INTODUCTION TO MUTUAL FUND AND ITS VARIOUSASPECTS.

M u tu a l f u nd i s a t r us t t ha t po o l s th e s a v i ng s o f a nu m b er o f i n
v es to r s w ho s h a r e a common financial goal. This pool of money is in
vested in accordance with a statedobjective. The joint ownership of the fu
nd is thus “Mutual”, i.e. the fund belongs to allinvestors. The money thus collec
ted is then invested in capital market instruments sucha s s h a r e s , d e b e n t
ures and other securities. The income earned through th
e s e investments and the capital appreciations realized are shared by i
ts unit holders in p r o po r ti o n t h e n um b er o f u ni ts o w n e d by th e m
. T h us a M u t ua l F u n d i s t h e mo s ts ui ta bl e i nv es t me n t f o r th e co
m mo n ma n a s i t o f f er s a n o p po r tu n i t y t o i nv es t i n a diversified,
professionally managed basket of securities at a relatively low cost. A
M u tu a l F u n d i s a n i nv es t me n t to o l t ha t a l l o w s s m a l l i nv es to r s
a c c es s t o a w el l -
diversified portfolio of equities, bonds and other securit
i e s . E a c h s h a r e h o l d e r participates in the gain or loss of the fund
. Units are issued and can be redeemed asneeded. The funds Net Asset value (
NAV) is determined each day.Investments in securities are spread across a w
ide cross-
section of industries andsectors and thus the risk is reduced. Diversification
reduces the risk because all stocksmay not move in the same direction in t
he same proportion at the same time. Mutualfund issues units to the i
nvestors in accordance with quantum of money invested bythem. Inves
tors of mutual funds are known as unit holders.
When an
investor subscribes for the units of a mutual fund, he becomes part owner of t
he assets of the fund in the same proportion as his contribution amount put up
with thecorpus (the total amount of the fund). Mutual Fund investor is also kn
own as a mutualfund shareholder or a unit holder.Any change in the value of t
he investments made into capital market instruments (suchas
shares
, debentures etc) is reflected in the Net Asset Value (NAV) of the scheme. NAVis defined
as the market value of the Mutual Fund scheme's assets net of its liabilities. NA
V of a scheme is calculated by dividing the market value of scheme's assets by t
hetotal number of units issued to the investors.
Advantages of mutual fund

Portfolio Diversification
•
Professional management
•
Reduction / Diversification of Risk
•
Liquidity
•
Flexibility & Convenience
•
Reduction in Transaction cost
•
Safety of regulated environment
•
Choice of schemes
•
Transparency
DISADVANTAGEOFMUTUALFUND
•
No control over Cost in the Hands of an Investor
•
No tailor-made Portfolios
•
Managing a Portfolio Funds
•
Difficulty in selecting a Suitable Fund Scheme

HISTORY OF THE INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Tr
ust of I n d i a , a t t he i ni t i a ti v e o f t he G o v er n m en t o f I n d i a a n d R es
e r v e B a nk. T ho ug h t h e growth was slow, but it accelerated from the year
1987 when non-
UTI players enteredthe Industry.In the past decade, Indian mutual fund industry
had seen a dramatic improvement, bothqualities wise as well as quantity wise.
Before, the monopoly of the market had seen anending phase; the Assets U
nder Management (AUM) was Rs67 billion. The privatesector entry to th
e fund family raised the Aum to Rs. 470 billion in March 1993 and tillApril 2004;
it reached the height if Rs. 1540 billion.The Mutual Fund Industry is obviously
growing at a tremendous space with the mutualfund industry can be broadly p
ut into four phases according to the development of thesector. Each phase is b
riefly described as under.
First Phase – 1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliam
ent by theReserve Bank of India and functioned under the Regulatory and ad
ministrative controlo f th e R es er v e B a n k o f I n di a . I n 1 97 8 U T I w a s d
e-
l i n ke d f r o m th e R B I a n d t he I n d u s t r i a l D e v e l o p m e n t B a n k
o f I n d i a ( I D B I ) t o o k o v e r t h e r e g u l a t o r y a n d administrat
ive control in place of RBI. The first scheme launched by UTI was Unit

CATEGORIES OF MUTUAL FUND:

Mutual funds can be classified as follow :

Based on their structure:

•
Open-ended funds
: Investors can buy and sell the units from the fund, at any pointof time.
•
Close-ended funds
: These funds raise money from investors only once. Therefore,after the offer p
eriod, fresh investments can not be made into the fund. If the fund islisted on a
stocks exchange the units can be traded like stocks (E.g., Morgan StanleyGrow
th Fund). Recently, most of the New Fund Offers of close-
ended funds providedliquidity window on a periodic basis such as monthly or
weekly. Redemption of unitscan be made during specified intervals. Ther
efore, such funds have relatively lowliquidity.

Based on their investment objective:Equity funds

:

These funds invest in equities and equity related instruments. Withfluctuating

share prices, such funds show volatile performance, even losses. However,shor
t term fluctuations in the market, generally smoothens out in the long term, th
erebyoffering higher returns at relatively lower volatility. At the same time, suc
h funds canyield great capital appreciation as, historically, equities hav
e outperformed all assetclasses in the long term. Hence, investment in equit
y funds should be considered for a period of at least 3-
5 years. It can be further classified as:
i) Index funds
- In this case a key stock market index, like BSE Sensex or Nifty istrack
ed. Their portfolio mirrors the benchmark index both in terms of compositiona
nd individual stock weightages.
ii) Equity diversified funds-
100% of the capital is invested in equities spreadingacross different sect
ors and stocks.
iii|) Dividend yield funds-
it is similar to the equity diversified funds except that theyinvest in companies
offering high dividend yields.
iv) Thematic funds-
Invest 100% of the assets in sectors which are related throughsome theme.e.g.
-An infrastructure fund invests in power, construction, cements sectors etc.
v) Sector funds-
Invest 100% of the capital in a specific sector. e.g. - A banking sector fund will i
nvest in banking stocks.
vi) ELSS
- Equity Linked Saving Scheme provides tax benefit to the investors.
Balanced fund
:

Their investment portfolio includes both debt and equity. As a result, onthe ris
k-
return ladder, they fall between equity and debt funds. Balanced fund
s are the idealmutual funds vehicle for investors who prefer spreading their r
isk across various instruments.Following are balanced funds classes:
i) Debt-oriented funds -
Investment below 65% in equities.
ii) Equity-oriented funds
-
Invest at least 65% in equities, remaining in debt.
Debt fund
:

They invest only in debt instruments, and are a good option for investorsaverse
to idea of taking risk associated with equities. Therefore, they invest exclusivel
yin fixed-
income instruments like bonds, debentures, Government of India secu
rities;and money market instruments such as certificates of deposit (CD), com
mercial paper (CP) and call money. Put your money into any of these debt fund
s depending on your investment horizon and needs.
i ) Li q u i d f u n d s -
T h es e f u n ds i nv es t 1 0 0% i n mo ney ma r k et i ns tr ume n ts , a l a r g e
portion being invested in call money market.
ii) Gilt funds ST-
They invest 100% of their portfolio in government securities of andT-bills.
iii) Floating rate funds -
Invest in short-
term debt papers. Floaters invest in debtinstruments which have variable
coupon rate.
iv) Arbitrage fund-
They generate income through arbitrage opportunities due to mis- pricing be
tween cash market and derivatives market. Funds are allocated to equ
ities,d e r i v a ti v es a n d mo n ey ma r ke ts . H i g he r pr o po r ti o n (a r o u n
d 7 5% ) i s p ut i n m o ney markets, in the absence of arbitrage opportunities
.
v) Gilt funds LT-
T h ey i nv es t 1 00% o f t h ei r po r tf o l i o i n l o ng -
t er m g o v er n me nt securities.
vi) Income funds LT-
Typically, such funds invest a major portion of the portfolio inlong-
term debt papers.
vii) MIPs-
M o n th l y I nc o m e P l a ns ha v e a n ex p o s ur e o f 7 0% -
9 0% t o d e bt a n d a n exposure of 10%-30% to equities.
viii) FMPs-
fixed monthly plans invest in debt papers whose maturity is in line wit
hthat of the fund.
INVESTMENT STRATEGIES
1. Systematic Investment Plan:
under this a fixed sum is invested each month on afixed date of a mon
th. Payment is made through post dated cheques or direct debitfaciliti
es. The investor gets fewer units when the NAV is high and more units when th
e NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan:
under this an investor invest in debt oriented fund andgive instructions to tran
sfer a fixed sum, at a fixed interval, to an equity scheme of thesame mutual fun
d.
3. Systematic Withdrawal Plan:
if someone wishes to withdraw from a mutual fundthen he can withdraw a fixe
d amount each month.
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RISK V/S. RETURN:

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Chapter – 2Company Profile

INTRODUCTION TO SBI MUTUAL FUND
SBI Funds Management Pvt. Ltd. is one of th
e leading fund houses in thecountry with an i
nvestor base of over 4.6 million and over 20 ye
ars of rich
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