CHAPTER-1

INTRODUCTION

INTRODUCTION

Mutual Funds are professionally managed pool of money from a group of

investors. A Mutual fund manager invests your funds in securities including
stocks and bonds, Money Market instruments or some combination and
decides the best time to buy and sell. By pooling your resources with other
investors in Mutual Funds, you can diversify even a small investment over a
wide spectrum.
With the emergence of the capital market at the center stage of the Indian
financial system from its marginal role a decade earlier, the Indian capital market also
witnessed during the same period a significant institutional development in the form of
diversified structure of Mutual Funds. A Mutual fund is a special type of investment
institution which acts as an investment conduit.
It pools the savings, particularly of the relatively small investors, and invests them
in a well-diversified portfolio of sound investment. As an investment intermediary, it
offers a variety of services/advantages to the relatively small investors who on their own
cannot successfully construct and manage investment portfolio mainly due to the small
size of their funds, lack of expertise and experience, and so on. These services include the
diversification of portfolio, expertise of the professional management, liquidity of
investment, tax shelter, reduced risk and reduced cost.
Mutual fund is the most suitable investment mode for the common man as it
offers an opportunity to invest in a diversified, professionally managed portfolio at a
relatively low cost. Any body with an investible surplus of as little as a few thousand
rupees can invest in mutual funds. Each Mutual fund scheme has a defined investment
objective and strategy.

The most important trend in the Mutual Fund industry is the aggressive expansion
of the foreign owned Mutual Fund companies and the decline of the companies floated by
nationalized banks and smaller private sector players.
Funds issue and redeem shares on demand at the fund's net asset value (NAV).
Mutual fund management fees typically range between 0.5% and 2% of assets per year,
exchange fees and other administrative charges also apply.
According to SEBI - Mutual Fund is defined as - A fund established in the form
of a trust to raise moneys through the sale of units to the public or a section of the public
under one or more schemes for investing in securities, including money market
instruments.
Mutual Fund is a mechanism for pooling the resources by issuing units to the
investors and investing funds in securities in accordance with objectives as disclosed in
the offer document.

NEED OF THE STUDY

The basic purpose of the study is to give broad idea on Mutual Funds and analyze
various schemes to highlight the diversified investment that Mutual Fund offers to its
investors. Through this study one can understand how to invest in Mutual Funds and turn
the raw investment into ripen fruits by taking wise decisions, taking the risk factors into
account.

SIGNIFICANCE OF THE STUDY

(1)

The Study presents basic concept and trends in the Mutual fund Industry.

(2)

The Study enables a fresh investor to understand easily the various benefits
offered by Mutual Funds and their working in the Market.

(3)

The Study provides a clear idea on growth of Mutual Funds from past to the
present scenario and its scope in the future.

(4)

The Study gives a brief idea on the Open- Ended Balanced Growth Schemes of
five major organizations.

(5)

At the end of the study, one can conclude what type of investments would be ideal
with reference to the risk taking abilities of the investors and which type of
investments would suit their financial needs and goals.

OBJECTIVES OF THE STUDY

(1)

The Main objective of this project is to study and analyze of five Mutual Funds and
to compare and Rank each of them.

(2)

To give a broad idea on basics, structure, constituents, characteristics, advantages,

disadvantages, types, and risk associated with Mutual Funds.

(3)

To give investor an idea on Mutual Funds and its working in the market with
illustrations.

(4) To help and guide investors to take wise investment decisions.

(5)

To help the investors have an understanding of the Risks associated with Mutual
fund investment.

(6) The Tax benefits of investing in Mutual Funds under various schemes.
(7) To understand the recent trends in the world of Mutual Funds.
(8)

The project gives a detailed idea which enables even a common man or fresh
investor to understand the functioning of Mutual Funds and to take wise investment
decisions.

METHODOLOGY OF THE STUDY

All information related to the topic needs to be carefully scrutinized to avoid the
risk of biased analysis. Having once identified which information is relevant and need to
be collected, we will have to define how this will be done.
The Method employed in the investigation depends on the purpose and scope of the
study.
Research Design:
Research design is some statement or specification of procedures for collecting
and analyzing the information required for the solution of some specific problem. Here,
the exploratory research is used as investigation and is mainly concerned with
determining the trends and returns in Mutual Funds and Bank returns.
Data Collection Methods:
The key for creating useful system is selectivity in collection of data and linking
that selectivity to the analysis and decision issue of the action to be taken. The accuracy
of collected data is of great significance for drawing correct and valid conclusions from
the research.
Sources of Information:
Data available in marketing research are either primary or secondary. Primary
Data is not included in this study, only secondary data is taken in to account since, it is a
comparative analysis.

Secondary Data:
Secondary data can be defined as - data collected by someone else for purpose
other than solving the problem being investigated. Secondary data is collected from
external sources which include information from published material of SEBI and some of
the information is collected online. The data sources also include various books,
magazines, newspapers, websites etc. The organization profile is collected from the
Hyderabad Stock Exchange.

SCOPE OF THE STUDY

1)

The Study covers the basic meaning, concept, structure and the organization of the
Mutual Funds.

2)

The Study is restricted to explain only the returns provided by the Mutual Funds
from

3)

various schemes.

Under this study investments relating to Open-Ended Balanced Growth Fund of

Mutual Funds are taken into account.

4)

The theoretical part of the study include the following concepts: Characteristics of Mutual Funds.
Advantages/ Disadvantages of Mutual Funds.
Net Asset Value (NAV).
Investment Process.
Risk return grid of Mutual Funds.
SEBI guidelines.

5)

The tools used for graphical representation of data include Pie charts, Bar diagrams,
and other accessories.

6)

The Study is made to equip the investors with the information, which will enable
them to choose the type of Scheme depending upon their investing objective and
respective Risk return grid.

TOOLS USED FOR ANALYSIS

TABULATION:
A Table is a systematic arrangement of statistical data in rows and columns.
Rows are horizontal arrangements whereas columns are vertical arrangements. Tabulation
is a systematic presentation of data in a form suitable for analysis and interpretation.
PRESENTATION OF DATA:
The impression created by a picture has much greater impact than detailed explanation.
Statistical data can be effectively presented in the form of diagrams and graphs. Graphs
and Diagrams make complex data simple and easily understandable. They help to
compare related data and bring out subtle data with amazing clarity. The diagrams used
are as follows

PIE CHARTS: The Pie charts are used to represent a component on a percentage
basis. Each part of a component is shown as the percentage of whole component.
Pie Charts are used to represent the percentage share of Equity, Debt & Money
Market components of Balanced Growth Fund.

BAR DIAGRAMS:

The Bar Diagrams are used specifically for categorical data

series. They consist of the group of equidistant rectangles, one for each group or
category of data in which the values of magnitudes are represented by length or
height of rectangles.

LIMITATIONS OF THE STUDY

The data that is considered for the Comparative analysis of various Mutual Funds
returns of Open-Ended Balanced Growth Fund are only for a short period of one
year and performance during this period may not be same in future. Project period
is only 45 days , so I have taken two months portfolios into consideration

As the project period is limited, the long-term data of Mutual Funds are not taken
into consideration in analysis section.

Mutual Funds of only five organizations are taken into account for analyzing their
performance, because the time duration of the project is short and limited. The
performance of these funds since inception is not considered.

This study on Mutual Funds is restricted to Open-Ended Balanced Schemes only.

The core details are untouched.

The data taken into account for analysis is very general. Confidential data is
ignored as it is highly sensitive. As a result the information presented in the research
report is limited.

CHAPTER-2

LITERATURE REVIEW

10

THEORITICAL STUDY
DEFINITION
A Mutual Fund is a financial intermediary which acts as an instrument of
investment. It collects the funds from different investors to a common pool of investible
funds and then invest these funds in a wide variety of investment opportunities in
diversified portfolios of securities such as Money Markets instrument, corporate and
government bonds and equity shares of joint stock companies.
The investment may be diversified to spread risk and to ensure good return to the
investors. The Mutual Funds employ professional, experts and investment consultants to
conduct investment analysis and then to select the portfolio of securities where the funds
are to be invested.
Each investor owns units, which represent a portion of the holdings of the fund. You can
make money from a MF in three ways:1. Income is earned from dividends on stocks and interest on bonds. A Fund pays out
nearly all income it receives over the year to fund owners in the form of a
distribution.
2. If the fund sells securities that have increased in price, the fund has a capital gain.
Most funds also pass on these gains to investors in the form of dividends.
3. If fund holdings increase in price but are not sold by the fund manager, the funds
shares increase in price. You can then sell your Mutual Fund units for a profit. Funds
will also usually give you a choice either to receive a cheque for dividends or to
re-invest the same and get more units.

11

FIGURE SHOWING THE WORKING OF MUTUAL FUND

STRUCTURE AND CONSTITUENTS OF FUND

MUTUAL
FUND

Sponsor

AMC

Trustee

SPONSOR:
Establishes the MUTUAL FUND
Need to have sound financial track record.
Appoints TRUSTEES.
Appoints Asset Management Company.

12

Custodian

 Must contribute 40% of the net worth of the AMC.

Sometimes this power is given by the sponsor to the trustees through the trust deed.
At least 50% of directors on the board of Asset Management Company should be
independent of the sponsor.
Asset Management Company shall not deal with any broker or firm associated with
sponsor beyond 5% of daily gross business of the Mutual Fund.
All securities transactions of the Asset Management Company with its associates
should be disclosed.
TRUSTEE:
Manages the Mutual Fund and look after the operation of the appointed AMC.
The investments are held by the Trustees, in a fiduciary responsibility.
Trustees approve each Mutual Fund Scheme floated by AMC.
Furnish report to SEBI on half yearly basis on AMC and Fund Functioning.
ASSET MANAGEMENT COMPANY:
AMC acts as investment manager of the trust under the board supervision and
direction of the trustees.
AMC floats the different Mutual Fund schemes.
Submits report to the Trustees on quarterly basis, mentioning activity and compliance
factor.
AMC is responsible to the trustees.
AMC fees have a ceiling, decided by SEBI.
Should have a net worth of at least Rs.11 crores at all the times.
CUSTODIAN:
Appointed by board of trustees for safekeeping of securities.
Its an entity independent of sponsors.

13

SEBI regulates the securities market in India. According to SEBI every Mutual Fund
require that at least two thirds of the directors of trustee company or board of trustees
must be independent i.e. they should not be associated with the sponsors. Also, 50% of
the directors of AMC must be independent. All Mutual Fund are required to be registered
with SEBI before they launch any Scheme.

ORGANISATION OF MUTUAL FUND:

CHARACTERISTICS OF MUTUAL FUNDS:

A Mutual Fund actually belongs to the investors who have pooled their funds. The
ownership of the Mutual Fund is in the hands of the investors.
Mutual funds are trusts or registered associations managed by investment
professionals and other service providers, who earn a fee for their services from the
fund.
The pools of the funds are invested in a portfolio of marketable investments (Shares
and Securities). The value of the portfolio is updated everyday.
Mutual funds collect money from small investors and in return, they will issue a
certificate in units.

14

 The investors share in the fund is denoted by UNITS". The value of the units
changes with the change in the portfolios value every day.
The profits of investments will be distributed to the unit holders. The unit holders can
sell their units in the open market at Net Asset Value (NAV).

NET ASSET VALUE (NAV):

Mutual Funds invest the money collected from the investors in securities markets.
In simple words, Net Asset Value is the market value of the securities scheme also varies
on day to day basis. The NAV per unit is the market value of securities of a scheme
divided by the total number of units of the scheme on any particular date. The
performance of a particular scheme of a Mutual Fund is denoted by Net Asset Value.
For example; if the market value of securities of a MF Scheme is Rs. 200 lakhs and the
Mutual Fund has issued 11 lakhs units of Rs. 11 each to the investors, then the NAV per
unit of the fund is Rs. 20. NAV is required to be disclosed by the MF on a regular basis
daily or weekly depending on the type of scheme.

NAV = Market value of the funds investments + Receivables + Accrued Income

Liabilities Accrued Expenses
Number of Outstanding units

OBJECTIVES OF MUTUAL FUNDS:

The objectives sought to be achieved by Mutual funds are as follows: To provide an opportunity for lower income groups to acquire without much
difficulty property in the form of shares.
To cater mainly to the need of individual investors whose means are small?

15

 To manage investors portfolios in a manner that provides regular income, growth,

safety, liquidity and diversification.

SCHEMES OF MUTUAL FUNDS:

Mutual fund schemes are usually open-ended (Perpetually open for investors and
redemption) or close-ended (with a fixed term). A Mutual Fund scheme issues units that
are normally priced at Rs.11/- during the initial offer. The number of units you own
against the total number of units issued by a Mutual Fund scheme determines your share
in the profits or losses in the scheme.

TYPES OF MUTUAL FUND SCHEMES

The Mutual Funds can be classified under the following types:
ACCORDING TO STRUCTURE:

STRUCTURE

OPEN-ENDED
SCHEME

CLOSED-ENDED
SCHEME

16

INTERVAL
SCHEME

OPEN - ENDED SCHEME

An open-ended scheme is a scheme in which an investor can buy and sell units on
a daily basis. The scheme has a perpetual existence and flexible, ever changing corpus.
Open-Ended schemes do not have a fixed maturity period. The investors are free to buy
and sell any number of units, at any point of time, at prices that are linked to the NAV of
the units.
In these schemes the investor can invest and disinvest any amount, any time after
a short initial lock in period. This scheme gives investors with instant liquidity and fund
announces sale and repurchase price from time to time. The units can be bought from and
sold to any Mutual Fund.
Advantages of Open-ended funds over Close-ended funds:
Any time Entry Option.
This provides ready liquidity to the investors and avoids reliance on transfer deeds,
signature verifications and bad deliveries.
Allows to enter the fund at any time and even to invest at regular intervals.
Any time Exit Option.

CLOSE ENDED SCHEME

A Close-ended scheme has a stipulated maturity period. E.g. 5-7 years. A Closeended scheme is one in which the subscription period for the Mutual Fund remains open
only for a specific period, called the redemption period. At the end of this period, the
entire corpus is disinvested and the proceeds distributed to unit holders. After final
distribution the scheme ceases to exist. Such schemes can be rolled over by approval of
unit holders.
Reasons for fluctuations in NAV
17

 Investors doubts about the abilities of the funds management.

Lack of sales effort (Brokers earn less commission on closed end schemes than on
open ended schemes).
Riskiness of the fund.
Lack of marketability of the funds units.
INTERVAL SCHEMES
Interval schemes are those that combine both the features of both open-ended and
close-ended schemes. The units may be traded on the stock exchange or may be open for
sale redemption during predetermined intervals at NAV related prices.

ACCORDING TO INVESTMENT OBJECTIVE

EQUITY SCHEME

DEBT OR BOND SCHEME

BALANCED SCHEME
INVESTMENT
OBJECTIVE
MONEY MARKET
SCHEME
GROWTH & INCOME
FUND
OTHER SCHEMES

18

ADVANTAGES OF MUTUAL FUNDS

The key advantages of both open and close-end Mutual Funds is that they put
professional managers with experience and access to sophisticated financial research to
work for you this, and other wide range of key benefits are as follows :1) Professional Management
Experienced portfolio managers carefully select a funds holdings according to the
funds seated investment objective. The portfolio management team continuously
monitors and evaluates the funds holdings to help make sure it keeps pace with
changing market conditions. The team decides when to buy and sell securities. There
is a fee associated with this professional management.
2) Diversification
A Single diversified Mutual Fund may invest in dozens even hundreds of different
holdings. This approach may reduce the impact on your return if any one investment
held by the fund declines. Diversification spreads your assets among different types
of holdings and may be one of the best ways to protect yourself amid the complexity
and uncertainty of the financial markets.
3) Compounding
In a Mutual Fund, you may choose to reinvest your earnings automatically to buy
more shares. When you reinvest, not only do you have the potential to earn money on
your initial investment, you may also have the opportunity to earn money on the
dividends and capital gains you accumulate. Compounding may increase the impact
of what you contribute and can help your money grow faster. And the longer you
invest, the greater the potential growth.
4) Systematic Investing
19

You can invest in most mutual funds automatically through regular payments directly
from your bank account; you can start building a long-term investment program. With
systematic investing you invest a fixed amount of money at regular intervals
regardless of market conditions, helping out market fluctuations.
5) Hassle-free operations
With most Mutual Funds, buying and selling shares, changing distribution options,
and obtaining information can be accomplished conveniently by telephone, by mail,
or online. Although a funds shareholder is relieved of the day-to-day tasks involved
in researching, buying and selling securities, an investor will still need to evaluate a
Mutual Fund based on investment goals and risk tolerance before making a purchase
decision. Investors should always read the prospectus carefully before investing in
any Mutual Fund.
6) Buying Power
When you invest in a mutual fund, you join the other investors in a pool of
investment money. The result is that you have a partial stake in each company the
fund holds for a relatively small amount of principal invested, while potentially
offsetting some of the risk associated with holding individual securities.
7) Choice
There is an incredible array of mutual funds more than 11,000 available to meet
your specific Investment objective. Funds have different investment objectives and
degrees of investment risk often indicated through asset classes and sub-classes,
such as money market funds, fixed income funds, balanced funds, growth and income
funds, growth funds and aggressive growth funds.
8) Liquidity
Mutual fund shares are liquid and orders to buy or sell are placed during market
hours. However, orders are not executed until the close of business when the NAV
(Net Asset Value) of the fund can be determined. Fees or commissions may or may

20

not be applicable. Fees and commissions are determined by the specific fund and the
Institution that executes the order.

9) Transparency
You get regular information on the value of your investments in addition to disclosure
on the specific investments made by your scheme, the proportion invested in each
class of assets and the fund managers investment strategy and outlook.

DISADVANTAGE OF MUTUAL FUNDS:

1) Over Diversification
Diversification is usually a good thing because it reduces risk, but Mutual Funds
sometimes make small investments in so many securities that they become over
diversified. In other words, the Mutual Funds holdings in each security may be so
small that it is difficult to realize substantial return from any of those holdings, which
in turn means that the overall return for each investor is small.
2) Unused Cash
Your cash may occasionally serve as liquidity insurance rather than work for you as
an investment. The constant availability of shares is certainly convenient for investors
in a mutual fund, but it can also operate as a disadvantage. A Mutual Fund manager
must always prepare for the possibility than an investor will cash in his or her shares.
As a result Mutual Funds must maintain a ready cash supply at all times.
3) Fluctuating Returns
Mutual funds are like many other investments without a guaranteed return. There is
always the possibility that the value of your mutual fund will depreciate. Unlike
fixed-income products, such as Bonds and Treasury Bills, mutual funds experience
price fluctuations along with stocks that make up the fund.

21

4) Costs Despite Negative Returns

Investors must pay sales charges, annual fees, service charges and other expenses
regardless of how the fund performs. In addition, depending on the timing of their
investment, investors may also have to pay taxes on any capital gains distribution
they receive even if the fund went on to perform poorly after they bought shares.
5) Misleading Advertisements
The misleading advertisements of different funds can guide investors down the wrong
path. Some funds may be incorrectly labeled as growth funds, while others are
classified as small-cap or income.
6) Evaluating Funds
Not offer investors the opportunity to compare the P/E ratio, sales growth, earnings
share, etc. A Mutual Funds Net Asset Value gives the investors the total value of the
Another limitation of mutual fund is the difficulty they pose for investors interested in
researching and evaluating the different funds. Unlike stocks, mutual funds do funds
portfolio less liabilities.
7) Poor Transparency
Technology used for servicing of investors and for portfolio management and
investment decision making is poor and general efficiency and timeliness are lacking
as a result of antiquated methods of operation. Telex, telephone and communication
systems are poor and antiquated.

22

RISK ASSOCIATED WITH MUTUAL FUND INVESTMENT

The Principal that the greater risk you take, the greater the potential reward.
Typically, risk is defined as short term price variability. But on a long term basis, risk
is the possibility that your accumulated real capital will be insufficient to meet your
financial goals. And if you want to reach your financial goals, you must start with an
honest.
At the cornerstone or investing is the basic appraisal of your own personal
comfort zone with regard to risk. Individual tolerance for risk varies, creating a distinct
investment personality for each investor. Some investors can accept short-term
volatility with ease, others with near panic. So whether you consider you investment
temperament to be conservative, moderate or aggressive, you need to focus on how
comfortable or uncomfortable you will be as the value of your investment moves up or
down

23

TYPES OF RISK
All investments involve some form of risk. Even an insured band account is subject to the
possibility that inflation will rise faster than your earnings, leaving you with less real
purchasing power than when you started (Rs.1100 gets you less than it got your father
when he was your age). Consider these common types of risks and evaluate them against
potential rewards when you select an investment.

Market

Inflation

Credit

Interest Rate
TYPE OF
RISKS

Employees

Exchange Rate

Investment

Government Policies

24

1) Market Risk: At times the prices or yields of the all the securities in a particular
market rise or fall due to broad outside influences. When this happens, the stock
prices of both an outstanding, highly profitable company and a fledging corporation
may be affected. This change in price is due to Market Risk.
2) Inflation Risk:

Some times referred to as loss of purchasing power. Whenever

inflation sprints forward faster than the earnings on your investment, you run the risk
that youll actually be able to buy less, not more. Inflation risk also occurs when
prices rise faster than your return.
3) Credit Risk:

In short, how stable is the company or entity to which you lend

your money when you invest. How certain are you that it will be able to pay the
interest you are promised, or repay your principal when the investment matures.
4) Interest Risk:

Changing interest rates affect both equities and bonds in many

ways. Investors are minded that predicting which way rates Effect of loss rev
professionals and inability to adapt:
An industries key asset is often the personnel who run the business i.e.
intellectual properties or the key employees of the respective companies. Given the
ever-changing complexion of few industries and the high obsolescence levels,
availability of qualified, trained and motivated personnel is very critical for the
success of industries in few sectors. It is, therefore, necessary to attract key personnel
and also to retain them to meet the changing environment and challenges the sector
offers. Failure or inability to attract/retain such qualified key personnel may impact
the prospects of the companies in the particular sector in which fund invests.
5) Exchange risk:

A number of companies generate revenues in foreign currencies

and may have investments or expenses also denominated in foreign currencies.

25

Changes in exchange rates may, therefore, have a positive negative impact on

companies which in turn would have an effect on the investment of the fund.
6). Changes in government policy:

Changes in government policy especially in regard

to the tax benefits may impact business prospects of the companies leading to an
impact on the investments made by the fund.

RISK RETURN GRID

RISK
TOLERANCE/

SUITABLE

BENEFITS

PRODUCTS

OFFERED BY

Bank/company FD,

MFS
Liquidity, Better

Debt based Funds

Balanced Funds, some

Post-Tax return
Liquidity, Better

Diversified Equity

Post-Tax returns,

Funds are some debt

Better Management,

Funds, Mix of share and

Diversification

Fixed Deposits
Capital Market, Equity

Diversification,

Funds (Diversified as

Expertise in stock

well as Sector)

picking, Liquidity,

FOCUS

RETURN
EXPECTED
Low

Debt

Partially Debt,

Medium

Partially Equity

High

Equity

Tax free dividends

COST INVOLVED IN MUTUAL FUNDS

An investor must know that there are certain costs can be classified into 2 broad
categories:
Operating expenses

- Which are paid out of the funds earnings

Sales charges

- That are directly deducted from your investment. It is not

26

compulsory that every mutual fund levy sales charges but

they certainly have operating expenses. No doubt they
influence returns on investment in a fund.
Operating expenses
These referred to cost incurred to operate a mutual fund. Advisory fees paid to
investment mangers, Audit fees to chartered accountant, custodial fees, register and
transfer agent fees, trustee fee, agent commission. Operating expenses also known as
expenses ratio which is annual expenses expressed as a percentage of the funds average
daily net assets mutual funds. The break up of these expenses is required to be reported in
the schemes offer document (or) prospectus

Operating expenses
Expenses Ratio =

----------------------------Average Net Assets

For instant, if funds Rs. 110 Crores and expenses 20 lakhs. Then expenses ratio is
2% expenses ratio is available in the offer document and from historical per unit statistics
included in the financial results of the fund which are published by annually. UN audited
for the half year ending Sep30 and audited for the physically year end in March 30.
Depending upon schemes and net asset, operating expenses are determined by
limits mandated by SEBI Mutual fund regulation Act. Any excess over specified limits as
to be born by Asset Management Company, the trustees or sponsors.
Sales charges:
These are known commonly sales loads; these are charged directly to investor.
Sales loads are used by mutual fund for the payment of agents commission, distribution
and marketing expensed. These charges have not effect on the performance of the

27

scheme. Sales loads are usually express in percentage and or of two types front-end and
back end.
Front-end load:

It is a one time fixed fee paid by an investor when buying a

mutual fund scheme. It determines public offer price which intern decides how much of
your initial investment actually get invested the standard practice of arriving a public
offer price is as follows:
Net Asset Value
Public offer price =

--------------------------(1- front end load)

Let us assume, an investor invests Rs.11, 000 in a scheme that charges a 2%front
end load at a NAV per unit RS. 11 using the formula public offer price =11/ (1-0.02) is
Rs. 11.20. So only 980 units are allotted to the investor
Amount invested
Number of units allotted =

-------------------------Public offer price

11,000/11..20= 980 units at a NAV of Rs. 11

This means units worth 9800 are allotted to him on an initial investment of Rs. 11,000.
Front end loads tent to decrease as initial investment amount increase.
Back end load:
May be a fixed fee redemption (or) a contingent deferred sales charges-a
redemption load continues so long as the redeeming or selling of the units of the units of
a fund does not take place in the event of back end load is applied. The redemption price
is arriving at using following formula.

Net Asset Value

Redemption price = ------------------------------

28

(1+ back end load)

Let us assume an investor redeems units valued at Rs. 11,000 in a scheme that charges a
2% back end load at a NAV per unit of Rs. 11. Using the formula redemption price 11/
(1+0.02) = Rs. 9.8
So, what the investor gets in hand is 9800(908*1100)
Contingent Deferred Sales Charges (CDSC):
Contingent deferred sales charges are a structured back end load. It is paid when
the units are redeemed during the initial years of ownership. It is for a pre determined
period only and reduced over the time youre invested for a fund. The longer the investor
remains in fund the lower the CDSC.
The SEBI (mutual fund Regulation 1996) stipulate that a CDSC may be
charge only for first 4 years after purchase of units and also stipulate the maximum
CDSC that can we charge every year. The SEBI Mutual funds Regulation 1996 do not
allow either the front end load or back end load to any combination is higher that 7%.
Transaction cost:
Some funds may also impose a switch over fee which is a charge on transfer of
investment from one scheme to another with in a same mutual fund family and also to
switch from on plan (short term) to another (long term) within same scheme.

SYSTEMATIC INVESTING PLANS (SIPs)

It is an investment vehicle, where you need to deposit a fixed amount at regular
intervals (monthly, quarterly, etc.) in a MF scheme; just like you do in a recurring deposit
account with a bank or the post office.
Regular Investing is not easy. Owing to lack of time, most people invest
sporadically. The result? The returns are rarely optimal. However, there is a foolproof
29

way of investing a fixed amount of money at regular intervals: Chola Mutual Funds
Systematic Investment Plan (SIP). SIP uses the concept of rupee cost averaging,
ensuring investors buy more when prices are low; and fewer units when prices are high.

Benefits of Systematic Investment Plans

Discipline Saving:
Inculcating discipline in your investment has been easier. Your investment is done
on a regular basis by the mutual fund without any intervention required by you. The best
part is that you will not feel the pain of having to save since the money will move from
your bank account automatically.
Rupee Cost Averaging:
The SIP helps you take advantage of the fluctuation in the stocks market by rupee
cost averaging. The investor buys more units when the prices are low and fewer
units cost. Assume you are investing Rs.1100/- each for next four months.
Month

Amount Invested

Purchase Price

No of Units Purchased

1100

11

110

1100

09

121.12

1100

11

110

1100

12
Table 2 (b)

90.9

Total Investment = Rs. 4000; No of units purchased is 402.21. The average cost per units
work out to be Rs9.95.
As illustrated, over time you have a lower average cost per unit. By investing a
fixed amount of money at regular intervals, you as an investor stand to gain reasonable
returns and create significantly wealth-over time.
Lower Cost of Investing:

30

Getting into SIP program does not required large investment amounts at regular
intervals. Even as small as Rs. 1100 can be invested at regular intervals.
Builds Investment Kitty:
You have to give Post-Dated cheque (PDCs) to the mutual fund for deposit on
specific dates, for the amount you want to invest. These cheques are presented to your
bank account on these dates and the funds are withdrawn from your account for
investment in the mutual fund scheme at the prevailing NAV. Other than making the
initial investment and issuing the cheques at the beginning, no further efforts are required
from you.
Overcoming market volatility:
SIPs help you avoid missing market falls because of lack of time to track the
market. You dont have the responsibility of actively monitoring market movement to be
able to enter during falls.
Market timing doesnt work:
Trying to time the markets, i.e. entering when the markets fall and exiting when
the markets rise, usually does not work. It is best to take the systematic investment
approach to stay above market
Redemption of Units:
The units can be redeemed (i.e. sold back to the mutual fund) or switched-out
subject to completion of lock in period, on every business day at the redemption price.
The redemption/switch out request can be made by way of a written request, on a pre
printed form or by using the relevant tear off section of the transaction slip enclosed with
the account statement, which should be submitted at/may be sent by mail to any of the
ISCs.

31

Redemption price:
Redemption price will be calculated on the basis of the loads of different plans/options.
The redemption price per unit will be calculated using the following formula:
Redemption Price = Application NAV * (1 exit Load, if any)

Example for calculation of redemption Price

If the application NAV is Rs.11.00; Exit/redemption load is 2%, then the redemption
price will be calculated as follows:
= Rs.11.00 *(1-0.02)
= Rs.11.00 * (0.98)
= Rs.9.80

32

CHAPTER-3

INDUSTRY & COMPANY PROFILE

33

INDUSTRY PROFILE
GROWTH AND HISTORY OF MUTUAL FUNDS
The First investment trust (now called Mutual Fund) began in the Netherlands in the
early 1800s. The first in the U.S. was the New York Stock Trust, which started in 1889.
Since Boston was the economic center of the nation until the turn of the century, the
majority of funds started thereFidelity, Pioneer and Putnum Fund, to name a few. A
Fund that was comprised of both stocks and bonds (the Wellington Fund) started in 1928
and is still part of Vanguard. As the 20's crashed to a close, there were 11 Mutual Funds
in the nation.
Foundation for the Mutual Fund in India was laid by the parliament in 1963. With
the enactment of Unit Trust of India (UTI) Act the then Finance Minister
Mr.T.T.Krishnamacharya who initiated the act made it clear to the parliament act UTI
would provide an opportunity for the middle and lower income groups to acquire
property in the form of share. Thus UTI came out with the mission of catering to the
needs of individuals investors whose means are small, with its maiden fund, an open
ended fund in 1964.
The Indian Mutual Fund Industry can be studied in four phases:FIRST PHASE BETWEEN 1964 1987
The genesis of the Mutual Fund industry in India can be traced back to 1964 with
the setting up of the Unit Trust of India (UTI) by the Government of India. Since then
UTI has grown to be a dominant player in the industry. UTI is governed by a special
legislation, the Unit Trust of India Act, 1963. It was setup by the Reserve Bank of India
and functioned under the regulatory and administrative control of RBI. In 1978, UTI was
de-linked from the RBI and the administrative control in place of RBI. The first scheme
34

launched by UTI was unit Scheme 1964. At the end of 1988, UTI had Rs. 6700 crores of
assets under the management.
SECOND PHASE 1987-1993 (Entry of Public Sector Funds)
Till 1986, UTI was the only mutual player in India. The industry was opened up
for wider participation in 1987 when public sector banks and insurance companies were
permitted to setup Mutual Funds.
Since then, many public sector banks have setup Mutual Funds. SBI Mutual Fund
was the first non-UTI Mutual Funds established in June 1987 followed by can bank
Mutual Funds, Punjab National Bank Mutual Fund, India bank Mutual Funds, Bank of
India, Bank of Boroda Mutual Funds. Also the two Insurance companies LIC (June 1987)
and GIC (December 1990) have established Mutual Funds. At the end of 1993, the
Mutual Fund industry had assets under management of Rs. 47004 crores. This phase
changed the mindset of the investors.
THIRD PHASE 1993-2003
With the entry of private sector funds in 1993, a new era started in the Indian
Mutual Fund Industry, giving the Indian investors a wider choice of fund families. Also,
1993 was the year in which the first Mutual Funds regulations came into being, under
which all Mutual Funds, except UTI were to be registered and governed. The erstwhile
Kothari Pioneer (now merged with Franklin Templeton) was the first sector Mutual Fund
registered in July 1993.
Securities Exchange Board of India (SEBI) formulated the Mutual Fund
(Regulation) 1993, which for the first time established a comprehensive regulatory
framework for the Mutual Fund Industry. Since then several Mutual Funds have been
setup by the private and joint sectors.
FOURTH PHASE - Since February 2003
In February 2003, following the repeal of the Unit Trust of India act 1963, UTI
was bifurcated into separate entities. One is the specified undertaking of the UTI with

35

asset under management of Rs. 29835 crores as at the end of January 2003, representing
broadly, the assets of US 64 schemes, assured return and certain other schemes.
The second is UTI Mutual Fund ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered in SEBI and functions under the Mutual Fund regulations. With the bifurcation
of the erstwhile UTI which had in March 2000 more than Rs. 76000 crores of assets
under management and with the setting up of the UTI Mutual Fund. At the end of
October 31, 2006 there were 39 funds which manage assets of Rs. 176726 crores under
426 schemes.

PRESENT SCENARIO
The decade of 80s witnessed the emergence of stock markets as major source of
finance for trade and industry. The process of liberalization and deregulation had led to a
pace of growth almost unparallel in the history of any nation.
Average annual capital mobilization from the marked, which used to be about
Rs.70 crores in the 60s and Rs.90 crores in the 70s increased manifold during the 8-s
with the amount raised in 1989-90 being of the order of Rs.647.3 crores. The number of
listed companies rose from 2265 in 1980 to over 8600 at the end of 2006; the daily
turnover accordingly shot up from Rs.25 crores in 1979-80 to about Rs.585 crores in
2007-2008.

Distribution of Worldwide Mutual Fund Assets by Region, 2008:

(Percentage of Total Assets)

36

At present, there are 20 stock exchanges recognized under the Securities

Contracts (Regulation) Act, 1956. These recognized stock exchanges mobilize and direct
the flow of savings of the general public into productive channels of investment.) .
According the latest statistics the market capitalization (assets) of Mutual Funds in
India is amounting to Rs. 3, 00,000 Crores.

ASSOCIATION OF MUTUAL FUNDS OF INDIA

With the increase in Mutual Fund players in India, a need for mutual fund
association in India was generated to function as a non-profit organization. Association of
Mutual Funds in India (AMFI) was incorporated on 22nd August 1995.
AMFI is an APEX body of all Asset Management Companies (AMC), which has
been registered with SEBI. Till date all the AMCs are that have launched mutual fund
schemes are its members. It functions under the supervision and guidelines of its Board
of Directors.
Association of Mutual Funds of India has brought down the Indian Mutual Fund
Industry to a professional and healthy market with ethical lines enhancing and
maintaining standards. It follows the principle of both protecting and promoting the
interests of mutual funds as well as their unit holders.
Objectives :

37

The AMFI works with 30 registered AMCs of the country. It has certain defined
objectives, which juxtaposes the guidelines of its Board of Directors. The objectives are
as follows:
This mutual fund association of India maintains high professional and ethical
standards in all areas of operation of the industry.
It also recommends and promotes the top class business practices and code of conduct
which is followed by members and related people engaged in the activities of MF and
asset management. The agencies who are by any means connected or involved in the
field of capital markets and financial services also involved in this code of conduct of
the association.
AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual
fund industry.
AMFI do represent the Government of India, the Reserve Bank of India and other
related bodies on matters relating to the Mutual Fund Industry.
It develops a term of well-qualified and trained Agent distributors. It implements a
programmed of training and certification for all intermediaries and other engaged in
the mutual fund industry.
AMFI undertakes all India awareness programmed for investors in order to promote
proper understanding of the concept and working of mutual funds.
At last but not the least association of mutual fund of India also disseminate
information on Mutual funds Industry and undertakes studies and research either
directly or in association with other bodies.
BEFORE INVESTING IN MUTUAL FUNDS:
1) First choose a scheme (equity/debt/balanced) according to your returns/risk profile.
2) Select the scheme which is giving income according to your requirements. (Short
term returns like income fund, long term returns like growth fund).
3) Select the fund which gives maximum returns and high security and liquidity and low
risk.

38

4) Then compare similar schemed offered by various MFs and their track record.
Examine the track record of the mutual fund and its sponsors.
5) Study the track record of the fund manager.
6) Examine the investment strategy of the scheme.
7) Check the load (entry/exit).
8) Check out on special facilities like switching options, account statements,
sale/repurchases policy etc.
9) Do not buy in to new schemes that are deceptively being offered at par.

RIGHTS AND OBLIGATIONS OF INVESTORS:

1) Right to proportionate beneficial ownership.
2) Right to timely service.
3) Right to information.
4) Right to approve changes in fundamental attributes.
5) Rights to wind up a scheme.
6) Right to terminate the AMC.

LEGAL LIMITATIONS TO INVESTORS RIGHTS:

1) Investors cannot sue the trust.
2) Investors can initiate legal proceedings against the trustees.
3) Sponsors of mutual funds have no obligations to meet the shortfall in non-assured
schemes.
4) Only if the OD has specifically provided such guarantee by a named sponsor, the
investors have the right to sue the sponsor.
5) Prospective investors cannot sue the trust/the AMC or any other constituent.
Companies act cannot protect investors as fund investors are neither share holders in
the
AMC nor depositors.

ORIGIN
Rapid growth in industries in the erstwhile Hyderabad State saw efforts at starting
the Stock Exchange. In 1942, Mr. Gulag Mohammad, the Finance Minister formed a
39

committee for the purpose of constituting Rules and Regulations of the Stock Exchange.
Sri Purushothamas Thakurdas, present and Founder Member of the Hyderabad Stock
Exchange performed and the opening ceremony of the Exchange on 14-12-1943 under
the Hyderabad Securities Contract Act Mr. Kamal Yar Jung Bahadur was the first
President of the Exchange.
The HSE started functioning under Hyderabad Securities Contract Act of No.21
of 1352 under H.E.H Nizams Government as a Company Limited by guarantee. It was
the 6th Stock Exchange recognized under Securities Contract Act, after the premier Stock
Exchange, Ahmedabad, Bombay, Calcutta, Madras and Bangalore Stock Exchange. All
the deliveries were completed every Monday or the next working day.
The Securities Contract Act, 1956 was enacted by the Parliament passed into Law
and Rules were also framed in 1957. The Act and Rules were brought into force from 20 th
February 1957 by the Government of India.
The HSE was first recognized by the Government of India on 29 th September 1958
as Securities Regulation Act was made applicable to twin cities as Hyderabad and
Secunderabad from that date. In View of Substantial growth in trading activities, and for
the Yeoman services rendered by the Exchange was bestowed a permanent recognition
with effect from 29th September 1983.

OBJECTIVES
The Exchange was established on 18th October, 1943 with the main objective to
create, protect and develop a healthy Capital Market in the State of Andhra Pradesh to
effectively serve the Public and the investors interests.
The property, Capital and Income of the Exchange, as per the Memorandum and
Articles of Association of the Exchange, shall have to be applied solely towards the

40

promotion of the objects of the Exchange. Even in case of dissolution, the surplus funds
shall have to be devoted to any activity having the same objects, as Exchange or be
distributed in Charity, as may be determined by the Exchanged or the High Court of
Judicature.
Thus, in short it is a Charitable Institution. The Hyderabad Stock Exchange
Limited is now on its stride of completing its 57th year in the history of Capital Markets
serving the cause of saving and investments.
The Exchange has made its beginning in 1943 and today occupies a prominent
place among the Regional Stock Exchange in India. It thus, promotes the mobilization of
the funds to the Industry and develops the industrialization in the state of Andhra
Pradesh.
GROWTH
The HSE Ltd was established in the year 1943 as a non-profit making
organization catering to the needs of investing population in a small way in a rented
building in Koti area. In September 1989, then Vice-President of India Honorable Dr.
Shanker Dayal Sharma had inaugurated the own building of the Stock Exchange at
Himayat nagar, Hyderabad. Considerably, there has been a tremendous perception growth
that could be observed from statistics.
The number of members of the Exchange was 55 in 1943, 127 in 1293, and 295 in
1995 and increased to 413 in 2006. The business turnover stood more than Rs.1200
crores in 2006. The Exchange has got a very weekly settlement system earlier and now a
daily Rolling settlement.
GOVERNING BOARD
At present, the Governing Board consists of the following:

41

Members of the Exchange

Sri Hari Narayan Rathi
Sri Rajendra V Naniwadekari
Sri Raj Kishore Harkut
Sri Ram Swaroop Agarwal
Sri Dattatraya

SEBI Nominee Directors

Shri R.P Singh IAS Joint Secretary of Department of Defence Production and Supplies,
Ministry of Defence, New Delhi.
Shri N.S Ponnunambi Register of Companies, Hyderabad.
Public Nominee Directors
Shri D. Seetharamaiah

- Practicing CA

Dr. Braj Kishore

- Professor (Retd.)

Shri S. Dasaratharama Reddy

- Retired Judge

Dr. B. Brahmaiah

- Professor

Shri M. Subramanyam

- Executive Director

COMPUTERISATION:
The Stock Exchange business operations are equipped with
modern communications systems. Online computerization for simultaneously carrying
out the trading transactions, monitoring functions have been introduced at this Exchange
since 1988 and the settlement and the Delivery System has become simple and easy to
the Exchange members.

42

The HSE in-line Securities Trading system was built around the most
sophistication state of the Art Computers, Communication System, the proven VECTOR
Software from CMC and was one of the most powerful SBT Systems in the Country,
operating in a WAN environment, connected through 9.6 KBPS 2 wire leased lines from
the offices of the Members to the office of the Stock Exchange at Somajiguda, where the
Central System CHALLENGE-L DESK SIDE SERVER made of silicon graphics (SGI
Model No. 95602-S2) was located and connected to all the members who were provided
with COMPAQ DESKPRO 2000/DESKTOP 5120 computers connected through
MOTOROLA 3265 V 34 MANAGEABLE STAND ALONE MODEMS (28.8KBPS) for
carrying out business from computer terminal located in the offices of the Members.
HSE is the only Exchange in the country which has provided infrastructure to its
members for its members for trading through WAN and leased lines from the day one.
The HOST system exchange not only to expand its operations later to other Prime
Trading Centers outside the twin cities of Hyderabad and Secunderabad but also to link
itself into the inter-connected market system (ECMS) proposed by the federation of
Indian Stock Exchange (FISE) to inter-connect various Regional Stock Exchanges in
various States.
In the age of electronic Trading on-line information on rates from other major
markets was an essential input for efficiency. HSE provided on-line rates from BSE and
NSE which not only enhanced the ability of HOST terminals to attract the investors but
also enable the members to avail arbitraging opportunities between Exchanges.
Clearing Houses:
The Exchange set-up a Clearing House to collect the Securities from all the
Members and distribute to each member, all the securities due in respect of every
settlement. The whole of the operations of the Clearing House were also computerized.
Inter-Connected Market System (ICMS):
The HSE was the convener of a committee constituted by the Federation of Indian
Stock Exchanges for implementing an Inter-connected by Market System (ICMS) in

43

which the Screen Based Training System of Various Stock Exchanges was interconnected to create a large National Market. SEBI welcomed the creation of ICMS.
The HOST provided the networks for HSE to hook itself into the ISE. The ISE
provided the members of HSE and their investors, access to a large National network of
Stock Exchange.
The inter-connected Stock Exchanges is a National Exchange and all HSE
members could have Trading terminals with access to the National market without any
fee, which was a boon to the members of an exchange to have the Trading rights on a
National Stock Exchange (NSE), without any fee or expenditure.
Stock Brokers Insurance Policy:
HSE had taken a comprehensive Stock Brokers Insurance Policy covering the
members to an extent of Rs.11 lakhs each and also insured the Clearing house. HSE was
one of the few to have such comprehensive Insurance policy coverage.
On-Line Surveillance:
HSE pays special attention to Market Surveillance and monitoring exposures of
the members, particularly the mark to market losses. By taking prompt steps to collect the
margins to mark the market losses, the risk of default by members is avoided in any
settlement. It is heartening that there have been no defaults by members since the
introduction of Screen Based Trading.
The Exchange restricted the effective Trading volumes and linked to the Capital
deposited with the Exchange, to obviate defaults and losses and contain speculation.
BASE MINIMUM
CAPITAL
Rs. 4.00 lakhs

GROSS EXPOSURE
LIMIT
Rs.40.00 lakhs

ADDITIONAL CAPITAL:

44

INTRA-DAY
TRADING LIMIT

Rs.132.00 lakhs

Upto Rs. 6.00 lakhs

Rs.60.00 lakhs

Rs.120.00 lakhs

FURTHER ADDITIONAL CAPITAL:

Upto Rs. 8.00 lakhs

Rs. 48.00 lakhs

Rs. 96.00 lakhs

Settlement Guarantee Fund

The Exchange has introduced Trade Guarantee fund on 25.01.2000. This will
insulate the trading member from the counter-party risks while trading with another
member. The trading member and his investors will be assured of the timely completion
of the pay-out of funds and securities not with standing the default, if any, of any trading
member of the Exchange.
The short falls, if any, arising from the default of any member will be met out of
the settlement guarantee fund. Several pay-ins worth of crores of rupees in all the
settlement have been successfully completed after the introduction of the Settlement
Guarantee fund, without utilizing any amount from the Settlement Guarantee Fund.
This Trade Guarantee Fund will be a major step in rebuilding this confidence of
the members and the investors in HSE. HSEs Trade Guarantee Fund had a corpus of
rupees 2 crores initially which would be raised to Rs 5 crores.

CURRENT PLANS:
Depository Participant
The Exchange had also become a Depository Participant with National Securities
Depository Limited (NSDL) and Central Depository Services Limited (DCSL). The
depository functions can be undertaken by the Exchange by opening the accounts of
investors, members of the Exchange etc.

45

 Floating

of a Subsidiary Company For The Membership of Major Stock

Exchange Of The Country

The Exchange has already floated a Subsidiary Company in the name and style of
HSE Securities Limited for obtaining the Membership of NSE and BSE. The process of
acquiring the Membership of NSE has already been completed and SEBI was kind
enough to grant its registration to HSE Securities Limited.

Facility To Trade At NSE, Derivatives Trading, Net Trading Etc

The Exchange Incorporated a Subsidiary HSE Securities Limited with a paid up
capital of Rs.4.00 crores to NSE Membership, so that the members of the Exchanges had
access to the NSEs Trading Screen as Sub-brokers, Derivatives Trading and Bet Trading
etc. The Members of this Exchange had equal opportunity of participating in such trading
like any other NSDE member. The Subsidiary of the exchange commenced trading with
HSE members sub-brokers on NSE segment. During the year, the Exchange also acquired
the membership if BSE and Trading will commence soon.

Commodity Exchange
The Exchange by seeking the support of the State Government is planning to set
up online commodities Exchange to trade in certain Commodities since our State is one
of the major Agriculture Economies. The Online Commodity Trading with WAN
connectivity will minimize the middle men operation and provide price support to the
producers.

46

COMPANY PROFILE

47

COMPANY PROFILE

Incorporated in 1993, Net worth Stock Broking Limited (NSBL) has been a listed
company at Bombay Stock Exchange (BSE), Mumbai since 1995.
A Member, at the National Stock Exchange of India (NSE) and Bombay Stock Exchange,
Mumbai (BSE) on the Capital Market and Derivatives (Futures & Options) segment,
NSBL has been traditionally servicing Institutional clients and in the recent past has
forayed into retail broking, establishing branches across the country. Presence is being
marked in the Middle East, Europe and the United States too, as part of our attempts to
cater to global markets. We are a Depository participant at Central Depository Services
India (CDSL) with plans to become one at National Securities Depository (NSDL) by the
end of this quarter. We have our customers participating in the booming commodities
48

markets with our membership at the Multi Commodity Exchange of India (MCX) and
National Commodity & Derivatives Exchange (NCDEX), through Networth Stock.Com
Ltd. With its strong support and business units of research, distribution & advisory,
NSBL aims to become a one-stop solution to the broking and investment needs of its
clients, globally.
Strong team of professionals experienced and qualified pool of human resources
drawn from top financial service & broking houses form the backbone of our sizeable
infrastructure. Highly technology oriented, the companys scalability of operations and
the highest level of service standards has ensured rapid growth in the number of locations
& the clients serviced in a very short span of time. Networthians, as each one of our 400
plus and ever growing team members are addressed, is a dedicated team motivated to
continuously progress by imbibing the best of global practices, Indian sing
such practices, and to constantly evolve a comprehensive suite of products &
services trying to meet every financial / investment need of the clients.
NSE CM and Derivatives Segment SEBI Regn. 1NB230638639 & 1NF230638639
BSE CM and Derivatives Segment SEBI Regn. 1NB011638634 &
PMS SEBI Regn. 1NP000001371 CDSL DP SEBI Regn. IN-DP-CDSL
251-2004
Commodities Trading: MCX -11585 and NCDEX - 00012 (through Networth
Stock.Com Ltd.)
Hyderabad (Somajiguda)
401, Dega Towers, 4th Floor, Raj Bhavan Road, Somajiguda Hyderabad - 500 082
Andhra Pradesh.

49

Phone Nos.: 040-55560708, 55562256, and 30994985

Mumbai (MF Division)
49, Au Chambers, 4th Floor, Tamarind Lane, Fort
Mumbai - 400 001
Maharashtra.
Phone Nos.: 022- 22650253

Mumbai (Registered Office)

5, Church gate House, 2nd Floor, 32/ 34 Veer Narirnan Road, Fort
Mumbai - 400 001
Maharashtra.
Phone No. 022-22850428
The Networth connectivity with 117 branches and growing

50

107 branches

Products and services portfolio

Retail and institutional broking

Research for institutional and retail clients

Distribution of financial products

PMS

51

Corporate finance

Net trading

Depository services

Commodities Broking

Infrastructure

A corporate office and 3 divisional offices in CBD of Mumbai which houses stateof-the-art dealing room, research wing & management and back offices.

52

All of 117 branches and franchisees are fully wired and connected to hub at
Corporate office at Mumbai. Add on branches also will be wired and connected to
central hub

Web enabled connectivity and software in place for net trading.

60 operative IDs for dealing room

In house technology back up team to ensure un-interrupted connectivity.

1993: Networth Started with 300 Sq.ft. of office space & 11 employees
2006: Spread over 42 cities (around 70,000 Sq.ft of office space) with over 117 branches
& employee strength over 400
Market & research
Focusing on your needs
Every investor has different needs, different preferences, and different viewpoints.
Whether investor prefer to make own investment decisions or desire more in-depth
assistance, company committed to providing the advice and research to help you succeed.
Networth providing following services to their customers,
Daily Morning Notes
Market Musing
Company Reports
Theme Based Reports
Weekly Notes
IPOs
Sector Reports
Stock Stance

53

Pre-guarter/Updates
Bullion Tracker
F&O Tracker

QUALITY POLICY
To achieve and retain leadership, Networth shall aim for complete customer satisfaction,
by combining its human and technological resources, to provide superior quality financial
services. In the process, Networth will strive to exceed Customers expectations.
As per the quality policy, Networth will:

Build in house processes that will ensure transparent and harmonious

relationships with its clients and investors to provide high quality of services.
Establish a partner relationship with in its investor service agents and vendors that
will help in keeping up its commitments to the customers.
Provide high quality of work life for all its employees and equip them with
adequate knowledge & skill so as to respond to customers needs.
Continue to uphold the values of honesty & integrity and strive to establish
unparalleled standards in business ethics.

54

 Use state-of-the art information technology in developing new and innovative

financial products and services to meet the changing needs of investors and
clients.

Strive to be a reliable source of value-added financial products and services and

constantly guide the individuals and institutions in making a judicious choice of it.
Strive to keep all stake-holders (share holders, clients, investors, employees, suppliers
and regulatory authorities) proud and satisfied.

Key Personnel:

Mr. S P Jain CMD Networth Stock Broking Ltd.

A qualified Chartered Accountant with over 15 years of experience

in the

capital markets.

Mr. Deepak Mehta Head PMS

Over 12 years of experience in the capital markets and has the prior work
experience of serving on the Equity desk of Reliance.

Mr.Viral Doshi Equity Strategist

A qualified Chartered Accountant with experience of over a decade in technical
analysis with respect to equity markets.

Mr. Vinesh Jain Asst. Fund Manager

A qualified MBA graduate specializing in finance and over two years of
experience in the capital markets.

55

Research and the Back office.

we have sought to provide premium financial services and information, so that the power
of investment is vested with the client. We equip those who invest with us to make
intelligent investment decisions, providing them with the flexibility to either tap into our
extensive knowledge and expertise, or make their own decisions. We made our debut into
the financial world by servicing Institutional clients, and proved its high scalability of
operations by growing exponentially over a short period of time. Now, powered by a topnotch research team and a network of experts, we provide an array of financial products
& services spanning entire India.Our strong support, technology-driven operations and
business units of research, distribution, advisory, wide array of products & services
coalesce to provide you with a one-stop solution to cater to all your investment needs.
Our single minded objective is to help you grow your Networth.
OUR GROUP COMPANIES
Networth Stock Broking Ltd. [NSBL]
NSBL is a member of the National Stock Exchange of India Ltd (NSE) and the Bombay
Stock Exchange Ltd (BSE) in the Capital Market and Derivatives (Futures & Options)
segment. NSBL has also acquired membership of the currency derivatives segment
with NSE, BSE & MCX-SX. It is Depository participants with Central Depository
Services India (CDSL) and National Securities Depository (India) Limited (NSDL). With
a client base of over 1L loyal customers, NSBL is spread across the country though its
over 230+ branches. NSBL is listed on the BSE since 1994.

56

Networth Wealth Solutions Ltd. [NWSL]

NWSL is into the business of delivery of Financial Planning & Advice. Its vision is to
Advice & Execute money related solutions to/for our customers in the most Convenient
& Consolidated manner, while making sure that their experience with us is always
pleasant & memorable resulting in positive advocacy. The product & Services include
Financial Planning, Life Insurance, On-line Trading Account, Mutual Funds,
Debentures/Bonds, General Insurance, Loans and Depository Services.

NetworthStock.ComLtd.[NSCL]
NSCL is the commodities arm of NSBL. It is a member at the Multi Commodity
Exchange of India (MCX) and National Commodity & Derivatives Exchange (NCDEX)
and is backed by solid research & analytics in Commodities.

NetworthSoftTechLtd.[NSL]
NSL is an ISO 9001:2000 Certified Company. It is into Application Development &
maintenance. Building & Implementation of packaged software across various functions
within the Financial Services Industry is at its core. It also provides data center services
which include hosting of websites, applications & related services. It combines a unique
delivery model infused by a distinct culture of customer satisfaction.

Ravisha Financial Services Pvt. Ltd. [RFSL]

57

RFSL is a RBI registered NBFC engaged in financing, primarily it provides loan against
securities

Principles & Values

At Net worth Stock Broking Ltd. success is built on teamwork, partnership and
the diversity of the people.
At the heart of our values lie diversity and inclusion. They are a fundamental part
of our culture, and constitute a long-term priority in our aim to become the world's
best international bank.
Values

Responsive

Trustworthy

Creative

Courageous

Approach

Participation:- Focusing on attractive, growing markets where we can

leverage our relationships and expertise

Competitive

positioning:-

Combining

global

capability,

deep

local

knowledge and creativity to outperform our competitors

Management Discipline:- Continuously improving the way we work,

balancing the pursuit of growth with firm control of costs and risks
Commitment to stakeholders

Customers:- Passionate about our customers' success, delighting them

with the quality of our service

Our People:- Helping our people to grow, enabling individuals to make a

difference and teams to win

Communities:- Trusted and caring, dedicated to making a difference

58

Investors:- A distinctive investment delivering outstanding performance

and superior returns

Regulators: - Exemplary governance and ethics wherever we are.

CHAPTER 4

DATA ANALYSIS & INTERPRETATION

59

FUND :

TATA OPEN-ENDED BALANCED GROWTH FUND

OBJECTIVE:

Aims to invest in equity and debt oriented securities so as to give

investor balanced returns.

PORTFOLIO OF THE FUND
Sector

JAN 2014

FEB2014

Energy

12.86

12.01

Finance

13.58

13.92

Technology

8.48

5.47

Automobile

5.39

E
F
G
H
I
J

Health care
Engineering
Diversified
FMCG
Constructions
Chemicals

7.65
3.88
4.31
9.90
1.98
0.60

6.34
6.87
6.86
4.26
8.96
1.88
0.77

Note: Reasons for taking two months portfolio details in above mentioned fund are
1. If you observe two months portfolio JAN and FEB2014, you can see some
differences in values. Reason is Fund Manager will churn portfolio every
month. So asset allocation changes every month. But investors units will
be same.

60

2. Portfolio of equity is 72.44%, but the above portfolio shows less than
72.44% reason, is here I have taken only 13 sectors for every fund. This
will not get any affect for the analysis.

Sector wise chart

Portfolio allocation chart:

61

 The TATA Balanced Fund Portfolio consists of 72.44% Equity holdings, 24.47%
Debt, 3.09% Money Market. It is evident from the data that though the investors have
risk taking ability, they balanced their investments by investing in Debt also. The
advantage of balanced fund based on market conditions, portfolio allocations can
decrease to 50% also. It is evident that fund manager is bullish side on market.

62

FUND

: BIRLA OPEN-ENDED BALANCED GROWTH FUND

OBJECTIVE :

The Scheme aims to balance income requirements with growth of

capital through balanced mix of investment in equity and debt.
PORTFOLIO OF THE FUND
Sector

JAN

FEB

2014

2014

Finance

18.19

17.45

ENERGY

17.48

16.45

HEALTH CARE

6.57

6.70

TECHNOLOGY

11.17

8.98

ENGINEERING

4.93

5.45

DIVERSIFIED

4.77

5.20

METALS

4.42

4.49

AUTOMOBILES

6.03

4.30

FMCG

8.15

7.52

COMMUNICATION

2.45

1.77

63

Portfolio allocation chart:

The BIRLA Balanced Fund Portfolio consists of 92.73% Equity holdings, 7.27%
Debt. It is evident from the data that though the Investors have risk taking ability,
they balanced their investments by investing in Debt also. Here fund manager,
behaving portfolio very conservatively, so equity proportion selected less when
compare to remaining four funds.

64

FUND :

Pru ICICI OPEN-ENDED BALANCED GROWTH FUND

OBJECTIVE :

Aims to invest in equity and debt oriented securities so as to give

investor balanced returns.
PORTFOLIO OF THE FUND
Sector

JAN

FEB

FINANCIAL

2014
12.56

2014
12.01

TECHNOLOGY

11.30

9.79

Automobile

9.43

8.78

Energy

12.08

8.85

Health care

6.57

6.73

Engineering

4.32

4.72

Fmcg

6.17

6.13

Diversified

1.68

1.34

Services

2.37

5.19

Communication

3.58

2.67

Metals

2.11

3.82

Portfolio allocation chart:

65

 The Pru ICICI Balanced Fund Portfolio consists of 69.98% Equity holdings, 27.71%
Debt and 2.31% others. It is evident from the data that though the fund manager is
taking high risk even in balanced fund for this particular period. And at the same time
have gave priority to debt and other safety investment products.

FUND

DSP BLACK ROCK OPEN-ENDED BALANCED

GROWTH FUND

66

OBJECTIVE : Seeks to generate long term capital appreciation and current income from
a portfolio constituted of equity and equity related securities as well as fixed income
securities.
PORTFOLIO OF THE FUND
Sector

JAN

FEB

Financial

2014
13.67

2014
13.20

Energy

7.99

9.69

Technology

6.17

6.80

Engineering

2.91

3.09

Health care

3.59

5.16

F
G

Fmcg
Services

6.54
2.14

5.83
3.01

Automobile

7.06

6.70

Chemicals

3.49

3.11

Portfolio allocation chart:

67

 The DSP Black Rock Balanced Fund Portfolio consists of 73.38% Equity holdings,
24.32% Debt, 2.30% Money Market. It is evident from the data that though the
Investors have risk taking ability more here also, their investment is not getting
balanced properly, so risk element is there.

FUND

JM FINANCIAL OPEN-ENDED BALANCED

68

GROWTH FUND
OBJECTIVE :

Aims to provide investors with liquidity and current income along

with capital appreciation.

PORTFOLIO OF THE FUND

A
B
C
D
E
F
G
H
I

Sector

JAN

FEB

Automobile
Diversified
Engineering
Technology
FMCG
Construction
HEALTHCARE
COMMUNICATION
SERVICES

2014
15.22
2.76
2.42
5.67
6.88
5.89
5.80
4.51
3.42

2014
14.79
4.47
4.44
8.50
7.64
4.16
5.75
3.90
2.89

69

Portfolio allocation chart:

The JM Balanced Fund Portfolio consists of 70.03% Equity holdings, 27.65% Debt,
2.05% Money Market. It is evident from the data that though the Investors have risk
taking ability, they balanced their investments by investing in Debt also. When

70

compare to last year portfolio, fund manager has taken less exposure towards equity,
so its clearly understanding that fund manager is aggressive on equity markets.

TATA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st
JAN11

NAV

75.35

1st

1ST

1ST

1ST

APRIL

JULY

OCT

JAN

2014

2014

2014

76.6

78.60

86.70

1ST

31ST
DEC
2015

2015

1ST JULY 1ST

OCT
APRIL 2015
2015
2015

86.17

82.67

75.40

Fund performance and NAV values over a period of 2 year.

71

84.19

78.58

BIRLA OPEN-ENDED BALANCED GROWTH FUND

DATE 1st
JAN11

NAV

253.81

1st

1ST

1ST

1ST

APRIL

JULY

OCT

JAN

2014

2014

2014

255.14

256.39

296.86

1ST

31ST
DEC
2015

2015

1ST JULY 1ST

OCT
APRIL 2015
2015
2015

289.47

260.69

203.16

Fund performance and NAV values over a period of 2 year.

72

253.45

222.18

Prudential ICICI OPEN-ENDED BALANCED GROWTH FUND

Fund performance and NAV values over a period of 2 year.

DATE 1st
JAN11

NAV

40.25

1st

1ST

1ST

1ST

APRIL

JULY

OCT

JAN

2014

2014

2014

41.6

42.21

46.97

73

1ST

31ST
DEC
2015

2015

1ST JULY 1ST

OCT
APRIL 2015
2015
2015

47.57

46.43

43.01

47.55

44.59

JM FINANCIAL OPEN-ENDED BALANCED GROWTH FUND

Fund performance and NAV values over a period of 2 year
DATE 1st
JAN11

NAV

21.80

1st

1ST

1ST

1ST

APRIL

JULY

OCT

JAN

2014

2014

2014

21.50

23.00

25.04

74

1ST

31ST
DEC
2015

2015

1ST JULY 1ST

OCT
APRIL 2015
2015
2015

24.31

23.00

19.99

22.56

20.59

DSP MERRILL LYNCH OPEN-ENDED BALANCED GROWTH

FUND

Fund performance and NAV values over a period of 2 years.

DATE 1st
JAN11

NAV

60.05

1st

1ST

1ST

1ST

APRIL

JULY

OCT

JAN

2014

2014

2014

60.25

62.35

70.12

75

1ST

31ST
DEC
2015

2015

1ST JULY 1ST

OCT
APRIL 2015
2015
2015

69.16

66.39

52.27

66.61

61.58

PERFORMANCE EVALUATION
We are interested in discovering if the management of a mutual fund is
performing well; that is, has management done better through its selective buying and
selling of securities than would have been achieved through merely buying the market
picking a large number of securities randomly and holding them throughout the period?
One of the most popular ways of measuring managements performance is by
comparing the yields for the managed portfolio with the market or with a random
portfolio.
The following formula can be used to evaluate Mutual fund performance:NAVt + Dt
1
NAVt 1
76

Where:
NAV t = per-share net asset value at the end of year t
Dt=
NAV t-1 =

Capital appreciation during two years.

per-share net asset value at the end of the previous year.

PERFORMANCE EVALUATION OF SELECTED FUNDS

NAV t-1 = 1st JAN 2014
NAVt=
1)

31ST DEC 2015

TATA Open-Ended Balanced growth Fund
NAV t-1

NAV t

75.35

75.40

D t (NAV t
0.05

NAV t-1)

Applying the formula we get

=

0.05
75.35

2)

0.0006 x 110

0.06 %

BIRLA Open-Ended Balanced growth Fund

NAV t-1
253.81

NAV t
203.16

77

D t (NAV t
NAV t-1)
-50.651

Applying the formula we get=

-50.651
253.81

-0.199 x 110

-19.9%

2) Pru ICICI Open-Ended Balanced growth Fund

NAV t-1
40.25

NAV t
43.01

D t (NAV t
NAV t-1)
2.76

Applying the formula we get=

2.76__
40.25

4)

0.06x 110

6.8/%

DSP MERRILL LYNCH Open-Ended Balanced growth Fund

NAV t-1
60.05

NAV t
52.27

Applying the formula we get=

-7.78
60.05

78

D t (NAV t
NAV t-1)
-7.78

=
=
5)

-0.129x 110
-12.9%

JM FINANCIAL Open-Ended Balanced growth Fund

NAV t-1
21.80

NAV t
19.99

D t (NAV t
NAV t-1)
-1.81

Applying the formula we get=

-1.81__
21.80

-0.08x 110

-8.3%

FUND PERFORMANCE RANKING

Name of the Fund

Prudential ICICI open-ended Balanced Growth Fund

Returns

Rank

6.8%

TATA open-ended Balanced Growth Fund

2
0.06

JM financial open-ended Balanced Growth Fund

3
-8.3%

DSP Black Rock Balanced Growth Fund

BIRLA open-ended Balanced Growth Fund

79

-12.9%

-19.9%

80

CHAPTER-5

FINDINGS & SUGGESTIONS AND

CONCLUSIONS

81

FINDINGS & SUGGESTIONS

The Biggest advantage with Mutual Funds is that the investor dont need huge
amount to be invested in all his favorite stocks and bonds. Most Mutual Funds have
a minimum investment of Rs.5000.

As most of the investors in the market have less risk taking capabilities, the balanced
fund investments are suitable one.

The Balanced fund investments are a combination of Equity, Debt & Money
markets. As such, the investments are diversified and the risk is balanced.

The Balanced Fund Investments provide, steady and assured returns to the investors.
This is one of the important reasons, for choosing the balanced investments.

Five Balanced fund schemes are chosen for the study Tata, Birla, Pru ICICI, DSP
BLACK ROCK & JM Financial. The Funds Chosen for the study are some of the
top performers in the Market.

ICICI Mutual fund has recorded highest returns in this period and least generated by
JM and Prudential BIRLA.

Asset allocation in balanced fund depends upon fund manager, but market
conditions are same to the all funds, TATA fund manager expected growth in equity
diversified and high priority given towards equity.

All the funds performed above bench mark in the study.

In volatility market conditions balanced funds are better than equity funds, and
investors who are not ready to bear risk, they can go for balanced funds.

82

CONCLUSION
The information in this project report will provide the investors the basic knowledge
about Mutual Funds and enable them to choose the best investments suiting their
risk/return profile. Basing on the information in this project, recommendations made to
investors are as follows:

Mutual funds provide regular and steady income to investors.

Systematic investment plan in Mutual Funds is the best tool for sound investment to
small investors who prefer investments in installments.

Liquidity, transparency, well regulated and flexibility, are some of the features of
Mutual funds which is very advantageous to investors.

The entry load and exit load in Mutual Funds is very low which does not affect the
ultimate yields.

Safety of funds & positive rate of return over inflation are the basic two needs of
traditional investor. Mutual Fund is well equipped to cater to these basic desires of
investors.

83

CHAPTER-6

BIBLIOGRAPHY
BOOKS

DONALD E.FISHER & RONALD J.JORDAN,6 TH Edition-Security analysis and

portfolio management.

M.Y.KHAN,2ND Edition-Financial services.

ICFAI,9TH Edition-Essentials of investment & Tax planning.

ASHU DATT,5TH Edition-Personal finance.

NEWS PAPERS

The Economic Times

The New Indian Express

MAGAZINES

Business World

WEBSITES

www.mutualfundsindia.com

www.stockholding.com

www.moneypore.com

www.amfiindia.com

84