ACKNOWLEDGEMENT

Any work of this magnitude requires the inputs, efforts and encouragement
of the people from all sides. In compiling this project report, I have been
fortunate enough to get active and kind cooperation from many people
without whom my endeavors wouldn’t have been a success. There is an
old adage that says that you never really learn a project until you practice it.
So, I would like to extend my deep gratitude and heartfelt thanks to our
mentors Mr. ………………………………………………………. for extending
their immense help to us in acquiring valuable knowledge on
the subject for successful completion of the project.
 EXECUTIVE SUMMARY

In few years Mutual Fund has emerged as a tool for ensuring one’s
financial well being. Mutual Funds have not only contributed to the India
growth story but have also helped families tap into the success of Indian
Industry. As information and awareness is rising more and more people are
enjoying the benefits of investing in mutual funds. The main reason the
number of retail mutual fund investors remains small is that nine in ten
people with incomes in India do not know that mutual funds exist. But once
people are aware of mutual fund investment opportunities, the number who
decide to invest in mutual funds increases to as many as one in five
people. The trick for converting a person with no knowledge of mutual
funds to a new Mutual Fund customer is to understand which of the
potential investors are more likely to buy mutual funds and to use the right
arguments in the sales process that customers will accept as important and
relevant to their decision.
This Project gave me a great learning experience and at the same time it
gave me enough scope to implement my analytical ability. The analysis and
advice presented in this Project Report is based on market research on the
saving and investment practices of the investors and preferences of the
investors for investment in Mutual Funds. This Report will help to know
about the investors’ Preferences in Mutual Fund means Are they prefer any
particular Asset Management Company (AMC), Which type of Product they
prefer, Which Option (Growth or Dividend) they prefer or Which Investment
Strategy they follow (Systematic Investment Plan or One time Plan). This
Project as a whole can be divided into two parts.
The first part gives an insight about Investment Opportunities in India and
its various aspects, the Company Profile. One can have a brief knowledge
about Mutual Fund and its basics through the Project.

The second part of the Project consists of Investing in Mutual funds, Benefits in
investing in Mutual Funds. This Project covers the topic “INVESTMENTS”
Introduction

Investment Scenario in India:-

India is thought to be a first-rate investment. India has a vast potential for foreign
investment and foreign players find it their next investment destination.
As rightly said by Sukomal C Basu, Chairman & Managing Director, Bank
of Maharashtra; India is
the fourth largest economy in the world and has the second largest GDP
among developing countries,
in purchasing power terms. It is experiencing growth with macro economic
stability and is in the
process of integrating with the global economy. Far-reaching economic
reforms initiated in July 1991
generated numerous business opportunities, leading to degeneration with
removal of most licensing
procedures.

Economics authorities and various research studies carried out across the
globe confirm the fact that
India and China will rule the world in the 21st century. For over a century
the United States has been
the leading economy in the world but key developments have taken place
in the world economy since
then, leading to the change in focus from the US and the rich countries of
Europe to the two Asian
giants- India and China.
The wealthy countries of Europe have seen the supreme decline in global
GDP share by 4.9
percentage points, followed by the US and Japan with a decline of about 1
percentage point each.
Within Asia, the rising share of China and India has more than made up the
moribund global share of
Japan since 1990. During the seventies and the eighties, ASEAN countries
and during the eighties
South Korea, along with China and India, contributed to the rising share of
Asia in world GDP.
According to some experts, the share of the US in world GDP is expected
to fall (from 21 per cent to
18 per cent) and that of India to rise (from 6 per cent to 11 per cent in
2025), and hence the latter will
emerge as the third pole in the global economy after the US and China.

By 2025 the Indian economy is projected to be about 60 per cent the size
of the US economy. The
transformation into a tri-polar economy will be complete by 2035, with the
Indian economy only a
little smaller than the US economy but larger than that of Western Europe.
By 2035, India is likely to
be a larger growth driver than the six largest countries in the EU, though its
impact will be a little over
half that of the US. India, which is now the fourth largest economy in terms
of purchasing power
parity, will overtake Japan and become third major economic power within
10 years.
Any company or firm irrespective of its size, which aspires to be a global player
cannot for long
ignore India which is expected to become one of the best emerging

economies.

However the million-dollar question here for foreign players is “What is the

success-failure ratio?”

Success in investing in India will depend on four factors like: -

Accurate estimation or at least feasible estimation of the India's potential

Proper Risk Assessment while investing in India

Careful strategic planning backed by thorough research on investment

industry

Failure in investing in India can depend on three factors like: -

Underestimation of Indian investment intricacies

Overestimation of investment potential in India

Complexities & reservations of Indian System

One point that investors should understand about investing in India is that

India is an
Investment goldmine for long-term growth. While short term profits may be
churned out
From time to time but they are not of a penny’s worth in the longer run.

A.Investment
B. Financial Instruments
C.Equities
Equities are a type of security that represents the ownership in a company.
Equities are traded (bought
and sold) in stock markets. Alternatively, they can be purchased via the
Initial Public Offering (IPO)
route, i.e. directly from the company. Investing in equities is a good long-
term investment option as
the returns on equities over a long time horizon are generally higher than
most other investment
avenues. However, along with the possibility of greater returns comes
greater risk.

Mutual funds

A mutual fund allows a group of people to pool their money together and
have it professionally
managed, in keeping with a predetermined investment objective. This
investment avenue is popular
because of its cost-efficiency, risk-diversification, professional management
and sound regulation.
You can invest as little as Rs. 1,000 per month in a mutual fund. There are
various general and
thematic mutual funds to choose from and the risk and return possibilities
vary accordingly.

Bonds

Bonds are fixed income instruments which are issued for the purpose of
raising capital. Both private
entities, such as companies, financial institutions, and the central or state
government and other
government institutions use this instrument as a means of garnering funds.
Bonds issued by the
Government carry the lowest level of risk but could deliver fair returns.

Deposits

Investing in bank or post-office deposits is a very common way of securing surplus

funds. These
instruments are at the low end of the risk-return spectrum.

Cash equivalents

These are relatively safe and highly liquid investment options. Treasury bills and
money market funds
are cash equivalents.

Non-financial Instruments
Real estate
With the ever-increasing cost of land, real estate has come up as a profitable
investment proposition.

Gold
The 'yellow metal' is a preferred investment option, particularly when
markets are volatile. Today,
beyond physical gold, a number of products which derive their value from
the price of gold are
available for investment. These include gold futures and gold exchange
traded funds.
Gold exchange-traded funds
The modern international method of investing in gold is via gold mutual funds.
India should soon be
catching p in this area.

Government Securities India

Government Securities are securities issued by the Government for raising
a public loan or as notified
in the official Gazette. They consist of Government Promissory Notes,
Bearer Bonds, Stocks or
Bonds held in Bond Ledger Account. They may be in the form of Treasury
Bills or Dated
Government Securities.
Mostly Government Securities are interest bearing dated securities issued
by RBI on behalf of the
Government of India. GOI uses these funds to meet its expenditure
commitments. These securities are
generally fixed maturity and fixed coupon securities carrying semi-annual
coupon. Since the date of
maturity is specified in the securities, these are known as dated
Government securities, e.g. 8.24%
GOI 2018 is a Central Government security maturing in 2018, which carries
a coupon of 8.24%
payable half yearly.
Features of Government Securities

1) Issued at face value

2) No default risk as the securities carry sovereign guarantee.

3) Ample liquidity as the investor can sell the security in the secondary

market

4) Interest payment on a half yearly basis on face value

5) No tax deducted at source

6) Can be held in D-mat form.

7) Rate of interest and tenor of the security is fixed at the time of issuance

and is not subject to

change.
8) Redeemed at face value on maturity

9) Maturity ranges from of 2-30 years.

10) Securities qualify as SLR investments.

The dated Government securities market in India has two segments:
1) Primary Market: The Primary Market consists of the issuers of the securities,
viz., Central
and Sate Government and buyers include Commercial Banks, Primary
Dealers, Financial Institutions, Insurance Companies & Co-operative
Banks. RBI also has a scheme of non- competitive bidding for small
investors.
2) Secondary Market: The Secondary Market includes Commercial banks,
Financial
Institutions, Insurance Companies, Provident Funds, Trusts, Mutual Funds,
Primary Dealers
and Reserve Bank of India. Even Corporate and Individuals can invest in
Government
Securities. The eligibility criteria are specified in the relative Government
notification.
Yield Based: In this type of auction, RBI announces the issue size or notified
amount and the
tenor of the paper to be auctioned. The bidders submit bids in term of the
yield at which they
are ready to buy the security. If the Bid is more than the cut-off yield then
its rejected
otherwise it is accepted
Price Based: In this type of auction, RBI announces the issue size or notified
amount and the
tenor of the paper to be auctioned, as well as the coupon rate. The bidders
submit bids in terms
of the price. This method of auction is normally used in case of reissue of
existing government
securities. Bids at price lower then the cut off price are rejected and bids
higher then the cut
off price are accepted. Price Based auction leads to a better price
discovery then the Yield
based auction.

Bank Fixed Deposits (FD)

Fixed Deposit or FD is the most preferred investment option today. It yields

up to 8.5% annual return
depends on the Bank and period. Minimum period is 15 days and
maximum is 5 years and above.
Senior citizens get special interest rates for Fixed Deposits. This is
considered to be a safe investment
because all banks operated under the guidelines of Reserve Bank of India.
National Saving Certificate (NSC)
NSC is backed by Govt. of India so it is a safe investment method. Lock in
period is 6 years.
Minimum amount is Rs100 and no upper limit. You get 8% interest
calculated twice a year. NSC
comes under Section 80C so you will get an income tax deduction up to Rs
1,00,000. From FY
2005-'06 onwards interest accrued on NSC is taxable.
Public Provident Fund (PPF)
PPF
Another form of investment backed by Govt. of India. Minimum amount is
Rs500 and maximum is
Rs70,000 in a financial year. A PPF account can be opened in a head post
office, GPO and selected
branches of nationalized banks. PPF also comes under Section 80C so
individuals could avail income
tax deduction up to Rs 1,00,000. Lock in period for PPF is 15 years and
interest rate is 8%. Unlike
NSC, PPF interest rate is calculated annually. Both PPF and NSC
considered to be best investment
option as it is backed by Government of India

IDBI

Mutual Funds
Mutual Fund companies collect money from investors and invest in share market.
Investing in mutual
funds is also subject to market risks but return is good. To know more about
mutual funds visit
Mutual Funds
There are many investment options available like investing in Gold, Real Estate
etc.

Capital market
Capital Market is the market from where individuals, companies and govt. can
long term financing by
engaging in buying and selling of securities. Capital Market comprises of Primary
Market and
Secondary Market. In primary market, newly issued stocks and bonds are
exchanged and in the
secondary market trade of existing stocks and bonds take place.

Capital Market can be divided into Bond Market and Stock Market. In Bond
Market, buying and
selling of newly issued and existing bonds takes place. In Stock Market, exchange
of newly issued
and existing shares or stocks is carried out.
The participants of capital market are mainly those who have a surplus of funds
and those who have a
deficit of funds.

The persons having surplus money want to invest in capital market in hope of
getting high returns on
their investment. On the other hand, people with fund deficit try to get financing
from the capital
market by selling stocks and bonds.

These two kinds of activities keep the capital market going.

Capital Market is characterized as the provider of long-term financing. The
instruments used for this
long-term financing are equity instruments, insurance instruments, derivative
instruments and
especially bonds.

Stock Market
Investing in share market is another investment option to get more returns.
But share market
investment is volatile to market conditions. Before investing you should
have a thorough knowledge
about its operation.

Initial Public Offering

Companies can raise large amount of long term capital from capital market
by issuing Initial Public
Offering or IPO. A company gets “floated” in the stock market through an
IPO. Whenever a company
get financing through IPO, it has to lose some control over the company,
proportional to the amount
of shares that is sold to the investors. But the company interested in issuing
IPO has to satisfy the
entry standards to get a full listing in the stock market. Earlier these entry
standards were quite
stringent, but nowadays initiatives are taken by the stock markets to make
the entry a bit easy for the
new, technology based innovative companies. New stock markets are also
created with simplified
entry requirement for new innovative companies. These new stock markets
have all the characteristics
of a public stock market and these provide the new companies their much
required access to capital.

Venture Capital in the Capital Market

Venture capital is the fund that is raised through capital market by
specialized agents. This Venture
Capital is one of the main sources of funding for the new business
companies. Venture capitalists buy
bonds and shares issued by a new company. They are not interested in
getting immediate dividends
from the company in which they have invested. They want the companies
to expand their scale which
will in turn increase the value of their invested capital. So, the Venture
Capitalists are generally
interested in promoting new companies with high growth prospect.

Bonds and Debentures in India

A Bond is a loan given by the buyer to the issuer of the instrument. Bonds
can be issued by
companies, financial institutions, or even the government. Over and above
the scheduled interest
payments as and when applicable, the holder of a bond is entitled to
receive the par value of the
instrument at the specified maturity date.
.
Bonds can be broadly classified into
Tax-Saving Bonds
Regular Income Bonds
Tax-Saving Bonds offer tax exemption up to a specified amount of
investment. Examples are:
ICICI Infrastructure Bonds under Section 88 of the Income Tax Act, 1961
NABARD/ NHAI/REC Bonds under Section 54EC of the Income Tax Act,
1961
RBI Tax Relief Bonds
Regular-Income Bonds, as the name suggests, are meant to provide a
stable source of income at
regular, pre-determined intervals. Examples are:
Double Your Money Bond
Step-Up Interest Bond
Retirement Bond
Encash Bond
Education Bonds
Money Multiplier Bonds/Deep Discount Bond
Similar instruments issued by companies are called debentures.
.Liquidity of a Bond :
Selling in the debt market is an obvious option. Some issues also offer
what is known as 'Put and Call
option.' Under the Put option, the investor has the option to approach the
issuing entity after a
specified period (say, three years), and sell back the bond to the issuer.
In the Call option, the company has the right to recall its debt obligation after a
particular
time frame .
For instance, a company issues a bond at an interest rate of 12 per cent.
After 2 years, it finds it can

Market Value of a Bond

Market value of a bond depends on a host of factors such as its

yield at maturity, prevailing interest rates, and rating of the issuing
entity. Price of a bond will fall if interest rates rise and vice-versa.
A change in the credit rating of the issuer can lead to a change in
the market price.
Mode of Holding Bonds :
Bonds are most commonly held in form of physical certificates. Of
late, some bond issues provide the option of holding the
instrument in demat form; interest payment may also be
automatically credited to your bank account.
A financial marketplace where debt instruments, primarily bonds,
are bought and sold is called a bond market. The dealings in a
bond market are limited to a small group of participants. Contrary
to stock or commodities trading, the bond market (also known as
the debt market) lacks a central exchange. Players in a Bond
Market
The bond market involves transactions among three key players:
Issuers: They comprise of organizations and other entities that sell bonds
to raise funds to finance
their operations. These include banks, both local and multinational, as
well as the government as an
issuing entity.
Underwriters: This segment consists mainly of investment banks and
institutions that are leaders
in the investing business. They help the issuer to raise funds by
selling bonds. Also, they perform the key role of middlemen and
undertake crucial activities, such as preparing legal documents,
prospectus and other collaterals to simplify transactions.

Purchasers: This is the group that buys the debt instruments. In addition to the
government and
corporations, this section consists of individual investors who invest in the bond
market through unit-
investment trusts, close-ended funds and bond funds.
Types of Bond Markets
Based on the types of bonds in which they deal, the Securities Industry and
Financial Markets
Association have categorized the bond market into five types. These are:
Corporate: includes trading in debt securities issued by corporations and industries
to raise funds.
Government and Agency: involves trading in bonds issued by government
departments as well as
enterprises sponsored by the government or agencies backed by it.
Municipal: covers transactions in municipal securities issued by states, districts and
counties.
Mortgage Backed Securities: includes dealings in asset-backed securities that are
protected by
mortgages.
Risk Factors in a Credit Market

Although dealings in the fixed-income market might be lucrative, an investor must

be aware that
these are prone to variations in interest rates. When the market-based interest rate
rises, there is a
decline in the value of existing bonds. This is on account of the issuance of new
bonds at a higher
interest rate.
In order to limit your exposure to losses arising from escalations in the interest
rate, it is advisable to
hold a bond till maturity.
Investment Bonds
Bond, Bonds
Bond Rates

Purchasers: This is the group that buys the debt instruments. In addition to the
government and
corporations, this section consists of individual investors who invest in the bond
market through unit-
investment trusts, close-ended funds and bond funds.
Types of Bond Markets
Based on the types of bonds in which they deal, the Securities Industry and
Financial Markets
Association have categorized the bond market into five types. These are:
Corporate: includes trading in debt securities issued by corporations and industries
to raise funds.
Government and Agency: involves trading in bonds issued by government
departments as well as
enterprises sponsored by the government or agencies backed by it.
Municipal: covers transactions in municipal securities issued by states, districts and
counties.
Mortgage Backed Securities: includes dealings in asset-backed securities that are
protected by
mortgages.
Risk Factors in a Credit Market

Although dealings in the fixed-income market might be lucrative, an investor must

be aware that
these are prone to variations in interest rates. When the market-based interest rate
rises, there is a
decline in the value of existing bonds. This is on account of the issuance of new
bonds at a higher
interest rate.
In order to limit your exposure to losses arising from escalations in the interest
rate, it is advisable to
hold a bond till maturity.
Investment Bonds
Bond, Bonds
Bond Rates

Bond Yield

Benefits of Investment

There are advantages to being a disciplined investor. Investing

regularly via Systematic Investment
Plans (SIP), even if these are small amounts, offers many
benefits like:
There is no need to time the markets as you invest at
predetermined intervals. This spares you from
investing a lump sum amount at peak prices.
You benefit from an investment principle called 'Rupee cost
averaging'. Since you invest fixed sums at regular intervals, you
pick up more units when the prices are low and less units when
the prices are high. This brings down the average cost of your
units.
A Systematic Investment Plan renders to you the power of
compounding, especially if you begin your
SIP early in life.
SIPs inculcate the savings habit in investors. On a regular basis you put
aside affordable sums of
money and without realising it, over the long run you could amass great
wealth.
It is a hassle-free mode of investment since you can issue standing
instructions for the regular
transfers of money into your SIPs.
SIPs serve as a great financial tool to counter inflation.

Mutual fund
All About Mutual Funds
Before we understand what is mutual fund, it’s very important to know
the area in which mutual
funds works, the basic understanding of stocks and bonds.
Stocks: Stocks represent shares of ownership in a public company.
Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to be the
most common owned
investment traded on the market.
Bonds: Bonds are basically the money which you lend to the
government or a company, and in
return you can receive interest on your invested amount, which is
back over predetermined amounts of time. Bonds are considered
to be the most common lending investment traded on the market.
There are many other types of investments other than stocks and
bonds (including annuities, real estate, and precious metals), but
the majority of mutual funds invest in stocks and/or bonds.

What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial

intermediary that allows a group of investors to pool their money
together with a predetermined investment objective. The mutual
fund will have a fund manager who is responsible for investing the
gathered money into specific securities (stocks or bonds). When
you invest in a mutual fund, you are buying units or portions of the
mutual fund and thus on investing becomes a shareholder or unit
holder of the fund.
Mutual funds are considered as one of the best available
investments as compare to others
they are very cost efficient and also easy to invest in, thus by
pooling money together in a mutual
fund, investors can purchase stocks or bonds with much lower
trading costs than if they tried to do it
on their own. But the biggest advantage to mutual funds is
diversification, by minimizing risk &
maximizing returns.
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 flow chart below describes broadly the working of a
mutual fund
Unit Trust of India is the first Mutual Fund set up under a separate
act,
UTI Act in 1963, and started its operations in 1964 with the issue
of
units under the scheme US-64.
Overview of existing schemes existed in mutual fund category
Wide variety of Mutual Fund Schemes exists to cater to the needs
such as financial position, risk tolerance and return expectations
etc. The table below gives an overview into the existing types of
schemes in the Industry.
Mutual Funds Industry in India
The origin of mutual fund industry in India is with the introduction
of the concept of mutual fund by UTI in the year 1963. Though the
growth was slow, but it accelerated from the year 1987 when non-
UTI players entered the industry.
In the past decade, Indian mutual fund industry had seen a
dramatic improvements, both quality wise
as well as quantity wise. Before, the monopoly of the market had
seen an ending phase, the Assets
Under Management (AUM) was Rs. 67bn. The private sector
entry to the fund family rose the AUM
to Rs. 470 in in March 1993 and till April 2004, it reached the
height of 1,540 bn.
Putting the AUM of the Indian Mutual Funds Industry into
comparison, the total of it is less than the
deposits of SBI alone, constitute less than 11% of the total
deposits held by the Indian banking
industry.
The main reason of its poor growth is that the mutual fund industry in
India is new in the country.
Large sections of Indian investors are yet to be intellectuated with the
concept. Hence, it is the prime.

responsibility of all mutual fund companies, to market the product

correctly abreast of selling.
The mutual fund industry can be broadly put into four phases
according to the development of the
sector. Each phase is briefly described as under.
The major players in the Indian Mutual Fund Industry are:
Major Players of Mutual Funds In India. A mutual fund is a
professionally-managed firm of collective investments that pools
money from
many investors and invests it in stocks, bonds, short-term money
market instruments, and/or other
securities.in other words we can say that A Mutual Fund is a trust
registered with the Securities and
Exchange Board of India (SEBI), which pools up the money from
individual / corporate investors and
invests the same on behalf of the investors /unit holders, in equity
shares, Government securities,
Bonds, Call money markets etc., and distributes the profits.
The value of each unit of the mutual fund, known as the net asset
value (NAV), is mostly calculated
daily based on the total value of the fund divided by the number of
shares currently issued and
outstanding. The value of all the securities in the portfolio in
calculated daily. From this, all expenses
are deducted and the resultant value divided by the number of
units in the fund is the fund’s NAV.

NAV =Total value of the fund/No. of

shares currently issued and
outstanding
History of the Indian mutual fund industry:

The mutual fund industry in India started in 1963 with the

formation of Unit Trust of India, at the
initiative of the Government of India and Reserve Bank. 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 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)

1993 was the year in which the first Mutual Fund Regulations
came into being, under which all
mutual funds, except UTI were to be registered and governed.
The erstwhile Kothari Pioneer (now
merged with Franklin Templeton) was the first private sector
mutual fund registered in July 1993.
The 1993 SEBI (Mutual Fund) Regulations were substituted by a
more comprehensive and revised
Mutual Fund Regulations in 1996. The industry now functions
under the SEBI (Mutual Fund)
Regulations 1996. As at the end of January 2003, there were 33 mutual
funds with total assets of Rs.
1,21,805 crores.

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 second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB,
BOB and LIC. It is registered with SEBI and functions under the
Mutual Fund Regulations. consolidation and growth. As at the end
of September, 2004, there were 29 funds, which manage assets
of Rs.153108 crores under 421 schemes.

Regulations 1996. As at the end of January 2003, there were 33 mutual

funds with total assets of Rs.
1,21,805 crores.
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 second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB,
BOB and LIC. It is registered with SEBI and functions under the
Mutual Fund Regulations. consolidation and growth. As at the end
of September, 2004, there were 29 funds, which manage assets
of Rs.153108 crores under 421 schemes.

most of the New Fund Offers of close-ended funds

provided liquidity window on a periodic basis such as
monthly or weekly. Redemption of units can be made
during specified intervals. Therefore, such funds have
relatively low liquidity.

 Based on their investment objective :

Equity funds: These funds invest in equities and equity

related instruments. With fluctuating
share prices, such funds show volatile performance, even
losses. However, short term
fluctuations in the market, generally smoothens out in the
long term, thereby offering higher
returns at relatively lower volatility. At the same time, such
funds can yield great capital
appreciation as, historically, equities have outperformed all
asset classes in the long term.
Hence, investment in equity funds should be considered
for a period of at least 3-5 years. It
can be further classified as:
i) Index funds- In this case a key stock market index, like BSE
Sensex or Nifty is tracked. Their
portfolio mirrors the benchmark index both in terms of
composition and individual stock
weightages.
ii) Equity diversified funds- 100% of the capital is invested in
equities spreading across different
sectors and stocks.
iii) Dividend yield funds- it is similar to the equity diversified
funds except that they invest in
companies offering high dividend yields.
iv) Thematic funds- Invest 100% of the assets in sectors which
are related through some theme.
e.g. -An infrastructure fund invests in power, construction,
cements sectors etc.
v) Sector funds- Invest 100% of the capital in a specific sector.
e.g. - A banking sector fund will invest
in banking stocks.
vi) ELSS- Equity Linked Saving Scheme provides tax benefit to
the investors.
Balanced fund:
Their investment portfolio includes both debt and equity.
As a result, on the risk-return ladder, they fall between
equity and debt funds. Balanced funds are the ideal
mutual funds vehicle for investors who prefer spreading
their risk across various instruments. Following are
balanced funds classes:
i) Debt-oriented funds -Investment below 65% in equities.
ii) Equity-oriented funds-Invest at least 65% in equities,
remaining in debt.
Debt fund:
They invest only in debt instruments, and are a good
option for investors averse to idea of taking risk associated
with equities. Therefore, they invest exclusively in fixed-
income instruments like bonds, debentures, Government
of India securities; and money market instruments such as
certificates of deposit (CD), commercial paper (CP) and
call money. Put your money into any of these debt funds
depending on your investment horizon and needs.
i) Liquid funds- These funds invest 100% in money market
instruments, a large portion being
invested in call money market.

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

government securities of and T-bills.
iii)Floating rate funds - Invest in short-term debt papers. Floaters
invest in debt instruments which
have variable coupon rate.
iv)Arbitrage fund- They generate income through arbitrage
opportunities due to mis-pricing between
cash market and derivatives market. Funds are allocated to
equities, derivatives and money markets.
Higher proportion (around 75%) is put in money markets, in the
absence of arbitrage opportunities.
v)Gilt funds LT- They invest 100% of their portfolio in long-
term government securities.
vi) Income funds LT- Typically, such funds invest a major
portion of the portfolio in long-term debt
papers.
vii) MIPs- Monthly Income Plans have an exposure of 70%-
90% to debt and an exposure of 10%-
30% to equities.
viii)FMPs- fixed monthly plans invest in debt papers whose
maturity is in line with that of the fund.
Investment Strategies:
1. Systematic Investment Plan: under this a fixed sum is
invested each month on a fixed date of a
month. Payment is made through post dated cheques or
direct debit facilities. The investor gets fewer units when
the NAV is high and more units when the NAV is low. This
is called as the benefit of Rupee Cost Averaging (RCA)
2. Systematic Transfer Plan:under this an investor invest in
debt oriented fund and give
instructions to transfer a fixed sum, at a fixed interval, to an
equity scheme of the same mutual fund.
3. Systematic Withdrawal Plan: if someone wishes to
withdraw from a mutual fund then he can
withdraw a fixed amount each month.
Risk v/s. return
 The above graph shows that if we invest our money in
sectoral funds then, we get maximum returns but risk is
also maximum. If we invest in liquid funds liquid funds the
return is less but the risk is also less.
As far as any company who want to invest in mutual fund
should invest in liquid & debt funds.
This will make some return on investment & with less risk.
So, if a company like JSL want to invest
their surplus cash in mutual funds & govt. bonds. This will
make some return on less risk & helps in
making tax rebate on investing in govt. bonds & mutual
fund.
The entire mutual fund industry operates in a very
organized way. The investors, known as unit
holders, handover their savings to the AMCs under
various schemes. The objective of the investment
should match with the objective of the fund to best suit the
investors’ needs. The AMCs further invest
the funds into various securities according to the
investment objective. The return generated from the
investments is passed on to the investors or reinvested as
mentioned in the offer document.

Working of Mutual Fund

Mutual Funds
Before we understand what is mutual fund, it’s very important to
know the area in which mutual
funds works, the basic understanding of stocks and bonds.
Stocks : Stocks represent shares of ownership in a public
company. Examples of public companies
include Reliance, ONGC and Infosys. Stocks are considered to
be the most common owned
investment traded on the market.
Bonds : Bonds are basically the money which you lend to the
government or a company, and in return
you can receive interest on your invested amount, which is
back over predetermined amounts of time. Bonds are
considered to be the most common lending investment
traded on the market. There are many other types of
investments other than stocks and bonds (including
annuities, real estate, and precious metals), but the
majority of mutual funds invest in stocks and/or bonds.
What Is Mutual Fund

A mutual fund is just the connecting bridge or a financial

intermediary that allows a group of investors to pool their
money together with a predetermined investment
objective. The mutual fund will have a fund manager who
is responsible for investing the gathered money into
specific securities (stocks or bonds). When you invest in a
mutual fund, you are buying units or portions of the mutual
fund and thus on investing becomes a shareholder or unit
holder of the fund.
Mutual funds are considered as one of the best available
investments as compare to others they are very cost
efficient and also easy to invest in, thus by pooling money
together in a mutual fund, investors can purchase stocks
or bonds with much lower trading costs than if they tried to
do it on their own. But the biggest advantage to mutual
funds is diversification, by minimizing risk & maximizing
returns.
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 flow
chart below describes broadly the working of a mutual
fund.

bridge or a financial intermediary that allows a group of

investors to pool their money together with a
predetermined investment objective. The mutual fund will
have a fund manager who is responsible for investing the
gathered money into specific securities (stocks or bonds).
When you invest in a mutual fund, you are buying units or
portions of the mutual fund and thus on investing becomes
a shareholder or unit holder of the fund.
Mutual funds are considered as one of the best
available investments as compare to others they are very
cost efficient and also easy to invest in, thus by pooling
money together in a mutual fund, investors can purchase
stocks or bonds with much lower trading costs than if they
tried to do it on their own. But the biggest advantage to
mutual funds is diversification, by minimizing risk &
maximizing returns.
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 flow
chart below describes broadly the working of a mutual
fund

1. Equity fund:

These funds invest a maximum part of their corpus into

equities holdings. The structure of the fund
may vary different for different schemes and the fund
manager’s outlook on different stocks. The
Equity Funds are sub-classified depending upon their
investment objective, as follows:
•
Diversified Equity Funds
•
Mid-Cap Funds
•
Sector Specific Funds
•
Tax Savings Funds (ELSS)
Equity investments are meant for a longer time horizon, thus
Equity funds rank high on the risk-
return matrix.

2. Debt funds:

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

Government authorities, private companies,
banks and financial institutions are some of the major
issuers of debt papers. By investing in debt
instruments, these funds ensure low risk and provide
stable income to the investors. Debt funds are
further classified as:
•
Gilt Funds: Invest their corpus in securities issued by
Government, popularly known as
Government of India debt papers. These Funds carry zero
Default risk but are associated with
Interest Rate risk. These schemes are safer as they invest in
papers backed by Government.
•
Income Funds: Invest a major portion into various debt
instruments such as bonds, corporate
debentures and Government securities
.
48
•
MIPs: Invests maximum of their total corpus in
debt instruments while they take minimum
exposure in equities. It gets benefit of both
equity and debt market. These scheme ranks
slightly high on the risk-return matrix when
compared with other debt schemes.
•
Short Term Plans (STPs): Meant for investment
horizon for three to six months. These funds
primarily invest in short term papers like
Certificate of Deposits (CDs) and Commercial
Papers (CPs). Some portion of the corpus is also
invested in corporate debentures.
•
Liquid Funds: Also known as Money Market
Schemes, These funds provides easy liquidity
and preservation of capital. These schemes
invest in short-term instruments like
Treasury
Bills, inter-bank call money market, CPs
and CDs. These funds are meant for short-
term cash
management of corporate houses and are
meant for an investment horizon of 1day to
3
months. These schemes rank low on risk-
return matrix and are considered to be the
safest
amongst all categories of mutual funds.
49
3. Balanced funds:
As the name suggest they, are a mix of
both equity and debt funds. They invest in
both equities and
fixed income securities, which are in line
with pre-defined investment objective of the
scheme. These
schemes aim to provide investors with the
best of both the worlds. Equity part provides
growth and
the debt part provides stability in returns.
Further the mutual funds can be broadly
classified on the basis of investment parameter
viz ,
Each category of funds is backed by an
investment philosophy, which is pre-defined
in the objectives
of the fund. The investor can align his own
investment needs with the funds objective
and invest
accordingly.
BY INVESTMENT OBJECTIVE
•
Growth Schemes: Growth Schemes are also
known as equity schemes. The aim of these
schemes is to provide capital appreciation
over medium to long term. These schemes
normally invest a major part of their fund in
equities and are willing to bear short-term
decline in value for possible future
appreciation.
•
Income Schemes: Income Schemes are also
known as debt schemes. The aim of these
schemes is to provide regular and steady
income to investors. These schemes
generally invest
in fixed income securities such as bonds
and corporate debentures. Capital
appreciation in
such schemes may be limited.
•
Balanced Schemes: Balanced Schemes aim to
provide both growth and income by
periodically distributing a part of the income
and capital gains they earn. These
schemes invest
in both shares and fixed income securities,
in the proportion indicated in their offer
documents.
5
0
•
Money Market Schemes: Money Market
Schemes aim to provide easy liquidity,
preservation
of capital and moderate income. These
schemes generally invest in safer, short-
term
instruments, such as treasury bills,
certificates of deposit, commercial paper
and inter-bank
call money.
OTHER SCHEMES
•
Tax Saving Schemes: Tax-saving schemes offer
tax rebates to the investors under tax laws
prescribed from time to time. Under Sec.88 of
the Income Tax Act, contributions made to any
Equity Linked Savings Scheme (ELSS) are
eligible for rebate.
•
Index Schemes: Index schemes attempt to
replicate the performance of a particular index
such as the BSE Sensex or the NSE 50.
The portfolio of these schemes will consist
of only
those stocks that constitute the index. The
percentage of each stock to the total
holding will be
identical to the stocks index weightage. And
hence, the returns from such schemes
would be
more or less equivalent to those of the
Index.
•
Sector Specific Schemes: These are the
funds/schemes which invest in the securities of
only
those sectors or industries as specified in
the offer documents. e.g. Pharmaceuticals,
Software,
Fast Moving Consumer Goods (FMCG),
Petroleum stocks, etc. The returns in these
funds are
dependent on the performance of the
respective sectors/industries. While these
funds may give
higher returns, they are more risky
compared to diversified funds. Investors
need to keep a
watch on the performance of those
sectors/industries and must exit at an
appropriate time.
51