MUTUAL FUND

CHAPTER 1
MUTUAL FUND

Source: http://beginnersinvest.about.com

1.1 INTRODUCTION TO MUTUAL FUNDS:

There are many investment avenues available in the financial market for an
investor. Investors can invest in bank deposits, corporate debentures and bonds,
post office saving schemes etc. where, there is low risk together with low return.
They may invest in stock of companies where the risk is high and sometimes the
returns are also proportionately high. For retail investors, who do not have the
time and expertise to analyze and invest in stock, Mutual Funds is a viable
investment alternative. This is because Mutual Funds provide the benefit of cheap
access to expensive stocks. A Mutual Fund is a collective investment vehicle
formed with the specific objective of raising money from a large number of
individuals and investing it according to a pre-specified objective, with the
benefits accrued to be shared among the investors on a pro-rata basis in
proportion to their investment. According to Encyclopedia Americana, Mutual
funds are open end investment companies that invest shareholders money in
portfolio or securities. They are open ended in that they normally offer new
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MUTUAL FUND
shares to the public on a continuing basis and promise to redeem outstanding
shares on any business day. According to Securities and Exchange Board of India
Regulations, 1996 a mutual fund means a fund established in the form of trust
to raise money 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.

A Mutual Fund is a trust registered with the Securities and Exchange Board of
India (SEBI) which pools up the money from individual/corporate investors and
invests the same on behalf of the investors/units holders, in equity shares,
government securities, bonds, call money market etc. The income earned
through these investments and the capital appreciations realized are shared by
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MUTUAL FUND
its unit holders in proportion to the number of units owned by them. This pooled
income is professionally managed on behalf the unit-holders, and each investor
holds a proportion of the portfolio.

1.2 DEFINITION:

Mutual funds are collective savings and investment vehicles where

savings of small (or sometimes big) investors are pooled together to invest for
their mutual benefit and returns distributed proportionately.
A mutual fund is an investment that pools your money with the money of an
unlimited number of other investors. In return, you and the other investors each
own shares of the fund. The fund's assets are invested according to an
investment objective into the fund's portfolio of investments. Aggressive growth
funds seek long-term capital growth by investing primarily in stocks of fastgrowing smaller companies or market segments. Aggressive growth funds are
also called capital appreciation funds

MUTUAL FUND

1.3 OPERATIONAL FLOW OF MUTUAL FUND:

The following diagram depicts the operational flow of Mutual Fund

Source: http://www.nrimutualfunds.com

MUTUAL FUND

http://www.nrimutualfunds.com

The mutual fund collects money directly or through brokers from investors.
The money is invested in various instruments depending on the objective of the
scheme. The income generated by selling securities or capital appreciation of
these securities is passed on to the investors in proportion to their investment in
the scheme. The investments are divided into units and the value of the units will
be reflected in Net Asset Value or NAV of the unit. NAV is the market value of the
assets of the scheme minus its liabilities. The per unit NAV is the net asset value
of the scheme divided by the number of units outstanding on the valuation date.
Mutual fund companies provide daily net asset value of their schemes to their
investors. NAV is important, as it will determine the price at which you buy or
redeem the units of a scheme. Depending on the load structure of the scheme,
you have to pay entry or exit load.

MUTUAL FUND

1. 4 ADVANTAGES OF MUTUAL FUNDS:

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

1. Portfolio Diversification:
Each investor in the fund is a part owner of all the funds assets, thus enabling
him to hold a diversified investment portfolio even with a small amount of
investment that would otherwise require big capital.
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MUTUAL FUND
2. Professional Management:
Even if an investor has a big amount of capital available to him, he benefits
from the professional management skills brought in by the fund in the
management of the investors portfolio. The investment management skills,
along with the needed research into available investment options, ensure a much
better return than what an investor can manage on his own. Few investors have
the skill and resources of their own to succeed in todays fast moving, global and
sophisticated markets.
3. Reduction/Diversification of Risk:
When an investor invests directly, all the risk of potential loss is his own,
whether he places a deposit with a company or a bank, or he buys a share or
debenture on his own or in any other from. While investing in the pool of funds
with investors, the potential losses are also shared with other investors. The risk
reduction is one of the most important benefits of a collective investment vehicle
like the mutual funds.
4. Reduction of Transaction Costs:
What is true of risk as also true of the transaction costs? The investor bears all
the costs of investing such as brokerage or custody of securities. When going
through a fund, he has the benefit of economies of scale; the funds pay lesser
costs because of larger volumes, a benefit passed on to its investors.
5. Liquidity:
Often, investors hold shares or bonds they cannot directly, easily and quickly
sell. When they invest in the units of a fund, they can generally cash their
investments any time, by selling their units to the fund if open-ended, or selling
7

MUTUAL FUND
them in the market if the fund is close-end. Liquidity of investment is clearly a big
benefit.
6. Convenience and Flexibility:
Mutual fund management companies offer many investor services that a
direct market investor cannot get. Investors can easily transfer their holding from
one scheme to the other; get updated market information and so on.
7. Tax Benefits:
Any income distributed after March 31, 2002 will be subject to tax in the
assessment of all Unit holders. However, as a measure of concession to Unit
holders of open-ended equity-oriented funds, income distributions for the year
ending March 31, 2003, will be taxed at a concessional rate of 10.5%.
In case of Individuals and Hindu Undivided Families a deduction up to Rs.
9,000 from the Total Income will be admissible in respect of income from
investments specified in Section 80L, including income from Units of the Mutual
Fund. Units of the schemes are not subject to Wealth-Tax and Gift-Tax.
8. Choice of Schemes:
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
9. Well Regulated:
All Mutual Funds are registered with SEBI and they function within the
provisions of strict regulations designed to protect the interests of investors. The
operations of Mutual Funds are regularly monitored by SEBI.
10. Transparency:
You get regular information on the value of your investment in addition to
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MUTUAL FUND
disclosure on the specific investments made by your scheme, the proportion
invested in each class of assets and the fund manager's investment strategy and
outlook.

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MUTUAL FUND

1.5 DISADVANTAGES OF INVESTING THROUGH

MUTUAL FUNDS:

1. No Control over Costs:

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

The investor pays investment management fees as long as he remains with the
fund, albeit in return for the professional management and research. Fees are
10

MUTUAL FUND
payable even if the value of his investments is declining. A mutual fund investor
also pays fund distribution costs, which he would not incur in direct investing.
However, this shortcoming only means that there is a cost to obtain the mutual
fund services.
2. No Tailor-Made Portfolio:
Investors who invest on their own can build their own portfolios of shares and
bonds and other securities. Investing through fund means he delegates this
decision to the fund managers. The very-high-net-worth individuals or large
corporate investors may find this to be a constraint in achieving their objectives.
However, most mutual fund managers help investors overcome this constraint by
offering families of funds- a large number of different schemes- within their own
management company. An investor can choose from different investment plans
and constructs a portfolio to his choice.
3. Managing a Portfolio of Funds:
Availability of a large number of funds can actually mean too much choice for
the investor. He may again need advice on how to select a fund to achieve his
objectives, quite similar to the situation when he has individual shares or bonds
to select.
4. The Wisdom of Professional Management:
That's right, this is not an advantage. The average mutual fund manager is no
better at picking stocks than the average nonprofessional, but charges fees.
5. No Control:
Unlike picking your own individual stocks, a mutual fund puts you in the
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MUTUAL FUND
passenger seat of somebody else's car
6. Dilution:
Mutual funds generally have such small holdings of so many different stocks
that insanely great performance by a fund's top holdings still doesn't make much
of a difference in a mutual fund's total performance.
7. Buried Costs:
Many mutual funds specialize in burying their costs and in hiring salesmen
who do not make those costs clear to their clients.

Source:
http://wealth18.com

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MUTUAL FUND

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MUTUAL FUND

CHAPTER 2
EVOLUTION OF MUTUAL FUNDS
2.1 HISTORY OF MUTUAL FUNDS IN INDIA
The mutual fund industry in India started in 1963 with the formation of Unit
Trust of India, at the initiative of the Reserve Bank and the Government of India.
The objective then was to attract the small investors and introduce them to the
market investments. Since then, the history of mutual funds in India can be
broadly divided into four distinct phases.

HISTORY OF MUTUAL FUNDS.

PHASE
1
2
3
PHASE 4
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MUTUAL FUND
PHASE I: 1964 1987 (UNIT TRUST OF INDIA):
This phase spans from 1964 to 1987. In 1963, UTI was established by an act of
parliament and given a monopoly. Operationally, UTI was set up by Reserve Bank
of India, but was later delinked from the RBI. The first and still one of the largest
scheme, launched by UTI was Unit Scheme 1964. Over the years, US 64
attracted, and probably still has the largest number of investors in any single
investment scheme. It was also at least partially the first open end scheme in
the country.
Later in 1970s and 1980s, UTI started innovating and offering different
schemes to suit the needs of different class of investors. Unit Linked Insurance
Plan (ULIP) was launched in 1971. Six new schemes were introduced between
1981 and 1984. During 1984 87, new schemes like Childrens Gift Growth Fund
(1986) and Master share (1987) were launched. Master share could be termed as
the first diversified equity investment scheme in India. The first Indian offshore
fund, India fund, was launched in August 1986. During 1990s, UTI catered to the
demands for income-oriented schemes by launching Monthly Income Schemes, a
somewhat unusual mutual fund product offering, assured returns.
The mutual fund industry in India not only started with UTI, but still counts as
its largest player with the largest corpus of investible funds among all mutual
funds currently operating in India. Until 1980s, UTIs operations in the stock
market often determined the direction of market movements. Foreign and other
situational players have been brought in. so direct influence of UTI on the
markets may be less than before, though it remains largest player in industry. In
absolute terms, the investible funds corpus of even UTI was still relatively small
at about Rs.600 crores in 1984.

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MUTUAL FUND

1987 1988
AMOUNT

ASSETS UNDER

MOBILISATION AS %

MOBILISED

MANAGEMENT

(Rs Crores)

(Rs. Crores)

UTI

2,175.00

6,700.00

3.1%

TOTAL

2,175.00

6,700.00

3.1%

OFGROSS DOMESTIC
SAVINGS

SOURCE: AMFI WORKBOOK

PHASE II: 1987 1993 (Entry of Public Sector Funds):
1987 marked the entry of non UTI, public sector mutual funds, bringing in
competition. With the opening up of the economy, many public sector banks and
financial institution were allowed to establish mutual funds. The State Bank of
India established the first non UTI mutual fund SBI Mutual Fund in November
1987. This was followed by Canbank Mutual Fund (launched December 1987), LIC
Mutual Fund (launched in 1989) and Indian Bank Mutual Fund (launched in 1990)
followed by Bank of India Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
These mutual funds helped enlarge the investor community and the investible
funds. From 1987-1992/93, the fund industry expanded nearly seven times in
turns of assets under management.
During this period, investors were shifting away from bank deposits to mutual
funds, as they started allocating larger part of their financial assets and savings
(5.2%in 1992, 3.1%1988) to fund investments. UTI was still the largest segment
of the industry, although with nearly 20% market share ceded to the public sector
mutual funds.
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MUTUAL FUND
1992 1993
AMOUNT

ASSETS UNDER

MOBILISATION AS %

MOBILISED

MANAGEMENT

(Rs. Crores)

(Rs. Crores)

UTI

11,057.00

38,247.00

5.2%

PUBLIC

1,964.00

8,757.00

0.9%

13,021.00

47,004.00

6.1%

OFGROSS
DOMESTICSAVINGS

SECTOR
TOTAL

SOURCE: AMFI WORKBOOK

PHASE III: 1993-1996 (Emergence of Private Sector Funds)

A new era in the mutual funds industry began with the permission granted for
the entry of private sector funds in 1993, giving the Indian investors a broader
choice of fund families and increasing competition for the public sector funds.
Quite significantly, foreign fund management companies were also allowed to
operate mutual funds, most of them coming into India through their joint
ventures with Indian promoters. These private funds have brought in with them
the latest product innovations, investment management techniques and investor
servicing technology that makes the Indian mutual fund industry today a vibrant
and growing financial intermediary.
During the year1993-94, five private sector mutual funds launched their
schemes followed by six others in 1994-95. Initially the mobilization of funds by
the private mutual funds was slow. But this segment of the fund industry now has
been witnessing much greater investor confidence in them. One influencing
factor has been the development of a SEBI driven regulatory framework for
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MUTUAL FUND
mutual funds. But another important factor has been the steadily improving
performance of several funds themselves. Investors in India now clearly see the
benefits of investing through mutual funds and have started becoming selective.
The entire mutual fund industry in India, despite initial hiccups, has since
scaled new heights in terms of mobilization of funds and number of players.
Deregulation and liberalization of the Indian economy has introduced competition
and provided impetus to the growth of the industry. Finally, most investors- small
or large-have started shifting towards mutual funds as opposed to banks or direct
market investments.
More investor friendly regulatory measures have been taken both by SEBI to
protect the investor and by the government to enhance investors returns
through tax benefits. A comprehensive set of regulations for all mutual funds
operating in India has been accomplished with SEBI (Mutual Fund) regulations,
1996. These regulations set uniform standards for all funds and eventually be
applied in full to Unit Trust of India as well, even though its own UTI Act governs
UTI. Infact, UTI has been voluntarily adopting SEBI guidelines for most of its
schemes. Similarly, the 1999 Union Government Budget took a big step in
exempting all mutual fund dividends from income tax in the hands of the
investors.
The mutual fund industry in 1999 seems to mark the beginning of a new
phase in its history, a phase of significant growth in terms of assets under
management.
The size of the industry is growing rapidly, as seen by the figure of assets
under management, which have gone from over 68,000crores to nearly
87,000crores in just one year. Within the growing industry, by March 1999; UTIS
share of mobilization had decreased to 55%(from 85% in 1992-93), while the
share of the private sector stood at 37%. During April to October 1999, the sector
accounted for 59% of mobilizations. Mobilizations during this period of 7 months
in fact exceeded the same for the whole of 1998-99.it is also clear that the
enhanced share of the private sector is explained not only by the growing
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MUTUAL FUND
appetite for mutual funds, but also by the growing acceptance of the private
sector funds.
1998 1999
AMOUNT

ASSETS UNDER

MOBILISED

MANAGEMENT

(Rs. Crores)

(Rs. Crores)

MOBILISATION AS % OF
GROSS
DOMESTICSAVINGS

UTI

11,679.00

53,320.00

2.79%

PUBLIC

1,732.00

8,292.00

0.08%

7,966.00

6,860.00

1.14%

21,377.00

68,472.00

5.1%

SECTOR
PRIVATE
SECTOR
TOTAL

SOURCE: AMFI WORKBOOK

PHASE IV: SINCE FEBRUARY 2003
In February 2003, following the repeal of the unit trust of India act 1963 UTI
was bifurcated into two separate entities. One is the specified undertaking of the
unit trust of India with assets under management of rs.29, 835 crores as at the
end of January 2003, representing broadly, the assets of us 64 schemes, assured
return and certain other schemes. The specified undertaking of unit trust of India,
functioning under an administrator and under the rules framed by government of
India and does not come under the purview of the mutual fund regulations.
The second is the uti mutual fund ltd, sponsored by SBI, PNB, BOB and LIC. It is
registered with SEBI and functions under the mutual fund regulations. With the
bifurcation of the erstwhile uti which had in march 2000 more than rs.76,
000crores of assets under management and with the setting up of a uti mutual
fund, conforming to the SEBI mutual fund regulations, and with recent mergers
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MUTUAL FUND
taking place among different private sector funds, the mutual fund industry has
entered its current phase of consolidation and growth. As at the end of
September, 2004, there were 29 funds, which manage assets of rs.153108 crores
under 421 schemes as at the end of March 2007, there were 30 mutual funds,
which managed assets of rs.3, 26,388 crores under 756 schemes.
The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

SOURCE: AMFI WORKBOOK

Note:
Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified
Undertaking of the Unit Trust of India effective from February 2003. The Assets
under management of the Specified Undertaking of the Unit Trust of India has
therefore been excluded from the total assets of the industry as a whole from
February 2003 onwards.

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MUTUAL FUND

2.2 FUTURE OF MUTUAL FUND INDUSTRY IN INDIA

The Indian mutual fund industry is passing through a transformation. On one
side it has seen a number of regulatory developments while on the other the
overall economy is just recovering from the global crisis of 2008. The regulatory
changes have been made keeping in mind the best interests of the investors.
However, like all changes these changes will take time to be adapted by industry,
intermediaries and the investing public at large. The industry is looking forward
to early resolution of certain inter-regulatory issues requiring Government / Court
intervention. Market participants are waiting to see how the industry adapts to
these changes, while trying to maintain its pace of growth. Mutual funds are
restructuring their business models to provide for increased efficiencies and
investor satisfaction. The industry also faces a number of issues which are
characterized by lack of investor awareness, low penetration levels, high
dependence on corporate sector and spiraling cost of operations. The Growth rate
of the industry therefore needs to be seen from this perspective. Though, it is
commendable to note, that, Assets Under Management have managed to record
a compounded growth of 28% over 2006-2010, however, the AUM of Equity Funds
and Balanced Funds where retail investors invest have only grown by 20% in the
same period. The net sales of Equity/Balanced funds in 2009-10 have been one of
the lowest in recent years. India has vast growth potential backed by a resilient
economy, commensurate with an accelerated GDP growth rate of 7.4%, high rate
of household savings and investments. This report by PwC seeks to outline the
current state of the industry, with its growth drivers and continuing challenges. It
also seeks to draw a comparison with other global economies, the business and
regulatory trends which have been impacting this industry with a snapshot of
some of the regulatory changes anticipated around the corner.
According to report of Business maps of India, Important aspects related to the
future of mutual funds in India are

The growth rate was 100 % in 6 previous years.

The saving rate in India is 23 %.
There is a huge scope in the future for the expansion of the mutual funds
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MUTUAL FUND
industry.
A number of foreign based assets management companies are venturing into
Indian markets.
The Securities Exchange Board of India has allowed the introduction of
commodity mutual funds.
The emphasis is being given on the effective corporate governance of Mutual
Funds.
The Mutual funds in India has the scope of penetrating into the rural and
semi urban areas.
Financial planners are introduced into the market, which would provide the
people with better financial planning.
According to RNCOS research report titled Current and Future outlook of Mutual
Fund Industry, key finding are
The Indian mutual funds retail market, growing at a Compounded Annual
Growth Rate (CAGR) of about 30%, is forecasted to reach US$ 300 Billion by
2015. Income and growth schemes made up for majority of Assets under
Management (AUM) in the country.
At about 84% (as on March 31, 2008), private sector Asset Management
Companies account for majority of mutual fund sales in India.

Individual

investors make up for 96.86% of the total number of investor accounts and
contribute 36.9% of the net assets under management.
Based on KPMG report titled Indian Mutual Fund Industry The Future in a
Dynamic Environment Outlook for 2015 key results are KPMG in India is of the view that the industry AUM is likely to continue to
grow in the range of 15 to 25 percent from the period 2010 to 2015 based on
the pace of economic growth. In the event of a quick economic revival and
positive reinforcement of growth drivers identified, KPMG in India is of the
view that the Indian mutual fund industry may grow at the rate of 22 to 25
percent in the period from 2010 to 2015, resulting in AUM of INR 16,000 to
18,000 billion in 2015. In the event of a relatively slower economic revival
resulting in the identified growth drivers not reaching their full potential,
KPMG in India is of the view that the Indian mutual fund industry may grow in
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MUTUAL FUND
the range of 15 to 18 percent in the period from 2010 to 2015, resulting in
AUM of INR 15,000 to 17,000 billion in 2015.
Industry profitability may reduce further as revenues shrink and operating
costs escalate. Product innovation is expected to be limited. Market
deepening and widening is expected with the objective of increased retail
penetration

and

participation

in

mutual

funds.

The

regulatory

and

compliance framework for mutual funds is likely to get aligned with the other
frameworks across the financial services sector.

http://w
ww.nidhiconsultants.com

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MUTUAL FUND

2.3 ORGANISATIONAL STRUCTURE OF MUTUAL

FUNDS IN INDIA

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MUTUAL FUND

ttp://www.iasplus.com

Trustees are an important link in the working of any mutual fund. They are
responsible for ensuring that investors interests in a scheme are taken care of
properly. They do this by a constant monitoring of the operations of the various
schemes. In return for their services, they are paid trustee fees, which are
normally charged to the scheme.

A. Appointment of Trustees:
As per regulations, for a person to qualify as a sponsor, he must contribute
at least 40% of the net worth of the asset management company (AMC) and
possess a sound financial record over five years period prior to registration.

Who can become a trustee?

A person of ability, integrity and standing; and

Who has not been found guilty of moral turpitude; and

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MUTUAL FUND
Who has not been convicted of any economic offense or violation of
any securities laws; and
Who has furnished the particulars required under regulations?

An AMC or any of its officers or employers or employees is not eligible to

act as a trustee of any mutual fund. No person who is appointed as a trustee
of a mutual fund can be appointed as a trustee of any other mutual fund
unless such a person is an independent trustee and he/she has taken prior
approval of the mutual fund of which he is a trustee.

B. Rights and Obligations of the trustees

The trustees are accountable for the funds and property of the respective
schemes. They should hold the same in trust for the benefit of the unit holders
in accordance with SEBI regulations and provisions of the trust deed.
(1) The trustees and the asset management company should enter into an
investment management agreement.
(2) The investment management agreement should contain such clauses as
are mentioned in the Fourth Schedule and such other clauses as are
necessary for the purpose of making investments.

i.

Trustees ensure that the systems, processes and personnel are

in place
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MUTUAL FUND
ii.

Trustees watch that the AMC acts in the interest of the unit
holder

iii.

Unit holders consent

iv.

Regular monitoring

v.

Unit holders grievances

vi.

Reporting to SEBI

II.

ASSET MANAGEMENT COMPANY (AMC)

http://ww
w.canstockphoto.com

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MUTUAL FUND
The asset management company carries out the business of the mutual fund.
The AMC shall not undertake any other business activities except activities in the
nature of management and advisory services to offshore funds, pension funds,
provident funds, venture capital funds, management of insurance funds, financial
consultancy and exchange of research on commercial basis, if any of such
activities are not in conflict with the activities of the mutual fund.
The AMC is appointed by the sponsor or if so authorized by the trust deed, the
trustee, the appointment can be terminated by majority of the trustees or by 75%
of Unit holders of the scheme.
A. ELIGIBILITY CRITERIA FOR APPOINTMENT OF AMC:
The directors of an AMC should have adequate professional experience in
finance and financial services related field and not found guilty of moral turpitude
or convicted of any economic offence or violation of any securities laws. The key
persons should not been found guilty of moral turpitude or convicted of
economic offence or violation of securities laws,

have at least fifty percent

directors, who are not associate of, or associated in any manner with, the sponsor
or any of its subsidiaries or the trustees. The chairman of the asset management
company should not be a trustee of any mutual fund and the asset management
company should have a net worth of not less than rupees ten crores.
B. AMC RESPONSIBILITIES FOR THE ACT OF ITS EMPLOYEES:
The asset management company should take all reasonable steps and
exercise due diligence to ensure that the investment of funds pertaining to any
scheme is not contrary to the provisions of these regulations and the trust deed.
It should exercise due diligence and care in all its investment decisions as would
be exercised by other persons engaged in the same business. The asset
management company should be responsible for the acts of commissions or
omissions by its employees or the persons whose services have been procured by
the asset management company. It should submit to the trustees quarterly
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MUTUAL FUND
reports of each year on its activities and the compliance with these regulations.
The trustees at the request of the asset management company may terminate
the assignment of the asset management company at any time: Provided that
such termination should become effective only after the trustees have accepted
the termination of assignment and communicated their decision in writing to the
asset management company. Notwithstanding anything contained in any contract
or agreement or termination, the asset management company or its directors or
other officers should not be absolved of liability to the mutual fund for their acts
of commission or omissions, while holding such position or office.
C. ASSET MANAGEMENT FEE:
For carrying out asset management activities, AMC charges fee to the
schemes it manages, within the ceiling prescribed under regulations. Other
constituent of mutual fund.

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MUTUAL FUND
III.

SPONSORS

http://s595.photobucket.
com

Sponsor is the company, which sets up the Mutual Fund as per the provisions
laid down by the Securities and Exchange Board of India (SEBI). SEBI mainly fixes
the criteria of sponsors based on sufficient experience, net worth, and past track
record.

IV.

CUSTODIAN / DEPOSITORY

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MUTUAL FUND
http://blog.betterfinancialeducation
.com

The custodian maintains custody of the securities in which the scheme

invests. This ensures an ongoing independent record of the investments of the
scheme. The custodian also follows up on various corporate actions, such as
rights, bonus and dividends declared by investee companies. At present, when
the securities are being dematerialized, the role of the depository for such
independent record of investments is growing. No custodian in which the sponsor
or its associates hold 50 percent or more of the voting rights of the share capital
of the custodian or where 50 per cent or more of the directors of the custodian
represent the interest of the sponsor or its associates shall act as custodian for a
mutual fund constituted by the same sponsor or any of its associates or
subsidiary company.

V.

REGISTRARS

http://psicologia-introduccion.blogspot.in/

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MUTUAL FUND
An investors holding in mutual fund schemes is typically tracked by the
schemes Registrar and Transfer Agent (R & T). Some AMCS prefer to handle this
role on their own instead of appointing R & T. The Registrar or the AMC as the
case may be maintains an account of the investors investments and
disinvestments from the schemes. Requests to invest more money into a scheme
or to redeem money against existing investments in a scheme are processed by
the R & T.

VI.

DISTRIBUTORS

http://www.eyed
etec.com

Distributors earn a commission for bringing investors into the schemes of a

mutual fund. This commission is an expense for the scheme. Depending on the
financial and physical resources at their disposal, the distributors could be:
A) Tier 1 distributors who have their own or franchised network reaching out to
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MUTUAL FUND
investors all across the country; or 6
B) Tier 2 distributors who are generally regional players with some reach within
their region; or
C) Tier 3 distributors who are small and marginal players with limited reach. The
distributors earn a commission from the AMC.
VII.

BANKER:

http://www.clker.com

A Funds activities involve dealing in money on a continuous basis primarily

with respect to buying and selling units, paying for investment made, receiving
the proceeds from sale of the investments and discharging its obligations towards
operating expenses. Thus the Funds banker plays an important role to determine
33

MUTUAL FUND
quality of service that the fund gives in timely delivery of remittances etc.

34

CHAPTER 3
CLASSIFCATION OF MUTUAL FUND PRODUCTS
3.1 TYPES OF MUTUAL FUNDS SCHEMES IN INDIA
Wide variety of Mutual Fund Schemes exists to cater to the needs such as
financial position, risk tolerance and return expectations etc. thus mutual funds
has Variety of flavors, Being a collection of many stocks, an investors can go for
picking a mutual fund might be easy. There are over hundreds of mutual funds
scheme to choose from. It is easier to think of mutual funds in categories,
mentioned below.

A) BY STRUCTURE

Source: http://ablamc.com

1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year.
These do not have a fixed maturity. Investors can conveniently buy and sell units
at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is
liquidity.
2. Close - Ended Schemes:
A closed-end fund has a stipulated maturity period which generally ranging from
3 to 15 years. The fund is open for subscription only during a specified period.
Investors can invest in the scheme at the time of the initial public issue and
thereafter they can buy or sell the units of the scheme on the stock exchanges
where they are listed. In order to provide an exit route to the investors, some
close-ended funds give an option of selling back the units to the Mutual Fund
through periodic repurchase at NAV related prices. SEBI Regulations stipulate that
at least one of the two exit routes is provided to the investor.
3. Interval Schemes:
Interval Schemes are that scheme, which combines the features of open-ended
and close-ended schemes. The units may be traded on the stock exchange or

may be open for sale or redemption during pre-determined intervals at NAV

related prices.
B) BY NATURE
1. EQUITY FUND:

Source: http://www.wlivenews.com

These funds invest a maximum part of their corpus into equities holdings. The
structure of the fund may vary different for different schemes and the fund
managers outlook on different stocks. The Equity Funds are sub-classified
depending upon their investment objective, as follows:
1.1 Aggressive Growth Funds
In Aggressive Growth Funds, fund managers aspire for maximum capital
appreciation and invest in less researched shares of speculative nature. Because
of these speculative investments Aggressive Growth Funds become more volatile
and thus, are prone to higher risk than other equity funds.
1.2 Growth Funds
Growth Funds also invest for capital appreciation (with time horizon of 3 to 5
years) but they are different from Aggressive Growth Funds in the sense that they
invest in companies that are expected to outperform the market in the future.

Without entirely adopting speculative strategies, Growth Funds invest in those

companies that are expected to post above average earnings in the future.
1.3 Equity Income or Dividend Yield Funds
The objective of Equity Income or Dividend Yield Equity Funds is to generate high
recurring income and steady capital appreciation for investors by investing in
those companies which issue high dividends (such as Power or Utility companies
whose share prices fluctuate comparatively lesser than other companies' share
prices). Equity Income or Dividend Yield Equity Funds are generally exposed to
the lowest risk level as compared to other equity funds.
1.4 Diversified Equity Funds
Except for a small portion of investment in liquid money market, diversified
equity funds invest mainly in equities without any concentration on a particular
sector(s). These funds are well diversified and reduce sector-specific or companyspecific risk. However, like all other funds diversified equity funds too are
exposed to equity market risk. One prominent type of diversified equity fund in
India is Equity Linked Savings Schemes (ELSS). As per the mandate, a minimum
of 90% of investments by ELSS should be in equities at all times. ELSS investors
are eligible to claim deduction from taxable income (up to Rs 1 lakh) at the time
of filing the income tax return. ELSS usually has a lock-in period and in case of
any redemption by the investor before the expiry of the lock-in period makes him
liable to pay income tax on such income(s) for which he may have received any
tax exemption(s) in the past.
1.5 Equity Index Funds
Equity Index Funds have the objective to match the performance of a specific
stock market index. The portfolio of these funds comprises of the same
companies that form the index and is constituted in the same proportion as the
index. Equity index funds that follow broad indices (like S&P CNX Nifty, Sensex)
are less risky than equity index funds that follow narrow sectoral indices (like
BSEBANKEX or CNX Bank Index etc.). Narrow indices are less diversified and
therefore, are more risky.

1.6 Value Funds

Value Funds invest in those companies that have sound fundamentals and whose
share prices are currently under-valued. The portfolio of these funds comprises of
shares that are trading at a low Price to Earnings Ratio (Market Price per Share /
Earning per Share) and a low Market to Book Value (Fundamental Value) Ratio.
Value Funds may select companies from diversified sectors and are exposed to
lower risk level as compared to growth funds or specialty funds. Value stocks are
generally from cyclical industries (such as cement, steel, sugar etc.) Which make
them volatile in the short-term? Therefore, it is advisable to invest in Value funds
with a long-term time horizon as risk in the long term, to a large extent, is
reduced.
1.7 Specialty Funds
Specialty Funds have stated criteria for investments and their portfolio
comprises of only those companies that meet their criteria. Criteria for some
specialty funds could be to invest/not to invest in particular regions/companies.
Specialty funds are concentrated and thus, are comparatively riskier than
diversified funds. There are following types of specialty funds.
1.8Sector Funds Equity funds that invest in a particular sector/industry of the market are known
as Sector Funds. The exposure of these funds is limited to a particular sector (say
Information Technology, Auto, Banking, Pharmaceuticals or Fast Moving
Consumer Goods) which is why they are more risky than equity funds that invest
in multiple sectors.
1.9 Foreign Securities Funds Foreign Securities Equity Funds have the option to invest in one or more foreign
companies. Foreign securities funds achieve international diversification and
hence they are less risky than sector funds. However, foreign securities funds are
exposed to foreign exchange rate risk and country risk.
1.10 Mid-Cap or Small-Cap Funds -

Funds that invest in companies having lower market capitalization than large
capitalization companies are called Mid-Cap or Small-Cap Funds. Market
capitalization of Mid-Cap companies is less than that of big, blue chip companies
(less than Rs. 2500 crores but more than Rs. 500 crores) and Small-Cap
companies have market capitalization of less than Rs. 500 crores. Market
Capitalization of a company can be calculated by multiplying the market price of
the company's share by the total number of its outstanding shares in the market.
The shares of Mid-Cap or Small-Cap Companies are not as liquid as of Large-Cap
Companies which gives rise to volatility in share prices of these companies and
consequently, investment gets risky.
1.11 Option Income Funds While not yet available in India, Option Income Funds write options on a large
fraction of their portfolio. Proper use of options can help to reduce volatility,
which is otherwise considered as a risky instrument. These funds invest in big,
high dividend yielding companies, and then sell options against their stock
positions, which generate stable income for investors.
Equity investments are meant for a longer time horizon, thus Equity funds rank
high on the risk-return matrix.

2. DEBT FUNDS:

Source: http://www.rediff.com

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

private companies, banks and financial institutions are some of the major issuers
of debt papers. By investing in debt instruments, these funds ensure low risk and
provide stable income to the investors. Debt funds are further classified as:
2.1 Gilt Funds:
Invest their corpus in securities issued by Government, popularly known as
Government of India debt papers. These Funds carry zero Default risk but are
associated with Interest Rate risk. These schemes are safer as they invest in
papers backed by Government.
2.2 Income Funds:
Invest a major portion into various debt instruments such as bonds, corporate
debentures and Government securities.
2.3 Monthly Income Plans (MIPs):
Invests maximum of their total corpus in debt instruments while they take
minimum exposure in equities. It gets benefit of both equity and debt market.
These scheme ranks slightly high on the risk-return matrix when compared with

other debt schemes.

2.4 Short Term Plans (STPs):
Meant for investment horizon for three to six months. These funds primarily
invest in short term papers like Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also invested in corporate
debentures.
2.5 Liquid Funds:
Also known as Money Market Schemes, These funds provides easy liquidity and
preservation of capital. These schemes invest in short-term instruments like
Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant
for short-term cash management of corporate houses and are meant for an
investment horizon of 1day to 3 months. These schemes rank low on risk-return
matrix and are considered to be the safest amongst all categories of mutual
funds.
3. BALANCED FUNDS:

Source: http://articles.economictimes.indiatimes.com

As the name suggest they, are a mix of both equity and debt funds. They invest
in both equities and fixed income securities, which are in line with pre-defined
investment objective of the scheme. These schemes aim to provide investors

with the best of both the worlds. Equity part provides growth and the debt part
provides stability in returns.
Further the mutual funds can be broadly classified on the basis of
investment parameter viz,
Each category of funds is backed by an investment philosophy, which is predefined in the objectives of the fund. The investor can align his own investment
needs with the funds objective and invest accordingly.
C) BY INVESTMENT OBJECTIVE:
1. GROWTH SCHEMES:
Growth Schemes are also known as equity schemes. The aim of these schemes is
to provide capital appreciation over medium to long term. These schemes
normally invest a major part of their fund in equities and are willing to bear shortterm decline in value for possible future appreciation.
2.

INCOME SCHEMES:
Income Schemes are also known as debt schemes. The aim of these schemes is
to provide regular and steady income to investors. These schemes generally
invest in fixed income securities such as bonds and corporate debentures. Capital
appreciation in such schemes may be limited.

3.

BALANCED SCHEMES:
Balanced Schemes aim to provide both growth and income by periodically
distributing a part of the income and capital gains they earn. These schemes
invest in both shares and fixed income securities, in the proportion indicated in
their offer documents (normally 50:50).

4.

MONEY MARKET SCHEMES:

Money Market Schemes aim to provide easy liquidity, preservation of capital and
moderate

income.

These

schemes

generally

invest

in

safer,

short-term

instruments, such as treasury bills, certificates of deposit, commercial paper and

inter-bank call money.
5.

LOAD FUNDS:
A Load Fund is one that charges a commission for entry or exit. That is, each time

you buy or sell units in the fund, a commission will be payable. Typically entry
and exit loads range from 1% to 2%. It could be worth paying the load, if the fund
has a good performance history.
6.

NO-LOAD FUNDS:
A No-Load Fund is one that does not charge a commission for entry or exit. That
is, no commission is payable on purchase or sale of units in the fund. The
advantage of a no load fund is that the entire corpus is put to work.

OTHER SCHEMES
1.

TAX SAVING SCHEMES:

http://www.tra
ckmystatus.in

Tax-saving schemes offer tax rebates to the investors under tax laws prescribed
from time to time. Under Sec.88 of the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are eligible for rebate.
2. INDEX SCHEMES:
Index schemes attempt to replicate the performance of a particular index such as
the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only
those stocks that constitute the index. The percentage of each stock to the total
holding will be identical to the stocks index weightage. And hence, the returns
from such schemes would be more or less equivalent to those of the Index.
3. SECTOR SPECIFIC SCHEMES:

These are the funds/schemes which invest in the securities of only those sectors
or industries as specified in the offer documents. E.g. Pharmaceuticals, Software,
Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these
funds are dependent on the performance of the respective sectors/industries.
While these funds may give higher returns, they are more risky compared to
diversified funds. Investors need to keep a watch on the performance of those
sectors/industries and must exit at an appropriate time.
4. Commodity Funds

Source: http://www.valuewalk.com

Those funds that focus on investing in different commodities (like metals, food
grains, crude oil etc.) Or commodity companies or commodity futures contracts
are termed as Commodity Funds. A commodity fund that invests in a single
commodity or a group of commodities is a specialized commodity fund and a
commodity fund that invests in all available commodities is a diversified
commodity fund and bears less risk than a specialized commodity fund. "Precious
Metals Fund" and Gold Funds (that invest in gold, gold futures or shares of gold
mines) are common examples of commodity funds.
5. REAL ESTATE FUNDS

Source: http://urbanupdate.in

Funds that invest directly in real estate or lend to real estate developers or invest
in shares/securitized assets of housing finance companies, are known as
Specialized Real Estate Funds. The objective of these funds may be to generate
regular income for investors or capital appreciation.
6. EXCHANGE TRADED FUNDS (ETF)

Source: http://articles.economictimes.indiatimes.com

Exchange Traded Funds provide investors with combined benefits of a closed-end

and an open-end mutual fund. Exchange Traded Funds follow stock market
indices and are traded on stock exchanges like a single stock at index linked
prices. The biggest advantage offered by these funds is that they offer
diversification, flexibility of holding a single share (tradable at index linked prices)
at the same time. Recently introduced in India, these funds are quite popular
abroad.

7. FUND OF FUNDS

Source: http://www.vitt.in

Mutual funds that do not invest in financial or physical assets, but do invest in
other mutual fund schemes offered by different amcs, are known as Fund of
Funds. Fund of Funds maintain a portfolio comprising of units of other mutual
fund schemes, just like conventional mutual funds maintain a portfolio comprising
of equity/debt/money market instruments or non-financial assets. Fund of Funds
provide investors with an added advantage of diversifying into different mutual
fund schemes with even a small amount of investment, which further helps in
diversification of risks. However, the expenses of Fund of Funds are quite high on
account of compounding expenses of investments into different mutual fund
schemes.

8. Gold Exchange Traded Funds (GETFS)

Source: http://www.thirukochi.co.in

Gold Exchange Traded Funds offer investors an innovative, cost efficient and
secure way to access the gold market. Gold etfs are intended to offer investors a
means of participating in the gold bullion market by buying and selling units on
the Stock Exchanges, without taking physical delivery of gold. The first Gold ETF
in India, Benchmark GETF, opened for subscription on February 15, 2007 and
listed on the NSE on April 17, 2007.

3.2 Systematic Investment Plan (SIP)

Source: http://www.investmentyogi.com

A Systematic Investment Plan or SIP is a smart and hassle free mode for
investing money in mutual funds. SIP allows you to invest a certain predetermined amount at a regular interval (weekly, monthly, quarterly, etc.). A SIP
is a planned approach towards investments and helps you inculcate the habit of
saving and building wealth for the future.
How does it work?
A SIP is a flexible and easy investment plan. Your money is auto-debited from
your bank account and invested into a specific mutual fund scheme. You are
allocated certain number of units based on the ongoing market rate (called NAV
or net asset value) for the day. Every time you invest money, additional units of
the scheme are purchased at the market rate and added to your account. Hence,
units are bought at different rates and investors benefit from Rupee-Cost
Averaging and the Power of Compounding.

Rupee-Cost averaging

With volatile markets, most investors remain skeptical about the best time to
invest and try to 'time' their entry into the market. Rupee-cost averaging allows
you to opt out of the guessing game. Since you are a regular investor, your
money fetches more units when the price is low and lesser when the price is high.
During volatile period, it may allow you to achieve a lower average cost per unit.

Power of Compounding
Albert Einstein once said, "Compound interest is the eighth wonder of the world.
He, who understands it, earns it He who doesn't... Pays it." The rule for
compounding is simple - the sooner you start investing, the more time your
money has to grow.
Example
if you started investing Rs. 10000 a month on your 40 th birthday, in 20 years
time you would have put aside Rs. 24 lakh. If that investment grew by an average
of 7% a year, it would be worth Rs. 52.4 lakh when you reach 60.
However, if you started investing 10 years earlier, your Rs. 10000 each month
would add up to Rs. 36 lakh over 30 years. Assuming the same average annual
growth of 7%, you would have Rs. 1.22 Cr on your 60 th birthday - more than
double the amount you would have received if you had started ten years later!
Other Benefits of Systematic Investment Plans

Disciplined Saving - Discipline is the key to successful investments. When

you invest through SIP, you commit yourself to save regularly. Every investment

is a step towards attaining your financial objectives.

Flexibility - While it is advisable to continue SIP investments with a longterm perspective, there is no compulsion. Investors can discontinue the plan at

any time. One can also increase/ decrease the amount being invested.
Long-Term Gains - Due to rupee-cost averaging and the power of
compounding sips have the potential to deliver attractive returns over a long

investment horizon.

Convenience - SIP is a hassle-free mode of investment. You can issue a

standing instruction to your bank to facilitate auto-debits from your bank
account.
Sips have proved to be an ideal mode of investment for retail investors who do
not have the resources to pursue active investments.

3.3 SYSTEMATIC WITHDRAWAL PLAN (SWP)

Source: http://myinvestmentideas.com

In essence, SWP is the reverse of SIP. Where in SIP you look at accumulating a
corpus by making regular investments into a fund, in SWP you regularly withdraw
a fixed amount of money from a fund. The amount to be withdrawn and the
frequency are fixed by the investor. So you can have a monthly, quarterly or
annual frequency for any fixed amount that you wish to receive. Mr. Gupta would
be very happy to receive a fixed amount in his account every month, when he
retires. Anchal is currently on a sabbatical to bring up her baby. She would be
thrilled to put her savings to use for generating a small regular income flow for
herself. SWP can help Mr. Gupta and Anchal plan their cash flows. This is one of
the many methods available for generating a regular income from your savings.
Let us look at some examples of how this strategy will work. Say Mr.Gupta has
Rs.10 lakh which he wants to use for generating income through SWP. Lets look
scenarios with investments in three different type of funds.
Amount Invested: Rs 10 lakh
Systematic withdrawal amount: Rs 10000 per month

Date of SWP: 2nd of every month

Start of SWP: 02 Feb 2010
End of SWP: 20 Feb 2013
Total amount withdrawn: Rs 240000
For simplicity we have taken three funds from the same fund house and not
considered taxation in these calculations. Balance in Folio as on 4 Feb 2013:
HDFC Top 200 Fund (G): Rs 9.07 lakh
HDFC MIP LTP (G): Rs 8.71 lakh
HDFC Income Fund (G): Rs 8.39 lakh
(Source: Calculators mutualfundsindia.com)

BENEFITS:
1. Regularity:
With an SWP, you are assured of getting a fixed amount at your pre-determined
frequency. The problem with other options like a monthly income plans, which
pay dividends, is that the amount and the frequency of the payouts is not fixed.
Sometimes, if there is no appreciation which can be distributed, you might have
no dividends to be paid. Hence every month you will have different amounts
coming in and some month there might be no money received.
2. Taxation:
SWP is better from the taxation point of view too. In debt funds dividends are
paid after deduction of dividend distribution tax (DDT) of 13.5%. So that will be
your tax in case you depend on dividend income from your debt mutual funds. In
case of SWP, you will pay a short term capital gain (STCG) or a long term capital
gains tax (LTCG). Though STCG may be more expensive as it is on the income
slab of the investor, LTCG will be beneficial as it is a fixed rate of 10% or 20% with
indexation. Things get better in case of SWP from equity funds. As the long term

capital gains from equity mutual funds are exempt in case of holding beyond a
year, you end up paying no tax on the withdrawals.
3. Inflation Protection:
Most of the fixed income instruments do not offer inflation beating returns. So,
though the principal may be secure, the income might fall short of needs in
future. Here again SWP scores in terms of generating returns to keep up with
inflation especially if you opt for an equity fund. The only drawback in the SWP is
that it will at some point eat into your capital. But judicious mix of investment
instruments will ensure that your primary goal of income generation will be met
without you running out of money in times of need. So the conclusion is that SWP
is a noteworthy strategy to use for generation of regular income in various
scenarios.

3.4 SYSTEMATIC TRANSFER PLAN (STP)

Source:
http://www.fundsindia.com

STP is a variant of SIP. STP is essentially transferring investment from one asset
or asset type into another asset or asset type. The transfer happens gradually
over a period.

STP and its importance

Systematic Transfer Plan is of two types; fixed STP, and capital appreciation STP.
A fixed STP is where investors take out a fixed sum from one investment to
another. A capital appreciation STP is where investors take the profit part out of
one investment and invest in the other.
Example of STP
Suppose you have invested 5 lakh in debt funds because you thought market is
trading at close to peak. The PE ratio of the market is 25 and hence you think
that fall is imminent. Hence you invested your money in debt fund. Now assume
that your prophecy was right and the market indeed fell to a level where you can

make entry to equities. However, there are overall weak sentiments which may
push market further down. What is the best strategy in this case?
You can take out 5 lakh out of debt fund and invest in equity oriented mutual
fund. The risk is that if the market goes further down, your fund value will also
fall. This is a risky strategy. Moreover, if the weak sentiments prolong for some
time, you will lose on the opportunity cost because your money is stuck with an
investment which has gone down in value.
There is other way which can really minimize the risk. The way is called STP. In
this case, you can withdraw a fixed amount from your debt fund investment and
invest in equity oriented fund. This can go on for several months depending upon
your choice. For example, if you want to continue STP for 3 years, you can direct
your fund to do this and the fund will withdraw money automatically from your
debt fund and put into equity oriented fund every month. What this strategy
achieves is that it essentially acts as a defense against any adverse movement of
the market.

You can see that even when the market is losing value at the rate of 1% per
month, the STP plan has worked as a defense against the fall. Even after 12
successive falls, the return after 12 months is 9.56% which is quite good. Had this
been done in a lump sum amount of 5 lakh, here is the payoff. The investor has
actually lost 11.36% over the same period. This is the advantage of STP.

The fundamental idea remains the same. The only difference in capital
appreciation STP is that only the profit part of the investment is transferred in the
other asset. For example, the investor has invested 5 lakh in debt fund. In a
month, suppose the return is 1%. This means that his investment has grown by
Rs 5000. Investor will take out this money and invest in equity fund. This strategy
is good for conservative investors who want to protect their principal and take
risk with the returns.

Important points to keep in mind

STP is a possibly the second best investment strategy after SIP. It is one of the
best risk mitigation strategies of the market. Investors though should keep the
following points in mind.
First, STP is a risk mitigation strategy. It will protect you from any adverse loss to
a large extent. Investors should be clear about this. All risk mitigation strategies
cap the loss but also reduce returns when market is bullish.

Second, investors need to follow it with discipline. STP, just like SIP, benefits only
when followed properly. Breaking STP because of short term market movement or
interest rate movement will only harm your investment in long term.
Finally, you need to understand the assets and the stages they are in. For
example, it would be unwise to transfer money from debt to equity when the

market is closer to peak value. Similarly, it would be counter-productive to

transfer money from equity to debt when the market is close to bottom.

http://typicalpinaylikes.blogspot.in/

CHAPTER 4
INVESTEMNT PROCEDURE IN MUTUAL FUNDS
4.1 Offer document:

An offer document is issued when the amcs make New Fund Offer (NFO). Its
advisable to every investor to ask for the offer document and read it before
investing. An offer document consists of the following:
Standard Offer Document for Mutual Funds (SEBI Format)

Summary Information

Glossary of Defined Terms

Risk Disclosures

Legal and Regulatory Compliance

Expenses

Condensed Financial Information of Schemes

Constitution of the Mutual Fund

Investment Objectives and Policies

Management of the Fund

Offer Related Information.

4.2 Key Information Memorandum:

A key information memorandum, popularly known as KIM, is attached along with
the mutual fund form. And thus every investor gets to read it. Its contents are:
1

Name of the fund.

2.

Investment objective

3. Asset allocation pattern of the scheme.

4. Risk profile of the scheme
5. Plans & options
6.

Minimum application amount/ no. Of units

7. Benchmark index
8. Dividend policy
9. Name of the fund manager(s)
10. Expenses of the scheme: load structure, recurring expenses
11. Performance of the scheme (scheme return v/s. Benchmark return)
12. Year- wise return for the last 5 financial years

4.3 STEPS IN MUTUAL FUND INVESTMENT:

Steps One - Identify your investment needs.

Your

financial

goals

will

vary,

based

on

your

age,

lifestyle,

financial

independence, family commitments, level of income and expenses among many

other factors. Therefore, the first step is to assess your needs. Begin by asking
yourself these questions:
1. What are my investment objectives and needs?
Probable Answers: I need regular income or need to buy a home or finance a
wedding or educate my children or a combination of all these needs.
2. How much risk am I willing to take?
Probable Answers: I can only take a minimum amount of risk or I am willing to
accept the fact that my investment value may fluctuate or that there may be a
short term loss in order to achieve a long term potential gain.

3. What are my cash flow requirements?

Probable Answers: I need a regular cash flow or I need a lump sum amount to
meet a specific need after a certain period or I dont require a current cash flow
but I want to build my assets for the future.
By going through such an exercise, you will know what you want out of your
investment and can set the foundation for a sound Mutual Fund Investment
strategy.
Step Two - Choose the right Mutual Fund.
Once you have a clear strategy in mind, you now have to choose which Mutual
Fund and scheme you want to invest in. The offer document of the scheme tells
you its objectives and provides supplementary details like the track record of
other schemes managed by the same Fund Manager. Some factors to evaluate
before choosing a particular Mutual Fund are:

The track record of performance over the last few years in relation to the
appropriate yardstick and similar funds in the same category .

How well the Mutual Fund is organized to provide efficient, prompt and
personalized service.

Degree of transparency as reflected in frequency and quality of their

communications.

Step Three - Select the ideal mix of Schemes.

Investing in just one Mutual Fund scheme may not meet all your investment
needs. You may consider investing in a combination of schemes to achieve your
specific goals.
The following charts could prove useful in selecting a combination of schemes
that satisfy your needs.

63

64

65

Step four - Invest regularly

For most of us, the approach that works best is to invest a fixed amount at specific
intervals, say every month. By investing a fixed sum each month, you get fewer units
when the price is high and more units when the price is low, thus Bringing down your
average cost per unit. This is called rupee cost averaging and is a disciplined
investment strategy followed by investors all over the world. With many open-ended
schemes offering systematic investment plans, this regular investing habit is made
easy for you.
Step Five - Keep your taxes in mind
As per the current tax laws, Dividend/Income Distribution made by mutual funds is
exempt from Income Tax in the hands of investor. However, in case of debt schemes
Dividend/Income Distribution is subject to Dividend Distribution Tax. Further, there are
other benefits available for investment in Mutual Funds under the provisions of the
prevailing tax laws. You may therefore consult your tax advisor or Chartered
Accountant for specific advice to achieve maximum tax efficiency by investing in
mutual funds.
Step six - Start early
It is desirable to start investing early and stick to a regular investment plan. If you
start now, you will make more than if you wait and invest later. The power of
compounding lets you earn income on income and your money multiplies at a
compounded rate of return.
Step Seven - The final step
All you need to do now is to get in touch with a Mutual Fund or your advisor and start
investing. Reap the rewards in the years to come. Mutual Funds are suitable for every
kind of investor whether starting a career or retiring, conservative or risk taking,
growth oriented or income seeking.

66

4.4 CRITERIA FOR SELECTING MUTUAL FUND:

http://www.thewealthwisher.com

67

CRITERIA FOR SELECTING OF

MUTUAL FUND
10. DIVIDEND OR
GROWTH

9. NAV IS MEANINGLESS

1. FINANCIAL

NUMBER

PROFILE

8. ENTRY/ EXIT

2. PAST

LOAD

PERFORMANCE

7. ANNUAL RECURRING

3. PORTFOLIO

EXPENSES

CHARACTERISTICS

6. RISK

4.IS THE AMU

PARAMETER

APPROPRIATE?
5. FUND HOUSE/FUND
MANAGER

1. Financial profile
Mutual funds offer a whole bouquet of products such as aggressive equity
funds, index funds, gilt funds, income funds, liquid funds, gold funds, thematic
funds, etc. - the list is quite exhaustive. But beware! You dont have to buy all
these types of funds. As you would observe, all funds have a specific objective, a
specific risk profile, a specific liquidity profile and a specific time profile. Hence, it
is not possible that all funds will match your needs, risk-appetite, investment
horizon etc. Therefore, you must first decide on the types of funds that would suit
your needs. Only then should you start selecting the best funds within those
categories.
2. Past performance
68

The past performance of the fund is one of the most important criteria in fund
selection. It is true that a funds good performance in the past does not guarantee
that in future too it will do well. However, history also shows that funds with
consistently good performance - good here means in the top quartile and not
necessarily the top performer - can be expected to be among the top in their
category in future too. Similarly, a fund with poor performance will find it
extremely difficult to move to the top quartile and remain there. Therefore, dont
chase the top performers of the year. Instead, focus on funds that have delivered
good returns consistently.
3. Portfolio characteristics
Characteristics of a portfolio will also play an important role in fund selection.
For example, the percentage of top 5 or 10 holding will determine how diversified
or concentrated a particular fund is. If about more than 60-70% of the corpus is
invested in just 5 shares or bonds, the portfolio would be comparatively riskier
than a fund with just 20-30% corpus in 5 scripts. Typically, an aggressive equity
fund would have higher turnover ratio. Comparatively speaking this is perfectly
fine. But an index fund with a higher turnover ratio vis-vis its peers could be a
cause for concern.
4. Is the AUM appropriate?
There is, of course, no mathematical rule that would suggest the best size for a
given mutual fund. In other words, there is no guarantee that if a funds assets
under management (AUM) are less (or more) than a specific level, only then will it
perform well. Having said that, Aum could be an important factor in the funds
overall performance! In all probability, a very small fund will not be able to
diversify itself reasonable well. It will also find it difficult to make the best of the
investment opportunities available. As such, the performance could be very erratic,
69

one year they would be the best performers and the next the worst. It would be
preferable to avoid them. A fund too large could also be an issue. Since a fund
cannot invest more than 10% of its corpus in one company, a very large fund
would invariably have too many companies in its portfolio. This could affect its
overall performance.
5. The fund house/fund manager
Investment is both a science and an art. Good research teams i.e. the science
part of investing, are necessary in identifying the opportunities available in the
market. However, if you give the same set of scrips to two different people, they
could deliver vastly different returns. This means that apart from knowing what the
good stocks are, you need something more. This something more is the art of
investing. When to buy/sell/hold; how a fund manager reacts to market volatilities;
how s/he responds to the pressure of performance; and such other psychological
aspects have a very important role to play. As such, you have to consider the fund
managers past performance before investing. That apart you should also evaluate
the particular fund house - how many funds does it offer, how many of these are
good performers, how much Aum does it manage, what are the service standards,
etc.
6. Risk parameters
Two funds may deliver the same returns. But the better of the two would be the
one that does so: -

by taking lesser risk (i.e. It has a higher sharp ratio) -

consistently (i.e. It has lower standard deviation) -

more

with less volatility than the

market (i.e. It has a lower beta) therefore, after you have short-listed the funds
based on the performance, portfolio, fund house etc., check the risk parameters
and opt for those that tend to deliver good returns despite taking lesser risks.
7. Annual recurring expenses
70

The expenses that will eat into your returns in an mf would typically include
management fees, custodial fees, marketing & selling expenses, trustee fees, audit
fees etc. But before you get worried, you will be glad to know that the association
of mutual funds in India (amfi) and sebi have simplified the issue of expenses. They
have specified the maximum limit that a fund can charge as overall expenses by
whatever name it may be called. For example, the maximum expense ratio for an
equity fund is fixed at 2.50%, for debt funds at 2.25%, for index funds at 1.5%, for
fund of funds at 0.75%, etc. It goes without saying that lower the expenses the
better it is. But beware! Dont give too much weightage to the expenses. Other
parameters, discussed above, are far more important than expenses that anyway
are quite reasonable.
8. Entry / Exit Loads:
As per the recent regulation, sebi has mandated that with effect from august 1,
2009 there will be no entry loads for all mutual fund schemes. Exit load: this is the
load payable when you sell of your mf units. The exit load is generally payable only
if you fail to satisfy certain pre-specified conditions. Therefore, in most cases you
may not find a compulsory exit load, but what is termed as contingent deferred
sales charge (cdsc) and payable:

if you sell a debt fund before 6 months or some such period

If you sell equity fund before 1 year or some such period a lower load is better.
However, since the load is nominal, sometimes even paying higher loads may be
alright if the funds performance and other factors are very good.
9. NAV Is A Meaningless Number
The NAV of the fund has no impact on the returns it will deliver in the future.
Lets assume you plan to invest in an index fund and you have two choices - fund a
is a new fund with an NAV of RS. 10, which will mimic the nifty and a fund b, which
71

is an existing nifty index fund with an NAV of RS. 200. Suppose you invest RS.
10,000 in fund A and Rs. 10,000 in fund B. You will get 1000 units of fund a and 20
units of fund b. After 1 year, the nifty has appreciated by 25%, which means that
both funds would have also appreciated by 25%, as they are a replica of the nifty.
So after 1 year, the nav of fund a would become Rs. 12.50 and that of fund b rs.
250. But what is the value of your two investments? Fund a would now be Rs.
12,500 (1000 units * rs. 12.50/unit) and fund b also would be rs. 12,500 (20 units *
Rs. 250/unit). The bottom line is that dont bother about the nav of a mutual fund,
as you might do for the price of a share.
10. Dividend or growth?
Like nav, it is immaterial whether you choose the dividend option or growth
option as far as the performance of the fund is concerned. In fact, even though you
have different options, the underlying fund is the same. As such, the basic returns
from all the three options i.e. Growth or dividend payout or dividend reinvestment
will be the same. However, the final returns in your hand could be different due to
taxation. Tax rates are different, depending on whether you get this return in the
form of dividend or capital gains. Therefore, the post-tax returns in your hand may
vary depending on your tax profile. As such, you have to choose the option from
the point of view of where your tax will be minimal and not from the point of view
of the returns. To keep things simple, just remember to opt for growth option if
your investment horizon is more than 1 year and dividend option for less than 1
year (assuming you are in the highest tax bracket).

72

CHAPTER 5
RIGHTS AND DUTIES OF INVESTORS
5.1 WHO IS AN INVESTOR?

Source:
http://www.ic.or.th

Every investor, given his/her financial position and personal disposition, has a
certain inclination to take risk. The hypothesis is that by taking an incremental risk,
it would be possible for the investor to earn an incremental return. Mutual fund is a
solution for investors who lack the time, the inclination or the skills to actively
manage their investment risk in individual securities. They delegate this role to the
mutual fund, while retaining the right and the obligation to monitor their
investments in the scheme. In the absence of a mutual fund option, the money of
such passive investors would lie either in bank deposits or other safe
investment options, thus depriving them of the possibility of earning a better
return. Investing through a mutual fund would make economic sense for an
investor if his/her investment, over medium to long term, fetches a return that is
higher than what would otherwise have earned by investing directly
73

5.2 WHO CAN INVEST IN MUTUAL FUNDS?

I.
S
E
S

NR
I 'S /
O C
VBE 'S
RSEAS

O
F IN A N C IA L
O R G A N IS A T I
O N

ELI
G I
BL
E
BU
YE
R

M
F
A
'
S
Adult individuals holding singly or jointly

RE
ID
NT
:

R
ES
ID
E
NT
S

F
II
'
S

Key points:
a)

Minors can invest through parents or guardians.

b)

Maximum joint owners can be 3.

Hindu undivided family through their head, Karta.

Companies/corporate

bodies/banks/non-banking

financial

institutes

aops/bois / religious trusts/charitable trust/societies registered under societies

registration act, 1960.
Key points:
All these entities can purchase units of mf subject to permission from constituent
74

document.

Mutual funds registered under sebi.

Army / air force / navy or other paramilitary units and bodies created by such
institution besides other institutions.

II.

FIIS
Foreign institution investors registered with sebi.

III.

MFAS
Multilateral funding agencies (mfas)/ bodies corporate registered outside India with
permission of government of India / reserve bank of India.

IV.

OVERSEAS FINANCIAL ORGANISATION:

Overseas financial organization which have entered into arrangement for
investment in India.
Key points:
Mutual funds should be registered with sebi and investment arrangement should
be approved by central government.

V.

NRIS/OCBS:
NRIS /OCBS /FIIS and person of Indian origin residing abroad on a full repatriation
basis/non-repatriation basis.

5.3 RIGHTS OF INVESTORS IN RESPECT OF SERVICE

STANDARD
Investor is entitled to following rights as per regulation of SEBI:

Investors are entitled to receive dividends declared in a scheme within 30 days

75

Redemption proceeds have to be sent to investors within 10 days

If an investor fails to claim the dividend or redemption proceeds he

Has the rights to claim it up to a period of 3 years from the due date at the then
prevailing NAV.

Mutual funds have to allot units within 30 days of the IPO and also

Open the scheme for redemption, if it is an open -ended scheme

Mutual funds have to publish their half yearly results in at least one
National daily and publish their entire portfolios, at least once in 6 months. Such
disclosure should be done within 30 days from 6 monthly account closing dates
of the fund.
Trustees will have to ensure that any information having a material impact on
the unit holders investments should be made public by the mutual fund.

If 75% of the unit holders so decide, that the scheme can be wound
Up then the meeting of unit holders can be called and appointment of the AMC
of the mutual fund can be terminated
If there is any change in the fundamental attributes of the scheme, the unit
holders have to be notified through a letter.
They also have a right to repurchase at NAV without any load, before such
change is affected.

Unit holders have the right to inspect certain documents

5.4 LIMITATIONS OF INVESTOR RIGHTS

Investors cannot lodge complaints against the Trustees (with the Registrar of Public
Trusts) or the AMC with the Company Law Board (CLB). Investors cannot lodge
complaints with SEBI for noncompliance. Investors cannot be compensated if the
performance of the fund is below expectations.

5.5 DISTRIBUTION CHANNELS IN THE MUTUAL FUND

INDUSTRY:
76

The role of the distribution channels remains critical as it helps stave off
competition

by

maintaining

relationship,

providing

advisory

services

and

customizing need based solution. The success of any mutual funds depends upon
appropriate distribution channels 47. In India, amcs work with five distinct
distribution channels those are direct, banking, retail, corporate and individual
financial adviser etc. This is depicted in the Figure
Multi-Channel Distribution

Source: ICI Investment Company

Institute

77

The Direct Channels

http://www.nrsec.com/

In the direct channel, customers invest in the schemes directly through amcs. In
most cases, the company does not provide any investment advice, so these
investors have to carry out their own research and select schemes themselves. The
fund companies provide several tools to investors who invest through this channel.
This

includes

monthly

account

statement,

processing

of

transaction,

and

maintenance of records.
In this channel most investors can invest through websites, or receive information
through telephonic services provided by the company. About 10-20% of the total
sales of an amcs come through this direct channel.

The Banking Channel

78

http://www.imgneed.com/

The large customer bases of banks, in developed countries, have played an

important role in the selling mfs. In the recent years, this channel has also opened
up in India. Banks operating in India, including Public sector, private and foreign
banks have established tie-up with various fund companies for providing
distribution of various mutual funds schemes.
The banking channel is likely to develop as the most vital Distribution channel for
fund companies as there are several reasons for the same. Customers remain
invested in banks for long periods of time and therefore banks maintain a
relationship of trust with their customers.
Customers rely on advice provided to them by bankers as they are always on the
lookout for better investment avenues. Bankers are guiding customers about
various funds. An additional advantage that banks provide is that the concerned
customer becomes a permanent contact of the banks and therefore can be
reached during launch of (new fund offer) Nfo or new schemes any time in the
future. As per the survey conducted by halder (2008), 14.7% percent of the people
were informed about various funds through their banks.

The Retail Channel

http://www.dreamstime.com

79

A customer can deal directly with a sub broker belonging to a distribution

company, instead of taking trouble of dealing with several agents. Distribution
companies sell the schemes of several fund houses simultaneously and brokerage
is paid by the amcs whose funds they sell.
The retail channel offers the benefits of specialist knowledge and established client
contact and therefore private fund houses generally prefer this channel. Some of
the major players in India in this channel are Karvey, Bajaj capital, and integrated
enterprise etc50 .the key factor for this channel to sell a companys fund is the
brokerage earned through selling mutual fund products. The banking and retail
channel generally contribute to about 50-70% of the total asset under
management (Aum)

The corporate channel

http://www.flytravelchannel.com/

The corporate channel includes a variety of institutions that invest in shares on the
companys name. These are businesses, trust, and even state and local
governments. For institutional investors, fund managers prefer to create special
funds and share classes. Corporate can either invest directly in mutual funds, or
through an intermediary such as a distribution house or a bank. Corporate have
varying degree of awareness about mutual fund products and are well versed with
the performance and composition of various funds. In order to provide information
80

to such clients, fund companies usually organize presentation for these companies
or set-up meetings with the finance manager.

Individual financial advisors (ifa) or agents

http://wallpaper222.com

Relationship plays an important role while selling mutual fund products. An agent
is an essential channel between investors and the mutual fund products. The ifa
channel is the oldest channel for distribution and was widely employed at the time
when uti monopoly was in the market. An agent is who basically acts as an
interface between the customer and the fund house. There is a unique system in
place in India, wherein several sub-brokers are working under one main broker.
The huge network of sub-brokers, thus ensure larger market penetration and
geographic coverage. As per amfi, over one-lakh agents are registered to sell
mutual funds products to various categories of investors.
These agents advise the customers on the kind of product that caters to the need
of the client.
81

5.6 RISK INVOLVED IN MUTUAL FUND:

Mutual funds investment is subject to market risks. As mutual funds investment

is made primarily in the capital market they are subject to various kinds of risks.
The following are some of the risks associated with the investment in mutual
funds.
1. Market Risk
The net asset values of mutual funds may rise and fall dramatically which may be
due to prevailing market conditions. This is known as Market risk.
2. Credit Risk
The debt servicing ability (may it be interest payments or repayment of principal)
of a company through its cash flows determines the Credit risk faced by the
company. This credit risk is measured by independent rating agencies like CRISIL
who rate companies and their paper. An AAA rating is considered the safest
whereas a D rating is considered Poor credit quality.
82

3. Inflation Risk
Inflation is the loss of purchasing power over time. Many times people make
conservative investment decisions to protect their capital but end up with a sum of
money that can buy less than what the principal could at the time of the
investment. This happens when inflation grows faster than the return on
investment.
4. Interest Rate Risk
In a free market economy interest rates are difficult if not impossible to predict.
Changes in interest rates affect the prices of bonds as well as equities. If interest
rates rises the prices of bonds fall and vice versa.
Equity might be negatively affected in a rising interest rate environment.
5. Political/ Government Policy Risk
Changes in government policy and political decision can change the investment
environment. They can create a positive environment for investment or vice versa.
Thus the growth and development of mutual funds depends to a large extent on
the policy of the government.
6. Liquidity Risk
Liquidity risk arises when it becomes difficult to sell the securities that one has
purchased. Liquidity Risk can be partly mitigated by diversification, staggering of
maturities as well as internal risk controls that lean towards purchase of liquid
securities.

83

CHAPTER 6
MEASURING RETURNS ON MUTUAL FUND AND NAV
6.1 NET ASSET VALUE (NAV):
Since each owner is a part owner of a mutual fund, it is necessary to establish the
value of his part. In other words, each share or unit that an investor holds needs to
be assigned a value. Since the units held by investor evidence the ownership of
the funds assets, the value of the total assets of the fund when divided by the
total number of units issued by the mutual fund gives us the value of one unit. This
is generally called the Net Asset Value (NAV) of one unit or one share. The value
of an investors part ownership is thus determined by the NAV of the number of
units held.
Calculation of NAV:
Let us see an example. If the value of a funds assets stands at Rs. 100 and it has
10 investors who have bought 10 units each, the total numbers of units issued are
100, and the value of one unit is Rs. 10.00 (1000/100). If a single investor in fact
owns 3 units, the value of his ownership of the fund will be Rs. 30.00(1000/100*3).
Note that the value of the funds investments will keep fluctuating with the marketprice movements, causing the Net Asset Value also to fluctuate. For example, if the
value of our funds asset increased from Rs. 1000 to 1200, the value of our
investors holding of 3 units will now be (1200/100*3) Rs. 36. The investment value
can go up or down, depending on the markets value of the funds assets.

6.2 Costs associated:

Expenses:
AMCs charge an annual fee, or expense ratio that covers administrative
expenses, salaries, advertising expenses, brokerage fee, etc. A 1.5% expense ratio
means the AMC charges Rs1.50 for every Rs100 in assets under management. A
84

fund's expense ratio is typically to the size of the funds under management and
not to the returns earned. Normally, the costs of running a fund grow slower than
the growth in the fund size - so, the more assets in the fund, the lower should be
its expense ratio
Loads:
Entry Load/Front-End Load (0-2.25%) -its the commission charged at the time
of buying the fund to cover the cost of selling, processing etc.
Exit Load/Back- End Load (0.25-2.25%)-it is the commission or charged paid
when an investor exits from a mutual fund; it is imposed to discourage
withdrawals. It may reduce to zero with increase in holding period.
6.3 Measuring and evaluating mutual funds performance:
Every investor investing in the mutual funds is driven by the motto of either
wealth creation or wealth increment or both. Therefore its very necessary to
continuously evaluate the funds performance with the help of factsheets and
newsletters, websites, newspapers and professional advisors like SBI mutual fund
services. If the investors ignore the evaluation of funds performance then he can
lose hold of it any time. In this ever-changing industry, he can face any of the
following problems:
1. Variation in the funds performance due to change in its management/ objective.
2. The funds performance can slip in comparison to similar funds.
3. There may be an increase in the various costs associated with the fund.
4. Beta, a technical measure of the risk associated may also surge.
5. The funds ratings may go down in the various lists published by independent
rating agencies.
6. It can merge into another fund or could be acquired by another fund house.
85

6.4 Performance measures:

Equity funds: the performance of equity funds can be measured on the basis of:
NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized
Returns and Distributions, Computing Total Return (Per Share Income and
Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense
Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.
Debt fund: likewise the performance of debt funds can be measured on the basis
of:

Peer

Group

Comparisons,

The

Income

Ratio,

Industry

Exposures

and

Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.
Liquid funds: the performance of the highly volatile liquid funds can be measured
on the basis of: Fund Yield, besides NAV Growth, Total Return and Expense Ratio.
6.5 PORTFOLIO ANALYSIS TOOLS:
With the increasing number of mutual fund schemes, it becomes very difficult for
an investor to choose the type of funds for investment. By using some of the
portfolio analysis tools, he can become more equipped to make a well informed
choice. There are many financial tools to analyze mutual funds. Each has their
unique strengths and limitations as well. Therefore, one needs to use a
combination of these tools to make a thorough analysis of the funds.
The present market has become very volatile and buoyant, so it is getting difficult
for the investors to take right investing decision. So the easiest available option for
investors is to choose the best performing funds in terms of returns which have
yielded maximum returns.
But if we look deeply to it, we can find that the returns are important but it is also
important to look at the quality of the returns. Quality determines how much risk
a fund is taking to generate those returns. One can make a judgment on the
quality of a fund from various ratios such as standard deviation, SHARPE ratio,
86

beta, TREYNOR measure, R-squared, alpha, portfolio turnover ratio, total expense
ratio etc.
Now I have compared two funds of SBI on the basis of standard deviation, beta,
R-squared, SHARPE ratio, portfolio turnover ratio and total expense ratio. So before
going into details, lets have a look at these ratios:

Standard deviation:
In simple terms standard deviation is one of the commonly used statistical
parameter to measure risk, which determines the volatility of a fund. Deviation is
defined as any variation from a mean value (upward & downward). Since the
markets are volatile, the returns fluctuate every day. High standard deviation of a
fund implies high volatility and a low standard deviation implies low volatility.

Beta analysis:
Beta is used to measure the risk. It basically indicates the level of volatility
associated with the fund as compared to the market. In case of funds, as compared
the market. In case of funds, beta would indicate the volatility against the
benchmark index. It is used as a short term decision making tool. A beta that is
greater than 1 means that the fund is more volatile than the benchmark index,
while a beta of less than 1 means that the fund is more volatile than the
benchmark index. A fund with a beta very close to 1 means the funds
performance closely matches the index or benchmark.
The success of beta is heavily dependent on the correlation between correlation
between a fund and its benchmark. Thus, if the funds portfolio doesnt have a
relevant benchmark index then a beta would be grossly inappropriate. For example
if we are considering a banking fund, we should look at the beta against a bank
index.

R-Squared (R2):

87

R squared is the square of R (i.e.; coefficient of correlation). It describes the

level of association between the funds market volatility and market risk. The value
of R- squared ranges from 0 to 1. A high R- squared (more than 0.80) indicates that
beta can be used as a reliable measure to analyze the performance of a fund. Beta
should be ignored when the r-squared is low as it indicates that the fund
performance is affected by factors other than the markets.
For example:

R2
B

Case 1
0.65
1.2

Case 2
0.88
0.9

In the above table R2 is less than 0.80 in case1, implies that it would be wrong to
mention that the fund is aggressive on account of high beta. In case 2, the rsquared is more than 0.85 and beta value is 0.9. It means that this fund is less
aggressive than the market.

Sharpe Ratio:
Sharpe ratio is a risk to reward ratio, which helps in comparing the returns given

by a fund with the risk that the fund has taken. A fund with a higher Sharpe ratio
means that these returns have been generated taking lesser risk. In other words,
the fund is less volatile and yet generating good returns. Thus, given similar
returns, the fund with a higher Sharpe ratio offers a better avenue for investing.
The ratio is calculated as:
Sharpe ratio = (Average return- risk free rate) / standard deviation
6.6 PORTFOLIO TURNOVER RATIO:
Portfolio turnover is a measure of a fund's trading activity and is calculated by
dividing the lesser of purchases or sales (excluding securities with maturities of
less than one year) by the average monthly net assets of the fund. Turnover is
simply a measure of the percentage of portfolio value that has been transacted,
88

not an indication of the percentage of a fund's holdings that have been changed.
Portfolio turnover is the purchase and sale of securities in a fund's portfolio. A ratio
of 100%, then, means the fund has bought and sold all its positions within the last
year. Turnover is important when investing in any mutual fund, since the amount of
turnover affects the fees and costs within the mutual fund.
6.7 TOTAL EXPENSES RATIO:
A measure of the total costs associated with managing and operating an
investment fund such as a mutual fund. These costs consist primarily of
management fees and additional expenses such as trading fees, legal fees, auditor
fees and other operational expenses. The total cost of the fund is divided by
the fund's total assets to arrive at a percentage amount, which represents the TER:
Total expense ratio = (Total fund Costs/ Total fund Assets)

Performance report and portfolio analysis of magnum

equity fund and magnum multiplier plus against their
benchmark BSE100:
YTD

1M

3M

6M

1Y

3Y

5Y

Magnum
equity
fund

23.73
%

9.02%

-7.71%

15.18%

26.61%

45.07%

48.96%

Magnum
multiplier
plus

26.16
%

5.57%

11.26%

18.00%

21.44%

45.28%

59.31%

89

Benchma
rk
BSE100

17.53
%

11.74%

-2.56%

11.47%

30.71%

40.46%

44.24%

Now in the above table, we have two funds from SBI i.e.; magnum equity fund
and magnum multiplier plus following the same benchmark i.e.; BSE 100. In this
case, we have compared their returns during various time periods. We have their
returns YTD, during last 1 month, 3month, 6 months, 1 year, 3 year and 5 year. If
we look at a long term perspective, then magnum multiplier plus totally
outperformed both magnum equity fund as well as BSE 100. In case of 5 year
returns, neither the benchmark nor the magnum equity fund stands anywhere near
multiplier plus. It is greater than equity fund by 10.35% and from benchmark by
15.07%. But in case of 3 year returns, surely multiplier plus gave the maximum
return but it fell sharply in comparison to its 5 yr. return. A 45.28% return scored
over equity fund just by a margin of 0.21% and benchmark by a mere 4.28%. Now
moving down to 1 yr. return, we can clearly see that BSE 100 emerges as a true
winner. The benchmark gave a return of 30.71% but both the funds failed to match
it even.
But the ultimate surprise comes when we look at the data of last 6 months.
Here not only the fund managers failed to beat or match the market. Rather they
also performed as laggards, giving negative returns. When the BSE 100 gave
returns of 11.47%, these funds were trailing by 29.47% and 26.65% which is a
huge figure. In the last 3 months too, both the funds were behind bse100 but all
the three gave negative returns and the difference between them and benchmark
was narrowed down. Again, during last 1 month return of all three got positive but
the funds always remained behind the benchmark. The bse 100 outscored
multiplier plus and equity fund by 6.17% and 2.72% respectively. Similarly, the YTD
return of all 3 is negative even then the benchmark is at a better position than the
funds.
90

From the following analysis we can infer that in spite of all the steps taken; it is
not always possible for the fund managers to always beat the market. Also, the
past performance just tells the background and history of the fund, by looking at it
we cannot interpret that the fund will perform in the same way in the future too.

91

The data can be presented in the form of a graph as follow:

80.00%
60.00%
40.00%
magnum equity
20.00%

magnum multiplier
bse 100

0.00%
-20.00%
-40.00%

Quantitative data:

Ratios

Magnum equity fund

Magnum multiplier plus

Standard deviation

26.00%

26.90%

Beta

0.96%

0.95%
0.84%

r-squared
Sharpe ratio

1.46%

1.42%

Portfolio turnover

31%

25%

Total expense ratio

2.5%

2.5%

6.8 CONCEPT OF BENCHMARKING FOR PERFORMANCE EVALUATION:

Every fund sets its benchmark according to its investment objective. The funds
performance is measured in comparison with the benchmark. If the fund
generates a greater return than the benchmark then it is said that the fund has
outperformed benchmark , if it is equal to benchmark then the correlation
92

between them is exactly 1. And if in case the return is lower than the benchmark
then the fund is said to be underperformed.
Some of the benchmarks are:
1. Equity funds: market indices such as S&P CNX nifty, BSE100, BSE200, BSE-PSU,
BSE 500 index, BSE bankex, and other sectoral indices.
2. Debt funds: Interest Rates on Alternative Investments as Benchmarks, I-Bex
Total Return Index JPM T-bill Index Post-Tax Returns on Bank Deposits versus Debt
Funds.
3.

Liquid funds: Short Term Government Instruments Interest Rates as

Benchmarks, JPM T- Bill Index

To measure the funds performance, the comparisons are usually done
with:
i) With a market index.
ii) Funds from the same peer group.
iii) Other similar products in which investors invest their funds.
Analysis:
We can see that the standard deviation of both the funds are more or less same
even then the S.D of multiplier plus is greater than that of equity fund by
0.90%. Generally higher the SD higher is the risk and vice-versa. Therefore,
magnum multiplier plus is riskier than magnum equity fund.
The beta of magnum equity fund is higher than that of magnum multiplier plus.
Therefore, equity fund is more volatile than multiplier plus. But beta of both the
funds is smaller than 1 that means both the funds are less volatile than the
market index. As r- squared values are more than 0.80 in both the cases, we can
rely on the usage of beta for the analysis of these funds.

93

look

at

the

Sharpe

ratio

indicates

that

magnum

equity

has

outperformed multiplier plus. A higher Sharpe ratio of equity fund depicts that
these return have been generated taking lesser risk than the multiplier plus. It
is less volatile than the other.

R-squared of both the funds are greater than 0.80. It indicates that beta
can be used as a reliable measure to analyze the performance of these funds.
Magnum equity funds R- squared is higher. So its beta is more reliable.

Portfolio turnover ratio of magnum equity fund is higher than multiplier

plus. It mean the manager is frequently churning the portfolio of equity fund
than of multiplier plus. It may lead to an increase in expenses but could be
ignored if could generate higher return by changing the composition of portfolio.

Total expense ratio of both the funds are same i.e.; 2.5%
The form of a chart:

94

Chart Title
35.00%

30.00%

25.00%

20.00%
Axis Title
15.00%

10.00%

5.00%

0.00%
sd

beta

r-squared

sharpe

portfolio

expenses

CHAPTER 7
ROLE OF SEBI AND AMFI IN MUTUAL FUND INDUSTRY

95

Source: http://www.1sourceohs.com

7.1 ROLE OF AMFI IN MUTUAL FUND INDUSTRY

The Association of Mutual Funds in India
(AMFI) is dedicated to developing the Indian Mutual Fund Industry on professional,
healthy and ethical lines and to enhance and maintain standards in all areas with a
view to protecting and promoting the interests of mutual funds and their unit
holders.
AMFI, the association of SEBI registered mutual funds in India of all the registered
Asset Management Companies, was incorporated on August 22, 1995, as a nonprofit organization. As of now, all the 44 Asset Management Companies that are
registered with SEBI are its members.
Objectives:

To define and maintain high professional and ethical standards in all areas
of operation of mutual fund industry.

To recommend and promote best business practices and code of conduct

to be followed by members and others engaged in the activities of mutual fund
96

and asset management including agencies connected or involved in the field of

capital markets and financial services.

To interact with the Securities and Exchange Board of India (SEBI) and to
represent to SEBI on all matters concerning the mutual fund industry.

To represent to the Government, Reserve Bank of India and other bodies

on all matters relating to the Mutual Fund Industry.

To undertake nationwide investor awareness programme so as to promote

proper understanding of the concept and working of mutual funds.

To disseminate information on Mutual Fund Industry and to undertake

studies and research directly and/or in association with other bodies.

To take regulate conduct of distributors including disciplinary actions

(cancellation of ARN) for violations of Code of Conduct.

To protect the interest of investors/unit holders.

7.2 AMFI CODE OF ETHICS:

Source:
http://reportingalliance.org

One of the objects of the Association of Mutual Funds in India (AMFI) is to promote
the investors interest by defining and maintaining high ethical and professional
standards in the mutual fund industry. In pursuance of this objective, AMFI had
constituted a Committee under the Chairmanship of Shri A. P. Pradhan with Shri S.
V. Joshi, Shri C. G. Parekh and Shri M. Laxman Kumar as members. This Committee,
97

working in close co-operation with Price WaterhouseLLP under the FIRE Project of
USAID, has drafted the Code, which has been approved and recommended by the
Board of AMFI for implementation by its members. I take opportunity to thank all of
them for their efforts. The AMFI Code of Ethics, The ACE for short, sets out the
standards of good practices to be followed by the Asset Management Companies in
their operations and in their dealings with investors, intermediaries and the public.
SEBI (Mutual Funds) Regulation 1996 requires all Asset Management Companies
and Trustees to abide by the Code of conduct as specified in the Fifth Schedule to
the Regulation. The AMFI Code has been drawn up to supplement that schedule, to
encourage standards higher than those prescribed by the Regulations for the
benefit of investors in the mutual fund industry.

7.3 ROLE OF SEBI IN MUTUAL FUND:

An index fund scheme means a mutual fund scheme that invests in securities
in the same proportion as an index of securities; A mutual fund may lend and
borrow securities in accordance with the framework relating to short selling and
securities lending and borrowing specified by the Board. A mutual fund may enter
into short selling transactions on a recognized stock exchange, subject to the
framework relating to short selling and securities lending and borrowing specified
by the Board. Provided that in case of an index 13 fund scheme, the investment
and advisory fees shall not exceed three fourths of one percent (0.75%) of the
weekly average net assets.
Every mutual fund shall buy and sell securities on the basis of deliveries and
shall in all cases of purchases, take delivery of relevant securities and in all cases
of sale, deliver the securities: Provided that a mutual fund may engage in short
selling of securities in accordance with the framework relating to short selling and
securities lending and borrowing specified by the Board: Provided further that a
mutual fund may enter into derivatives transactions in a recognized stock
exchange, subject to the framework specified by the Board.
98

Source: http://www.canstockphoto.com

99

CHAPTER 8
CASE STUDY

Franklin Templeton Investment India

VISION
To be the premier global investment management organization by offering high
quality investment solutions, providing outstanding service and attracting,
motivating and retaining talented individuals.
100

INTRODUCTION
Franklin Templeton's association with India dates back to more than a decade as
an investor. As part of the group's major thrust on investing in markets around the
world, the India office was set up in 1996 as Templeton Asset Management India
Pvt. Limited. It flagged off the mutual fund business with the launch of Templeton
India Growth Fund in September 1996, and since then the business has grown at a
steady pace.
Since starting its operations in India, Franklin Templeton has invested a
considerable amount of time, effort and resources towards investor and distributor
education, the belief being - to be successful in the long term, the fundamentals
need to be corrected, at whatever cost! This has resulted in various advertising
campaigns aimed at educating investors, participation in seminars and distributor
training programs. Franklin Templeton has played a pivotal role in steering the
industry to its current stage, and as long term players, we continue to strive to
achieve the objective of 'making mutual funds an investment of choice' for both
individual and institutional investors. In July 2002, Franklin Templeton India
acquired Pioneer ITI, another leading fund house in India to create an organization
with

rich

investment

experience

over

market

cycles,

one

of

the

most

comprehensive product portfolios, footprint across the country and an in-house

shareholder servicing function. The huge synergies that existed in the two
organizations have helped the business grow at a rapid pace, catapulting the
company to among the top two fund houses in India.

FRANKLIN TEMPLETON INVESTMENT SCHEMES

It is their belief that individuals differ in their investment needs based on
personal financial goals. So they recommend us that we should, at the very
beginning identify our own financial goals, be it planning for our children's
education or a comfortable retired life. After defining these, one needs to plan for
them in an organized manner and look at investments that help achieve these
goals. Investment experts recommend that growth investments such as equity
101

funds and stocks are a good choice for long term needs (five years or more),
income funds for medium-term needs and liquid funds for short-term requirements.

T
he investment pyramid above illustrates a variety of investment options available.
The investments at the top of the pyramid provide greater opportunity for longterm capital growth, while the investments at the bottom generally provide greater
potential for current income and preservation of capital. In addition to providing
one with the flexibility to create an investment plan based on individual financial
goals, Mutual funds also offer other benefit.

VISIT TO Franklin Templeton Mutual Fund

102

To understand and study the mutual funds concept in detail, I visited the Franklin
Templeton Asset Management Pvt.Ltd. at Bandra-Kulra complex (Head Office) on
27th August 2015. I interviewed Mr.Juzer Tambawalla (Marketing Manager) he
spared some of his valuable time to explain in brief about the mutual fund system
in their organization & he also answered to my questions.
The following are the questions asked to Mr. Juzer Tambawalla:1. Farhana (I asked): What is a Mutual Fund?
Mr. Juzer replied: A Mutual Fund is an investment tool that allows small investors
access to a well-diversified portfolio of equities, bonds and other securities. The
beauty of mutual funds is that anyone with an investible surplus of a few hundred
rupees can invest and reap returns as high as those provided by the equity
markets or have a steady and comparatively secure investment as offered by
debt instruments.
2. I asked: What does a Mutual Fund do with investor's money?
Mr. Juzer replied: Anybody with an investible surplus can invest in mutual funds. A
Mutual Fund invests the pool of money collected from the investors in a range of
securities comprising equities, debt, etc. after charging for the AMC fees.
3. I asked: What is Net Asset Value (NAV)?
Mr. Juzer replied: Net asset value (NAV) represents the market value of all assets
per unit, held by the fund. For an investor, it simply signifies the current value of
his or her investment in the fund.
4. I asked: Is there a guaranteed return on the mutual funds?
Mr. Juzer replied: No, we do not give any guarantees on the returns on any of
our funds.
5. I asked: What are the types of returns one can expect from a Mutual Fund?
103

Mr. Juzer replied: Mutual Funds give returns in two ways - Capital Appreciation or
Dividend Distribution. An increase in the value of the units of the fund is known
as capital appreciation. The profit earned by the fund is distributed among unit
holders in the form of dividends is called Dividend distribution.
6. I asked: Are mutual funds insured?
Mr. Juzer replied: No. Mutual fund units are not insured. There is no guarantee that
when you sell your shares, you will receive what you paid for them. However,
because mutual fund investments are more risky than insured investments, they
generally offer potential for higher long-term returns.
7. I asked: Why one should invest in mutual funds?
Mr. Juzer replied: Mutual funds have qualified professionals who manage the fund
for investors. Mutual funds minimize risk by creating a diversified portfolio while
providing the necessary liquidity.

8. I asked: Why should one invest in Franklin Templeton Mutual Funds?

Mr. Juzer replied: In India, Franklin Templeton Investments is one of the largest
Asset management companies with over Rs. 26,469crores of assets for over 20
lakh investor accounts. It offers 240 products worldwide and has 60 years of
experience in international investment management.
9. I asked: TAX implications for the mutual fund
Mr. Juzer replied: Tax benefit to the Fund. Templeton Mutual Fund is registered with
SEBI and as such, the entire income of the Fund is exempt from income tax under
Section 10(23D) of the Act and is entitled to receive income without any
deduction of tax at source.

104

SURVEY REPORT
THE PERCENTAGE OF PEOPLE WHO ARE AWARE ABOUT MUTUAL FUNDS.

98% OF PEOPLE ARE AWARE OF MUTUTAL FUNDS

2% OF PEOPLE ARE NOT AWARE OF MUTUAL FUNDS

AMONG THE PEOPLE AWARE, PERCENTAGE OF PEOPLE INVESTED.

105

54%ARE INTVESTED

46% ARE NOT INVESTED

PEOPLE INTERESTED IN INVESTING IN MUTUAL FUNDS

68% OF PEOPLE INTERESTED IN INVESTING

32% OF PEOPLE NOT INTERESTED IN INVESTING

PEOPLE WHO ARE INTERESTED,WHICH MUTUAL FUND DO THEY PREFER

106

70%
60%
50%
40%
30%
20%
10%
0%

PEOPLE PREFER MUTUAL FUND BECAUSE OF:-

64% PREFER
BECAUSE OF HIGH
RETURN
36% PREFER
BECAUSE OF LOW
RISK

PEOPLE PREFERING DIFFERENT MODE OF PAYEMENT

107

46% ONE TIME

INVESTMENT
54% SIP(MONTHLY
INCOME PLAN)

Analysis
From the Survey it is concluded that most of the people are aware about Mutual
Funds. Among the people who are interested in investing, are mostly keen to
invest in Franklin Mutual fund on monthly basis plan.

QUESTIONNAIRE
A study of preferences of the investors for investment in
mutual funds.
1. Personal Details:

(A). Name:-

(B). Add: -

Phone:-

(c). Age:2. Do you know what Mutual Funds are?

108

Yes

No

3. Have you invested in Mutual Funds?

Yes

No

4. Do you plan to invest in Mutual Funds in future?

Yes

No

5. Which Mutual Fund would you like to prefer for investing

Reliance Mutual Fund.

Franklin Templeton Mutual

Fund.
SBI Mutual Fund.

Other Mutual Funds.

109

6. Why would you prefer, Mutual Funds, because of ?

Higher Returns.

Low Risk.

7. What types of schemes would you prefer?

SIP (Monthly Investment Plan)

Comment

110

One Time Investment

ARTICLES ON MUTUAL FUNDS

SOURCE: TIMES

OF INDIA
111

ECONOMIC TIMES

112

Quotes of Franklin & Templeton

Franklin

A famous investor once said the key to success was simple: buy straw hats in
the winter. And thats what we try to do. We buy things when they are out of
favor, believing we will be rewarded for patience and foresight.
~ Bill Lippmann
[President

of

advisory

services

and

portfolio

manager.]

Templeton
Investors are the people who buy for fundamental values. Speculators are
those who buy in the hope of selling later to someone else at high prices.
~ Sir John Templeton
Founder and Former Chairman
[He is no longer affiliated with the Templeton
organization.]
Mutual Series
We care about what companies would be worth if they were put up for
auction and sold. And we want to buy it for 60% of that.
~ Michael Price
[Chairman of the board of Franklin Mutual Series
Fund.]

113

RECOMMENDATIONS AND SUGGESTIONS

After a thorough study and analysis of the data and information, the following
are the few recommendations and suggestions, if adopted, would definitely benefit
the financial market, which is in its booming stage, in the short run and in the long
run as well. Recommendations and suggestions are normally given when there are
some problems or difficulties lying in the market. Here in this research report my
recommendations and suggestions are totally based on the facts, reactions,
attitudes, perceptions, and many other things of the respondents which I have
received from them during my research work. The recommendation part of this
research work has three parts only, which I feel can push the mutual fund market
to a higher level.
The three parts are
1. Market Development
2. Marketing techniques
3. Marketing plans
1.

Market development:
My consumer survey has revealed the fact that the market for mutual fund is
still in its expansion stage. Hence the companies have to do a lot of things and
activities to develop the market for mutual fund in this capital city. Because the
market development is as important as STP of any marketing plan. Market
development means doing anything and everything for the growth of the mutual
fund industry. Hence in the following ways the market of mutual fund can be
developed more significantly:
Awareness:
114

Awareness of mutual fund products must be increased in this city. The

awareness can be enhanced in the following ways-- Conference or seminars on mutual funds can be conducted on regular basis.
This will no doubt increase the awareness of mutual fund in the minds of the
investors.
All the companies must join hands and work together for this.
Customer education:
As the awareness of mutual funds is still improving in this market, companies
should give focus on customer education. For this purpose again the conference
and seminars can be the best way towards educating the customers. Again free
training programme to the agents can be fruitful.
Government intermediation:
Government must also work together with the mutual fund companies in
promoting the concept of mutual fund.
Confidence building activities:
People in this city are not confident in investing their money in mutual funds.
Hence there is a need to do something which will build the confidence in the minds
of the investors. Hence the confidence building activities must be carried out the
mutual fund companies. Because most of the people think that investing in mutual
funds is a very risky affair. In the following ways the confidence can be increased in
the minds of the people.
As the common person has blind faith in all the government institutions, hence
they have to come forward and convey the message that investing in mutual
fund is not that risky.
The present performance of the mutual funds is very good indeed. And the
companies should cash in on this opportunity. The performance of the mutual
funds can be published in the local and
115

 Other newspapers and magazines, journals. This will no doubt induce the
investors towards investing in mutual funds.
Case study of the investors who have been benefited in investing in mutual
funds can be published in the newspapers, magazines and journals.
2.

Marketing techniques:
While the Mutual in India has seen dramatic improvements in quantity as well
as quality of product and service offerings over the past decade. One of the
primary reasons for this slow growth is the fact that mutual funds are a new
concept in India, which needs to be still understood by large sections of Indian
investors. In this scenario, the mutual fund companies have the onerous
responsibility of not just selling mutual fund products, but marketing them
correctly.

3.

Marketing plans:
Booklets on mutual funds can be distributed at free of cost to the common
people with the newspapers, magazines, journals. This will help in attitude
formation of the investors.
Companies must focus on tailored made mutual fund schemes rather than on
the traditional products/ schemes.
Unlike the case of insurance where there is a restriction on certain age of the
investors to invest on insurance, there is no such restriction on investing in mutual
fund. An investor of any age bracket can invest in mutual fund. Hence the strong
and efficient CRM can prove to be very fruitful.
Selling of mutual funds only through agents and the branch will not serve the
purpose. Distribution network should be increased. Here aggressive strategy must
be taken by a company in selling mutual funds. This will only be possible when the
investors are well familiar with the concept of mutual funds and its advantages and

116

 As selling of financial products requires well trained people, the companies must
provide proper training to the agents and financial planners. For this training
institute must be opened in this township.
Continuous brand building activities must be carried out by the companies. For
this purpose companies should initiate some sort of promotional activities like,
ads in newspapers, magazines, journals.
Educational institutes must start some professional courses on mutual funds
and other finance specialized courses. This will create some sort awareness
about the mutual funds.
Mutual fund companies must tie up with other financial institute like banks, post
office for reaching to the mass people. Because these financial institutes have
tremendous reach to the mass people in our country. As a result mutual fund
companies can have easy access to the common people. The companies must
go in for this kind of strategic alliance with other companies as well. Because
strategic alliance not only benefit the companies but help in developing the
market also.
Handsome incentive:
Push selling of mutual funds products must be stressed on. This push selling
must be done through agents and financial planners. Handsome incentives and
commission will no doubt motivate them to push sell the mutual funds.
Attractive schemes:
As the maximum number of investors of mutual funds in this city are
confined to the business class and upper social class category. Common people
rarely invest in mutual funds. Hence the different attractive schemes can be
launched to attract the common people towards mutual fund investment. These
schemes are for promotional purpose only. The main purpose of these schemes are
to draw retail investors towards the mutual funds investment.
The following are some of the schemes:

117

 For opening of new savings bank account, certain units of mutual funds of a
company (strategic alliance company) can be given at free of cost to the
account holder. This will no doubt make the people more familiar with the
concept of mutual funds.
On buying of one or some life insurance policies, again certain units of mutual
fund can be given at free of cost to the policy holders this will ultimate lead to
the mutual fund buying habit of the common people.
Again each car loan or other kind loan of a certain amount will get the loan
taker certain units of mutual funds absolutely free of cost.
Sponsorship of management events:
As we all know that management institutes and universities and other
educational institutes are the production houses of the business managers. In
these institutes, several kind of management activities going on throughout the
year. The companies must cash this opportunities to make them know to the
students and to the people who are associated with these institutes. Companies
can sponsor some of the management events of these institutes. This will again
lead to the communication of the products of the companies.

118

CONCLUSION
We can infer from the analysis that the concept of mutual fund is still in its
growing phase. With the growing importance of mutual fund in other areas in the
country, this place is witnessing the same rate of growth in mutual funds. Apart
from these facts the following are some other important facts which can easily be
inferred from the paper-- Huge opportunities of Mutual funds exist. In short the market in this city is a
growing market
As because many companies exist in this market, competition is cut to throat.
Mindsets of the investors are not towards mutual funds. They still think of
investing in traditional investment alternatives. Customers are not properly
educated about the mutual funds.
Few private sectors banks like ICICI, HDFC, UTI, ING VYSYA etc. sell mutual funds
through their branches only.
Specialized agents of mutual funds are rarely seen. Financial advisors are not

seen there who can educate the investors.

Posters, banners or other promotional activities are rarely seen in this market.
Mutual fund companies do not have aggressive strategies.
Insurance products are and can be the main competitors of mutual funds.
Mutual fund investors are confined to the upper-middle and upper social class in

this market. Upper-lower class and lower-upper class people are still untouched.
More than half of the respondents have wrong perception about the mutual
funds. They feel mutual funds are very risky investment alternative
Most of the respondents are satisfied with their current return from their
investment. Most of the respondents neither do nor want to take risk in
investing their money in mutual funds.

119

BIBLIOGRAPHY
BOOKS REFERRED
o Mutual fund management ATUL A. SATHE
o AMFI Mutual Fund Test Workbook.
o Financial services and management- Gordon And Natarajan
MAGAZINES

OUTLOOK MONEY

INVESTIME (VOL8)
NEWSPAPERS

ECONOMICS TIMES

TIMES OF INDIA

Pamphlets and newsletters from Franklin Templeton.

OTHERS

Literature from Stock Holding Corporation of India.

Key Information Memorandum Templeton Mutual Fund.

Fact sheet of Templeton Mutual Fund.

120

WEBLOGRAPHY
o

Web site www.templetonindia.com

Web site www.amfiindia.com

Web site www.rbi bulletin.com

Web site www.moneycontrol.com

Web site www.amfiindia.com

Web site www.onlineresearchonline.

121