Summer Internship Project report

ON

Study of Mutual Fund Schemes at

THE DEVIKULAM TALUK VYAPARI VYAVASAI SERVICE

CO-OPERATIVE SOCIETY LTD.

Submitted in partial fulfillment of requirement of Bachelor of Business Administration (B.B.A) General

BBA 5 Semester B (Morning)

Batch 2012-2015

Submitted to: Submitted by:

Dr. Niti Saxena Adesh Ramesh

Associate Professor 09014101712

JAGANNATH INTERNATIONAL MANAGEMENT SCHOOL

KALKAJI

1

DECLARATION

I hereby declare that the present study of MUTUAL FUND SCHEMES of THE

DEVIKULAM TALUK VYAPARI VYAVASAI SERVICE CO-OPERATIVE

SOCIETY LTD. Is based on my original research work for the fulfillment of the

continuous evaluation of the assessment of two months summer internship

program, BACHELOR OF BUSINESS ADMINISTRATION Class of 2012-

2015 .The report has been done by me under the guidance of Mr. Madhukumar

(Internal guide) And Dr. Niti Saxena (Faculty Guide) the research presented in

this study has not been submitted in full or part in this or any other university of

the award of any degree or diploma.

Place: Kerala

Date:

2

ACKNOWLEDGMENT

My Sincere Thanks and My Deep Sense of Gratitude to the Authorities of The

Devikulam Taluk Vyapari Vyavasai Co-operative Society Ltd. for giving me this

Opportunity to Study the Firm’s Mutual Fund Scheme and carry out this Project

at The Devikulam Taluk Vyapari Vyavasai Co-operative Society Ltd. I- 518.

I thank my project guide Mr. Madhu Kumar and all the staff at The Devikulam

Taluk Vyapari Vyavasai Co-operative Society Ltd. for their constant support and

guidance in carrying out my project successfully.

I would like to express my sincere thanks to Dr. Niti Saxena for her helpful hand

in the completion of my project.

Adesh Ramesh

Date-

3

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CONTENTS

CHAPTER NO. DESCRIPTIONS PAGE NO.

EXECUTIVE SUMMARY 6

I

INTRODUCTION 10

OBJECTIVES 13

LITERATURE REVIEW 16

IICOMPANY PROFILE 32

RESEARCH METHODOLOGY 62

III DATA ANALYSIS AND INTERPRETATIONS 65

FINDINGS SUGGESTIONS AND CONCLUSION 78

BIBLIOGRAPHY 89

5

List of tables

S. no List of tables Page no.

Table 1.1Mutual fund

schemes28

Table 2.1Receipts and

payment statement49

Table 2.2 Balance sheet 53

List of figures

S. no List of figures Page no.

Fig 1.1Risk hierarchy of

mutual funds27

6

EXECUTIVE SUMMARY

Devikulam Taluk Vyapari Vyavasi Service Co-operative Society Ltd. No I-

518 Adimaly have been registered on 3/07/1998 and commenced functioning

7

on 2/11/1998 with the area of operation consisting of Devikulam Taluk with

the following objective.

(a) To encourage thrift, self help and co-operative among members

(b) To accept deposits from members to be utilized for loans to members for

Business Development.

(c) Starting Mutual Fund Schemes to members.

(d) The doing of such other business and things for the benefit of members

Share Capital

Authorized Share Capital of the Society shall be 50,00,000 of which 50.000

A-Class shares of INR 100 each; 5,00,000 of which 20,000 B-Class Shares

of INR 25 each and 5,00,000 of which 500 C-Class shares of INR 1,000

each. The total share capital is 60,00,000.

The paid up share capital of the society is INR 46,41,775 of which INR

45,00,000 for A class shares among 45000 shares and INR 1,41,775 for B

class shares among 5671 shares. A class membership is allowed only for

merchants. B class membership is allotted for those who join in Mutual Fund

Scheme, Gold Loan and various types of Deposits.

Acceptance of Deposits from members

In order to increase the habit of thrift and savings the society introduced

many deposit schemes for its members and non members. Savings Bank

Account, Fixed Deposits, Pigmy Deposits and Home Savings Deposits etc.

are the major deposit schemes. The deposit position of the society as

on31/03/2014 is INR 16,39,37,395.40/-

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Management and staff

The management affairs of the society vested in the Board of Directors. Our

Director board consists of 11 members (Seven General, one SC/ST, three

Woman). The tenure of the committee is 5 years. The present committee

took charge on 13/09/2013. There are twenty five staffs working in the

society, of which 10 are permanent staff, 14 commission agents and 1 daily

wages.

Loan Schemes

Society Provide loan to members in different schemes like Business

Development Loan (BDLS), Short Term Loan (STL), Personal Loan( PLS)

and Gold Loan (GL). Society also provides Secured Loan (SL) and Mutual

Fund Scheme Loans (MFSL) to its depositors and members. Repayment of

BDLS loans are through daily collection. The loan outstanding of the society

as on 31/03/2014 is INR 19,39,08,660/-

Mutual Fund Schemes

One of the important schemes of the society is Mutual Fund Schemes; of

which there are 90 numbers of MFS and the sala for that is INR

1,10,00,000/-

Audit

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Audit of accounts of the society is completed up to 2012-13. We had

distributed 25% dividends to members for the last 16 years.

Branch

Society has started an extension counter at Munnar on 16/07/2006 which is

working smoothly INR 1,04,84,234/- deposits from different schemes and

loans outstanding as on 31/03/2014 is INR 2,44,73,847/- of which overdue is

nil. The branch is running 5 numbers of Mutual Fund Schemes having sala of

5 Lakhs. The extension counter is enhanced as branch in 2010 march.

Financial position of the society

The society has a very sound financial position to meet its lending needs INR

2,22,99,543/- invested in District Co-operative Bank (IDCB) as fluid resource

and also sanctioned an overdraft facility 2 core from District Co-operative

Bank.

It is remarkable that the society functions on its own funds on good profit

from the starting itself. The society renders good services to its members by

making timely financing assistance to its members for their various needs.

Moreover the society protects the economy of its members by avoiding their

approach with money lenders and pawn brokers for their financial

requirements and saves their financial position.

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CHAPTER 1INTRODUCTION TO THE TOPIC

11

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 share as shares, debentures and

other securities. The income earned through those investments and the

capital appreciations realized are shared by its unit holders in proportions

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.

The project idea is to project mutual funds as the better avenue for

investment. Mutual fund is productive package for a lay-investor with

limited finances. Mutual fund is a very old practice in U.S. and it has

made a recent entry into India. Common man in India still finds ‘Bank’ as

a safe door for investment. This shows that mutual funds have not gained

a strong foot-hold in his life.

The project creates an awareness that the mutual fund is worthy

investment practice. The various schemes of mutual funds provide the

investor with a wide range of investment options according to his risk-

bearing capacities and interest. Besides, they also give a handy return to

the investor. The project analyses various schemes of mutual fund by

taking different mutual funds in India are also considered.

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OBJECTIVES

13

NEED OF THE STUDY

The study basically made to educate the investors about Mutual Funds.

Analyze the various schemes to highlight the risk and return of diversity

of investment that mutual funds offer. Thus, through the study one would

understand how a common man could fruitfully convert a pittance into

great penny by wisely investing into the right scheme according to his

risk- taking abilities.

A small investor is the one who is able to correctly plan & decide in which

profitable & safe instrument to invest. To lock up one’s hard earned

money in a savings bank’s account is not enough to counter the monster

of inflation. Using simple concepts of diversification, power of compound

interest, stable returns & limited exposure to equity investment, one can

maximize his returns on investments & multiply one’s savings.

Investment is a serious proposition one has to look into various factors

before deciding on the instruments in which to invest. To save is not

enough. One must invest wisely & get maximum returns. One must plan

investment in such a way that his investment objectives are satisfied. A

sound investment is one which gives the investor reasonable returns with

a proper profitable management

This report gives the details about various investment objectives desired

by an investor, details about the concept & working of mutual fund.

OBJECTIVES OF THE STUDY

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• To understand the concept of Mutual Funds.

• To study the different Sectoral Mutual Funds in India.

• To analyse the performance of different sectoral mutual funds.

• To identify the best Sectoral Mutual Funds to invest in India.

• To suggest the best mutual funds for investors.

SCOPE OF THE STUDY

Now a days, there is a lot of scope for the mutual funds. The Financial

managers have to decide whether to invest in the Shares, bonds,

debentures, real estate, gold and other Commodities to get the maximum

benefits for funds. The financial managers should also reduce the risk

from the Investments. The scope of the study is confirmed to the sectoral

funds available in Indian mutual funds.

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LITERATURE REVIEW

16

Mutual Funds: An overview

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

invested by the fund manager in different types of securities depending

upon the objective of the scheme. These could range from shares to

debentures to money market instruments. The income earned

through these investments and the capital appreciations realized by the

scheme are shared by its unit holders in proportion to the number of units

owned by them (pro rata). 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 portfolio at a relatively low cost.

Anybody with an investible surplus of as little as a few thousand

rupees can invest in Mutual Funds. Each Mutual Fund scheme has a

defined investment objective and strategy.

A mutual fund is the ideal investment vehicle for today’s 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.

A mutual fund is the answer to all these situations. It appoints

professionally qualified and experienced staff that manages each of these

functions on a full time basis. The large pool of money collected in the

fund allows it to hire such staff at a very low cost to each investor. In

effect, the mutual fund vehicle exploits economies of scale in all three

areas - research, investments and transaction processing. While the

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concept of individuals coming together to invest money collectively is not

new, the mutual fund in its present form is a 20th century phenomenon.

In fact, mutual funds gained popularity only after the Second World War.

Globally, there are thousands of firms offering tens of thousands of

mutual funds with different investment objectives. Today, mutual funds

collectively manage almost as much as or more money as compared to

banks.

A draft offer document is to be prepared at the time of launching the fund.

Typically, it pre specifies the investment objectives of the fund, the risk

associated, the costs involved in the process and the broad rules for

entry into and exit from the fund and other areas of operation. In India, as

in most countries, these sponsors need approval from a regulator, SEBI

(Securities exchange Board of India) in our case. SEBI looks at

track records of the sponsor and its financial strength in granting approval

to the fund for commencing operations.

A sponsor then hires an asset management company to invest the funds

according to the investment objective. It also hires another entity to be

the custodian of the assets of the fund and perhaps a third one to handle

registry work for the unit holders (subscribers) of the fund.

In the Indian context, the sponsors promote the Asset Management

Company also, in which it holds a majority stake. In many cases a

sponsor can hold a 100% stake in the Asset Management Company

(AMC). E.g. Birla Global Finance is the sponsor of the Birla Sun Life

Asset Management Company Ltd., which has floated different mutual

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

under the schemes

History of Mutual Fund in India:

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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. The history of mutual funds in India can be broadly

divided into four distinct phases

First Phase – 1964-87

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

Parliament. It was set up 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

Second Phase – 1987-1993 (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 Phase – 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in the

Indian mutual fund industry, giving the Indian investors a wider choice of

fund families. Also, 1993 was the year in which the first Mutual Fund

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Regulations came into being, under which all mutual funds, except UTI

were to be registered and governed. The erstwhile Kothari 9Pioneer (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. The number of mutual fund houses went on

increasing, with many foreign mutual funds setting up funds in India and

also the industry has witnessed several mergers and acquisitions. As at

the end of January 2003, there were 33 mutual funds with total

assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44,541

crores of assets under management was way ahead of other mutual

funds.

Fourth Phase – 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 scheme, 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.76,000 crores 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 taking place among different

private sector funds, the mutual fund industry has entered its current

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phase of consolidation and growth. As at the end of March, 2006, there

were 29 funds.

Future Scenario

The asset base will continue to grow at an annual rate of about 30 to 35

% over the next few years as investor’s shift their assets from banks and

other traditional avenues. Some of the older public and private sector

players will either close shop or be taken over.

Out of ten public sector players five will sell out, close down or merge

with stronger players in three to four years. In the private sector this trend

has already Started with two mergers and one takeover. Here too some

of them will down their shutters in the near future to come.

But this does not mean there is no room for other players. The market will

witness a flurry of new players entering the arena. There will be a large

number of offers from various asset management companies in the time

to come. Some big names like Fidelity, Principal, Old Mutual etc. are

looking at Indian market seriously. One important reason for it is that

most major players already have presence here and hence

these big names would hardly like to get left behind.

The mutual fund industry is awaiting the introduction of derivatives in

India as this would enable it to hedge its risk and this in turn would be

reflected in its Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual fund

schemes to trade in derivatives. Importantly, many market players have

called on the Regulator to initiate the process immediately, so that the

mutual funds can implement the changes that are required to trade in

Derivatives.

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Recent trends in mutual fund industry

The most important trend in the mutual fund industry is the aggressive

expansion of the foreign owned mutual fund companies and the decline

of the companies floated by nationalized banks and smaller private sector

players.

Many nationalized banks got into the mutual fund business in the early

nineties and got off to a good start due to the stock market boom

prevailing then. These banks did not really understand the mutual fund

business and they just viewed it as another kind of

banking activity.

Few hired specialized staff and generally chose to transfer staff from the

parent organizations. The performance of most of the schemes floated by

these funds was not good. Some schemes had offered guaranteed

returns and their parent organizations had to bail out these AMCs by

paying large amounts of money as the difference between

the guaranteed and actual returns.

The service levels were also very bad. Most of these AMCs have not

been able to retain staff, float new schemes etc. and it is doubtful

whether, barring a few exceptions, they have serious plans of continuing

the activity in a major way. The experience of some of

the AMCs floated by private sector Indian companies was also very

similar. They quickly realized that the AMC business is a business, which

makes money in the long term and requires deep-pocketed support in the

intermediate years. Some have sold out to foreign owned companies,

some have merged with others and there is general restructuring going

on.

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Types of Mutual Funds

Mutual fund schemes may be classified on the basis of its structure and

its investment objective.

By Structure:

Open-ended Funds

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.

Closed-ended Funds

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 a 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.

Interval Funds

Interval funds combine the features of open-ended and close-ended

schemes. They are open for sale or redemption during pre-determined

intervals at NAV related prices.

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By Investment Objective:-

Growth Funds

The aim of growth funds is to provide capital appreciation over the medium to

long-term. Such schemes normally invest a majority of their corpus in equities. It

has been proven that returns from stocks, have outperformed most other kind of

investments held over the long term. Growth schemes are ideal for investors

having a long-term outlook seeking growth over a period of time.

Income Funds

The aim of income funds is to provide regular and steady income to investors.

Such schemes generally invest in fixed income securities such as bonds,

corporate debentures and Government securities. Income Funds are ideal for

capital stability and regular income.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income. Such

schemes periodically distribute a part of their earning and invest both in equities

and fixed income securities in the proportion indicated in their offer documents. In

a rising stock market, the NAV of these schemes may not normally keep pace, or

fall equally when the market falls. These are ideal for investors looking for a

combination of income and moderate growth.

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Money Market Funds

The aim of money market funds is 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. Returns on these schemes may fluctuate depending

upon the interest rates prevailing in the market. These are ideal for Corporate

and individual investors as a means to park their surplus funds for short period.

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.

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:-

Tax Saving Schemes

These schemes offer tax rebates to the investors under specific provisions of the

Indian Income Tax laws as the Government offers tax incentives for investment in

25

specified avenues. Investments made in Equity Linked Savings Schemes (ELSS)

and Pension Schemes are allowed as deduction u/s 88 of the Income Tax Act, 1961.

The Act also provides opportunities to investors to save capital gains u/s 54EA and

54EB by investing in Mutual Funds, provided the capital asset has been sold prior to

April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes

Industry Specific Schemes

Industry Specific Schemes invest only in the industries specified in the offer

document. The investment of these funds is limited to specific industries like

InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes

Index Funds attempt to replicate the performance of a particular index such as

the BSE Sensex or the NSE 50

Sectoral Schemes

Sectoral Funds are those, which invest exclusively in a specified industry or a group of

industries or various segments such as 'A' Group shares or initial public offerings.

Commodities Funds

Commodities funds specialize in investing in different commodities directly or

through commodities future contracts. Specialized funds may invest in a single

commodity or a commodity group such as edible oil or rains, while diversified

commodity funds will spread their assets over many commodities

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Fig 1.1 Risk hierarchy of mutual funds

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Table 1.1 Mutual fund schemes

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Benefits of Mutual Fund investment1. Professional Management:

Mutual Funds provide the services of experienced and skilled professionals,

backed by a dedicated investment research team that analyses the performance

and prospects of companies and selects suitable investments to achieve the

objectives of the scheme.

2. Diversification:

Mutual Funds invest in a number of companies across a broad cross-section of

Industries and sectors. This diversification reduces the risk because seldom do

all stocks decline at the same time and in the same proportion. You achieve this

diversification through a Mutual Fund with far less money than you can do on

your own.

3. Convenient Administration:

Investing in a Mutual Fund reduces paperwork and helps you avoid many

problems such as bad deliveries, delayed payments and follow up with brokers

and companies. Mutual Funds save your time and make investing easy and

convenient.

4. Return Potential:

19 Over a medium to long-term, Mutual Funds have the potential to provide a

higher return as they invest in a diversified basket of selected securities.

5. Low Costs:

Mutual Funds are a relatively less expensive way to invest compared to directly

investing in the capital markets because the benefits of scale in brokerage,

custodial and other fees translate into lower costs for investors.

6. Liquidity:

In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units can

be sold on a stock exchange at the prevailing market price or the investor can

avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

29

7. Transparency:

Investors get regular information on the value of your investment in addition to

disclosure on the specific investments made by the scheme, the proportion

invested in each class of assets and the fund manager's investment strategy and

outlook.

8. Flexibility:

Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, one can systematically invest or withdraw funds

according to your needs and convenience.

9. Affordability:

Investors individually may lack sufficient funds to invest in high-grade stocks. A

mutual fund because of its large corpus allows even a small investor to take the

benefit of its investment strategy 10.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

Limitation of Mutual Fund Investment

1. No Control Over Cost:

An Investor in mutual fund has no control over the overall costs of investing.

He pays an investment management fee (which is a percentage of his

investments) as long as he remains invested in fund, whether the fund value

is rising or declining. He also has to pay fund distribution costs, which he

would not incur in direct investing.

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2. No Tailor-Made Portfolios:

Investing through mutual funds means delegation of the decision of portfolio

composition 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.

3. Managing A Portfolio Of Funds:

Availability of large no. of funds can actually mean too much choice for the

investors. He may again need advice on how to select a fund to achieve his

objectives.

AMFI has taken initiative in this regard by starting a training and certification

program for prospective Mutual Fund Advisors. SEBI has made this

certification compulsory for every mutual fund advisor interested in selling

mutual fund.

4. Taxes:

During a typical year, most actively managed mutual funds sell anywhere

from 20 to 70 percent of the securities in their portfolios. If your fund makes a

profit on its sales, you will pay taxes on the income you receive, even if you

reinvest the money you made.

5. Cost of Churn:The portfolio of fund does not remain constant. The extent to which the

portfolio changes is a function of the style of the individual fund manager i.e.

whether he is a buy and hold type of manager or one who aggressively

churns the fund. It is also dependent on the volatility of the fund size i.e.

whether the fund constantly receives fresh subscriptions and redemptions.

31

CHAPTER 2

COMPANY PROFILE

32

CO-OPERATIVE SOCIETIES, PRINCIPLES, TYPES OF SOCIETIES AND

THE REGISTRATRION OF THE SOCIETIES.

INTRODUCTION

Co-operative movement in our country shall not only stay but also grow in

times to come. In spite of the drawbacks experienced in the working and

administration of the co-operative societies, they have positively contributed

to the growth and development of the national economy. Promotion of thrift,

self-help and mutual aid are the fundamental principles of co-operation. The

orientations of commercial organization and co-operative organizations are

basically different. In a commercial organization, earning and maximizing the

profits is the sole motive; whereas in a co-operative organization profit

cannot be the sole motive. The prime objectives, in addition to the three

fundamentals of co-operation mentioned above are to make available the

goods and services in required quantity, of better quality and at a reasonable

price to its members. It does not mean that a Co-operative Society is a

charitable organization. It should, therefore, conduct itself in a business, like

manner in attaining its objectives efficiently.

Broadly speaking there are three sectors operating in the Union of India.

1. PUBLIC SECTOR wherein the State i.e. The Union of India and the

respective State Government undertake developments projects which are

wholly owned by either the Central Government or the State Government.

2. PRIVATE SECTOR which is a sector where private enterprises are

permitted in certain fields of economic activities.

33

3. CO-OPERATIVE SECTOR which is beautifully blended in between a

public sector and the private sector. It has benefits of both the sectors and

disadvantages of neither of them.

PRINCIPLES OF CO-OPERATIVE SECTOR 1. LEGAL STATUS : A co-operative Society is a body corporate registered

under the applicable state Act with perpetual succession having a common

seal. It can acquire, hold and dispose of properties, enter into contracts and

it can sue and it can be sued.

2. VOLUNTARY ASSOCIATION : Co-operative Society is essentially an

organization or an association of persons who have come together for the

common purpose of economic development or for mutual help.

3. SELF HELP AND MUTUAL HELP : The Co-operative societies office

bearers/executive committee is elected as per democratic election

procedure. The Co-operative Society function under the principle of self help

and mutual help which means each will help for themselves and all will help

others.

4. DEMOCRATIC CONTROLS : The Control of a Co-operative enterprise

in not in the hands of capitalists who can corner the share capital and control

the interest in any undertaking which would be a private undertaking.

5. EQUALITY : In co-operative Sector, the principle of “ One man one Vote “

is provided in the statute so as to ensure that the capital does not dominate

the administration of co-operative Society.

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6. OPEN MEMBERSHIP : Any person can apply for the membership of the

Society without any discrimination. The membership is open for all.

7. SOCIAL APPROACH / NO PROFIT MOTIVE : As the Society is working

on democratic principle and the office bearers of the Society will be

functioning like a trustees for the better management of the society and there

is no separate benefits to the executive committee members. Service is the

main motto and the profit is not the main concern in co-operative societies.

8. PROFITS AND RETURNS TO THE MEMBERS : Co-operative Society is

an association of members and certain percentage profits earned by the

society, as decided in the meeting of the General body will be distributed in

the form of dividend to the members.

9. LIMITED INTEREST ON SHARES : Irrespective of the shareholding,

each member has only one vote in the decision-making in the General body

meeting or at the time of election of the committee for management. The

shares are not traded in the stock exchange.

The State Co-op. Act also prescribes the maximum amount, which a

member can hold as a share capital in any society.

Under M.C.S. Act, 1960 as per Section 28 other than Government or other

society, shall not hold more than 1/5 of the total capital or interest in shares

or exceeding Rs. 20,000/- which the State Government power to change by

way of notification.

10. PERSONAL PARTICIPATION : The shareholders have to personally

attend the meeting or for voting. They are not allowed to appoint proxies for

attending the general body or for voting in the resolution to be passed.

35

11. EDUCATIONS AND CO-OPERATION : Every society has to contribute

towards the education fund maintained and looked after by the district co-

operative education Board as per the notification issued from time to time for

educating the members or the office bearers of the Society.

12. CO-OPERATION AMONGST CO-OP. INSTITUTIONS : The funds

generated or mobilized through the co-operative societies have to be

deposited/ invested in the Co-operative Sector only.

ACT & RULES APPLICABLE A Co-operative Society functions as per the provisions of

1. Co-operative Societies Act under which the same is registered.

2. Co-operative Societies rules made there under

3. Bye-laws approved by the registrar at the time of registration and

amendments made from time to time and approved by the registrar.

4. Notification and Orders

1. Co-operative Societies Act

We have a number of Co-operative Societies Acts functional in different

states like - Maharastra Co-operative Societies Act, 1960, - Pondicherry

Co-operative Societies Act, 1972, - Karnataka Co-operative Societies Act,

1959, - Delhi Co-operative Societies Act, 1972, - Kerala Co-operative

Societies Act etc. When the area of operation is restricted to one state, the

State Co-operative Act & Rules, under which the society is registered will be

applicable.

In a particular state, if Co-operative Act and Rules is not enacted, the Central

Act which is known as The Co-operative Act, 1912 and its rules will be

applicable.

36

When the area of operation of Society is spread in two or more states. The

Multi-State Co-operative Societies Act, 2002 and its rules shall be applicable.

2. Co-operative Societies Rules A set of rules is also framed under the

respective State Co-operative Act for procedural aspects.

3. Bye-laws Each society also registered with the bye-laws for internal

management of the societies duly approved by the registrar at the time of

registration of the society. The bye-laws of a society constitute a contract

between a member and the society and it provide for the management of the

society. The bye-laws are framed within the provisions of the Act and the

rules made there under.

Bye-laws include the objects of the society and completely define and restrict

the society’s activities, but the rights and liabilities of members are

determined by the Act and Rules and not by the bye-laws as such. 4.

Notification and Orders issued from time to time by the Government, or any

other Authority as prescribed under the Act, Rules there under.

TYPES OF SOCIETIES A Society is categorized on the basis of its objects. There are various types

of societies that can be formed under the Act under which it is registered:

Under Maharashtra Co-operative Societies Act, 1960 following types of

Societies can be registered :

1. Agricultural Marketing Society: As per section 2(1) “ agricultural marketing

Society” means a society - (a) The object of which is the marketing of

agricultural produce and the supply of implements and other requisites for

agricultural production, and (b) Not less than three-fourths of the members of

which are agriculturists, or societies formed by agriculturists.

37

2. Consumer Society As per Section 2(9) “ Consumer’s Society “ means a

society, the object of which is - (a)The procurement, production or

processing, and distribution of goods to, or the performance of other services

for, its members as also other customers, and (b) the distribution among its

members and customers, in the proportion, prescribed by rules or by the

bye-laws of the society, of the profits accruing from such procurement,

production or processing, and distribution.

3. Co-operative Bank As per section 2(10) “Co-operative bank “ means a

society which is doing business of banking as defined in clause (b) of sub-

section (1) of section 5 of the Banking Companies Act, 1949 and includes

any society which is functioning or is to function as (an Agriculture and Rural

Development Bank) under Chapter XI.

4. Central Bank As per section 2(6), “Central Bank “ means a co-operative

bank, the objects of which include the creation of funds to be loaned to other

societies; but does not include the urban co-operative bank.

5. Crop Protection Society As per section 2(10-A), “Crop Protection Society”

means a society the object of which is protection of the crops, structures,

machinery, agricultural implements and other equipment such as those used

for pumping water on the land.

6. Farming Society As per section 2(12),”Farming Society” means a society

in which, the object of increasing agricultural production, employment and

income and the better utilization of resources, lands are brought together

jointly cultivated by all the members, such lands (a) being owned or leased to

the members (or some of them), or (b) coming in possession of the society in

any other manner whatsoever.

38

7. General Society As per section 2(15),”General Society” means a society

not falling in any of the classes of societies defined by the other clauses of

this section.

8. Housing Society As per section 2(16),”Housing society” means a society,

the object of which is to provide its members with open plots for housing,

dwelling houses or flats; or if open plots, the dwelling houses or flats are

already acquired, to provide its members common amenities and services.

9. Federal Society As per section 2(13),”Federal society”, means a society-

(a) not less than five members of which are themselves societies, and (b) in

which the voting rights are so regulated that the members who are societies

have not less than four-fifths of the total number of votes in the general

meeting of such society

10. Irrigation Society As per section 2(16-A),”Lift Irrigation Society” means a

society, the object of which is to provide water supply, by motive power or

otherwise to its members, for irrigation and otherwise.

11. Process Society As per section 2(22),”Processing society” means a

society, the object of which is the processing of goods.

12. Producers Society As per section 2(23),”Producers Society” means a

society, the object of which is production and disposal of goods or the

collective disposal of labour of the members thereof.

13. Resource Society As per section 2(25),”Resource Society” means a

society, the object of which is obtaining for its members of credit, goods or

services required by them.

39

14. Apex Society As per section 2(2) of M.C.S. Act, “Apex Society “ means a

society, - (a) the area of operation of which extends to the whole of the State

of Maharashtra (b) the main object of which is to remote the principal objects

of the societies affiliated to it as Members and to provide for the facilities and

services to them and (c) which has been classified as an apex society by the

Registrars;

PROVISIONS FOR REGISTRATION OF CO-OPERATIVE SOCIETIES There are different types of Co-operative Societies, which can be registered

under the Maharashtra Co- operative Societies Act, which were explained

earlier.

In all these types of societies, the procedure to be followed for formulation of

registration proposals slightly differs. The requirements in respect of each

type of co-operative society’s needs to be properly understood by every

promoter, or the professional charged with the responsibility of getting the

society registered (chief promoter).

PROVISIONS UNDER THE M.C.S. ACT, 1960 Sections 3 to 11of the Act, provide for registration of Societies and the

conditions for the same. Section 4 provides for a nature of an organization,

which can be registered as a Society. Section 6 lays down the conditions for

registration of the Society. Section 8 provides for application for registration

bye-laws and the registration fees. Section 9 provides for time bound

registration of the Society and the bye-laws.

40

SOCIETIES, WHICH MAY BE REGISTERED

As per section 4, a society, which has as its objects the promotion of the

economic interests or general welfare of its members or of the public, in

accordance with co-operative principles or a society established with the

object of facilitating the operations of any such society, may be registered

under this Act:

Provided that, no society shall be registered if it is likely to be economically

unsound, or the registration of which may have an adverse effect on

development of the co-operative movement, or the registration of which may

be contrary to the policy directives, which the State Government may, from

time to time, issue.

REGISTRATION WITH LIMITED OR UNLIMITED LAIBILITY

As per section 5, a Society may be registered with limited or unlimited

liability.

As per section 2[28] “society with limited liability” means a society having the

liability of its members limited by its bye-laws;

As per section 2[29] “society with unlimited liability” means a society, the

members of which are, in the event of its being wound up, jointly and

severally liable for and in respect of its obligations and to contribute to any

deficiency in the assets of the society;

CONDITIONS OF REGISTRATION

As per section 6(1) No society, other than a federal society, shall be

registered under this Act, unless it consists of at least ten persons [or such

higher number of persons as the Registrar may, having regard to the objects

and economic viability of a society and development of the co-operative

movement, determine from time to time for a class of societies](each of such

41

persons being a member of a different family), who are qualified to be

members under this Act, and who reside in the area of operation of society :

[Provided that, a lift irrigation society consisting of less than ten but of five or

more such persons may be registered under this Act.] (2) No society with a

limited liability shall be registered, unless all persons forming the society

reside in the same town or village, or in the same group of villages.

[(2-A) No crop protection society shall be registered, unless the Registrar is

satisfied, after such inquiry as he thinks necessary, that a draft of the

proposal made by the society for protecting crops, structures, machinery

agricultural implements and other equipment such as those used for

pumping water on the land, was duly published for inviting all owners of land

likely to be affected by the proposal and all other persons likely to be

interested in the said lands to join the proposal or to send their objections or

suggestions and that the objections and suggestions received , if any, have

been duly considered by the society and that the owners in possession of not

less than 66 percent in the aggregate of lands included in the proposal have

given their consenting writing to the making of the proposal and that the

proposal made is feasible. For this purpose, the society shall submit to the

Registrar:

(a) a plan showing the area covered by the proposal and the surrounding

land as shown in the map or maps of the village or villages affected;

(b) an extract from the record of rights duly certified showing the names of

the owners of lands and the areas of the lands included in the proposal;

(c) Statements of such of the owners of the lands as consented to the

making of the proposal signed by owners before two witnesses;

(d) a detailed estimate of the cost of implementing the proposal;

42

(e) a detailed statement showing how the cost is proposed to be met.

When such society is registered, the cost of implementing the proposal shall

be met wholly or in part by contribution to be levied by the society from each

owner of the land included in the proposal, including any such owner who

may have refused to become a member of the society. The owner of every

land included in the proposal shall also be primarily liable for the payment of

the contribution liable from time to time in respect of such land].

(3) No federal society shall be registered unless it has at least five societies

as its members.

(4) Nothing in this Act shall be deemed to affect the registration of any

society made before the commencement of this Act.

(5) The word “limited” or “unlimited” shall be the last word in the name of

every society with limited or unlimited liability, as the case may be which is

registered or deemed to be registered under this Act.

Explanation: For the purpose of this section and section 8, the expression “

member of family” means wife, husband, father, mother, [son, or unmarried

daughter]

POWER TO EXEMPT SOCIETIES [OR CLASS OF SOCIETIES] FROM CONDITIONS AS TO REGISTRATION

As per section 7, notwithstanding anything contained in this Act, the State

Government may, by general or special order, exempt any society or class of

societies from any of the requirements of this Act as to registration, subject

to such conditions (if any) as it may impose.

43

APPLICATION FOR REGISTRATION

As per section 8(1) For the purpose of registration, an application shall be

made to the Registrar in the prescribed form and shall be accompanied by

four copies of the proposed bye-laws of the society and such registration fee

as may prescribed in this behalf. Different registration fees may be

prescribed for different class of societies, regard being had to the service

involved in processing an application for registration. The person by whom,

or on whose behalf, such application is made, shall furnish such information

in regard to the society, as the Registrar may require.

(2) The application may be signed- a) in case of a society other than a

federal society by at least ten persons (each of such person being a member

of different family), who are qualified under this Act, and, b) in the case of a

federal society, by at least five societies.

No signature to any application on behalf of a society shall be valid, unless

the person signing is a member of the committee of such a society and is

authorized by the committee by resolution to sign on its behalf the

application for registration of the society and its bye-laws; and a copy of such

resolution is appended to the application.

REGISTRATION

As per section 9(1) If the Registrar is satisfied that a proposed society has

complied with the provisions of this Act and the Rules, [or any other law for

the time being in force, or policy directives issued by the State Government

under section 4], and that its proposed bye-laws are not contrary to this Act

or to the rules, he [shall, within two months], from the date of receipt of

application register the society and its bye-laws.

(2) Where there is a failure on the part of the Registrar to dispose off such

application within the period aforesaid, the Registrar shall, within a period of

44

fifteen days from the date of expiration of that period refer the application to

the next higher officer and where the Registrar is himself the registering

officer, to the State Government, who are which, as the case may be, shall

dispose of the application within two months from the date of its receipt and

on the failure of such higher officer or the State Government, as the case

may be, to dispose of the application within that period, the society and its

bye-laws shall be deemed to have been registered.[and thereafter the

Registrar shall issue a certificate of registration under his seal and signature

within a period of fifteen days.

(3) Where the registrar refuses to register a proposed society, he shall

forthwith communicate his decision, with reasons therefore, to the person

making the application and if there be more than one to the person who has

signed first therein.

(4) The Registrar shall maintain a registrar of all societies registered or

deemed to be registered, under the Act.

PROCEDURE FOR REGISTRATION OF CO-OPERATIVE SOCIETIES

The procedure for registration of society can be explained as the following

steps:

1. APPOINTMENT OF CHIEF PROMOTER

The first step to register a Society is that minimum 10 adult individuals from

independent families desiring to form a Society should gather and hold a

meeting to

(a) Select a provisional committee and elect a Chief Promoter for formation

of a society and (b) select a name for such Society with three alternatives

and to pass appropriate resolutions in that behalf. c) To collect the

45

entrance fee and share capital from the prospective members. d) To open

the Bank account in the name of chief promoter e) To decide about area of

operation of the Society and f) To decide about the registered office of the

Society g) To authorize chief promoter to submit the proposal for

registration and to do any other thing to get the society registered.

2. NAME RESERVATION

The second step would be to apply to the registration authority (RA) for

reservation of name for the society and obtain letter from the RA in that

connection. The resolutions passed at the promoters meeting as above

should accompany such application for reservation of name as aforesaid.

The letter reserving the name of the society shall be valid for 3 months. The

validity of the name is normally extended on an application for 1 or 2 further

terms of 3 months each.

3. BANK ACCOUNT AND DEPOSITS

The third step would be to (a) open a bank account in the name of the

proposed Society as per the RA’s directions in that behalf that shall contain

in the letter reserving the name and (b) deposit therein the entrance fee

share money and the amount recovered for preliminary expenses from the

promoters and obtain the certificate from such bank in respect of such

deposits. Normally the directions of the RA are to open account with a

proximate branch of the District Central Co-operative Bank or any

Maharashtra State Co-operative Bank or any other urban Co-operative bank.

4. REGISTRATION FEE

The fourth step is to deposit the registration fee with the Reserve Bank of

India and to obtain the receipted challan in that behalf. The registration fee

for Housing Society is Rs.2,500/- and for general Society is Rs.1250/-.

46

5. REGISTRATION PROPOSAL The fifth and final step is to prepare and to

submit to RA the proposal for registration of the society. Under Rule 4 of

Maharashtra Co-operative Societies Rules the chief promoter should submit

the following documents for registration

a) Application for registration - Form A An application for registration of a

society should be made in form. The specimen of Form A. The application

for registration in quadruplicate should be signed by at least 60% of the

promoter’s members and Chief Promoter should attest their signatures. b)

Four copies of the proposed bye-laws of the society c) A list of promoter’s

members, such as the name age occupation current residential a address of

the promoter member the cost of share amount etc. d) A certificate from the

Bank or Banks stating the credit balance therein in favour of the proposed

society; e) A scheme showing the details explaining how the working of the

society will be economically sound and where the scheme envisages the

holding of immovable property by the society, the description of such

property proposed to be purchased, acquired or transferred to the society; f)

Such other documents as may be specified in the model bye-laws, if any,

framed by the Registrar; g) The registration fees at the applicable rates, h)

Other documents like affidavit, indemnity bonds, copy of ration cards, public

notice in newspaper etc., as may applicable for different types of society as

per the notification issued from time to time.

6. REGISTRATION PROCEDURE

As per rule

5[1] On receipt of an application under Rule 4 the Registrar shall enter

particulars of the application in the register of application to be maintained in

Form ‘B’ give a serial number to the application and issue a receipt in

acknowledgement thereof.

47

5[2] The Registrar may give necessary opportunity to the promoters to

modify the proposed bye-laws before finally registering the society or

rejecting the application for registration of the society.

5[3] On registering a society and its bye-laws under sub-section (1) of

section 9 the Registrar shall as soon as may be, notify the registration of the

society in the Official Gazette and grant to the society a certificate the

Registration number of the society, and the date of its registration. The

registrar shall also furnish the society with a certified copy of the bye-laws

approved and registered by him.

7. REFUSAL OF REGISTRATION

Where any society does not furnish the information in regard to the society

as required by the Registrar or fulfill any of the conditions laid down in the

Act or these Rules, Notification or orders, the Registrar may refuse to

register that society.

8. APPEALS

Under section 152 an appeal against an order or decisions of registration of

society, refusal of registration of society shall lie

(a) If made or sanctioned or approved by the Registrar, or the Additional

or Joint Registrar on whom powers of the Registrar are conferred, to

the State Government. (b) If made or sanctioned by any person other

than the Registrar, or the Additional or Joint Registrar on whom the

powers of the Registrar are conferred to the Registrar. Ultimately a

remedy of Writ Petition under Article 226 or 227 of the Constitution of

India is always available even to a Co-operative society or a person

aggrieved in an extraordinary circumstance. Which means if the

decision of State government on the appeal made by the aggrieved

party is not acceptable a Writ Petition can be filled in the High Court

and then Supreme Court?

48

Table 2.1 Receipts and Payment Statement

DEVIKULAM TALUK VYAPARI VYAVASAI SERVICE CO-OP. SOCIETY LTD NO I 518

ADIMALYRECIPTS AND DISBURSMENTS STATEMENT 2013-2014

DISBURSMENTS AMOUNTSHAREA CLASS 12300.00 12300.00DEPOSITSFIXED DEPOSITS 96606034.00

SAVING BANK262206603.5

0CURRENT A/C 839416.00PIGMY DEPOSITS 89480858.00HOME SAVINGS 10791702.00RECURING DEPOSITS 225800.00PIGMY DEPOSITS-A 2839295.00SOUBHAGYA DEPOSIT SCHEME 90000.00SOUBHAGYA PIGMY DEPOSIT 2916400.00 465996108.50BORROWINGSIDCB SGO 1,2 70021950.00 70021950.00LOANS TO MEMBERSBDLS LOAN –A 42539500.00BDLS LOAN –B 53287000.00BDLS LOAN –C 24440000.00BDLS LOAN –D 30740000.00SHORT TERM LOAN 96049000.00PERSONAL LOAN 823000.00

GOLD LOAN110081073.0

0SECURED LOAN 11420000.00MFS LOAN 28074500.00 397454073.00INTEREST PAIDBORROWINGS 759335.00DEPOSITS 9564424.00 10323759.00

49

ESTABLISHMENT SALARY 2048787.00BONUS 67200.00EMPLOYEES WF CONTRIBUTION 12400.00PF CONTRIBUTION 204559.00MEDICAL ALLOWANCE 14800.00SALARY ARREAR 1311.00DA ARREAR 130400.00LEAVE SALARY 144290.00 2623747.00CONTIGENCIESBANK CHARGE 1309.50OFFICE EXPENSES 197046.00PRINTING AND STATIONARY 216220.00POSTAGE 2731.00SWEEPING CHARGE 71100.00ELETRICITY CHARGE 92838.00APPRISER CHARGE 77917.00ADVERTISEMENT 76160.00DONATION 22285.00HONARARIUM 40000.00GOLD INSURANCE 85855.00SITTING FEES 32400.00TRAVELING ALLOWANCE 54686.00MISCELLANEOUS EXPENSES 75035.00INTEREST REBATE 265558.00REGISTRATION FEES 100.00REPAIRS AND MAINTANANCE(COMPUTER) 76708.00GENERAL BODY EXPENSES 259718.00MFS COMMISSION REBATE 473000.00AUDIT COST 18320.00RENT 1560000.00INT. COLLECTION AGENTS SECURITY 8998.00DEPOSIT MOBILISATION EXPENSES 10765.00IT AUDIT EXPENSES 39326.00INT. FROM LOAN RETURN 696350.00TELEPHONE CHARGES 19512.00NEWS PAPPER 10611.00CLERICAL ASSISTANT CHARGES 118500.00MFS COMMISSION PAID TO GOVT 283750.00LEGAL AND PROFFETIONAL CHARGES 45300.00PROFESSIONAL TAX 2500.00

50

FESTIVAL ALLOWANCE 42250.00AFFILIATION FEE 3600.00INTEREST PAID ON STAFF SECURITY 1102.00SOUBHAGYA DEPOSIT BONUS 78000.00PD COLLECTION EXPENSES 1912540.00MPD COLLECTION EXPENSES 496929.00HSD COLLECTION EXPENSES 114087.00AGENTS GENERAL INSURANCE 21825.00CO-OPERATIVE TRAINING 7900.00 7612831.50

FIXED ASSETSLAND AND BUILDINGS 7108530.00FURNITURE 217750.00 7326280.00BANK A/CASCB 1203 56982929.00IDCB CURRENT A/C S 24 24998289.00IDCB SB S 160 8114195.00IDCB MUNNAR EVENING 2660000.00IDCB ADIMALI EVENING S 1 21409062.00UBI CURRENT A/C NO 14008 3201823.00MUNNAR SCB A/C 17297 12762260.00 130128558.00INVESTMENT A/CFD AT IDCB MANKULAM 1493528.00FD AT IDCB ADIMALY 3000000.00FD AT ADIMALY EVENING 10732907.00CC AT IDCB ADIMALY STAFF SECURITY 10000.00FD AT IDCB MUNNAR EVENING BRANCH 2000000.00FD AT IDCB KUNCHITHANNY 1200000.00FD AT IDCB RAJAKUMARY 1800000.00FD AT TREASURY ADIMALY 400000.00FD AT IDCB RAJAKKADU 1210710.00FD AT MUNNAR SCB 236544.00FD AT IDCDS LTD PAINAV 400000.00 22483689.00OTHER INVESTMENTRF INVESTED AT DCB 1328908.00PF DEPOSITED IN IDCB 194323.00 1523231.00OTHER LIABILITIESUNDIVIDED NET PROFIT 19106125.00 19106125.00STAFF SECURITY DEPOSITSTAFF SECURITY DEPOSIT 0.00

51

ADVANCE DUE TOADVANCE DUE TO LAND 567000.00MFS DUE TORENT ADVANCEEMPLOYEES P F CONTRIBUTION DEPOSITINTEREST EXCESS PAIDSALARY EXCESS PAIDPROVIDENT FUND ADVANCE 175000.00ATM A/C 5288200.00HEAD OFFICE TO BRANCH 7927808.00LAND PURCHASE ADVANCE 3325000.00 17283008.00

ADVANCE DUE BYMFS REBATE 25228892.50

MFS PRIZE AMOUNT 147719710.0

0MFS AUCTION DEDUCTION 34125060.00

MFS PIGMY DEPOSITS107757067.0

0

BDLS DEPOSITS 123144593.0

0MFS SETTLEMENT 852250.00WELLFARE FUND AT DCB 18240.00MFS ADVANCE 499310.00MFS FOREMAN PRIZE (BID) 6550000.00COLLECTION AGENTS SECURITY 20000.00RD SUSPENSE 406.00TENDER FEE 2000.00SOUBHAGHYA DEPOSIT SUSPENSE 54800.00ELECTION NOMINATION FEE 4000.00LOAN RISK FUND 270441.00GROUP PERSONAL ACCIDENT INSURANCE SCHEME 3000.00EMPLOYEES P F CONTRIBUTION 158987.00INCOME TAX 99479.00LIC POLICY PREMIUM 106414.00LIC POLICY PREMIUM SUSPENSE 106414.00BRANCH TO HEAD OFFICE 7307008.00 454028071.50DIVIDENDDIVIDEND PAID 1061530.00 1061530.00EDUCATION FUNDEDUCATION FUND 40000.00 40000.00

52

TOTAL 1607025261.50 CL.CASH BALANCE 1958324.00 GRAND TOTAL 1608983585.50

Table 2.2 Balance Sheet

DEVIKULAM TALUK VYAPARI VYAVASAI SERVICE CO-OPERATIVE SOCIETY LTD NO I 518 ADIMALY

BALANCE SHEET AS ON 31/03/2014LIABILITIES ASSETS

SHARE CAPITAL 4641775.00 CASH IN HAND 1958324.00DEPOSITS 163937395.40 CASH AT BANKS 22497196.35BORROWINGS 20170595.00 INVESTMENT A/C 22218039.00STAFF PF DEPOSIT 1326800.00 STAFF SECURITY IN DCB 81504.00STAFF SECURITY DEPOSIT 81504.00 RF INVESTED IN DCB 5980945.00FOREMAN PRIZE MFS 6156500.00 PF DEPOSITED IN DCB 955830.00COLLECTION AGENTS SECURITY 129000.00 LOANS AND ADVANCES 193908660.00

MFS REBATE 3094862.50MUTUAL FUND SCHEME DUE TO 115400000.00

MFS ADVANCE 10982.50EQUIPMENTS AND FURNITURE 3725639.98

RESERVE FUND 13970916.00 LIBRARY BOOKS 6400.00PROFETIONAL EDUCATION FUND 955306.00 DCB SHARE 2000.00MEMBERS RELIEF FUND 13692258.00 SHARE SPCS 1000.00

DIVIDEND 1069395.00SHARE CO-OPERATIVE COLLEGE 5000.00

OTHER LIABILITIES 477699.50 DUE TO SOCIETY 2030312.00SECURITY GOLD APRISER 5000.00 BUILDING SECURITY 1000000.00RESERVE FOR MFS OVERDUE 6683500.00 LAND AND BUILDINGS 7108530.00DEPRECIATION FUND 2499806.00 INTEREST RECEVABLES 13438205.00RESERVE FOR BD & DOUTFUL DEPT 3321136.00 ATM A/C 243000.00RESERVE FOR GRATIVITY 642178.00RESERVE INTEREST OVERDUE 6240852.00BAD DEPT RESERVE 2146462.00MFS SETTLEMENT 108250.00DUE BY SOCIETY 50887.00INTEREST PAYABLE 7516209.00LIC PREMIUM 9011.00INCOME TAX 72000.00UN DIVIDED NET PROFIT 20568998.00

53

TOTAL 374231409.33 TOTAL 390680585.33PROFIT DURING THE YEAR 16449176.00

GRAND TOTAL 390680585.33 GRAND TOTAL 390680585.33

OPERATION AND CONDUCT OF DEPOSIT ACCOUNTS

CURRENT ACCOUNT/CASH ACCOUNT/SAVINGS BANK A/C

1. General Guidelines:

All applications should be satisfactorily introduced to the

Banks.

Particulars of the account opening forms signed be

constituents are clearly recorded at the head of the ledger

accounts duly authenticated and the form and other document

such as specimen signature card, etc. relative to the opening of

the accounts are serially numbered and systematically filed.

Such serial numbers of the opening form, specimens is

recorded in the ledgers duly authenticated.

All specimen signatures, recorded or specimen signature

cards, should be attested by the Manager with his full

signature.

The specimen signature recorded or specimen signature cards

should be attested by the manager with his full signature.

The specimen signature cards should be kept arranged in

alphabetical order in a cabinet, under the lock and key

authorized official.

When an account is closed, the specimen signature card

should be marked Account closed on and attached to the

relative account opening forms and kept with the closed

account maintained date wise.

At the close of business each day the locked specimen

signature cards cabinet should be lodged in the strong

54

room/safe.

Vernacular signature should be attested by an authorized

official.

2. Cheque book issue:

The custody and issue of cheque books should be under the

direct charge of the Manager/ Accountant

The first and last serial numbers in each cheque book will be

entered in the cheque book register, with separate opening for

each denomination such as 100,50,25 etc. under the initials of

the officer holding custody

When a cheque book is issued, the name of the constituent

and the date of issue will be entered in the cheque book

register and authenticated by the authorized official in charge.

The signature of recipient will be taken in the Signature of

recipient’s column in the register. All cheque books to send by

post must be dispatched by registered post.

Particulars of cheque book issued should be recorded in the

ledger headings under authentication.

A cheque book should ordinarily be issued against an

application, signed by the constituent on the Bankers

requisitions slip from the current cheque book.

When a cheque book is issued to a constituent’s messager, the

constituent must be advised direct and his acknowledgment

should be obtained.

Obtained unused cheque book forms when an account is

closed or transferred to another Branch of the Bank.

A broken cheque book register is to be maintained to enter the

number of unused cheque forms. The officer in whose custody

such cheque forms kept should personally destroy the

requisition slip.

55

3. Pass books

The pass books will show the number of depositors account,

his name and address.

The depositors should be advised to present the pass book for

all withdrawals other than those by cheques.

In case of withdrawals by cheques, the pass books should be

presented within a week from the date of withdrawal, to make

the entries upto date.

The bank will not be responsible for any entries not

authenticated under initials of its authorized officials.

Depositors should be requested to keep their pass book and

cheque book in a place of safety. The bank will not be

responsible for any loss or fraudulent withdrawal out of the

loss of pass book/ cheque book to the depositors neglect.

Every change of address should be intimated immediately to

the bank and pass book sent for corrections.

4. Statements of accounts:

Every current and cash credit account constituent will be

furnished with a statement of account monthly and more

frequently if the constituent so desires. For the sake of

convenience the statement of account will be kept in loose leaf

cone binders.

When pass book in lieu of statements are issued to the

constituents, at their special requests the fact should be

entered in the ledger.

Statements of accounts must be dispatched not later than the

5th of the succeeding month, duly authenticated by the

56

statement writers/ledger keeper and the supervising official

after due verification and after recording the ledger with the

letters ‘S’ and date of issue against the corresponding balance

in the statements, with initials.

The daily, weekly and fort-nightly statements should be

dispatched on the following working day.

Summations need not be given in the statements.

“Net balance in current accounts” maintained by a Co-operative Bank in the

Reserve Bank of India, State Bank of India, State Associated Bank and

Nationalized Banks, any balances or deposits maintained by the Central

Cooperative Banks with the State Cooperative Bank of the State concerned

and any balances or deposits maintained by a Primary Cooperative Bank in

the Central Cooperative Bank concerned or with the State Cooperative Bank

of the State concerned shall be eligible for being computed as liquid assets

under this section.

The monthly return shall indicate the position as on alternate Fridays during

a month and will show the statutory liquid assets based on the demand and

time liabilities as on the last Friday of the second proceeding fort night.

The reserve bank is empowered to call for a daily return from any

cooperative bank in the form and manner the Reserve Bank may specify.

The valuation of “unencumbered approved securities” shall be in accordance

with the method of valuation which the reserve bank of India may specify.

The reserve bank is empowered to impose penal interest on cooperative

banks which default in the maintenance of statutory liquidity ratio.

Section 24A

57

This new section empowers the reserve bank without prejudice to the

provisions of section 53, to exempt by issue of notification in the official

gazette any cooperative bank or class of cooperative banks with reference to

all or any of the offices of such bank or banks or with reference to the whole

or any part of the assets liabilities of such cooperative bank or banks from

the application of whole or any part of the provisions of section 18 or section

24 for such period and subject to such conditions as may we specified in

such notification.

Section 29 and 30

Every bank is required to prepare its profit and loss account sheet in the

prescribed form and to submit it to the reserve bank dually audited and

signed by the principle officer of the bank and at least 3 directors. The

balance sheet is also required to publish in one of the local newspaper.

These are to be complied with before 31st dec of the year or extended time

as maybe allowed by the reserve bank of India.

Section 35 and 35A

Section 35 empowers the reserve bank to inspect cooperative banks by its

officers and supply to the cooperative banks so inspected a copy of its

report. In case of primary cooperative banks, the reserve bank may authorize

the state cooperative bank of state concerned to carry out the inspection on

behalf of the reserve bank. Section 35A empowers that reserve bank to

issue Directors to cooperative banks in general and to any cooperative bank

on particular regarding any aspect of the working of the cooperative banks/

bank concerned. While section 21 referred to earlier confers powers to issue

directions in regarding to advance by Cooperative Bans, Section 35A covers

11 aspects of the functions of Cooperative Banks and these two sections

together give powers to the Reserve Bank to issue directions on all matters

concerning the operations cooperative banks in particular, or all Cooperative

Banks, or a group of cooperative Banks, in general. In additions to

conducting regular inspection under is Section the Reserve Bank is also

58

empowered to carry is Section the Reserve Bank is also empowered to carry

scrutiny of the affairs of the cooperative bank at any time it is considered

necessary to do so.

NABARD has also been statutorily empowered to carry the inspection of the

Cooperative Banks.

Section 16

The Reserve Bank empowered to depute, in case it is considered essential

to do so, for the reorganization or expansion of cooperative credit on sound

lines, one or more of its officers to watch the proceedings at any meeting of

Board of Directors of any cooperative bank or any other body constituted by

it and requires such bank to give an opportunity to the officers so deputed to

be heard at such meeting. Also the Reserve bank may appoint one or more

of its officers to observe the manner in which the affairs of the cooperative

bank or its offices or branches are being conducted, requiring such officers

to make a report thereon.

Section 45

Under this section, the Reserve Bank can recommend to the Central

Government to order a moratorium in respect of a Cooperative Bank. The

power to issue such a moratorium however rests with Central Government.

Section 45Y

This section empowers the Central Government to make rules, in

consultation with the Reserve Bank, specifying the periods for which a

Cooperative Bank shall preserve its books, accounts another documents and

keep with itself different instruments paid by it.

Section 45Z

59

This section enables the cooperative Banks to return at the request of the

consumer a paid instrument before the prescribed period of preservation

only after making and keeping its possession a true copy thereof made by

mechanical process or other process which in itself ensures the accuracy of

the copy. The Bank is also entitled to recover from the customer the cost of

making such copies of the instruments.

Section 45ZA

This section enables depositors of a Bank to nominate one person to whom

in the event of the death of the sole depositor or the deaths of all depositors,

the amount of deposit may be returned by the Bank. In pursuance of the

provisions of this section, the Cooperative Banks Rules 1985 have been

framed and the nomination forms in respect of deposits, safe custody,

lockers have been prescribed.

Section 45ZB

This section gives protection to a cooperative bank in respect of claims made

by persons other than persons in whose names a deposit is held with it.

However if a notice /order is issued by a court of competent Jurisdiction then

the Bank should take due notice of it.

Section 45ZC

This section enables a cooperative bank to return the articles kept by a

person with it in safe custody to his nominee in the event of his death

60

This section given protection to a cooperative bank in respect of any claim to

any article made by any person other than the person who placed the article

in safe custody with it.

Section45ZE

This section enables an individual locker holder to nominate one person to

whom in the event of his death the cooperative bank may give access to the

locker and liberty and to remove contents of the locker.

Section 45ZF

This section gives protection to a cooperative bank in respect of claims from

persons other than the hirers of the locker.

Section 46

In this section, the various penalties that may be imposed on cooperative

banks for non-compliance with the various provisions of the B.R. Act have

been specified.

Section 47A

Under this section the reserve bank is empowered to impose penalties on

any bank for contravention and defaults of the nature referred to in sub-

section(3)and(4)or section 46 of the act,ibid,without recourse to the court of

law. An enquiry is to be conducted and is reasonable opportunity of being

heard should be given to the bank. The procedure for conducting the enquiry

is laid down in rule 11 of the banking regulation rules 1996.the procedure

stipulates the appointment of an enquiry officer by the reserve bank for

holding the enquiry. The enquiry officer is required to send a statement

giving sufficient particulars of the contravention or default of the nature

61

referred to in sub section (3) or sub section (4) of section 46 of the act and to

give 30 days’ time for sending the reply. The enquiry officer shall fix a date

for conducting the enquiry which should be on a day to day basis. The bank

is entitled to be represented at the enquiry by its authorized representative

who may be a Director of Officer but not by a legal practioner. The procedure

also provide for cross examination of the witness both by the representative

of Reserve Bank or of the Cooperative Bank. After completion of enquiry

they said Officer shall record his findings and submit the entire record to the

Reserve Bank.

62

RESEARCH METHODOLOGY

63

In the present project work the data has been collected from available source that is secondary

data like websites, Newspapers and magazines. The sample size taken is of 7 different sectoral

funds

Sampling Design Sampling method use is non probabilistic judgmental sampling. The Mutual Fund Scheme for the

study have been selected based on following 3 criteria

1 Type of the scheme Open-ended Sectoral Funds(growth)

2 Minimum Assets Under Mgmt. Rs. 500 Crore

3 Inception Date Prior to 1st April, 2010

Growth option for the entire selected scheme has been considered.

Research Design

1. Benchmark Index: For this study the 50 shares market index S&P CNX NIFTY has

been used as the market index.

2. Period of study: Period of study has been taken as 2months.

3. Risk Free Rate Of Return: Risk free rate of return refers to that

minimum return on an investment that has no risk of losing the investment over which it is

earned. For this purpose of this study risk free rate of return is represented by 91 days Treasury

bill.

64

LIMITATIONS

1. The analysis is based on historical data and thus indicates the past performance which may

not always be indicative of the future performance.

2. Different schemes consider different market indices as their benchmarks, but for the purpose

of uniformity in the study all schemes have to be compared against same benchmark index.

3. Sharpe ratio (in its simplest forms) that the relationship between risk and return is linear and

remain linear throughout its entire range. Various research works conducted in this regard show

that the relationship is not as simple as Capital Market theory would suggest. This is an inherent

weakness of capital Asset Pricing Model.

4. The time period considered by the study is only three years; a larger period could have

ensured coverage of a full market cycle, thus giving a more real picture of the performance of the

schemes.

65

DATA ANALYSIS & INTERPRETATIONS

66

Sectoral Mutual Funds Considered:-

1. Auto Sector - UTI Transportation and Logistics Fund

2. Banking Sector - UTI Banking Sector Fund

3. FMCG Sector - Franklin FMCG Fund

4. Infrastructure Sector - Tata Infrastructure Fund

5. Power Sector - Reliance Diversified Power Sector Fund

6. Service Sector - Prudential ICICI Services Industries Fund

7. Technology Sector - Franklin Infotech Fund

67

1. Auto Sector:-

UTI Transportation and Logistics Fund

Scheme Snapshot

CIO: A K Shridhar Category: Equity

Fund Manager: Anoop Bhaskar Sub-Category: Sectoral-Auto

Phone: 91 22 5678 6666 / 56578210 Type: Open

Fax: 91 22 2652 4921 Min. Investment(Rs): 5000

website: www.utimf.com Total Assets(Rs./Mn): 719.8

Registrars: UTI Technology Services

Limited

Launch Date: 09-MAR-04

Scheme Objective:

The scheme aims to provide to investors growth of capital over a period of

time as well as to make periodical distribution of income from investment in

stocks of respective sectors of the Indian economy.

68

3. FMCG Sector:-

Franklin FMCG FundScheme Snapshot

CIO: Santosh Kamath Category: Equity

Fund Manager: Anil Prabhudas Sub-Category: Sectoral-FMCG

Type: Open

Min. Investment(Rs): 5000

Phone: 91 22 5632 5820

Total Assets(Rs./Mn): 485.42

Fax: 91 22 2281 0923

Registrars: Franklin Templeton Asset Management

Website: http://www.templetonindia.com (India) Pvt. Ltd.

Launch Date: 15-MAR-99

Scheme Objective:

Seeks to provide long term capital appreciation by investing primarily in

shares of companies operating in the FMCG industry.

69

Asset Allocation

Equity Shares 96.13

Call And Other

Assets 2.84

Corporate Debt /

Bonds 1.03

As on 30-NOV-10

Top 5 holdings As on 30-NOV-10

Nestle India Limited 14.97

I T C Limited 11.27

Asian Paints Limited 9.25

Pidilite Industries

Limited 6.48

Marico Limited 6.08

70

4. Infrastructure Sector

Tata Infrastructure Fund

Scheme Snapshot

CIO: Ved Prakash Chaturvedi Category: Equity

Fund Manager: M Venugopal Sub-Category: Sectoral-Infrastructure

Type: Open

Min. Investment(Rs): 5000

Phone: 91 22 56505200 / 251 / 252

Total Assets(Rs./Mn): 18972.93

Fax: 91 22 5631 5194

Registrars: Computer Age Management Services

website: http://www.tatamutualfund.com Pvt.Ltd.

Launch Date: 25-NOV-04

Scheme Objective:

The investment objective of the Scheme is to provide income distribution and / or

medium to long term capital gains by investing predominantly in equity/equity

related instrument of the companies in the infrastructure sect

71

Asset Allocation

Equity Shares 95.22

Cash And Other

Assets 4.78

As on 30-NOV-10

Top 5 holdings As on 30-NOV-10

I C I C I Bank

Limited 4.97

Crompton Greaves

Limited 4.79

Cash And Other

Assets 4.78

Oil & Natural Gas Corporation Limited 4.70

H D F C Bank

Limited 4.58

72

5. Power Sector:-

Reliance Diversified Power Sector Fund

Scheme Snapshot

CIO: K Rajagopal Category: Equity

Fund Manager: Sunil Singhania Sub-Category: Sectoral-Power

Type: Open

Min. Investment(Rs): 5000

Phone: 91 22 3099 4600 Total Assets(Rs./Mn): 50211.2

Fax: 91 22 3041 4899 Registrars: Karvy Computershare Private

Limited

website: http://www.reliancemutual.com/ Launch Date: 29-MAR-04

Scheme Objective:

The primary investment objective of the scheme is to seek to generate continous

returns by actively investing in equity and equity related or fixed income

securities of Power and other associated companies

73

Asset Allocation

Equity Shares

Derivatives,Cash And Other Receivables

As on 30-NOV-10

94.65

5.35

74

Top 5 holdings As on 30-NOV-10

Other Equities 8.33

Cummins India

Limited 6.32

Torrent Power

Limited 5.99

I C I C I Bank

Limited 5.48

Cash And Other Assets And Derivatives 5.35

6. Technology Sector:-

Franklin Infotech Fund

Scheme Snapshot

CIO: Santosh Kamath Category: Equity

Fund Manager: Anand Radhakrishnan, Murali Yerram Sub-Category: Sectoral-TMT

Type: Open

Min. Investment(Rs): 5000

Phone: 91 22 5632 5820

Total Assets(Rs./Mn): 1403.5

Fax: 91 22 2281 0923

Registrars: Franklin Templeton Asset Management

website: http://www.templetonindia.com (India) Pvt. Ltd.

Launch Date: 22-JUL-98

Scheme Objective: Seeks to provide long term capital appreciation by investing

primarily in Information Technology industry.

75

Asset Allocation

Equity Shares 96.38

Other Current Assets 3.62

Unlisted Equities 0.00

As on 30-NOV-10

Top 5 holdings As on 30-NOV-10

Infosys Technologies

Limited 52.15

Tata Consultancy

Services Limited 25.32

Wipro Limited 9.48

Cash And Other Assets 3.62

Oracle Financial Services Software Limited 3.56

76

7. Service Sector:-

Prudential ICICI Services Industries Fund

Scheme Snapshot

CIO: Nilesh Shah Category: Equity

Fund Manager: Sanjay Parekh Sub-Category: Sectoral-Services

Type: Open

Min. Investment(Rs): 5000

Phone: 91 22 22679665 / 22679676/ 22697989

Total Assets(Rs./Mn): 2802.4

Fax: 91 22 22630419

Registrars: Computer Age Management Services

website: http://www.icicipruamc.com Pvt.Ltd.

Launch Date: 13-OCT-05

Scheme Objective: to generate capital appreciation and income distribution to

unit holders by investing predominantly in equity/equity related securities of the

companies belonging to the service industry and balance in debt securities and

money market instruments including call money.

77

Asset Allocation

Equity Shares 95.80

Futures 2.37

Debt And Cash And

Other Assets 1.82

As on 30-NOV-10

Top 5 holdings As on 30-NOV-10

Infosys Technologies

Limited 7.64

H D F C Bank Limited 7.37

Housing Development Finance Corporation Limited 6.00

Jaiprakash Associates

Limited 5.89

Bharti Airtel Limited 5.72

78

FINDINGS, SUGGESTIONS & CONCLUSION

79

FINDINGS

Rate of Return: Among the funds selected, UTI Banking Sector fund has

given the maximum rate of returns (39%) in the last one year followed by Franklin

FMCG (33%). Reliance Diversified Power Sector fund with a return of (7.5%)

stood last in the table.

Among the funds selected, Reliance Diversified Power has given the maximum

rate of returns (37%) in the last five years followed by Tata Infrastructure (24%).

UTI Transportation and Logistics with a return of (16.98%) stood last in the table.

Total Risk (Standard Deviation)

UTI Banking Sector fund has the maximum standard deviation of 6.92

while Franklin FMCG has the least standard deviation of 2.96

Systematic Risk (Beta) and Co - relation

UTI Banking Sector fund has the maximum Beta of 1.08 while UTI Transportation

and Logistics has the least Beta of 0.55.

UTI Banking Sector fund has the maximum co-relation of 1.07 while Franklin

FMCG has the least R-Squared of 0.65

Treynor & Sharpe Ratio:

UTI Banking Sector Fund has the maximum Treynor ratio of -0.19 while Reliance

Diversified fund has the least Treynor ratio of -0.85.

Franklin Infotech has the least Sharpe Ratio of -0.15 while ICICI Prudential

Services has the maximum sharp ratio of 0.01

80

SUGGESTIONS & CONCLUSIONS

1. Banking and FMCG sectors have fared well in the last one year and

it is suggested to invest in these sectors.

2. It is advised to be keep away from infrastructure funds especially

Reliance Infrastructure fund.

3. FMCG has the least risk and Banking has the highest risk among

the sectors. It is better to avoid Banking funds for people who want

to avoid the risk.

4. Investors who expect slow and steady returns are advised to for

FMCG sector.

5. UTI Banking Sector has a beta of greater than 1 (i.e market beta).

This implies that Banking Sector has a higher risk compared to the

market portfolio.

6. FMCG, Services, Transportation and Logistics sector has the least

beta and investors can invest in these funds

81

ANNEXURE - I

TERMINOLOGY

Mutual Fund: An investment tool that pools in investments made by people and that

corpus is professionally managed by further investing as per the type of fund that’s

being operated. The intention is to float money in the market by owning assets

components of many companies at the same meeting the assurances made to

investors. There is no obligation whatsoever for assured returns.

NAV- A cumulative market value of total assets component of its liabilities. It’s

actually the measure of what each shareholder would acquire if the assets of the

company are liquidated.

No-Load funds - there is no commission component present to enter and exit of

the fund ownership. It’s a full involvement of the corpus.

ELSS - Equity linked savings scheme is a scheme with a tax rebate allowed as

per the Sec 88 in the Indian income tax act, 1961.It provides the investors with

the opportunity to save gains on capital through investments made in MFs.

Index Funds - An interesting scheme that tries to replicate the behavior of the

particular stock index, that is of interest. The portfolio of the fund would majorly

consist of equities listed in that index.

Sector Funds - An MF scheme that has its portfolio chart of companies that belong

to a certain sector, say Oil. This is a high-risk fund, as the performance of that sector

would directly reflect in the funds NAV. So, here we are with the diverse market of

Mutual Funds. Each one claiming their USP. While MFs certainly are NOT the

safest, but they are relatively more safe than the direct involvement in the equity

market, given that fact that majority of the investors are either ill-informed or not

informed about the way the markets move. So what exactly makes MFs the right

kind of fund management tool, espy in a country like India? A country like India or

for that matter any developing country has some basic problems which prevent

the information to be available freely and that too in an accessible fashion.

82

With so many potential investors in India, MFs can go a long way in

getting established, plus with added set of alternatives within the MF schemes

each has a scheme ready for the specific needs. Just to have a better

perspective, there are various options available in the form of Equity fund, Debt

funds, Balance funds and components like Money market funds, Index funds and

the likes of it. Let’s take a peek at the important ones.

Equity Funds: The High risk - High return scheme invests in the equity markets, the

risk involved is comparatively higher than but not as high as that of the sector funds

that focus investments on specific sectors. But the higher the risk component, the

higher is the return rate. However, there is a variant in this type of equity based

scheme called the ELSS or the Equity Linked Savings Schemes, the offer a tax

rebate under Sec 88 of I-T act, but the investment needs to be locked for at least 3

years! Suitable for risk takers .The problem is that it reacts faster to the market

fluctuations, as the NAV would behave the way market behaves. Alliance AMC is

supposed to have a good equity fund expertise.

Debt Funds: Debt funds invest in the debt component or the fixed income models.

So the return is almost certain and the risk is low. However, the returns are also

combatively low compared to the principle amount. Investments in these kinds of

funds range from Govt.Securities to corporate bonds. If you are looking for short-

term safe investment options then the liquid funds in the category is the answer for

you. Several alternatives this category is now available like the income fund, growth

fund or any long-term childcare fund and the likes of it. More diverse Debt funds are,

more the chances of substantial returns.

Balance funds - This type of funds are part equity and part debt funds. The

pattern investment in balance funds is usually pre-determined. You have open-

ended and closed-ended balance funds, where the funds can be traded in an

open ended case just like equities but based on the Net Asset Value (NAV). The

closed-ended funds are locked and cannot bet traded.

83

When to say goodbye to your Mutual Fund?

There are some professionals who talk of when to exit from mutual funds like

other talk of when to invest in mutual funds. People who want to invest get more

than the fixed deposit earning (risk free rate), preferred option is mutual funds. It

is important to base the decision on relative performance and not absolute

performance. When one fund is down 5% while other funds or the market in

general are up 10%, it is very tempting to switch over to what is "hot." Chasing

Performance is the best way to shoot oneself in the foot as we just discussed

above.

When studying relative performance, one should look at his fund and compare

it to its peers. However, comparisons should be drawn between parallels and so

equity funds cannot and should not be compared with debt funds. When

choosing a benchmark, one must select funds in the same category. If one’s fund

was down 2% and the average equity fund was down 4%, then there is no good

enough reason to sell it. One should compare the returns posted by his fund with

that of the peers across various horizons such as 1-year, 3-year and above. A

short-term view can often lead to committing hara-kiri, as it doesn’t present the

full picture. If it has underperformed the average of its peers in all cases, then it

sure is one of the better reasons to exit from the fund.

A change in life stage

Investments are done with a certain objective in mind and life stages are often

a determining factor of what a person needs. A young man can afford to take

more risks than a person nearing his retirement can. In such cases, it pays to

withdraw money from the equity investments made earlier and put them in

safer, more conservative debt funds that offer stable returns without

compromising on risk. So a change in life stages would be one such reason to

consider switching into a fund that matches with one’s needs. As one nears

84

retirement, one might want to consider more conservative funds. If one gets

married, one might need to compromise one’s risk tolerance and desired

returns with that of the spouse. This could trigger off the need to exit.

A major change in any basic attribute of the fund

When the fund changes any basic attribute as mentioned by it in its offer

documents, the investors have a choice of getting out of it. Even SEBI has

provided for an exit route being made available to the investors. Changes like a

change in Asset Management Company or in investment style of fund or change

of structure say from closed-end to open-end etc. are good enough reasons for

an investor to consider switching or exiting from it as they are certainly likely to

affect the fund in a major way.

Fund doesn’t comply with its objective

One of the important parameters in the selection of the fund is alignment of the

risk profiles of the investor and fund. The objective of the fund says a lot about

how the fund plans to invest. If the objective is not being complied with, it is one

of the exit points worth considering. For example, the three funds discussed

above, Alliance Equity, Birla Advantage and ING Growth all claim to be

diversified equity funds yet they had huge exposures to select ICE sector scripts

that not only added volatility than is expected out of diversified funds but also in

a way, went against their stated objective.

The Fund's Expense Ratio RisesA small rise in an expense ratio is not a big deal, however a significant rise can

result in substantial reduction of yields and so it would be better to exit the fund.

In the case of bond funds or money market funds, it is highly unlikely that the

fund can increase its returns enough to justify an increase in the fund's

expenses.

85

The Fund Manager has changed

a simple change of fund managers, in itself, is not enough reason to sell a fund

on a short-term basis. If it is a passively managed fund (index fund), then one

has little to no reason to worry. However, if it is an actively managed fund, then

has to keep the eyes open on the new manager. Observing the styles, stock

picking and risks undertaken by the new manager is important for it discloses a

lot about how the fund might fare in the future. If satisfied, one will have no

reason to complain later but the process needs time and so an investor has to

observe the fund manager for some time before one takes a decision.

Enough has been earned

However, nothing is as important as to rein the horses in time. The primary

principle behind safety of investment is to take risks that can be tolerated. The

principle also is specific on the expectations that the investor must have from

any investment. Just as it is important to set realistic targets that one hopes to

achieve from the investment, it is also important to exit when target as expected

has been achieved irrespective of the fact that it might be generating better

returns in a short-term.

The above list is certainly not exhaustive and individuals will have other

better reasons to quit as well. It’s just that most don’t know when to apply thought

and so these would come in handy.

86

TIPS FOR MUTUAL FUND INVESTORS: (SUGGESTIONS)

These are the few exact as regards investment in MF’s taken from the book with

“Marketing for the 90’s” given by the Wall Street.

1. Check your letter of offer of funds prospectus to guard yourselves against any

hidden fees.

2. Ensue that the funds track record is the same as that of the current

management

3. Avoid MF’s that charge exit fees at he back end door (fee s charged by MF

from the unit holders at he time to redemption of the units.)

4. Buy the funds with no sale charged loads.(a load is a charge by the fund

when investor buys it is called the entry load or when he sells is called the exit

load.)

5. If the charge it’s heavy by the M F to discourage the investors from taking

short positions in the funds units because too many investors sell their units

at a time then the fund has to sell its holdings to meet the obligations that

yield into vital of the fines overall return. Most short funds like guilt funds

(these are the funds the invest only in government securities and treasury

bills thus the investors have an opportunities to buy risk free securities).

These funds yield a better return than a money market fund. It is good for the

investors who desire safety of principal amount). Money market funds (these

funds in views in money market instruments such as treasury bills, govt.

bonds, certificates of bank deposits, commercial deposits). They charge no

loads, however loads are limited by SEBI to 7%.

6. Check fund’s performance in bear as well a the bull market.

7. Guard fund risk by checking its portfolio for diversification volatility.

87

KEY STEPS FOR FINANCIAL PLANNING

INSURE YOURSELF BEFORE YOU INVEST

Insurance is the pre-requisite of all investments the main purpose of insurance is to

protect your current life style after retirement. It acts as a shield against all type of

financial risks. Investor has to realize that insurance is more for safe guarding

against risk faced in life rather than being an investment for profit.

CHOOSE SIMPLE INVESTMENT

Our daily life is full of complications the day-to-day grind leaves us with little

energy to keep track of our financial investments. That is copy an investor should

choose simple & complicated instruments.

UTILIZE THE POWER OF COMPOUNDING

Compounding means payment of interest on accumulated interest. Thus money

earned by you works hard & earns more money for you. This implies that not only

the principal earns income for you but interest generated by you also earns

income. One important factor is the time period. Longer the time higher the

benefit

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INVEST IN INTRUMENTS THAT KEEP YOU AHEAD OF INFLATION

That silently creeps up from behind & starts eating your hard earned savings

even before you realize the situation. An investor should look at the real return

(the rate of return minus the rate of inflation) while considering an investment. He

should invest in instruments, which provide profitable-post-inflation returns.

REDUCE TAX ON YOUR INVESTMENT

There are two realities in the life. One is death & the other is tax. It is advisable

that investments should be so planned that least possible tax would be required

to be paid. Smart move for the investor is to save every rupee from tax man.

GO FOR STABLE & REALISTIC RETURNS

Stability of returns is more important that increased profit. Usually these are

associated with high volatile investment options like equities & even with

government securities or gilts as they also run high market risk. The asset

allocation is suggested according to the risk profile of an investor. So invest in

the best option & get the maximum returns.

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BIBLIOGRAPHY

Co-operative Societies Laws – P.N. Mohannan (Advocate)

19th edition and 14th edition

Cooperative Banking in India- S Nakirran

www.amfiindia.com

Jay Hambidge, Dynamic Symmetry: The Greek Vase, New Haven CT

Yale University Press, 1920

William Lidwell, Kritina Holden, Jill Butler, Universal Principles of Design

A Cross-Disciplinary Reference, Gloucester MA: Rockport Publishers,

2003

"The Golden Ratio". The MacTutor History of Mathematics archive.

Retrieved on 2007-09-18.

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