53355312 Summer Internship Project on SIP Mutual Fund

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    SUMMER TRAINING REPORT ON

    SYSTEMATIC INVESTMENT PLANNING WITHSPECIAL REFRENCE TO MUTUAL FUND

    & TRAKING ERROR IN INDEX FUND

    In

    KARVY STOCK BROKING LTD. (At Aligarh)

    Submitted By

    Aditya Sharma

    Roll No.:-0910970002

    M.B.A. 3rd

    SemesterSession: 2010-2011

    In Partial Fulfillment for the Award of the DegreeMaster of Business Administration Degree program

    of Gautam Buddh Technical University

    Lucknow

    Aligarh College of Engineering & Technology

    Mathura Road, Aligarh (U.P.) 202001

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    SUMMER TRAINING REPORT ON

    SYSTEMATIC INVESTMENT PLANNINGWITH

    SPECIAL REFRENCE TO MUTUAL FUND

    & TRAKING ERROR IN INDEX FUND

    In

    KARVY STOCK BROKING LTD. (At Aligarh)

    Submitted By

    Aditya Sharma

    Roll No.:-0910970002

    M.B.A. 3rd

    Semester

    Session: 2010-2011

    In Partial Fulfillment for the Award of the Degree

    Master of Business Administration Degree program

    of Gautam Buddh Technical University

    Lucknow

    Aligarh College of Engineering & TechnologyMathura Road, Aligarh (U.P.) 202001

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 2

    ADITYA SHARMA

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    TABLE OF CONTENT

    SR.NO.

    PARTICULARS

    PG. NO.

    1 COMPANY PROFILE

    2 Company profile 2

    Objective of the study 11

    3 SYSTEMATIC INVESTMENT PLAN

    4 S.I.P. 13

    5 Advantage of S.I.P. 15

    6 MUTUL FUNDS

    7 Mutul Funds 18

    8 History 23

    9 Indian Mutul funds 28

    10 Categories of Mutul Funds 31

    11 Working of Mutul funds 35

    12 Mutul Funds Company 37

    13 SEBI Guidelines 46

    14 Structure of Indian Mutul funds 54

    15 Mutul funds Cycle 58

    16 Competitors Details 59

    17 RESEARCH METHODOLOGY

    18 Research Methodology 65

    19 Research Objective 66

    O F E N G I N E E R I N G A N D T E C H N O L O G Y

    Page 3

    A L I G A R H C O L L E G E ADITYA SHARMA

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    20 Limitation of the Study 70

    21 Research Analysis Interpretation 71

    22 Finding 79

    23

    Conclusion

    81

    24 Recommendations 82

    25 Annexure 84

    26 Glossary 88

    27 Bibliography 90

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 4

    ADITYA SHARMA

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    Declaration

    I, Aditya Sharma , student of Aligarh College of Engineering & Technology

    2009-2011 ,declare that ever part of the project report SYSTEMATIC

    INVESTMENT PLANNING WITH SPECIAL REFERENCE TO MUTUL

    FUNDS & TRCKING ERROR IN INDEX FUNDS that I have submitted

    isoriginal.

    The findings and conclusions of this report are based on my personal

    study and experience.

    Date of Project Submission

    (Aditya Sharma)

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 5

    ADITYA SHARMA

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    Acknowledgment

    I sincerely acknowledge the help received from various persons and sources in

    collection of data and information in completing this satisfactory project.

    The entire project report is titled SYSTEMATIC INVESTMENT PLANNING WITHSPECIAL REFERENCE TO MUTUL FUNDS & TRCKING ERROR IN INDEX

    FUNDS.

    The entire project report owes its credit to the chlorite guidance and

    encouragement rendered by Industry mentor Rakesh guptaI record

    my sincere thanks to him with deep gratitude.

    I also take the opportunity to acknowledge my sincere and deep sense of

    gratitude to the Industry mentor Arvind Sharmawhose perception and

    sagacity is always opened for us.

    Last but not the least I would like to thank all the faculties of theinstitute, and friends for their kind co-operation throughout the project.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 6

    ADITYA SHARMA

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    EXECUTIVE SUMMARY

    This project has been a great learning experience for me at the same time it gave

    me enough scope to implement my analytical ability and enhance my skills.

    In few years Mutual Fund has emerged as a tool for ensuring ones financial well

    being. Mutual Funds have not only contributed to the India growth story but have

    also helped families tap into the success of Indian Industry. As information and

    awareness is rising more and more people are enjoying the benefits of investing in

    mutual funds. The main reason the number of retail mutual fund investors remains

    small is that nine in ten people with incomes in India do not know that mutual funds

    exist. But once people are aware of mutual fund investment opportunities, the

    number who decide to invest in mutual funds increases to as many as one in five

    people. The trick for converting a person with no knowledge of mutual funds to a

    new Mutual Fund customer is to understand which of the potential investors are

    more likely to buy mutual funds and to use the right arguments in the sales process

    that customers will accept as important and relevant to their decision.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 7

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    COMPANY

    PROFILE

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 8

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    ADITYA SHARMA

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    Karvy Stock Broking Ltd.

    The Karvy group was formed in 1983 at Hyderabad, India. KARVY, is a premier integrated

    financial services provider, and ranked among the top five in the country in all its business

    segments, services over 16 million individual investors in various capacities, and provides

    investor services to over 300 corporates, comprising the who is who of Corporate India.

    KARVY covers the entire spectrum of financial services such as Stock broking,

    Depository Participants, Distribution of financial products like mutual funds, bonds, fixed

    deposit, Merchant Banking & Corporate Finance, Insurance Broking, Commodities

    Broking, Personal Finance Advisory Services, placement of equity, IPOs,among others.

    Karvy has a professional management team and ranks among the best in technology,

    operations, and more importantly, in research of various industrial segments.

    Karvy computer share limited is Indias largest registrar and transfer agent with a client base

    of nearly 500 blue chip corporate, managing over 2 crores accounts. Karvy stock brokers

    limited, member of national stock exchange of India and the Bombay stock exchange, rank

    among the top five stock brokers in India with over six lakh active account it ranks among the

    top five depositary participants in India, registered with NSDL and CSDL, Karvy commorade,

    member of NCDEX and MCX ranks among the top three commodities brokers in the country. A

    Karvy insurance broker is registered as a broker with IRDA and ranks among the top five

    insurance agent in the country. Registered with AMFI as a corporate agent, Karvy is also among

    top mutual fund mobilize with over Rs 5000 crores under management. Karvy realty services,

    which started in 2006, have quickly established itself as a broker, who adds value in the realty

    sector. Karvy global offer niche off to off shoring services to U.S clients.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y

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    Karvy has 575 offices in 375 locations across India and overseas at Dubai and New

    York. Over 9000 highly qualified people staff Karvy.

    Vision of Karvy:

    To achieve & sustain market leadership, Karvy shall aim for complete customer satisfaction, by

    combining its human and technological resources, to provide world class quality services. In the

    process Karvy shall strive to meet and exceed customer's satisfaction and set industry standards.

    Mission statement:

    Our mission is to be a leading and preferred service provider to our customers, and we aim

    to achieve this leadership position by building an innovative, enterprising , and technology

    driven organization which will set the highest standards of service and business ethics.

    THE KARVY CREDO

    Our Clients. Our Focus

    Clients are the reason for our being.

    Personalized service, professional care; pro-activeness are the values that help the

    organisation nurture enduring relationships with clients.

    Respect for the individual Each and every individual is an essential

    building block of the organization.

    Teamwork

    None of us is more important than all of us

    Responsible Citizenship

    A social balance sheet is as rewarding as a business one.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 10

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    As a responsible corporate citizen, Karvysduty is to foster a better environment in the

    society where we live and work. Abiding by its norms, and behaving responsibly

    towards the environment, is some of our growing initiatives towards realizing it.

    KARVY GROUP

    I. Karvy Stock Broking Limited

    Consists of five units namely stock broking servics, depository participant, advisory

    services, distribution of financial products, advisory services and private client groups.

    KARVY Stock Broking Limited is a member of: 1) National Stock Exchange (NSE) , 2)

    Bombay Stock Exchange (BSE)

    II. Karvy Comtrade Limited

    Karvy Comtrade Limited is another venture of the prestigious Karvy group. The

    company provides investment, advisory and brokerage services in Indian Commodities

    Markets. And most importantly, it offer a wide reach through our branch network of over

    225 branches located across 180 cities.

    III. Karvy Insurance Broking Limited

    lt is also a part of Karvy stock broking ltd. At Karvy Insurance Broking Limited both life

    and non-life insurance products are provided to retail individuals, high net-worth clients

    and corporates. Their wide national network, spanning the length and breadth of India,

    further supports these initiatives. Their strengths include personalized service provided

    by a dedicated team committed in giving hassle-free service to the clients.

    IV. Karvy Investor Services LimitedA L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 11

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    Karvy Investor Services Limited (KISL), a SEBI registered Merchant Banker has

    emerged as a leading Investment Banking entity in the country with over a decade of

    experience. KISL has built its reputation by capitalizing on its qualified professionals,

    who have successfully executed a large number of complex and unique transactions. Its

    clientele includesinclude leading corporates, State Governments, foreign institutional

    investors, public and private sector companies and banks, in Indian and global markets.

    V. Karvy Realty(India) Limited

    Karvy Realty (India) Limited (KRIL) is promoted by the Karvy Group, Indias largest

    financial services group. Karvy Realty (India) Limited is engaged in the business of real

    estate and property services offering:

    Buying/ selling/ renting of properties

    Identifying valuable investments opportunities in the real estate sector

    Facilitating financial support for real estate and investments in

    properties Real estate portfolio advisory services.

    VI. Karvy Financial Services Limited

    VII. Karvy Computershare(P) Limited

    Karvy Computershare Private Limited is a joint venture between

    Computershare,Australia and Karvy Consultants Limited, India in the registry

    management services industry.

    Computershare, Australia is the worlds largest and only global share registry

    providing financial market services and technology to the global securities industry.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 12

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    VIII. Karvy Global Services Limited

    Karvy Global is a leading business and knowledge process outsourcing Services

    Company offering creative business solutions to clients globally. It operates in

    banking and financial services, inurance, healthcare and pharmaceuticals, media

    , telecom and technology. It has its sales and business development office in

    New York, USA and theoffshore global delivery center in Hyderabad, India.

    IX. Karvy Data Management Services Limited

    Karvy Data Management Services is the domestic BPO arm of the Karvy Group

    and services corporates across various industry verticals and business horizons.

    KDMS is committed to provide best in class, value driven business solutions to

    its clients by way of its innovative techniques and technology framework. KDMSL

    is a fully owned subsidiary of Karvy Stock Broking Limited (KSBL), incorporated

    in April 2008 and is head quartered at Hyderabad.

    X. Karvy Consultants Limited

    The first securities registry to receive ISO 9002 certification in India. Registered

    with SEBI as Category I Registrar, is Number 1 Registrar in the Country.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 13

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    KARVY Mutual Fund Services:

    Mutual funds have servings for everybody. Whichever type of investor you are, you will surely

    get a mutual fund meeting your requirements. But investing in mutual funds is no childs play

    therefore Karvy mutual fund advisory services is there to guide in each and every step of

    investment in mutual funds so that the dream of wealth creation doesnt turns into nightmares.

    Its offerings includes: products of all the 33 major AMCs, research report about all the existing

    funds as well as NFOs, customized mutual fund portfolios designed for individual as well as

    institutional customers, it not only design the portfolios rather it offers continuous portfolio

    revision too depending on changing market outlook and evolving trends, it further gives access

    to its online consolidated portfolio statement. Thus Karvy with its various offerings makes the

    investor feel safe in this dynamic environment of the Indian financial market.

    Karvy Computershare mutual fund services offers investors services, distributor services and

    client services. It can be said that Karvy is dedicated towards providing quality service to all

    these three facets of the investment process.

    Karvy being an intermediary is well registered with the Association of Mutual Funds of India

    (AMFI). KARVY has got the registration no [ARN 0018] for mutual funds, which is mentioned on

    every form. After the procurement of forms from various AMCs, the forms are passed on to its

    various zonal and branch offices (as per their requirements) and then further processing is done

    either directly or through sub-brokers.

    Karvy operates through its sub- brokers, associates and its excellent pool of own direct employees.

    The employees are offered salary by Karvy whereas the sub- brokers and associates get certain

    commission. Karvy has 70 branches and 3 franchisees in the eastern region. All the work of mutual

    funds is regulated from Rashbehari avenue branch, an extension of the JDR branch.

    The main source of earning for KARVY is the brokerage offered by the various AMCs known as pay-

    in. The amount offered may vary from AMC to AMC. Also, the franchisees have to pay a certain

    amount every month. Now Karvy also pay a certain amount to the sub brokers and associates

    known as pay-out. The payout is decided according to the procurement done by them.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 14

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    List of Mutual Fund Clients of KARVY:

    1 Alliance Mutual Fund

    2 Birla Mutual Fund

    3 Bank of Baroda Mutual Fund

    4 Can Bank Mutual Fund

    5 Chola Mutual Fund

    6 Deutsche Mutual Fund

    7 DSP Merrill Lynch Mutual Fund

    8 Franklin Templeton Investments

    9 GIC Mutual Fund

    10 HDFC Mutual Fund

    11 HSBC Mutual Fund

    12 IL & FS Mutual Fund

    13 JM Mutual Fund

    14 Kotak Mutual Fund

    15 LIC Mutual Fund

    16 Punjab National Bank Mutual Fund

    17 Prudential ICICI Mutual Fund

    18 Principal Mutual Fund

    19 Reliance Mutual Fund

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 15

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    20 State Bank of India Mutual Fund

    21 Standard Chartered Mutual Fund

    22 Sundaram Mutual Fund

    23 SUN F&C Mutual Fund

    24 Tata Mutual Fund

    Quality policy:

    To achieve and retain leadership, Karvy shall aim for complete customer satisfaction,by combining its human and technological resources, to provide superior quality

    financial services. In the process, Karvy will strive to exceed Customer's expectations.

    Quality ObjectivesAs per the Quality Policy, Karvy will:

    Build in-house processes that will ensure transparent and harmonious

    relationships with its clients and investors to provide high quality of services.

    Establish a partner relationship with its investor service agents and

    vendors that will help in keeping up its commitments to the customers.

    Provide high quality of work life for all its employees and equip them with

    adequate knowledge & skills so as to respond to customer's needs .

    Continue to uphold the values of honesty & integrity and strive to

    establish unparalleled standards in business ethics.

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

    innovative financial products and services to meet the changing needsof investors and clients.

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

    services and constantly guide the individuals and institutions in making

    a judicious choice of same.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 16

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    Strive to keep all stake-holders (shareholders, clients, investors,

    employees, suppliers and regulatory authorities) proud and satisfied.

    Achievements

    Among the top 5 stock brokers in India (4% of NSE volumes)

    India's No. 1 Registrar & Securities Transfer Agents

    Among the top 3 Depository Participants

    Largest Network of Branches & Business Associates

    ISO 9002 certified operations by DNV

    Among top 10 Investment bankers

    Largest Distributor of Financial Products

    Adjudged as one of the top 50 IT users in India by MIS

    Asia Full Fledged IT driven operations.

    VALUES:

    Trust

    Integrity

    Dedication

    Commitment

    Transparency

    Enterprise Hard work and team play

    Learning & innovation

    Empathy and humility

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 17

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    OBJECTIVES OF THE STUDY

    A big boom has been witnessed in Mutual Fund Industry in recent

    times. A large number of new players have entered the market andtrying to gain market share in this rapidly improving market.

    1. To find out the Preferences of the investors for Asset

    Management Company.

    2. To know the Preferences for the portfolios.

    3. To know why one has invested or not invested in Mutual fund

    4. To find out the most preferred channel.

    5. To find out what should do to boost Mutual Fund Industry

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 18

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    SYSTEMATIC INVESTMENT PLANNING

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 19

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    SYSTEMATIC INVESTMENT PLANNING

    What is Systematic Investment Plan (SIP)?

    SIP is an investment option that is presently available only with mutual funds. The other

    investment option comparable to SIP is the recurring deposit schemes from Post Offices

    and Banks. Basically, under an SIP option, an investor commits to making a regular

    (monthly) investment in a particular mutual fund/deposit.

    How to invest in SIP?

    The SIP option is available with all types of funds like equity, income or gift.

    An investor can avail the SIP option by giving post-dated cheques of Rs.500 or

    Rs.1000 according to the funds policy.

    If an investor wants to put more than Rs.500 or Rs.1000 in any given month he

    will have to fill in a new form for SIP intimating the fund that he is changing his

    SIP structure. Also he will be allowed to change the SIP structure only in the

    multiples of the SIP amount.

    If an investor is investing in two different schemes of the same fund he can fill in

    a common SIP form for all the schemes. However, if the first holders in those

    schemes are different then they will have to fill different SIP forms, as the first

    holder has to sign on the form.

    The investor can get out of the fund i.e. redeem his units any time irrespective of

    whether he has completed his minimum investment in that scheme. In that case,

    his post-dated cheques will be returned back to him.

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    Lets take an example:

    An investor ARJUN wants to invest in fund A which can be an equity,

    income or gift.

    The policy of fund A for entering in an SIP is that the investor will have to

    issue 6 post-dated cheques of Rs.500/- in case of monthly option or 4

    cheques in a quarterly option. The minimum investment for all its schemes

    is Rs.5000. ARJUN issues 6 post-dated cheques of Rs.500/- each in the

    name of fund A with the first cheque being dated as on 7th

    May 2001.

    Now in the month of August 2001 ARJUN wants to change his SIP structure

    from Rs.500/- to Rs.1000/-. In this case, he will have to intimate the fund and will

    have to fill a new SIP form issuing new post-date cheques of Rs.1000/- each.

    ARJUN is investing in three different schemes of fund A. In two of the schemes

    ARJUN is the first holder and in the third scheme his wife is the first holder. In

    this case, he can fill a common SIP form where he is the first holder and where

    his wife is he first holder, e will have to fill in a new SIP form.

    In the month of September 2001, ARJUN wants to exit from the fund. He will

    just have to give a redemption request to the fund wherein is units will be

    redeemed and his remaining post-dated cheques will be returned back to him

    irrespective of whether he has completed his minimum investment in the fund.

    Investing in SIP is also known as Rupee Cost Averaging. The advantage of rupee cost

    averaging is that the Net Asset Value (NAV) is averaged out, as the investor will be entering the

    fund at different NAVs, which may be higher or lower depending on the market condition.

    Lets take the example of ARJUN wherein he has started investing in units every

    month since he issued the first cheque on 7th

    May 2001. In this example we assume

    that he does not change his SIP structure and also does not redeem the units.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 21

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    Investment in fund A of Mr. ARJUN

    Period

    Investment(Rs.) NAV(Rs. per unit) Units allocated

    7th

    May01 500.00 10.00 50

    7thJune01

    500.00

    13.00

    38.5

    7th

    July01 500.00

    10.50

    47.6

    7th

    Aug01 500.00

    9.50

    52.6

    7th

    Sep01 500.00

    8.00

    62.5

    TOTAL a=2500 b=251.2

    Actual

    average

    NAV

    (Rs.)

    =

    Rs.10.2

    per

    unit

    NAV for ARJUN= Rs.9.95 per unit (a/b)

    The above table shows clearly how rupee cost averaging works and how it was

    beneficial to ARJUN. The actual average NAV of a fund is Rs.10.2/- per unit, but the

    average NAV for ARJUN is Rs.9.95/- per unit, which is lower than the current NAV.

    An investor who is not having a lump-sum amount to invest and also does not want to

    take much risk on his investment should always select a Systematic Investment Plan

    option. This will enable him to invest regularly i.e. improve investing discipline. Also, the

    investor stands to benefit from rupee cost averaging.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 22

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    ADVANTAGES OF SIP

    Power of Compounding

    SIP helps you to start investing at an early age to meet the greater expenses ofyour life. Saving a small sum of money regularly makes money work with

    greater power of compounding with significant impact on wealth accumulation.

    Rupee Cost Averaging

    SIP minimizes the effects of investing in volatile markets. It helps you average

    out your cost by generating superior returns in the long run. It reduces the risk

    associated with lump-sum investments. Since you get more units when the NAV

    drops and fewer when it rises, the cost averages out over time. Thus the

    average cost of your investment is often reduced.

    Convenience and Regularity

    SIP gives you the convenience to pay through Axis Bank Electronic clearance service

    (ECS) or Auto Debit. You can decide the amount and the mutual fund scheme. A fixed

    amount will automatically get debited from your account on a date specified by you.

    Disciplined Approach towards Investment

    Since you invest regularly, it makes you disciplined in your savings, which leads towealth accumulation. Disciplined investing is vital to earning good returns.

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 23

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    MUTUAL FUNDS

    A L I G A R H C O L L E G E O F E N G I N E E R I N G A N D T E C H N O L O G Y Page 24

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    MUTUAL FUNDS

    A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of

    a mutual fund as a company that brings together a group of people and invests their

    money in stocks, bonds, and other securities. Each investor owns shares, which

    represent a portion of the holdings of the fund.

    Mutual fund is a trust that pools the savings of a number of investors who share a common

    financial goal. This pool of money is invested in accordance with a stated objective. The joint

    ownership of the fund is thus Mutual, i.e. the fund belongs to all investors. The money thus

    collected is then invested in capital market instruments such as shares, debentures and other

    securities. The income earned through these investments and the capital appreciations realized

    are shared by its unit holders in proportion the number of units owned by them. Thus a Mutual

    Fund is the most suitable investment for the common man as it offers an opportunity to invest in

    a diversified, professionally managed basket of securities at a relatively low cost. A Mutual Fund

    is an investment tool that allows small investors access to a well-diversified portfolio of equities,

    bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units

    are issued and can be redeemed as needed. The funds Net Asset value (NAV) is determinedeach day. Investments in securities are spread across a wide cross-section of industries and

    sectors and thus the risk is reduced. Diversification reduces the risk because all stocks may not

    move in the same direction in the same proportion at the same time. Mutual fund issues units to

    the investors in accordance with quantum of money invested by them. Investors of mutual funds

    are known as unit holders.

    You can make money from a mutual fund in three ways:

    1) Income is earned from dividends on stocks and interest on bonds. A fund pays out

    nearly all income it receives over the year to fund owners in the form of a distribution.

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    2) If the fund sells securities that have increased in price, the fund has a capital gain.

    Most funds also pass on these gains to investors in a distribution.

    3) If fund holdings increase in price but are not sold by the fund manager, the fund's

    shares increase in price. You can then sell your mutual fund shares for a profit. Funds

    will also usually give you a choice either to receive a check for distributions or to

    reinvest the earnings and get more shares.

    The competition among funds has led to the launch of newer products, tailor-made

    to suit the requirements of investors. Mutual funds now offer products for the entire range of

    needs of investors. The encouraging response to index funds and sector funds shows the

    growing maturity among investors. Open-end funds, which provide liquidity to investors at daily

    NAV related prices are growing in popularity. The funds have been adopting technology to

    provide good service to investors and with the proposed introduction of electronic funds transfer

    and the growing trend towards E-Commerce; the efficiency of service will increase even further.

    In the coming years mutual funds as saving intermediaries will play a greater role in

    bringing the gap between investors and issuers, especially in the area of equity funds.

    At present these funds represents 13% of BSE market capitalization. This is expected to

    go up with increasing flows into financial savings, especially the mutual fund with the

    growth and stability in the capital market flows into equity funds are expected to go up.

    A Mutual Fund is a trust that pools the savings of a number of investors who share a

    common financial goal. The money thus collected is then invested in capital market

    instruments such as shares, debentures and other securities. The income earned

    through these investments and the capital appreciation realized is shared by its unit

    holders in proportion to the number of units owned by them. Thus a Mutual Fund is the

    most suitable investment for the common man as it offers an opportunity to invest in a

    diversified, professionally managed basket of securities at a relatively low cost.

    Mutual funds, also referred to as investment companies, offer an alternative investment choice for

    individuals with a long-term horizon. The way they operate is that individual investor money are

    pooled and invested in many different companies. Assets are professionally managed to meet

    various investment objectives. They issue and sell shares to share holders and also redeem them

    (buy them back) upon request. Prices of shares are set daily at the close of business, based on the

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    value of all investments in the mutual funds portfolio. Their major advantages are diversification

    and professional management, which are not readily available to small investors outside the

    mutual fund arena. Money market mutual funds are short-term funds. They invest in short-term

    cash and cash equivalent instruments, such as Treasury bills, certificates of deposit, and short

    term notes. Mutual funds may own stocks and bonds of many different companies.

    A mutual fund is the ideal investment vehicle for todays complex and modern financial

    scenario. Markets for equity shares, bonds and other fixed income instruments, real estate,

    derivatives and other assets have become mature and information driven. Price changes in

    these assets are driven by global events occurring in faraway places. A typical individual is

    unlikely to have the knowledge, skills, inclination and time to keep track of events,

    understand their implications and act speedily. An individual also finds it difficult to keep

    track of ownership of his assets, investments, brokerage dues and bank transactions etc.

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    When an investor subscribes for the units of a mutual fund, he becomes part

    owner of the assets of the fund in the same proportion as his contribution amount

    put up with the corpus (the total amount of the fund). Mutual Fund investor is also

    known as a mutual fund shareholder or a unit holder.

    Any change in the value of the investments made into capital market instruments

    (such as shares, debentures etc) is reflected in the Net Asset Value (NAV) of the

    scheme. NAV is defined as the market value of the Mutual Fund scheme's assetsnet of its liabilities. NAV of a scheme is calculated by dividing the market value of

    scheme's assets by the total number of units issued to the investors.

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    HISTORY OF MUTUAL FUNDS

    In 1924 three Boston securities executives pooled their money together to create the

    first mutual fund. The idea of pooling money together for investing purposes started in

    Europe in the mid-1800s. The first pooled fund in the U.S was created in 1893 for the

    faculty and staff of Harvard University on March 21st, 1924 the first official mutual fund

    was born. It was called the Massachusetts Investors Trust.

    However in India UTI was the first to introduce mutual funds in the Indian markets and it

    commenced its operations from July 1964, Government allowed public sector banks

    and institutions to set up mutual funds.

    In the year 1992, Securities and exchange Board of India (SEBI) Act was passed. The

    objectives of SEBI areto protect the interest of investors in securities and to promote

    the development of and to regulate the securities market.

    As far as mutual funds are concerned, SEBI formulates policies and regulates the

    mutual funds to protect the interest of the investors. SEBI notified regulations for the

    mutual funds in1993. Thereafter, mutual funds sponsored by private sector entities were

    allowed to enter the capital market. The regulations were fully revised in 1996 and have

    been amended thereafter from time to time. SEBI has also issued guidelines to the

    mutual funds from time to time to protect the interests of investors.

    All mutual funds whether promoted by public sector or private sector entities including

    those promoted by foreign entities are governed by the same set of regulations. There

    is no distinction in regulatory requirements for these mutual funds and all are subject to

    monitoring and inspections by SEBI. The risks associated with the schemes launched

    by the mutual funds sponsored by these entities are of similar type. It may be mentioned

    here that Unit Trust of India (UTI) is not registered with SEBI as a mutual fund (as on

    January 15, 2002. The end of millennium marks 36 years of existence of mutual funds

    in our country. The ride through these 36 years is not been smooth. Investor opinion is

    still divided. While some are for mutual funds others are against it.

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    Mutual fund schemes:Mutual funds offer a variety of schemes to investor so as to provide steady income or growth or

    both. They differ according to the investment policies. The funds like individual investor have a

    different goal. Of the investor who will first ascertain his investment objectives, thinking that the

    units of a fund have an investment goal paralleling his objectives.

    Mutual Funds Basics:

    As you probably know, mutual funds have become extremely popular over the last 20 years.

    What was once just another obscure financial instrument is now a part of our daily lives.

    In fact, to many people, investing means buying mutual funds. After all, it's common knowledgethat investing in mutual funds is (or at least should be) better than simply letting your cash waste

    away in a savings account, but, for most people, that's where the understanding of funds ends.

    It doesn't help that mutual fund salespeople speak a strange language that, sounding sort of like

    English, is interspersed with jargon like MER, NAVPS, load/no-load, etc.

    Originally mutual funds were heralded as a way for the little guy to get a piece of the

    market. Instead of spending all your free time buried in the financial pages of the

    investment Journal, all you have to do is buy a mutual fund and you'd be set on your

    way to financial freedom. As you might have guessed, it's not that easy. Mutual funds

    are an excellent idea in theory, but, in reality, they haven't always delivered. Not all

    mutual funds are created equal, and investing in mutual funds isn't as easy as throwing

    your money at the first salesperson who solicits your business.

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    Important Characteristics of a Mutual Fund:

    A Mutual Fund actually belongs to the investors who have pooled their

    Funds. The ownership of the mutual fund is in the hands of the Investors.

    A Mutual Fund is managed by investment professional and other

    Service providers, who earns a fee for their services, from the funds.

    The pool of Funds is invested in a portfolio of marketable

    investments. The value of the portfolio is updated every day.

    The investors share in the fund is denominated by units. The value of the units

    changes with change in the portfolio value, every day. The value of one unit of

    investment is called net asset value (NAV).

    The investment portfolio of the mutual fund is created according to The

    stated Investment objectives of the Fund.

    Advantages of Mutual Funds:

    Professional Management -The primary advantage of funds (at least

    theoretically ) is the professional management of your money. Investors

    purchase funds because they do not have the time or the expertise to manage

    their own portfolio. A mutual fund is a relatively inexpensive way for a small

    investor to get a full-time manager to make and monitor investments.

    Diversification -By owning shares in a mutual fund instead of owning individual

    stocks or bonds, your risk is spread out. The idea behind diversification is to invest in

    a large number of assets so that a loss in any particular investment is minimized bygains in others. In other words, the more stocks and bonds you own, the less any

    one of them can hurt you (think about Enron). Large mutual funds typically own

    hundreds of different stocks in many different industries. It wouldn't be possible for

    an investor to build this kind of a portfolio with a small amount of money.

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    Economies of Scale - Because a mutual fund buys and sells large amounts of

    securities at a time, its transaction costs are lower than you as an individual would pay.

    Liquidity -Just like an individual stock, a mutual fund allows you to request

    that yourshares be converted into cash at any time.

    Simplicity -Buying a mutual fund is easy! Pretty well any bank has its own line ofmutual

    funds, and the minimum investment is small. Most companies also have automatic purchase

    plans whereby as little as Rs 500 can be invested on a monthly basis.

    Disadvantages of Mutual Funds:

    Professional Management - Did you notice how we qualified the

    advantage of professional management with the word "theoretically"? Many

    investors debate over whether or not the so-called professionalsare any better

    than you or I at picking stocks. Management is by no means infallible, and, even

    if the fund loses money, the manager still takes his/her cut.

    Costs -Mutual funds don't exist solely to make your life easier--all funds are in

    it for aprofit. The mutual fund industry is masterful at burying costs under layers

    of jargon. Because funds have small holdings in so many different companies,

    high returns from a few investments often don't make much difference on the

    overall return. Dilution is also the result of a successful fund getting too big.

    When money pours into funds that have had strong success, the manager often

    has trouble finding a good investment for all the new money.

    Taxes -When making decisions about your money, fund managers don't consider your

    personal tax situation. For example, when a fund manager sells a security, a capital-gain

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    tax is triggered, which affects how profitable the individual is from the sale. It might

    have been more advantageous for the individual to defer the capital gains liability.

    Risk Involved in Mutual Funds

    All investments involve some form of risk, which should be evaluated them potential

    rewards when an investment is selected.

    Market risk

    At times the prices or yields of all the securities in a particular market rise or fall due to

    broad outside influences. When this happens, the stock prices of both an outstanding,

    highly profitable company and a fledgling corporation may be affected. This change in

    price is due to market risk.

    Interest rate risk

    Sometimes referred to as loss of purchasing power.Whenever inflation

    sprints forward faster than the earnings on your investment, you run the

    risk that you will actually be able to buy less, not more. Inflation risk also

    occurs when prices rise faster than your returns.

    Credit risk

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

    invest? How certain are you that it will be able to pay the interest you are promised, or

    repay your principal when the investment matures?

    Inflation risk

    Changing interest rates affect both equities and bonds in many ways. Investors are

    reminded that predicting which way rates will go is rarely successful. A diversified

    portfolio can help in offsetting these changes.

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    An industries key asset is often the personnel who run the business i.e. intellectual

    properties of the key employees of the respective companies. Given the ever-changing

    complexion of few industries and the high obsolescence levels, availability of qualified,

    trained and motivated personnel is very critical for the success of industries in few

    sectors. It is, therefore, necessary to attract key personnel and also to retain them to

    meet the changing environment and challenges the sector offers. Failure or inability to

    attract/retain such qualified key personnel may impact the prospects of the companies

    in the particular sector in which the fund invests.

    Exchange risks

    A number of companies generate revenues in foreign currencies and may have

    investments or expenses also denominated in foreign currencies. Changes in exchange

    rates may, therefore, have a positive or negative impact on companies which in turn

    would have an effect on the investment of the fund.

    Investment risksThe sectoral fund schemes, investments will be predominantly in equities of select

    companies in the particular sectors. Accordingly, the NAV of the schemes are linked to

    the equity performance of such companies and may be more volatile than a more

    diversified portfolio of equities.

    Changes in government policyChanges in Government policy especially in regard to the tax benefits may impact the business

    prospects of the companies leading to an impact on the investments made by the fund.

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    HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

    The mutual fund industry in India started in 1963 with the formation of Unit Trust of India,

    at the initiative of the Government of India and Reserve Bank. Though the growth was

    slow, but it accelerated from the year 1987 when non-UTI players entered the Industry.

    In the past decade, Indian mutual fund industry had seen a dramatic improvement,

    both qualities wise as well as quantity wise. Before, the monopoly of the market

    had seen an ending phase; the Assets Under Management (AUM) was Rs67

    billion. The private sector entry to the fund family raised the Aum to Rs. 470 billion

    in March 1993 and till April 2004; it reached the height if Rs. 1540 billion.

    The Mutual Fund Industry is obviously growing at a tremendous space with the

    mutual fund industry can be broadly put into four phases according to the

    development of the sector. Each phase is briefly described as under.

    First Phase1964-87

    Unit Trust of India (UTI) was established on 1963 by an Act of Parliament

    by the Reserve Bank of India and functioned under the Regulatory and

    administrative control of the Reserve Bank of India. In 1978 UTI was de-

    linked from the RBI and the Industrial Development Bank of India (IDBI)

    took over the regulatory and administrative control in place of RBI. The first

    scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI

    had Rs.6,700 crores of assets under management.

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    Second Phase1987-1993 (Entry of Public Sector Funds)

    1987 marked the entry of non- UTI, public sector mutual funds set up by

    public sector banks and Life Insurance Corporation of India (LIC) and

    General Insurance Corporation of India (GIC). SBI Mutual Fund was the first

    non- UTI Mutual Fund established in June 1987 followed by Canbank

    Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian

    Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual

    Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had

    set up its mutual fund in December 1990.At the end of 1993, the mutual

    fund industry had assets under management of Rs.47,004 crores.

    Third Phase1993-2003 (Entry of Private Sector Funds)

    1993 was the year in which the first Mutual Fund Regulations came into

    being, under which all mutual funds, except UTI were to be registered and

    governed. The erstwhile Kothari Pioneer (now merged with Franklin

    Templeton) was the first private sector mutual fund registered in July 1993.

    The 1993 SEBI (Mutual Fund) Regulations were substituted by a more

    comprehensive and revised Mutual Fund Regulations in 1996. The industry now

    functions under the SEBI (Mutual Fund) Regulations 1996. As at the end of

    January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores.

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    Fourth Phasesince February 2003

    In February 2003, following the repeal of the Unit Trust of India Act 1963

    UTI was bifurcated into two separate entities. One is the Specified

    Undertaking of the Unit Trust of India with assets under management of

    Rs.29,835 crores as at the end of January 2003, representing broadly, the

    assets of US 64 scheme, assured return and certain other schemes

    The 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.

    consolidation and growth. As at the end of September, 2004, there were 29 funds,

    which manage assets of Rs.153108 crores under 421 schemes.

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    CATEGORIES OF MUTUAL FUND

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    Mutual Funds Can Be Classified As Follow :

    Based on their structure:

    Open-ended funds:Investors can buy and sell the units from the fund, at any point

    of time.

    Close-ended funds: These funds raise money from investors only once.

    Therefore,after the offer period, fresh investments cannot be made into the

    fund. If the fund is listed on a stocks exchange the units can be traded like

    stocks (E.g., Morgan Stanley Growth Fund). Recently, most of the New

    Fund Offers of close-ended funds provided liquidity window on a periodic

    basis such as monthly or weekly. Redemption of units can be made duringspecified intervals. Therefore, such funds have relatively low liquidity.

    Based on their investment objective:

    Equity funds: These funds invest in equities and equity related

    instruments. With fluctuating share prices, such funds show volatile

    performance, even losses. However, short term fluctuations in the market,

    generally smoothens out in the long term, thereby offering higher returns atrelatively lower volatility. At the same time, such funds can yield great

    capital appreciation as, historically, equities have outperformed all asset

    classes in the long term. Hence, investment in equity funds should be

    considered for a period of at least 3-5 years. It can be further classified as:

    i) Index funds- In this case a key stock market index, like BSE Sensex or

    Nifty is tracked. Their portfolio mirrors the benchmark index both in terms

    of composition and individual stock weightages.

    ii) Equity diversified funds- 100% of the capital is invested in equities spreading

    across different sectors and stocks.

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    iii|) Dividend yield funds- it is similar to the equity diversified funds

    except thatthey invest in companies offering high dividend yields.

    iv) Thematic funds- Invest 100% of the assets in sectors which are related

    through

    some theme.

    e.g. -An infrastructure fund invests in power, construction, cements sectors etc.

    v) Sector funds- Invest 100% of the capital in a specific sector. e.g. - A

    bankingsector fund will invest in banking stocks.

    vi) ELSS- Equity Linked Saving Scheme provides tax benefit to the investors.

    Balanced fund: Their investment portfolio includes both debt and equity. As aresult,

    on the risk-return ladder, they fall between equity and debt funds. Balanced funds are

    the ideal mutual funds vehicle for investors who prefer spreading their risk across

    various instruments. Following are balanced funds classes:

    i) Debt-oriented funds -Investment below 65% in equities.

    ii) Equity-oriented funds -Invest at least 65% in equities, remaining in debt.

    Debt fund: They invest only in debt instruments, and are a good option for

    investors averse to idea of taking risk associated with equities. Therefore,

    they invest exclusively in fixed-income instruments like bonds, debentures,

    Government of India securities; and money market instruments such as

    certificates of deposit (CD), commercial paper (CP) and call money. Put

    your money into any of these debt funds depending on your investment

    horizon and needs.

    i) Liquid funds- These funds invest 100% in money market instruments, a

    largeportion being invested in call money market.

    ii) Gilt funds ST- They invest 100% of their portfolio in government securities of

    and T-bills.

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    iii) Floating rate funds - Invest in short-term debt papers. Floaters invest

    in debtinstruments which have variable coupon rate.

    iv) Arbitrage fund- They generate income through arbitrage opportunities due to

    mis-pricing between cash market and derivatives market. Funds are allocated to

    equities, derivatives and money markets. Higher proportion (around 75%) is put

    in money markets, in the absence of arbitrage opportunities.

    v) Gilt funds LT- They invest 100% of their portfolio in long-term

    governmentsecurities.

    vi) Income funds LT- Typically, such funds invest a major portion of the

    portfolio in long-term debt papers.

    vii) MIPs- Monthly Income Plans have an exposure of 70%-90% to debt

    and anexposure of 10%-30% to equities.

    viii) FMPs- fixed monthly plans invest in debt papers whose maturity is in

    linewith that of the fund.

    INVESTMENT STRATEGIES

    1. Systematic Investment Plan: Under this a fixed sum is invested each

    monthon a fixed date of a month. Payment is made through post dated

    cheques or direct debit facilities. The investor gets fewer units when the

    NAV is high and more units when the NAV is low. This is called as the

    benefit of Rupee Cost Averaging (RCA).

    2. Systematic Transfer Plan: Under this an investor invest in debt oriented fundand give instructions to transfer a fixed sum, at a fixed interval, to an equity

    scheme of the same mutual fund.

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    3. Systematic Withdrawal Plan: If someone wishes to withdraw from a

    mutualfund then he can withdraw a fixed amount each month.

    Working of a Mutual fund

    The entire mutual fund industry operates in a very organized way. The investors, known

    as unit holders, handover, their savings to the AMCs under various schemes. Theobjective of the investment should match with the objective of the fund to best suit the

    investors needs. The AMCs further invest the funds into various securities according to

    the investment objective. The return generated from the investments is passed on to the

    investors or reinvested as mentioned in the offer document.

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    Mutual Fund Companies in India

    The concept of mutual funds in India dates back to the year 1963. The era between

    1963 and 1987 marked the existence of only one mutual fund company in India with Rs.

    67bn assets under management (AUM), by the end of its monopoly era, the Unit Trust

    of India (UTI). By the end of the 80s decade, few other mutual fund companies in India

    took their position in mutual fund market.

    The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank

    Mutual Fund, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of

    India Mutual Fund.

    The succeeding decade showed a new horizon in Indian mutual fund industry. By the

    end of 1993, the total AUM of the industry was Rs. 470.04 bn. The private sector funds

    started penetrating the fund families. In the same year the first Mutual Fund Regulations

    came into existence with re-registering all mutual funds except UTI. The regulations

    were further given a revised shape in 1996.

    Kothari Pioneer was the first private sector mutual fund company in India which has now

    merged with Franklin Templeton. Just after ten years with private sector players penetration, the

    total assets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

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    Major Mutual Fund Companies in India

    ABN AMRO MUTUL FUND:-

    ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India)

    Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India)

    Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of

    ABN AMRO Mutual Fund.

    Birla Sun Life Mutual Fund:-

    Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life

    Financial. Sun Life Financial is a global organisation evolved in 1871 and is being

    represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart

    from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to

    investment. Recently it crossed AUM of Rs. 10,000 crores.

    Bank of Baroda Mutual Fund (BOB Mutual Fund):-

    Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the

    sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB

    Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

    HDFC MUTUL

    FUND:-

    HDFC Mutual Fund was setup on June 30, 2000 with two sponsors namely Housing

    Development Finance Corporation Limited and Standard Life Investments Limited.

    HSBC Mutual Fund:-

    HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets

    A L I G A R H C O L L E G E

    O F E N G I N E E R I N G A N D T E C H N O L O G Y

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    (India) Private Limited as the sponsor. Board of Trustees, HSBC Mutual Fund acts as

    the Trustee Company of HSBC Mutual Fund.

    ING Vysya Mutual

    Fund:-

    ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee

    Company. It is a joint venture of Vysya and ING. The AMC, ING Investment

    Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

    Prudential ICICI Mutual Fund:-

    The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of thelargest life insurance companies in the USA. Prudential ICICI Mutual Fund was setup on

    13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee

    Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset

    Management Company Limited incorporated on 22nd of June, 1993.

    Sahara Mutual Fund:-

    Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial

    Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited

    incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-

    up capital of the AMC stands at Rs 25.8 crore.

    State Bank of India Mutual Fund:-

    State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore

    fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the

    largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of

    which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund

    has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread

    over 18 schemes.

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    Tata Mutual Fund:-

    Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for

    Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The

    investment manager is Tata Asset Management Limited and its Tata Trustee Company

    Pvt. Limited. Tata Asset Management Limited's is one of the fastest in the country with

    more than Rs. 7,703 crores (as on April 30, 2005) of AUM.

    Kotak Mahindra Mutual Fund:-

    Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is

    presently having more than 1,99,818 investors in its various schemes. KMAMC started

    its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering

    to investors with varying risk - return profiles. It was the first company to launch

    dedicated gilt scheme investing only in government securities.

    Unit Trust of India Mutual Fund:-

    UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI

    Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management

    Company presently manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual Fund

    are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life

    Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income

    Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

    Reliance Mutual Fund:-

    Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of

    RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was

    registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11,

    2004. Reliance Mutual Fund was formed for launching of various schemes under

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    which units are issued to the Public with a view to contribute to the capital market and to

    provide investors the opportunities to make investments in diversified securities.

    Standard Chartered Mutual Fund:-

    Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard

    Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd.

    Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was

    incorporated with SEBI on December 20,1999.

    Franklin Templeton India Mutual Fund:-

    The group, Franklin Templeton Investments is a California (USA) based company with a global AUM

    of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world.

    Investors can buy or sell the Mutual Fund through their financial advisor or through mail or through

    their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes,

    Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes,

    Closed end Income schemes and Open end Fund of Funds schemes to offer.

    Morgan Stanley Mutual Fund India:-

    Morgan Stanley is a worldwide financial services company and its leading in the market in

    securities, investment management and credit services. Morgan Stanley Investment

    Management (MISM) was established in the year 1975. It provides customized asset

    management services and products to governments, corporations, pension funds and non-profit

    organizations. Its services are also extended to high net worth individuals and retail investors. In

    India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and

    its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity

    scheme serving the needs of Indian retail investors focusing on a long-term capital appreciation.

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    Escorts Mutual Fund:-

    Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its

    sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was

    incorporated on December 1, 1995 with the name Escorts Asset Management Limited.

    Alliance Capital Mutual Fund:-

    Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital

    Management Corp. of Delaware (USA) as sponsor. The Trustee is ACAM Trust

    Company Pvt. Ltd. and AMC, the Alliance Capital Asset Management India (Pvt) Ltd.

    with the corporate office in Mumbai.

    Benchmark Mutual Fund:-

    Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt.

    Ltd. as the sponsor and Benchmark Trustee Company Pvt. Ltd. as the Trustee

    Company. Incorporated on October 16, 2000 and headquartered in Mumbai,

    Benchmark Asset Management Company Pvt. Ltd. is the AMC.

    Canbank Mutual Fund:-

    Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as

    the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2,

    1993 is the AMC. The Corporate Office of the AMC is in Mumbai.

    Chola Mutual Fu nd:-

    Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company

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    Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee

    Company and AMC is Cholamandalam AMC Limited.

    LIC Mutual Fund:-

    Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed

    Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in

    accordance with the provisions of the Indian Trust Act, 1882. . The Company started its

    business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima

    Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund.

    GIC Mutual Fund:-

    GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a

    Government of India undertaking and the four Public Sector General Insurance Companies,

    viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The

    Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted

    as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

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    MUTUAL FUNDS- DOs and DONTs

    We all have come across ads which say that Mutual Funds are subject to

    market risk, please read the offer document carefully before investing.

    Likewise there are many dos and donts one has to keep in mind before

    getting into investing in mutual funds. The following points might help one

    to optimize his/her investment decision

    Assess yourself:

    Self-assessment of ones needs; expectations and risk profile is of prime importance failing

    which; one will make more mistakes in putting money in right places than otherwise. One

    should identify the degree of risk bearing capacity one has and also clearly state the

    expectations from the investments. Irrational expectations will only bring pain.

    Try to understand where the money is going:

    It is important to identify the nature of investment and to know if one is compatible with

    the investment. One can lose substantially if one picks the wrongkind of mutual fund. In

    order to avoid any confusion it is better to go through the literature such as offer

    document and fact sheets that mutual fund companies provide on their funds.

    Don't rush in picking funds, think first:

    One first has to decide what he wants the money for and it is this investment goal that should be

    the guiding light for all investments done. It is thus important to know the risks associated with

    the fund and align it with the quantum of risk one is willing to take. One should take a look at the

    portfolio of the funds for the purpose. Excessive exposure to any specific sector should be

    avoided, as it will only add to the risk of the entire portfolio. Mutual funds invest with a certain

    ideology such as the "Value Principle" or "Growth Philosophy". Both have their share of critics

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    but both philosophies work for investors of different kinds. Identifying the proposed investment

    philosophy of the fund will give an insight into the kind of risks that it shall be taking in future.

    Invest. Dont speculate:

    A common investor is limited in the degree of risk that he is willing to take. It is thus of key

    importance that there is thought given to the process of investment and to the time horizon

    of the intended investment. One should abstain from speculating which in other words

    would mean getting out of one fund and investing in another with the intention of making

    quick money. One would do well to remember that nobody can perfectly time the market so

    staying invested is the best option unless there are compelling reasons to exit.

    Dont put all the eggs in one basket:

    This old age adage is of utmost importance. No matter what the risk profile of a person is, it

    is always advisable to diversify the risks associated. So putting ones money in different

    asset classes is generally the best option as it averages the risks in each category. Thus,

    even investors of equity should be judicious and invest some portion of the investment in

    debt. Diversification even in any particular asset class (such as equity, debt) is good. Not all

    fund managers have the same acumen of fund management and with identification of the

    best man being a tough task, it is good to place money in the hands of several fund

    managers. This might reduce the maximum return possible, but will also reduce the risks.

    Be regular:

    Investing should be a habit and not an exercise undertaken at ones wishes, if one has to really

    benefit from them. As we said earlier, since it is extremely difficult to know when to enter or exit themarket, it is important to beat the market by being systematic. The basic philosophy of Rupee cost

    averaging would suggest that if one invests regularly through the ups and downs of the market, he

    would stand a better chance of generating more returns than the market for the entire duration. The

    SIPs (Systematic Investment Plans) offered by all funds helps in being systematic.

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    All that one needs to do is to give post-dated cheques to the fund and thereafter one will not

    be harried later. The Automatic investment Plans offered by some funds goes a step further,

    as the amount can be directly/electronically transferred from the account of the investor.

    Find the right funds:

    Finding funds that do not charge much fees is of importance, as the fee charged ultimately goes

    from the pocket of the investor. This is even more important for debt funds as the returns from

    these funds are not much. Funds that charge more will reduce the yield to the investor. Finding

    the right funds is important and one should also use these funds for tax efficiency. Investors of

    equity should keep in mind that all dividends are currently tax-free in India and so their tax

    liabilities can be reduced if the dividend payout option is used. Investors of debt will be charged

    a tax on dividend distribution and so can easily avoid the payout options.

    Keep track of your investments:

    Finding the right fund is important but even more important is to keep track of the way they are

    performing in the market. If the market is beginning to enter a bearish phase, then investors of

    equity too will benefit by switching to debt funds as the losses can be minimized. One can

    always switch back to equity if the equity market starts to show some buoyancy.

    Know when to sell your mutual funds:

    Knowing when to exit a fund too is of utmost importance. One should book profits

    immediately when enough has been earned i.e. the initial expectation from the fund has

    been met with. Other factors like non-performance, hike in fee charged and change in

    any basic attribute of the fund etc. are some of the reasons for to exit.

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    SEBI GUIDELINES FOR MUTUAL FUND

    Mutual funds cannot invest more than 10 per cent of the total net assets of a scheme in the short-

    term deposits of a single bank, the Securities and Exchange Board of India said on Monday.

    Announcing guidelines for parking of funds in short-term deposits of scheduled

    commercial banks (SCBs) by mutual funds, the regulator said that investment cap

    would also take into account the deposit schemes of the bank's subsidiaries.

    The SEBI has also defined 'short term' for funds' investment purposes as a period not

    exceeding 91 days.

    Besides, the parking of funds in short-term deposits of all SCBs has been capped at 15

    per cent of the net asset value (NAV) of a scheme, which can be raised to 20 per cent

    with prior approval of the trustees.

    The parking of funds in short-term deposits of associate and sponsor SCBs together should

    not exceed 20 per cent of total deployment by the MF in short-term deposits, it added.

    The SEBI said that these guidelines are aimed at ensuring that funds collected in a scheme

    are invested as per the investment objective stated in the offer document of an MF scheme.

    The new guidelines would be applicable to all fresh investments whether in a new

    scheme or an existing one. In cases of an existing scheme, where the scheme has

    already parked funds in short-term deposits, the asset management company have

    been given three-months time to conform with the new guidelines.

    The SEBI has also asked the trustees of a fund to ensure that no funds are parked by a

    scheme in short term deposit of a bank, which has invested in that particular scheme.

    The SEBI guidelines say that asset management companies (AMCs) shall not be

    permitted to charge any investment and advisory fees for parking of funds in short-term

    deposits of banks in case of liquid and debt-oriented schemes.

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    What are the new SEBI guidelines all about?

    Relevant extract of the SEBI circular released on June 30, 2009 (SEBI/IMD/CIR No.

    4/168230/09) is as follows:

    'In order to empower the investors in deciding the commission paid to distributors in

    accordance with the level of service received, to bring about more transparency in payment of

    commissions and to incentivize long term investment, it has been decided that:

    There shall be no entry load for all mutual fund schemes

    The scheme application forms shall carry a suitable disclosure to the effect that the upfront

    commission to distributors will be paid by the investor directly to the distributor, based on

    his assessment of various factors including the service rendered by the distributor.

    Of the exit load or CDSC charged to the investor, a maximum of 1% of the redemption

    proceeds shall be maintained in a separate account which can be used by the AMC to

    pay commissions to the distributor and to take care of other marketing and selling

    expenses. Any balance shall be credited to the scheme immediately

    The distributors should disclose all the commissions (in the form of trail commission or

    any other mode) payable to them for the different competing schemes of various

    mutual funds from amongst which the scheme is being recommended to the investor.

    This circular shall be applicable for :

    Investments in mutual fund schemes (including additional purchases and switch-in to a

    scheme from other schemes) with effect from August 1, 2009

    Redemptions from mutual fund schemes (including switch-out from other schemes) with

    effect from August 1, 2009

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    New mutual fund schemes launched on and after August 1, 2009; and Systematic

    Investment Plans (SIPs) registered on or after August 1, 2009'

    PERFORMANCE MEASURES OF MUTUAL FUNDS:

    Mutual Fund industry today, with about 30 players and more than six hundred schemes,

    is one of the most preferred investment avenues in India. However, with a plethora of

    schemes to choose from, the retail investor faces problems in selecting funds. Factors

    such as investment strategy and management style are qualitative, but the funds record

    is an important indicator too.

    Though past performance alone cannot be indicative of future performance, it is, frankly,

    the only quantitative way to judge how good a fund is at present. Therefore, there is a

    need to correctly assess the past performance of different Mutual Funds. Worldwide,

    good Mutual Fund companies over are known by their AMCs and this fame is directly

    linked to their superior stock selection skills.

    For Mutual Funds to grow, AMCs must be held accountable for the ir selection of

    stocks. In other words, there must be some performance indicator that will reveal the

    quality of stock selection of various AMCs.

    Return alone should not be considered as the basis of measurement of the performance of a

    Mutual Fund scheme, it should also include the risk taken by the fund manager because

    different funds will have different levels of risk attached to them. Risk associated with a fund, in

    a general, can be defined as Variability or fluctuations in the returns generated by it. The higher

    the fluctuations in the returns of a fund during a given period, higher will be the risk associated

    with it. These fluctuations in the returns generated by a fund are resultant of two guiding forces.

    First, general market fluctuations, which affect all the securities, present in the market, called

    Market risk or Systematic risk and second, fluctuations due to specific securities present in theportfolio of the fund, called Unsystematic risk. The Total Risk of a given fund is sum of these two

    and is measured in terms of standard deviation of returns of the fund.

    Systematic risk, on the other hand, is measured in terms of Beta, which represents fluctuations

    in the NAV of the fund vis--vis market. The more responsive the NAV of a Mutual Fund is to

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    the changes in the market; higher will be its beta. Beta is calculated by relating the returns on a

    Mutual Fund with the returns in the market. While Unsystematic risk can be diversified through

    investments in a number of instruments, systematic risk cannot. By using the risk return

    relationship, we try to assess the competitive strength of the Mutual Funds one another in a

    better way. In order to determine the risk-adjusted returns of investment portfolios, several

    eminent authors have worked since 1960s to develop composite performance indices to

    evaluate a portfolio by comparing alternative portfolios within a particular risk class.

    The most important and widely used measures of performance are:

    The TreynorMeasure

    The Sharpe Measure

    Jenson Model

    Fama Model

    The Treynor Measure:-

    Developed by Jack Treynor, this performance measure evaluates funds on the basis of

    Treynor's Index. This Index is a ratio of return generated by the fund over and above

    risk free rate of return (generally taken to be the return on securities backed by the

    government, as there is no credit risk associated), during a given period and systematic

    risk associated with it (beta). Symbolically, it can be represented as:

    Treynor's Index (Ti) = (Ri - Rf)/Bi.

    Where,

    Ri represents return on fund,

    Rf is risk free rate of return, and

    Bi is beta of the fund.

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    All risk-averse investors would like to maximize this value. While a high and

    positive Treynor's Index shows a superior risk-adjusted performance of a fund, a

    low and negative Treynor's Index is an indication of unfavorable performance.

    The Sharpe Measure :-

    In this model, performance of a fund is evaluated on the basis of Sharpe Ratio,

    which is a ratio of returns generated by the fund over and above risk free rate of

    return and the total risk associated with it.

    According to Sharpe, it is the total risk of the fund that the investors are

    concerned about. So, the model evaluates funds on the basis of reward per unit

    of total risk. Symbolically, it can be written as:

    Sharpe Index (Si) = (Ri - Rf)/Si

    Where,

    Si is standard deviation of the fund,

    Ri represents return on fund, and

    Rf is risk free rate of return.

    While a high and positive Sharpe Ratio shows a superior risk-adjusted performance of a

    fund, a low and negative Sharpe Ratio is an indication of unfavorable performance.

    Comparison of Sharpe and Treynor

    Sharpe and Treynor measures are similar in a way, since they both divide the risk

    premium by a numerical risk measure. The total risk is appropriate when we are

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    evaluating the risk return relationship for well-diversified portfolios. On the other

    hand, the systematic risk is the relevant measure of risk when we are evaluating less

    than fully diversified portfolios or individual stocks. For a well-diversified portfolio the

    total risk is equal to systematic risk. Rankings based on total risk (Sharpe measure)

    and systematic risk (Treynor measure) should be identical for a well-diversified

    portfolio, as the total risk is reduced to systematic risk. Therefore, a poorly diversified

    fund that ranks higher on Treynor measure, compared with another fund that is

    highly diversified, will rank lower on Sharpe Measure.

    Jenson Model:-

    Jenson's model proposes another risk adjusted performance measure. This measure

    was developed by Michael Jenson and is sometimes referred to as the differential

    Return Method. This measure involves evaluation