32

investments in this option would be sub*ect to a 8ontingent 7eferred +ales 8harge "87+8# of 9.)?E for e,it within 29 da$s from the date of investment. ). >' "1egular# Fption C This option under both the 7ividend and 6rowth >lans would be a no-load option. 3. >' "'i,ed >eriod# Fption C This option under both the 7ividend and 6rowth >lan provides prospective investors with an option to loc(-in their investments for a period of 1 $ear, ) $ears or 3 $ears from the date of their investment 'acilit$ to reinvest dividend is available under both the >lans. /oth the >lans will have separate investment portfolios and separate N !s. Under the <ongTerm >lan, the funds will normall$ be managed to an average portfolio-maturit$ longer than three $ears.

Laun0h Dat : Hanuar$ 1, )993 Entr" Load: Nil E+#t Load: 1egular >lan "<ong Term# - 87+8 of 9.)?E for e,it within 29 da$s
from date of investment

S*I *ALANCED FUND

59

In/ !t( nt O24 0t#/

To provide investors long term capital appreciation along with the liquidit$ of an open-ended scheme b$ investing in a mi, of debt and equit$. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the ris( through investing the rest in a relativel$ safe portfolio of debt.

A!! t Allo0at#on
In!tru( nt Equities Dof &ortfol#o t least ?9E R#!, -rof#l &E7-@06@

7ebt 0nstruments li(e debentures, bonds,(ho(has. U> TF 59E +ecuriti%ed 7ebt &one$ &ar(et 0nstruments 19E /alance &E7-@06@ <ow

S0h ( H#$hl#$ht!
1. n open-ended scheme investing in a mi, of debt and equit$ instruments.

0nvestors get the benefit of high e,pected-returns of equit$ investments with the safet$ of debt investments in one scheme. ). Fn an ongoing basis, magnums will be allotted at an entr$ load of ).)?E to the N !. 3. +cheme open for 1esident 0ndians, Trusts, 0ndian 8orporates, on a full$ repatriable basis for N10s and, Fverseas 8orporate /odies. 5. 'acilit$ to reinvest dividend proceeds into the scheme at N ! available. ?. +witchover facilit$ to an$ other open-ended schemes of +/0 &utual 'und at 51

N ! related prices. 4. The scheme will declare N !, +ale and repurchase price on a dail$ basis. ;. Nomination facilit$ available for individuals appl$ing on their behalf either singl$ or *ointl$ upto three.

Laun0h Dat : &a$ 1, 1224 Entr" Load: 0nvestments below 1s. ? crores - ).)?E 0nvestments of 1s.? crores
and above - N0<

E+#t Load: 0nvestments below 1s.? crores O P 4 months - 1.99E, Q 4 months but
O 1) months - 9.?9E 0nvestments of 1s.? crores and above - N0<

ICICI -RUDENTIAL MUTULE FUND

5)

08080 >rudential

sset &anagement 8ompan$ en*o$s the strong parentage of >rudential

plc, one of UG's largest pla$ers in the insurance & fund management sectors and 08080 /an(, a well-(nown and trusted name in financial services in 0ndia. 08080 >rudential sset &anagement 8ompan$, in a span of *ust over eight $ears, has forged a position of pre-eminence in the Ind#an Mutual Fund industr$ as one of the largest asset management companies in the countr$ with assets under management of 1s. 3;,294.)5 crores "as of &arch 31, )99;#. The 8ompan$ manages a comprehensive range of schemes to meet the var$ing #n/ !t( nt needs of its investors spread across 4: cities in the countr$.

-RUDENTIAL
Established in <ondon in 1:5:, >rudential plc, through its businesses in the UG, U+ and sia,

provides retail financial services products and services to more than )1 million customers, polic$holders and unit holders worldwide with over U+=599 "as of 31st 7ecember, )99?# billion in funds under management. >rudential emplo$s some )3,999 staff worldwide.

0n sia, Prudential has life insurance and funds management operations across twelve countries 8hina, @ong Gong, 0ndia, 0ndonesia, Hapan, Gorea, &ala$sia, the >hilippines, +ingapore, Taiwan, Thailand and !ietnam. >rudential has championed customer-centric products and services for over :9 $ears, supported b$ an e,tensive networ( of over 15?,999 staff and agents across the region

ICICI *AN.
08080 /an( is 0ndia's second-largest ban( with total assets of about 1s. ),?13.:2 bn "U+= ?4.3 bn# at &arch 31, )994 and profit after ta, of 1s. )?.59 bn "U+= ?42 mn# for the $ear ended 53

&arch 31, )994 "1s. )9.9? bn "U+= 552 mn# for the $ear ended &arch 31, )99?#. 08080 /an( has a networ( of about 415 branches and e,tension counters and over ),)99 T&s. 08080 /an(

offers a wide range of ban(ing products and financial services to corporate and retail customers through a variet$ of deliver$ channels and through its specialised subsidiaries and affiliates in the areas of investment ban(ing, life and non-life insurance, venture capital and asset management. 08080 /an( set up its international ban(ing group in fiscal )99) to cater to the cross border needs of clients and leverage on its domestic ban(ing strengths to offer products internationall$. 08080 /an( currentl$ has subsidiaries in the United Gingdom, 1ussia and 8anada, branches in +ingapore, /ahrain, @ong Gong, +ri <an(a and 7ubai 0nternational 'inance 8entre and representative offices in the United +tates, United rab Emirates, 8hina, +outh frica and

/angladesh. Fur UG subsidiar$ has established a branch in /elgium. 08080 /an( is the most valuable ban( in 0ndia in terms of mar(et capitalisation.

ICICI -RUDENTIAL MUTUAL FUND SCHEMES 08080 >rudential 0nfrastructure 'und 08080 >rudential +ervices 0ndustries 'und 55

08080 >rudential '&86 'und 08080 >rudential Technolog$ 'und 08080 >rudential 7iscover$ 'und 08080 >rudential >ower 08080 >rudential 7$namic >lan 08080 >rudential Emerging +.T. .1 'und 08080 >rudential Ta, >lan 08080 >rudential 6rowth >lan 08080 >rudential 0nde, 'und 08080 >rudential +pice 'und 08080 >rudential 8hild 8are >lan 08080 >rudential /anlanced 'und 08080 >rudential 0ncome &ultiplier 'und 08080 >rudential &onthl$ 0ncome >lan 08080 >rudential 6ilt 'und-0nvestment Fption 08080 >rudential 0ncome >lan 08080 >rudential 'le,ible 0ncome >lan 08080 >rudential <ong Term 'loating 1ate >lan 08080 >rudential /lended >lan 08080 >rudential +hort Term >lan 08080 >rudential 6ilt 'und-Treasur$ Fption 08080 >rudential +hort Term 'loater 08080 >rudential <iquid >lan

5?

ICICI -RUDENTIAL -RODUCT DETAILS

EBUITY SCHEME ICICI -RUDENTIAL DYNAMIC -LAN is a diversified equit$ fund that
could be $our ideal choice to ma(e the most of d$namic changes in the mar(et. 0t has the agilit$ to capture upside opportunities across value and growth , large and midcap , inde, and non-inde, stoc(s. Fn the flip side it also has abilit$ to move into cash as mar(ets get overvalued

In/ !t( nt O24 0t#/

To generate capital appreciation b$ activel$ investing in equit$ A equit$ related securities. 'or defensive considerations, the +cheme ma$ invest in debt, mone$ mar(et instruments, to the e,tent permitted under the 1egulations. The &8 will have the discretion to

completel$ or partiall$ invest in an$ of the t$pe of securities stated above so as to ma,imi%e the returns.

IN3ESTMENT -HILOSO-HY

54

08080 >1U7ENT0 < 7KN &08 >< N is a diversified equit$ plan that follows the growth investment philosoph$ to invest in a portfolio of large, mid and small-cap stoc(s. 0t has the abilit$ to move graduall$ into cash as the mar(et gets over-valued. 0t offers a portfolio of stoc(s selected through rigorous bottom-up fundamental anal$sis across mar(et capitalisations on a diversified basis for long-term capital appreciation.

*ENEFITS
1.@as the agilit$, aimed at capturing upside opportunities in the mar(et across mar(et capitali%ations.

).Fn the flip side, in case stoc( mar(ets get into an over valued position, the plan has the abilit$ to switch to cash thus see(ing to limit the downside

5;

-ERFORMANCE

Entr" Load: E#7 'or investments of less than 1s. ? 8rores C Entr$ load at ).)?E of
applicable N !. E##7'or investments of 1s. ? crores and bove C Nil

E+#t Load: N#

ICICI -RUDENTIAL GUILT FUND In/ !t( nt O24 0t#/

To generate income through investment in 6ilts of various maturities.

IN3ESTMENT -HILOSO-HY

5:

ICICI -RUDENTIAL GILT FUND is a pure debt fund that invests in short tenure 6overnment securities "6-+ecs#. These securities are essentiall$ liquid and carr$ no credit ris(. @aving said that, the portfolio's e,posed to some interest rate ris( as the securities are mar(ed to mar(et, and therefore, respond to changes in mar(et interest rates. The portfolio see(s to limit volatilit$ b$ deplo$ing funds in short-term 6-+ecs, with an average maturit$ not e,ceeding 3 $ears. The ob*ective is to closel$ manage the downside ris(s of the portfolio arising out of changes in the mar(et rates, b$ activel$ managing the duration of the portfolio.

*ENEFITS 1.Enables e,posure to a pure 6overnment securit$ portfolio. ).'acilitates participation in the wholesale mar(et for 6overnment debt, even for smaller tic(et-si%e e,posures. 3.>rovides the benefits of professional management of investment portfolios.

-ERFORMANCE OF THE FUND 52

Entr" Load:Nil E+#t Load: Nil

ICICI -RUDENTIAL *ALANCED FUNDC sset allocation is the (e$ to investing success. 0t helps to reduce the volatilit$ of returns. /alanced 'und ta(es care of this

asset allocation b$ investing in equit$ for capital appreciation and debt for stable returns. 0t focuses on reducing volatilit$ of returns b$ increasing A decreasing equit$ e,posure based on the mar(et outloo( and using a core debt portfolio to do the rebalancing.

In/ !t( nt O24 0t#/

To see( to generate long-term capital appreciation and current income from a portfolio that is invested in equit$ and equit$ related securities as well as in fi,ed income securities.

IN3ESTMENT -HILOSO-HY
?9

an open-ended fund that allocates to both equit$ and debt mar(ets, reflects this wisdom. 0n a bullish mar(et equit$ allocation can go upto :9E. 0n a bearish mar(et equit$ allocation can go down to 4?E. This d$namic allocation along with core debt portfolio reduces the volatilit$ of return.

*ENEFITS /alanced fund brings $ou the twin benefits of growth from equit$ mar(ets and stead$ income from debt mar(ets

-ERFORMANC

Entr" Load: E#7 'or investments of less than 1s. ? 8rores C ).)?E of applicable N !1
E##7 'or investments of 1s. ? crores and bove C Nil

E+#t Load: Nil

?1

Key Information

?)

CATEGORIES OF MUTUAL FUND SCHEMES 61SCHEMES ACCORDING TO MATURITY -ERIOD

mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturit$ period.

616O-EN'ENDED FUND) SCHEME

n open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fi,ed maturit$ period. 0nvestors can convenientl$ bu$ and sell units at Net sset !alue "N !# related

prices, which are declared on a dail$ basis. The (e$ feature of open-end schemes is liquidit$.

619CLOSE'ENDED FUND) SCHEME

close-ended fund or scheme has a stipulated maturit$ period e.g. ?-; $ears. The fund is open for subscription onl$ during a specified period at the time of launch of the scheme. 0nvestors can invest in the scheme at the time of the initial public issue and thereafter the$ can bu$ or sell the units of the scheme on the stoc( e,changes where the units are listed. 0n order to provide an e,it route to the investors, some close-ended funds give an option of selling bac( the units to the mutual fund through periodic repurchase at N ! related prices. +E/0 1egulations stipulate that at least one of the two e,it routes is provided to the investor i.e. either repurchase facilit$ or through listing on stoc( e,changes. These mutual funds schemes disclose N ! generall$ on wee(l$ basis. ?3

91SCHEMES ACCORDING TO IN3ESTMENT O*5ECTI3E:

scheme can also be classified as growth scheme, income scheme, or balanced scheme considering its investment ob*ective. +uch schemes ma$ be open-ended or close-ended schemes as described earlier. +uch schemes ma$ be classified mainl$ as followsC

916GROWTH ) EBUITY ORIENTED SCHEME

The aim of growth funds is to provide capital appreciation over the medium to longterm. +uch schemes normall$ invest a ma*or part of their corpus in equities. +uch funds have comparativel$ high ris(s. These schemes provide different options to the investors li(e dividend option, capital appreciation, etc. and the investors ma$ choose an option depending on their preferences. The investors must indicate the option in the application form. The mutual funds also allow the investors to change the options at a later date. 6rowth schemes are good for investors having a long-term outloo( see(ing appreciation over a period of time.

919INCOME ) DE*T ORIENTED SCHEME

The aim of income funds is to provide regular and stead$ income to investors. +uch schemes generall$ invest in fi,ed income securities such as bonds, corporate debentures, 6overnment securities and mone$ mar(et instruments. +uch funds are less ris($ compared to equit$ schemes. These funds are not affected because of fluctuations in equit$ mar(ets. @owever, opportunities of capital appreciation are also limited in such funds. The N !s of such funds are affected because of change in interest rates in the ?5

countr$. 0f the interest rates fall, N !s of such funds are li(el$ to increase in the short run and vice versa. @owever, long-term investors ma$ not bother about these fluctuations.

91<*ALANCED FUND
The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fi,ed income securities in the proportion indicated in their offer documents. These are appropriate for investors loo(ing for moderate growth. The$ generall$ invest 59-49E in equit$ and debt instruments. These funds are also affected because of fluctuations in share prices in the stoc( mar(ets. @owever, N !s of such funds are li(el$ to be less volatile compared to pure equit$ funds.

91>MONEY MAR.ET OR LIBUID FUND

These funds are also income funds and their aim is to provide eas$ liquidit$, preservation of capital and moderate income. These schemes invest e,clusivel$ in safer short-term instruments such as treasur$ bills, certificates of deposit, commercial paper and inter-ban( call mone$, government securities, etc. 1eturns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to par( their surplus funds for short periods.

91AGILT FUND
??

These funds invest e,clusivel$ in government securities. 6overnment securities have no default ris(. N !s of these schemes also fluctuate due to change in interest rates and other economic factor as is the case with income or debt oriented schemes.

91@INDEF FUNDS
0nde, 'unds replicate the portfolio of a particular inde, such as the /+E +ensitive inde,, +J> N+E ?9 inde, "Nift$#, etc These schemes invest in the securities in the same weightage comprising of an inde,. N !s of such schemes would rise or fall in accordance with the rise or fall in the inde,, though not e,actl$ b$ the same percentage due to some factors (nown as Rtrac(ing errorR in technical terms. Necessar$ disclosures in this regard are made in the offer document of the mutual fund scheme. There are also e,change traded inde, funds launched b$ the mutual funds, which are traded on the stoc( e,changes.

Oth r S0h ( !

Ta+ Sa/#n$ S0h ( !

These schemes offer ta, rebates to the investors under ta, laws as prescribed from time to time. This is made possible because the 6overnment offers ta, incentives for investment in specified avenues. 'or e,ample, Equit$ <in(ed +avings +chemes "E<++# and >ension +chemes. The details of such ta, saving schemes are provided in the relevant offer documents. ?4

0deal forC . 0nvestors see(ing ta, rebates. S& 0#al S0h ( !

This categor$ includes inde, schemes that attempt to replicate the erformance of a particular inde, such as the ++E +ense, or the N+E ?9, or industr$ specific schemes "which invest in specific industries# or sectoral schemes "which invest e,clusivel$ in segments such as '0S6roup shares or initial public offerings#.

Ind + fund schemes are ideal for investors who are satisfied with a return
appro,imatel$ equal to that of an inde,.

S 0toral fund schemes are ideal for investors who have alread$ decided to invest in a
particular sector or segment. Geep in mind that an$one scheme ma$ not meet all $our requirements for all time. Kou need to place $our mone$ *udiciousl$ in different schemes to be able to get the combination of growth, income and stabilit$ that is right for $ou. 1emember, as alwa$s, higher the return $ou see( higher the ris( $ou should be prepared to ta(e. few frequentl$ used terms are e,plained here

?;

FREBUENTLY USED TERMS

NET ASSET 3ALUEENA37

Net sset !alue is the mar(et value of the assets of the scheme minus its liabilities. The

per unit N ! is he net asset value of the scheme divided b$ the number of units outstanding on the !aluation date. Net sset !alue is the mar(et value of securities of

scheme divided b$ the total number of units of the scheme on an$ particular date. 'or e,ample, if the mar(et value of the securities of a mutual fund scheme is 1s )99 la(hs and the mutual fund has issued 19 la(hs units at 1s. 19 each to the investors, then the N ! per unit of the fund is 1s.)9. N ! is required to be disclosed b$ the mutual funds on a regular basis- dais$ or wee(l$- depending on the t$pe of scheme

Sal -r#0
0s the price $ou pa$ when $ou invest in a scheme or N ! a unit holder is charged while investing in an open-ended scheme is sale price. lso called Fffer >rice. 0t ma$ include a +ale load, if applicable.

?:

R &ur0ha! -r#0
0s the price at which a close-ended scheme repurchases its units and it ma$ include a bac(-end load. This is also called /id >rice.

R d (&t#on -r#0
0s the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturit$. +uch prices are N ! related.

Sal ! load
0s a charge collected b$ a scheme when it sells when it sells the units also called, T'rontend- load. <oad is one that charges a percentage of N ! for entr$ or e,it. That is,

each time one bu$s or sells units in the fund, a charge will be pa$able. This charge is used b$ the mutual fund for mar(eting and distribution e,penses. +uppose the N ! per unit is 1s. 19. 0f the entr$ as well as e,it load charged were 1E, then the investors who bu$ would be required to pa$ 1s. 19.19 and those who offer their unit for repurchase to the mutual fund will get onl$ 1s.2.29 per unit. The investors should ta(e the loads into consideration while ma(ing investment as these affect their $ieldsAreturns

GWh th r a (utual fund #(&o! fr !h load or #n0r a! th load 2 "ond th l / l ( nt#on d #n th off r do0u( nt!H

&utual funds cannot increase the load be$ond the leel mentioned in the offer document. n$ change in the load will be applicable onl$ to prospective investments and not to the ?2

original investments. 0n case of imposition of fresh loads or increase in e,isting loads, the mutual funds are required to amend their offer documents so that the new investors are aware of loads at the time of investments.

No load
+chemes that do not charge a load are called TNo <oad- schemes. no load fund is one

that does not charge for entr$ or e,it. 0t means the investors can enter the fundAscheme at N ! and not additional charges are pa$able on purchase or sale of units.

*ENEFITS OF MUTUAL FUNDS -ROFESSIONAL MANAGEMENT:

&utual 'unds are bac(ed b$ e,perienced and s(illed professionals, a dedicated investment research team that anal$ses the performance and prospects of companies and selects investments.

CON3ENIENT ADMINISTRATION:
0nvesting in a &utual 'und reduces paperwor( and helps $ou avoid man$ problems such as bad deliveries, dela$ed pa$ments and follow up with bro(ers and companies. This is important when $ou want to have a diversified portfolio through direct equit$ investments.

49

DI3ERSIFICATION C
&utual 'unds alwa$s have an investment mi,. The diversit$ in this mi, spreads out the probabilit$ of profits and losses, reducing the ris( of a substantial fall in the mone$ $ou have invested.

RETURN -OTENTIAL C
Fver a medium to long-term, &utual 'unds have the potential to provide a higher net return as the$ invest in a diversified bas(et of selected securities.

ECONOMIES:
&utual 'unds are a relativel$ less e,pensive wa$ to invest compared to directl$ investing in the capital mar(ets because the benefits of scale in bro(erage, custodial and other fees translate into lower costs for investors.

LIBUIDITY:
0n open-end schemes, the investor gets the mone$ bac( promptl$ at net N ! pegged prices. 0n closed-end schemes, the units can be sold on a stoc( e,change at the prevailing mar(et price. The fund also repurchases from the investors at N ! pegged prices. There is scope to speedil$ disinvest assets and obtain disinvestments proceeds.

41

FLEFI*ILITY:
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, $ou can s$stematicall$ invest or withdraw funds according to $our needs and convenience.

TRANS-ARENCY:
Kou get regular information on the value of $our investment in addition to disclosure on the specific investments made b$ $our scheme, the proportion invested in each class of assets and the fund manager's investment strateg$ and outloo(.

AFFORDA*ILITYC
0nvestors individuall$ ma$ lac( sufficient funds to invest in high-grade stoc(s. mutual

fund because of its large corpus allows even a small investor to ta(e the benefit of its investment strateg$.

O-TIONS:
&utual 'unds offer a famil$ of schemes to suit $our var$ing needs over a lifetime .

4)

IN3ESTOR SAFETY:
ll &utual 'unds are registered with +E/0 and the$ function within the provisions of strict regulations designed to protect the interests of investors. The operations of &utual 'unds are regularl$ monitored b$ +E/0.

LIMITATIONS OF MUTUAL FUND No Guarant :

No investment is ris( free. 0f the entire stoc( mar(et declines in value, the value of mutual fund shares will go down as well, no matter how balanced the portfolio. 0nvestors encounter fewer ris(s when the$ invest in mutual funds than when the$ bu$ and sell stoc(s on their own. @owever, an$one who invests through a mutual fund runs the ris( of losing mone$.

F ! and 0o((#!!#on!:
ll funds charge administrative fees to cover their da$-to-da$ e,penses. +ome funds also charge sales commissions or UloadsV to compensate bro(ers, financial consultants, or financial planners. Even if $ou don-t use a bro(er or other financial adviser, $ou will pa$ a sales commission if $ou bu$ shares in a load fund.

Ta+ !:
7uring a t$pical $ear, most activel$ managed mutual funds sell an$where from )9 to ;9 percent of the securities in their portfolios. 0f $our fund ma(es a profit on its sales, $ou will pa$ ta,es on the income $ou receive, even if $ou reinvest the mone$ $ou made. 43

Mana$ ( nt R#!,:
Bhen $ou invest in a mutual fund, $ou depend on the fund manager to ma(e the right decisions regarding the fund-s portfolio. 0f the manager does not perform as well as $ou had hoped, $ou might not ma(e as much mone$ on $our investments as $ou e,pected. Ff course, if $ou invest in 0nde, 'unds, $ou forego management ris(, because these funds do not emplo$ managers.

1. 1F<E F' 0NTE1&E70 10E+ 0N T@E 0N70 N &UTU < 'UN7 0N7U+T1K 1.1
The mutual fund industr$ in 0ndia started in 1245 with the formation of the Unit

Trust of 0ndia "UT0#. 0n 12:;, other public sector institutions entered this business, and it was in 1223 that the first of the private sector participants commenced its operations.

1.)

'rom the beginning, UT0 and other mutual funds have relied e,tensivel$ on

intermediaries to mar(et their schemes to investors. 0t would be accurate to sa$ that without intermediaries, the mutual fund industr$ would not have achieved the depth and breadth of coverage amongst investors that it en*o$s toda$. 0ntermediaries have pla$ed a pivotal and valuable role in populari%ing the concept of mutual funds across 0ndia. The$ ma(e the forms available to clients, e,plain the schemes and provide administrative and paperwor( support to investors, ma(ing it eas$ and convenient for the clients to invest.

45

1.3 0ntermediation itself has undergone a change over the past few decades. Bhile individual agents provided the foundation for growth in the earl$ $ears, institutional agents, distribution companies and national bro(ers soon started to pla$ an active role in promoting mutual funds. 1ecentl$, ban(s, finance companies, secondar$ mar(et bro(ers and even post offices have also begun to mar(et mutual funds to their e,isting and potential client bases.

1.5

0t is, thus clear that all t$pes of intermediaries are required for the growth of the wa$s of doing business fund industr$ in 0ndia

industr$, and their wellbeing, qualit$ orientation and will have a significant impact on how the evolves in the future. mutual

O% SAFE ARE MUTUAL FUNDS

/$ investing in mutual funds, the ris( is not totall$ removed but one will have the benefits of diversification. n$ mutual fund is as safe or unsafe as the assets that it invests in. N ! of growth funds mirrors the fluctuations of the share prices of its constituents. +ometimes there is permanent erosion in value too. /ond funds, in which the constituents are debt instruments, don't waver so much. 0ncome funds seldom face permanent value erosion. 7espite professional setups for both investment decisions and research, funds cannot be immune to fluctuating mar(et health. @owever, funds diversif$ the investment portfolio 4?

substantiall$ so that default in an$ single investment "in the case of an income fund# will not affect the overall performance of a fund in a significant manner. 0n the event of default of a part of the portfolio, an income fund is e,tremel$ unli(el$ to face erosion in face value. 6enerall$, mutual funds are not guaranteed b$ an$bod$. @owever, in the 0ndian conte,t, some of the mutual funds have floated RguaranteedR or RassuredR return schemes that guarantee a certain annual return or guarantee a bu$bac( at a specified price after some time. E,amples of these include funds floated b$ the T0, 8annabis &utual 'und, /+0 &utual 'und, etc. &an$ of these funds have not earned returns that the$ promised and the asset management companies of the respective mutual funds or their sponsors have made good their promises

Ground Rul ! of Mutual Fund In/ !t#n$

A!! !! "our! lf: +elf-assessment of one-s needsD e,pectations and ris( profile is of prime importance failing which, one will ma(e more mista(es in putting mone$ in right places than otherwise. Fne should identif$ the degree of ris( bearing capacit$ one has and also clearl$ state the e,pectations from the investments. 0rrational e,pectations will onl$ bring pain.

Tr" to und r!tand wh r th (on " #! $o#n$: 0t is important to identif$ the nature of investment and to (now if one is compatible with the investment. Fne can lose substantiall$ if one pic(s the wrong (ind of mutual fund. 0n order to avoid an$ confusion 44

it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds. DonIt ru!h #n &#0,#n$ fund!J th#n, f#r!t: one first has to decide what he wants the mone$ for and it is this investment goal that should be the guiding light for all investments done. 0t is thus important to (now the ris(s associated with the fund and align it with the quantum of ris( one is willing to ta(e. Fne should ta(e a loo( at the portfolio of the funds for the purpose. E,cessive e,posure to an$ specific sector should be avoided, as it will onl$ add to the ris( of the entire portfolio. &utual funds invest with a certain ideolog$ such as the R!alue >rincipleR or R6rowth >hilosoph$R. /oth have their share of critics but both philosophies wor( for investors of different (inds. 0dentif$ing the proposed investment philosoph$ of the fund will give an insight into the (ind of ris(s that it shall be ta(ing in future. In/ !t1 DonKt !& 0ulat : common investor is limited in the degree of ris( that he is

willing to ta(e. 0t is thus of (e$ importance that there is thought given to the process of investment and to the time hori%on of the intended investment. Fne should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of ma(ing quic( mone$. Fne would do well to remember that nobod$ can perfectl$ time the mar(et so sta$ing invested is the best option unless there are compelling reasons to e,it.

DonKt &ut all th

$$! #n on 2a!, t: This old age adage is of utmost importance. No

matter what the ris( profile of a person is, it is alwa$s advisable to diversif$ the ris(s associated. +o putting one-s mone$ in different asset classes is generall$ the best option 4;

as it averages the ris(s in each categor$. Thus, even investors of equit$ should be *udicious and invest some portion of the investment in debt. 7iversification even in an$ particular asset class "such as equit$, debt# is good. Not all fund managers have the same acumen of fund management and with identification of the best man being a tough tas(, it

is good to place mone$ in the hands of several fund managers. This might reduce the ma,imum return possible, but will also reduce the ris(s. * r $ular: 0nvesting should be a habit and not an e,ercise underta(en at one-s wishes, if one has to reall$ benefit from them. s we said earlier, since it is e,tremel$ difficult to

(now when to enter or e,it the mar(et, it is important to beat the mar(et b$ being s$stematic. The basic philosoph$ of 1upee cost averaging would suggest that if one invests regularl$ through the ups and downs of the mar(et, he would stand a better chance of generating more returns than the mar(et for the entire duration. The +0>s "+$stematic 0nvestment >lans# offered b$ all funds helps in being s$stematic. ll that one needs to do is to give

post-dated cheques to the fund and thereafter one will not be harried later. The utomatic investment >lans offered b$ some funds goes a step further, as the amount can be directl$Aelectronicall$ transferred from the account of the investor. Do "our ho( wor,: 0t is important for all investors to research the avenues available to them irrespective of the investor categor$ the$ belong to. This is important because an informed investor is in a better decision to ma(e right decisions. @aving identified the ris(s associated with the investment is important and so one should tr$ to (now all aspects associated with it. s(ing the intermediaries is one of the wa$s to ta(e care of the problem. 4:

F#nd th r#$ht fund! 'inding funds that do not charge much fees is of importance, as the fee charged ultimatel$ goes from the poc(et of the investor. This is even more important for debt funds as the returns from these funds are not much. 'unds that charge more will reduce the $ield to the investor

R#!,! #n/ol/ d #n #n/ !t#n$ #n Mutual Fund!

&utual 'unds do not provide assured returns. Their returns are lin(ed to their performance. The$ invest in shares, debentures, bonds etc. ll these investments involve

an element of ris(. The unit value ma$ var$ depending upon the performance of the compan$ and if a compan$ defaults in pa$ment of interestAprincipal on their debenturesAbonds the performance of the fund ma$ get affected. /esides incase there is a sudden downturn in an industr$ or the government comes up with new a regulation which

affects a particular industr$ or compan$ the fund can again be adversel$ affected. these factors influence the performance of &utual 'unds.

ll

+ome of the 1is( to which &utual 'unds are e,posed to is given belowC

Mar, t r#!,

0f the overall stoc( or bond mar(ets fall on account of overall economic factors, the value of stoc( or bond holdings in the fund's portfolio can drop, thereb$ impacting the fund performance.

Non'(ar, t r#!, 42

/ad news about an individual compan$ can pull down its stoc( price, which can negativel$ affect fund holdings. This ris( can be reduced b$ having a diversified portfolio that consists of a wide variet$ of stoc(s drawn from different industries. Int r !t rat r#!, /ond prices and interest rates move in opposite directions. Bhen interest rates rise, bond prices fall and this decline in underl$ing securities affects the fund negativel$.

Cr d#t r#!, /onds are debt obligations. +o when the funds invest in corporate bonds, the$ run the ris( of the corporate defaulting on their interest and principal pa$ment obligations and when that ris( cr$stalli%es, it leads to a fall in the value of the bond causing the N ! of the fund to ta(e a beating.

- rfor(an0 M a!ur ! or R#!, M a!ur ( nt Of Mutual Fund!

Mutual Fund industr$ toda$, with about 35 pla$ers and more than five hundred schemes, is one of the most preferred investment avenues in 0ndia. @owever, with a plethora of schemes to choose from, the retail investor faces problems in selecting funds. 'actors such as investment strateg$ and management st$le are qualitative, but the funds record is an important indicator too. Though past performance alone can not be indicative of future performance, it is, fran(l$, the onl$ quantitative wa$ to *udge how good a fund is at present. Therefore, there is a need to correctl$ assess the past performance of different mutual funds.

;9

Borldwide, good mutual fund companies over are (nown b$ their &8s and this fame is directl$ lin(ed to their superior stoc( selection s(ills. 'or mutual funds to grow, &8s

must be held accountable for their selection of stoc(s. 0n other words, there must be some performance indicator that will reveal the qualit$ of stoc( selection of various &8s. 1eturn alone should not be considered as the basis of measurement of the performance of a mutual fund scheme, it should also include the ris( ta(en b$ the fund manager because different funds will have different levels of ris( attached to them. 1is( associated with a fund, in a general, can be defined as variabilit$ or fluctuations in the returns generated b$ it. The higher the fluctuations in the returns of a fund during a given period, higher will be the ris( associated with it. These fluctuations in the returns generated b$ a fund are resultant of two guiding forces. 'irst, general mar(et fluctuations, which affect all the securities present in the mar(et, called mar(et ris( or s$stematic ris( and second, fluctuations due to specific securities present in the portfolio of the fund, called uns$stematic ris(. The Total R#!, of a given fund is sum of these two and is measured in

terms of !tandard d /#at#on of returns of the fund. +$stematic ris(, on the other hand, is measured in terms of * ta, which represents fluctuations in the N ! of the fund vis-Wvis mar(et. The more responsive the N ! of a mutual fund is to the changes in the mar(etD higher will be its beta. /eta is calculated b$ relating the returns on a mutual fund with the returns in the mar(et. Bhile uns$stematic ris( can be diversified through investments in a number of instruments, s$stematic ris( can not. /$ using the ris( return relationship, we tr$ to assess the competitive strength of the mutual funds vis-W-vis one another in a better wa$.

;1

0n order to determine the ris(-ad*usted returns of investment portfolios, several eminent authors have wor(ed since 1249s to develop composite performance indices to evaluate a portfolio b$ comparing alternative portfolios within a particular ris( class.

Th (o!t #(&ortant and w#d l" u! d ( a!ur ! of & rfor(an0 ar : L The Tre$nor &easure L The +harpe &easure L Henson &odel L 'ama &odel Th Tr "nor M a!ur
7eveloped b$ Hac( Tre$nor, this performance measure evaluates funds on the basis of Tre$nor's 0nde,. This 0nde, is a ratio of return generated b$ the fund over and above ris( free rate of return "generall$ ta(en to be the return on securities bac(ed b$ the government, as there is

no credit ris( associated#, during a given period and s$stematic ris( associated with it "beta#. +$mbolicall$, it can be represented asC

Tre$nor's 0nde, ET#7 M ER# ' Rf7)*#1 Bhere, R# represents return on fund, Rf is ris( free rate of return and *# is beta of the fund.

;)

ll ris(-averse investors would li(e to ma,imi%e this value. Bhile a high and positive Tre$nor's 0nde, shows a superior ris(-ad*usted performance of a fund, a low and negative Tre$nor's 0nde, is an indication of unfavorable performance.

Th Shar& M a!ur
0n this model, performance of a fund is evaluated on the basis of +harpe 1atio, which is a ratio of returns generated b$ the fund over and above ris( free rate of return and the total ris( associated with it. ccording to +harpe, it is the total ris( of the fund that the

investors are concerned about. +o, the model evaluates funds on the basis of reward per unit of total ris(. +$mbolicall$, it can be written asC +harpe 0nde, ES#7 M ER# ' Rf7)S# Bhere, S# is standard deviation of the fund. Bhile a high and positive +harpe 1atio shows a superior ris(-ad*usted performance of a fund, a low and negative +harpe 1atio is an indication of unfavorable performance.

Co(&ar#!on of Shar& and Tr "nor

+harpe and Tre$nor measures are similar in a wa$, since the$ both divide the ris( premium b$ a numerical ris( measure. The total ris( is appropriate when we are evaluating the ris( return relationship for well-diversified portfolios. Fn the other hand, the s$stematic ris( is the relevant measure of ris( when we are evaluating less than full$ diversified portfolios or individual stoc(s. 'or a well-diversified portfolio the total ris( is equal to s$stematic ris(. 1an(ings based on total ris( "+harpe measure# and s$stematic ris( "Tre$nor measure# should be identical for a well-diversified portfolio, as the total ;3

ris( is reduced to s$stematic ris(. Therefore, a poorl$ diversified fund that ran(s higher on Tre$nor measure, compared with another fund that is highl$ diversified, will ran( lower on +harpe &easure.

5 n!on Mod l
Henson's model proposes another ris( ad*usted performance measure. This measure was developed b$ &ichael Henson and is sometimes referred to as the 7ifferential 1eturn &ethod. This measure involves evaluation of the returns that the fund has generated vs. the returns actuall$ e,pected out of the fund given the level of its s$stematic ris(. The surplus between the two returns is called lpha, which measures the performance of a

fund compared with the actual returns over the period. 1equired return of a fund at agiven level of ris( "*## can be calculated asC R# M Rf N *# ER( ' Rf7 Bhere, R( is average mar(et return during the given period. can be obtained b$ subtracting required return from the actual return of the fund. fter calculating it, alpha

@igher alpha represents superior performance of the fund and vice versa. <imitation of this model is that it considers onl$ s$stematic ris( not the entire ris( associated with the fund and an ordinar$ investor can not mitigate uns$stematic ris(, as his (nowledge of mar(et is primitive.

;5

Fa(a Mod l
The Eugene 'ama model is an e,tension of Henson model. This model compares the performance, measured in terms of returns, of a fund with the required return commensurate with the total ris( associated with it. The difference between these two is ta(en as a measure of the performance of the fund and is called net selectivit$. The net selectivit$ represents the stoc( selection s(ill of the fund manager, as it is the e,cess return over and above the return required to compensate for the total ris( ta(en b$ the fund manager. @igher value of which indicates that fund manager has earned returns well above the return commensurate with the level of ris( ta(en b$ him. 1equired return can be calculated asC R# M Rf N S#)S(OER( ' Rf7 Bhere, S( is standard deviation of mar(et returns. The net selectivit$ is then calculated b$ subtracting this required return from the actual return of the fund.

mong the above performance measures, two models namel$, Tre$nor measure and Henson model use s$stematic ris( based on the premise that the uns$stematic ris( is diversifiable. These models are suitable for large investors li(e institutional investors with high ris( ta(ing capacities as the$ do not face paucit$ of funds and can invest in a number of options to dilute some ris(s. 'or them, a portfolio can be spread across a number of

stoc(s and sectors. @owever, +harpe measure and 'ama model that consider the entire ris( associated with fund are suitable for small investors, as the ordinar$ investor lac(s the necessar$ s(ill and resources to diversified. &oreover, the selection of the fund on the basis of superior stoc( selection abilit$ of the fund manager will also help in safeguarding ;?

the mone$ invested to a great e,tent. The investment in funds that have generated big returns at higher levels of ris(s leaves the mone$ all the more prone to ris(s of all (inds that ma$ e,ceed the individual investors' ris( appetite

;4

#ro&ect Details

;;

Ma#n O24 0t#/

To ma(e 8omparative performance anal$sis of +/0 &utual 'und with 08080 >rudential &utual 'und.

Su2'o24 0t#/ !
1. To stud$ the different (inds of schemes provided b$ each of &utual funds. ). 8omparative performance anal$sis of +/0 Equit$ - 7iversified with 08080 >rudential Equit$ I 7iversified 'und. 3. 8omparative performance anal$sis of +/0 6ilt 'und with 08080 >rudential 6ilt 'und 5. 8omparative performance anal$sis of +/0 /alance 'und with 08080 >rudential /alance 'und.

Th !tud" Co(&r#! ! of

1. 8omparative anal$sis of 1eturns from +/0 &utual 'und and 08080 >rudential &utual fund. ). 8omparative anal$sis of 1is( associated with +/0 and 08080 >rudential fund, with the use of +harpe ratio, E,pense ratio, /eta, Tre$nor 1atio and +tandard deviation.. 3. To compare &utual 'und verage 1eturn with N0'TK verage 1eturn 5. 8omparative anal$sis of corpus of the funds. ;:

METHODOLOGY

o 0nformation is collected from the managers of +elected firms who deal in mutual funds.

o 0nformation is collected from the officials of +/0 &utual 'und officials.

o 0nformation is also collected from the secondar$ sources li(e the offer documents, fact sheets, (e$ information memorandum, web sites, maga%ines, newspapers etc.

o 0n case of corpus si%e, loc( in period, entr$ and e,it load the information is collected from +/0 J 08080 >rudential the offer documents.

o 0n case of returns, minimum investment and performance "Trac( 1ecord-s# is collected from the offer documents J fact sheets.

o E,tensive use of &utual 'und 1elated maga%ines li(e U &utual 'und 1eviewV, U&utual 'und 0nsight b$ value researchersV is being made.

;2

Analysis of The Data

:9

SOURCES OF INFORMATION

SECONDARY SOURCES OF INFORMATION Fffer documents of +/0 and 08080 >rudential &utual 'unds. &utual 'und related maga%ines li(e &utual 'und 1eview, &utual 'und 0nsight b$ value researchers, Futloo( &one$. 'act +heets of +/0 &utual 'und and 08080 >rudential &utual 'und Beb sites, mainl$ www.mutualfundsindia.com, sbimf.com

www.valueresearchersonline.com, www.indiainfoline.com. icicipruamc.com

:1

LIMITATIONS OF THE STUDY

The anal$sis is done on the basis of past performance of the funds. /ut the past performance ma$ not be an indicator of future performance.

>erformance of mutual funds is largel$ affected b$ environmental factors, which are be$ond the control of investors.

>F1T'F<0F 8F&>F+0T0FN F' +/0 60<T 'UN7

:)

>F1T'F<0F 8F&>F+0T0FN F' / < N8E7 'UN7

:3

>F1T'F<0F 8F&>F+0T0FN F' +/0 &agnum 6lobal Equit$ 'und

:5

Findings& Recommendations

:?

*alan0 d Fund!
1eturns from 08080 >rudential /alanced 'und for the past one $ear period is )3.14E and returns from +/0 &agnum /alanced 'und is higher at )?.24E for the same period +/0 &agnum /alance 'und is more consistentl$ increasing than 08080 /alanced 'unds and it-s standard deviation is higher than 08080 >rudential /alanced 'und. +/0 &agnum /alanced 'un has standard deviation of 9.)9E and 08080 >rudential /alanced 'und has standard deviation of 9.1?E. +harpe 1atio is comparativel$ favorable in case of 08080 >rudential /alance 'und. Tre$nor ratio is comparativel$ favourable in case of +/0 &agnum /alance 'und.+harpe 1atio and Tre$nor 1atio of +/0 &agnum /alanced fund are 9.21, 35.2? respectivel$. +harpe 1atio and Tre$nor 1atio of 08080 >rudential /alanced 'und are 1.91, and );.;5E respectivel$. /eta coefficient of 08080 >rudential /alanced 'und is -9.9993, which is lower than +/0 &agnum /alance 'und-s /eta coefficient of 9.993.

60<T 'UN7+

The present N ! of +/0 &agnum 6ilt and 08080 >rudential are 1s. 1s.1;.)4 and 1s.)).4) respectivel$. 1eturns for the past one-$ear period for +/0 &agnum 6ilt 'und is ?.34E, which is lower than 08080 >rudential 6ilt 'und 1eturns :.92E. :4

+/0 &agnum 6ilt 'und-s N ! is more consistentl$ increasing than 08080 >rudential 6ilt 'und. +tandard 7eviation of +/0 &agnum 6ilt 'und and 08080 >rudential 6ilt 'und is 9.3? and 9.31 respectivel$. +harpe 1atio is comparativel$ favorable in case of +/0 &agnum 6ilt 'und. 08080 >rudential is having a good tre$nor ratio compared to +/0 &agnum 'und. +harpe 1atio and Tre$nor 1atio of +/0 &agnum 6ilt 'und are -9.5?, and -3.:). +harpe 1atio and Tre$nor 1atio of 08080 >rudential are -9.;4 and -).;1 respectivel$. /eta coefficient of +/0 &agnum 6ilt 'und 9.9995 which is lower than 08080 >rudential 6ilt 'und /eta coefficient of 9.9993?

EBUITY FUND

N ! of +/0 &agnum global 'und is 1s.5:.5:, and N ! of 08080 >rudential 7$namic 'und is 1s.4;.1:. 1eturns from +/0 &agnum global 'und 'und are 1;.23E and 08080 >rudential 7$namic 'und returns are 53.?4E for the past one $ear. 1eturns and N ! of both the funds are ver$ much fluctuating. +harpe 1atio and Tre$nor 1atio are comparativel$ favorable in case of 08080 >rudential 7$namic 'und. +harpe ratio and tre$nor ratio of +/0 &utual fund are 9.944 and 2.23 respectivel$. +harpe ratio and tre$nor ratio of 08080 >rudential 7$namic fund are 1.59 and 3?.? respectivel$ :;

+tandard deviation of +/0 &agnum 6lobal 'und is 1.?1 and 08080 >rudential has standard deviation of 9.)?

+U66E+T0FN+

/ < N8E7 'UN7+

0t is favorable for the +/0 &utual fund to promote more of +/0 &agnum /alanced 'und over 08080 >rudential /alance 'und, because +/0 &agnum balanced fund is giving consistent returns since inception.

Su&&ort#n$ anal"!#! for th a2o/ !tat ( nt:

1eturns of +/0 &agnum /alanced 'und are marginall$ higher than 08080 >rudential /alance 'und. 1eturns from +/0 &agnum /alanced 'und for the past one-$ear period were )?.24E and returns from 08080 >rudential /alanced 'und are lower at )3.14E for the same period. Even the standard deviation of +/0 &agnum /alanced 'und is higher than 080808 >rudential /alanced 'und-s +tandard 7eviation. +/0 &agnum /alanced 'und has a standard deviation of 9.)9 where as 08080 >rudential /alanced 'und has standard deviation of 9.1?. 0t shows *ustified returns against ris( in case of +/0 &agnum /alance 'und, the high fluctuation, higher the returns for +/0 &agnum /alance 'und.

The Tre$nor ratio of +/0 &agnum /alanced 'und is also high as compared to 08080 >rudential /alanced 'und. The Tre$nor 1atio of +/0 &agnum /alanced 'und and 08080 >rudential /alanced 'und are 35.2? and );.;5 respectivel$

::

GILT FUNDS
0ts better to invest more in @igh $ield 6overnment +ecurities than investing in short term 7eposits with lower rate of interest

Su&&ort#n$ anal"!#! for th a2o/ !tat ( nt:

s ever$one (now the rate of return on short term deposits is obviousl$ low however the onl$ advantage is the liquidit$. 0t would, therefore, necessar$ to invest higher percentage of corpus into 6overnment 6ilt Edged securities. Bith a view to ma,imi%e return on funds the fund ma$ consider to invest in certificate of deposits. The >ortfolio of +/0 &agnum global is showing that ?9E of the corpus is invested in short term deposits, the percentage should be brought down, and invest more and more in @igh $ield government securities.

EBUITY FUND s the >ortfolio of the +/0 &agnum 6lobal is holding &ore of cash balance, The cash balance should be reduced and invest same in &id 8ap and +mall 8ap.

Su&&ort#n$ anal"!#! for th a2o/ !tat ( nt:

s the portfolio of +/0 &agnum 6lobal 'und is showing that lot cash is idle i.e 39E onl$ ;9E of the corpus is utili%ed. >ortfolio composition of +/0 &agnum 6lobal is 11E in large cap, ?)E in small cap, 2E in small cap and rest of the 39E is cash. To $ield more the cash balance should be reduced and invest the same in mid cap and small cap which $ield abnormal returns. :2

$I$LIO'RA# Y

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*I*LIOGRA-HY

&'0 Bor( /oo( &utual 'und review b$ 08080 /an( <td. &utual 'und 0nsight b$ !alue 1esearcher. &ar(eting &anagement b$ >hilip Gotler www.mutualfundsindia.com www.indiainfoline.com www.valueresearcersonline.com www.icicidirect.com www.amfi.com www.sbimf.com

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