A report

On

“COMPARATIVE STUDY OF MUTUAL FUNDS

IN KARVY”

at

by

Brij Mohan Sharma

MBA
(Finance)
 “COMPARATIVE STUDY OF

MUTUAL FUNDS IN KARVY”

PROJECT REPORT

Submitted in Fulfillment of the Requirements for

the Degree of MASTER OF BUSINESS
ADMINISTRATION
In
Finance
IIMT COLLEGE, MEERUT

Submitted To: Submitted By:

Mr. N.N.Sengupta Brij Mohan Sharma
H.O.D MBA 3rd semester
IIMT Management college IIMT College, Meerut
Meerut
 ACKNOWLEDGEMENT
‘SUCCESS CAN NEVER BE ATTAINED WITHOUT PROPER
GUIDANCE’

Nothing concrete can be achieved without an optimal combination of

inspiration and perspiration. No work can be accomplished without taking
the guidance of the import. It is only the critiques for the ingenious
intellectual that helps transform product.
This work is a synergistic product of many minds. This began as part
of project semester of my MBA program. I am grateful for the inspiration;
encouragement information and wisdom of many resource people who help
me bring this report into life.
I thank Mr. Mahesh kaushik (Branch head) for giving me the
opportunity to work in the finance dept., that is the field I wanted to work in
and would like to take up in the future as my career.
I am grateful to Mr. Pankaj Shukla (Marketing executive), Mr.
Amit Tyagi (Finance Controller), Mr. Prabjoth Singh & Mr.Shobhit
Rastogi (Reporting officers), who extended his whole-hearted and
unreserved help to me throughout this project and enabled me to give the
project its present shape.
“Words fail to express adequately, my feeling
of deep gratitude, which I owe to all Karvy staff for
there invaluable counsel, constant help and
continuous encouragement al all stages of this
work.”
Special thank to Mr Ashish Dwevadi (Branch head shivpuri) for his
support.
I would also like to extend my thanks to Mr. N.N.Sengupta (H.O.D),
Ms. Padma(Project guide) & my supporting faculties of
INTERNATIONAL INSTITUTE OF MANAGEMENT AND
TECHNOLOGY.

Thank you all!

 DECLARATION

I, BRIJ MOHAN SHARMA, Student of MBA Session 2004-2006, declare

that the present work titled “COMPARATIVE STUDY OF MUTUAL
FUNDS IN KARVY” is an original work. I anywhere else for the award of
any degree/ diploma/ certificate or for any prize have not submitted this
project report. All the data given in the report is to the best of my
knowledge and all references whether of any person or organization can
be crosschecked.

BRIJ MOHAN SHARMA

 PREFACE
This project has been prepared in the fulfillment of the degree of
Master of Business Administration (U. P. Technical University, Lucknow).
I have tried my best to present the best for my project title
“COMPARATIVE STUDY OF MUTUAL FUNDS IN KARVY” under the
able guidance of all Karvy staff and my faculties of IIMT College.
Mutual funds are now the most appropriate investment option for the
investors. As financial markets become more sophisticated and complex,
investors need a financial intermediary who provides the required
knowledge and professional expertise on successful investing. It is no
wonder then that the birthplace of the mutual funds – the USA – the fund
industry has already overtaken the banking industry, more funds are being
under mutual fund management than deposit with banks.
The Indian Mutual Fund industry has already started opening up many
of the exciting investment opportunities to the Indian investors. We have
started witnessing the phenomenon of more savings now being entrusted to
the funds than to the banks. Despite the expected continuing growth in the
industry, Mutual Funds are still a new financial intermediary in India. Hence
it is important for the investors, the Mutual Fund agents, the Mutual Fund
distributors, then investment advisors and even the fund employees acquire
better knowledge of what Mutual Funds are, what they cannot, and how they
function differently from other intermediaries such as banks.
An intensive effort has been made to provide a detailed study of the
project title. This project has been presented into three parts. The very first
part of the project deals with the ‘Introduction of KARVY’. The
second part deals with ‘Mutual funds’. The third part related to the
‘Analysis of Various Mutual Fund Schemes and Suggestions and
Conclusions’.
CHAPTER ONE

COMPANY PORTFOLIO
 OVERVIEW

KARVY, is a premier integrated financial services provider, and ranked among

the top five in the country in all its business segments, services over 16 million individual

investors in various capacities, and provides investor services to over 300 corporates,

comprising the who is who of Corporate India. KARVY covers the entire spectrum of

financial services such as Stock broking, Depository Participants, Distribution of

financial products - mutual funds, bonds, fixed deposit, equities, Insurance Broking,

Commodities Broking, Personal Finance Advisory Services, Merchant Banking &

Corporate Finance, placement of equity, IPOs, among others. Karvy has a professional

management team and ranks among the best in technology, operations and research of

various industrial segments.|

KARVY- EARLY DAYS

The birth of Karvy was on a modest scale in 1981. It began with the vision and

enterprise of a small group of practicing Chartered Accountants who founded the flagship

company .Karvy Consultants Limited. We started with consulting and financial

accounting automation, and carved inroads into the field of registry and share accounting

by 1985. Since then, we have utilized our experience and superlative expertise to go from

strength to strength…to better our services, to provide new ones, to innovate, diversify
and in the process, evolved Karvy as one of India’s premier integrated financial service

enterprise.

Thus over the last 20 years Karvy has traveled the success route, towards building

a reputation as an integrated financial services provider, offering a wide spectrum of

services. And we have made this journey by taking the route of quality service, path

breaking innovations in service, versatility in service and finally…totality in service.

Our highly qualified manpower, cutting-edge technology, comprehensive infrastructure

and total customer-focus has secured for us the position of an emerging financial services

giant enjoying the confidence and support of an enviable clientele across diverse fields in

the financial world.

Our values and vision of attaining total competence in our servicing has served as

the building block for creating a great financial enterprise, which stands solid on our

fortresses of financial strength - our various companies.

With the experience of years of holistic financial servicing behind us and years of

complete expertise in the industry to look forward to, we have now emerged as a premier

integrated financial services provider.

And today, we can look with pride at the fruits of our mastery and experience –

comprehensive financial services that are competently segregated to service and manage

a diverse range of customer requirements.

 THE KARVY CREDO

Our Clients. Our Focus

Clients are the reason for our being.

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

nurture enduring relationships with our clients.

Respect for the individual

Each and every individual is an essential building block of our organization.

We are the kiln that hones individuals to perfection. Be they our employees,

shareholders or investors. We do so by upholding their dignity & pride, inculcating trust

and achieving a sensitive balance of their professional and personal lives.

Teamwork

None of us is more important than all of us.

Each team member is the face of Karvy. Together we offer diverse services with

speed, accuracy and quality to deliver only one product: excellence. Transparency, co-

operation, invaluable individual contributions for a collective goal, and respecting

individual uniqueness within a corporate whole, is how we deliver again and again.
 Responsible Citizenship

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

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

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

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

Integrity

Everything else is secondary.

Professional and personal ethics are our bedrock. We take pride in an environment

that encourages honesty and the opportunity to learn from failures than camouflage them.

We insist on consistency between works and actions. Milestones

MILESTONES
WORKING NETWORK OF

KARVY

As the flagship company of the Karvy Group, Karvy Consultants Limited has
always remained at the helm of organizational affairs, pioneering business policies, work

ethic and channels of progress.

Having emerged as a leader in the registry business, the first of the businesses that we

ventured into, we have now transferred this business into a joint venture with

Computershare Limited of Australia, the world’s largest registrar. With the advent of

depositories in the Indian capital market and the relationships that we have created in the

registry business, we believe that we were best positioned to venture into this activity as a

Depository Participant. We were one of the early entrants registered as Depository

Participant with NSDL (National Securities Depository Limited), the first Depository in

the country and then with CDSL (Central Depository Services Limited). Today, we

service over 6 lakhs customer accounts in this business spread across over 250

cities/towns in India and are ranked amongst the largest Depository Participants in the

country. With a growing secondary market presence, we have transferred this business to

Karvy Stock Broking Limited (KSBL), our associate and a member of NSE, BSE and

HSE.

IT enabled services

Our Technology Services division forms the ideal platform to unleash our

technology initiatives and make our presence felt on the Internet. Our past achievements

include many quality websites designed, developed and deployed by us. We also possess

our own web hosting facilities with dedicated bandwidth and a state-of-the-art server

farm (data center) with services functioning on a variety of operating platforms such as

Windows, Solaris, Linux and Unix.

 The corporate website of the company, “www.karvy.com”, gives access to in-

depth information on financial matters including Mutual Funds, IPOs, Fixed Income

Schemes, Insurance, Stock Market and much more. A link called ‘Resource Center’,

devoted solely to research conducted by our team of experts on various financial aspects

like ‘Sector Research’, deals exclusively with in-depth analysis of the key sectors of the

Indian economy. Besides, a host of other links like ‘My Portfolio’ which acts as a

personalized and customized financial measure, makes this site extremely informative

about investment options, market trends, news as also about our company and each of the

services offered here.

KARVY STOCK BROKING LIMITED

Member - Natio nal Stock Exchange (NSE), The Bombay Stock Exchange (BSE), and

The Hyderabad Stock Exchange (HSE).

Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice,

flows freely towards attaining diverse goals of the customer through varied services.

Creating a plethora of opportunities for the customer by opening up investment vistas

backed by research-based advisory services. Here, growth knows no limits and success

recognizes no boundaries. Helping the customer create waves in his portfolio and

empowering the investor completely is the ultimate goal.

 Stock Broking Services

It is an undisputed fact that the stock market is unpredictable and yet enjoys a

high success rate as a wealth management and wealth accumulation option. The

difference between unpredictability and a safety anchor in the market is provided by in-

depth knowledge of market functioning and changing trends, planning with foresight and

choosing one’s options with care. This is what we provide in our Stock Broking services.

We offer services that are beyond just a medium for buying and selling stocks and

shares. Instead we provide services which are multi dimensional and multi-focused in

their scope. There are several advantages in utilizing our Stock Broking services, which

are the reasons why it is one of the best in the country.

We offer trading on a vast platform – National Stock Exchange, Bombay Stock

Exchange and Hyderabad Stock Exchange. More importantly, we make trading safe to

the maximum possible extent, by accounting for several risk factors and planning

accordingly. We are assisted in this task by our in-depth research, constant feedback and

sound advisory facilities. Our highly skilled research team, comprising of technical

analysts as well as fundamental specialists, secure result-oriented information on market

trends, market analysis and market predictions. This crucial information is given as a

constant feedback to our customers, through daily reports delivered thrice daily – The

Pre-session Report, where market scenario for the day is predicted, The Mid-session

Report, timed to arrive during lunch break , where the market forecast for the rest of the
day is given and The Post-session Report, the final report for the day, where the market

and the report itself is reviewed. To add to this repository of information, we publish a

monthly magazine “Karvy – The Finapolis”, which analyzes the latest stock market

trends and takes a close look at the various investment options, and products available in

the market, while a weekly report, called “ Karvy Bazaar Baatein”, keeps you more

informed on the immediate trends in the stock market. In addition, our specific industry

reports give comprehensive information on various industries. Besides this, we also offer

special portfolio analysis packages that provide daily technical advice on scrips for

successful portfolio management and provide customized advisory services to help you

make the right financial moves that are specifically suited to your portfolio.

Our Stock Broking services are widely networked across India, with the number

of our trading terminals providing retail stock broking facilities. Our services have

increasingly offered customer oriented convenience, which we provide to a spectrum of

investors, high-networth or otherwise, with equal dedication and competence.

But true to our spirit, this success is not our final destination, but just a platform to

launch further enhanced quality services to provide you the latest in convenient,

customer-friendly stock management.

Over the years we have ensured that the trust of our customers is our biggest

returns. Factors such as our success in the Electronic custody business has helped build

on our tradition of trust even more. Consequentially our retail client base expanded very

fast.
 To empower the investor further we have made serious efforts to ensure that our

research calls are disseminated systematically to all our stock broking clients through

various delivery channels like email, chat, SMS, phone calls etc.

Our foray into commodities broking has been path breaking and we are in the

process of converting existing traders in commodities into the more organized

mainstream of trading in commodity futures, both as a trading and risk hedging

mechanism.

In the future, our focus will be on the emerging businesses and to meet this

objective, we have enhanced our manpower and revitalized our knowledge base with

enhances focus on Futures and Options as well as the commodities business.

Depository Participants

The onset of the technology revolution in financial services Industry saw the

emergence of Karvy as an electronic custodian registered with National Securities

Depository Ltd (NSDL) and Central Securities Depository Ltd (CSDL) in 1998.

Karvy set standards enabling further comfort to the investor by promoting paperless

trading across the country and emerged as the top 3 Depository Participants in the

country in terms of customer serviced.

Offering a wide trading platform with a dual membership at both NSDL and

CDSL, we are a powerful medium for trading and settlement of dematerialized shares.

We have established live DPMs, Internet access to accounts and an easier transaction

process in order to offer more convenience to individual and corporate investors. A team
of professional and the latest technological expertise allocated exclusively to our demat

division including technological enhancements like SPEED-e, make our response time

quick and our delivery impeccable. A wide national network makes our efficiencies

accessible to all.

Distribution of Financial Products

The paradigm shift from pure selling to knowledge based selling drives the

business today. With our wide portfolio offerings, we occupy all segments in the retail

financial services industry.

A 1600 team of highly qualified and dedicated professionals drawn from the best

of academic and professional backgrounds are committed to maintaining high levels of

client service delivery. This has propelled us to a position among the top distributors for

equity and debt issues with an estimated market share of 15% in terms of applications

mobilized, besides being established as the leading procurer in all public issues.

To further tap the immense growth potential in the capital markets we enhanced

the scope of our retail brand, Karvy – The Finapolis , thereby providing planning and

advisory services to the mass affluent. Here we understand the customer needs and

lifestyle in the context of present earnings and provide adequate advisory services that

will necessarily help in creating wealth. Judicious planning that is customized to meet the
future needs of the customer deliver a service that is exemplary. The market-savvy and

the ignorant investors, both find this service very satisfactory. The edge that we have over

competition is our portfolio of offerings and our professional expertise. The investment

planning for each customer is done with an unbiased attitude so that the service is truly

customized.

Our monthly magazine, Finapolis, provides up-dated market information on

market trends, investment options, opinions etc. Thus empowering the investor to base

every financial move on rational thought and prudent analysis and embark on the path to

wealth creation.

Advisory Services

Under our retail brand ‘Karvy – The Finapolis’, we deliver advisory services to a

cross-section of customers. The service is backed by a team of dedicated and expert

professionals with varied experience and background in handling investment portfolios.

They are continually engaged in designing the right investment portfolio for each

customer according to individual needs and budget considerations with a comprehensive

support system that focuses on trading customers' portfolios and providing valuable

inputs, monitoring and managing the portfolio through varied technological initiatives.

This is made possible by the expertise we have gained in the business over the years.

Another venture towards being investor-friendly is the circulation of a monthly magazine

called ‘Karvy - the Finapolis'. Covering the latest of market news, trends, investment

schemes and research-based opinions from experts in various financial fields. Research
Private Client Group

This specialized division was set up to cater to the high net worth individuals and

institutional clients keeping in mind that they require a different kind of financial

planning and management that will augment not just existing finances but their life-style

as well. Here we follow a hard-nosed business approach with the soft touch of dedicated

customer care and personalized attention.

For this purpose we offer a comprehensive and personalized service that

encompasses planning and protection of finances, planning of business needs and

retirement needs and a host of other services, all provided on a one-to-one basis.

Our research reports have been widely appreciated by this segment. The delivery

and support modules have been fine tuned by giving our clients access to online portfolio

information, constant updates on their portfolios as well as value-added advise on

portfolio churning, sector switches etc. The investment recommendations given by our

research team in the cash market has enjoyed a high success rate.

KARVY INVESTOR SERNICES LIMITED

Merchant Banking

Recognized as a leading merchant banker in the country, we are registered with

SEBI as a Category I merchant banker. This reputation was built by

capitalizing on opportunities in corporate consolidations, mergers and acquisitions and

corporate restructuring, which have earned us the reputation of a merchant banker.

Raising resources for corporate or Government Undertaking successfully over the past

two decades have given us the confidence to renew our focus in this sector.

Our quality professional team and our work-oriented dedication have propelled us

to offer value-added corporate financial services and act as a professional navigator for

long term growth of our clients, who include leading corporates, State Governments,

foreign institutional investors, public and private sector companies and banks, in Indian

and global markets.

We have also emerged as a trailblazer in the arena of relationships, both at the

customer and trade levels because of our unshakable integrity, seamless service and

innovative solutions that are tuned to meet varied needs. Our team of committed industry

specialists, having extensive experience in capital markets, further nurtures this

relationship.

Our financial advice and assistance in restructuring, divestitures, acquisitions, de-

mergers, spin-offs, joint ventures, privatization and takeover defense mechanisms have

elevated our relationship with the client to one based on unshakable trust and confidence.

Karvy offerings – Investment Banking

KARVY COMPUTERSHARE PRIVATE LIMITED

 We have traversed wide spaces to tie up with the world’s largest transfer agent, the

leading Australian company, Computershare Limited. The company that services more

than 75 million shareholders across 7000 corporate clients and makes its presence felt in

over 12 countries across 5 continents has entered into a 50-50 joint venture with us.

With our management team completely transferred to this new entity, we will aim

to enrich the financial services industry than before. The future holds new arenas of client

servicing and contemporary and relevant technologies as we are geared to deliver better

value and foster bigger investments in the business. The worldwide network of

Computershare will hold us in good stead as we expect to adopt international standards in

addition to leveraging the best of technologies from around the world.

Excellence has to be the order of the day when two companies with such similar

ideologies of growth, vision and competence, get together. www.karisma.karvy.com

We have attained a position of immense strength as a provider of across-the-board

transfer agency services to AMCs, Distributors and Investors.

Mutual Fund Services

Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche

AMC and UTI swear by the quality and range of services that we offer. Besides

providing the entire back office processing, we provide the link between various Mutual
Funds and the investor, including services to the distributor, the prime channel in this

operation.

Carrying the ‘limitless' ideology forward, we have explored new dimensions in

every aspect of Mutual Fund servicing right from volume management, cost effective

pricing, delivery in the least turnaround time, efficient back-office and front-office

operations to customized service. We have been with the AMCs every step of the way,

helping them serve their investors better by offering them a diverse and customized range

of services. The ‘first to market' approach that is our anthem has earned us the reputation

of an innovative service provider with a visionary bent of mind.

Our service enhancements such as ‘Karvy Converz', a full-fledged call center, a

top-line website (www.karvymfs.com), the ‘m-investor' and many more, creating a

galaxy of customer advantages.

Issue Registry

In our voyage towards becoming the largest transaction-processing house in the

Indian Corporate segment, we have mobilized funds for numerous corporate, Karvy has

emerged as the largest transaction-processing house for the Indian Corporate sector. With

an experience of handling over 700 issues, Karvy today, has the ability to execute

voluminous transactions and hard-core expertise in technology applications have gained

us the No.1 slot in the business. Karvy is the first Registry Company to receive ISO 9002

certification in India that stands testimony to its stature

 Karvy has the backing of skilled human resources complemented by requisite

technological packages to ensure a faster processing capability. Karvy has the benefit of a

good synergy between depositories and registry that enables faster resolution to related

customer queries. Apart from its unique investor servicing presence in all the phases of a

public Issue, it is actively coordinating with both the main depositories to develop special

models to enable the customer to access depository (NSDL, CDSL) services during an

IPO.

Our trust-worthy reputation, competent manpower and high-end technology and

infrastructure are the solid foundations on which our success is built.

http://karisma.karvy.com

Corporate Shareholder Services

Karvy has been a customer centric company since its inception. Karvy offers a

single platform servicing multiple financial instruments in its bid to offer complete

financial solutions to the varying needs of both corporate and retail investors where an

extensive range of services are provided with great volume-management capability.

Today, Karvy is recognized as a company that can exceed customer expectations

which is the reason for the loyalty of customers towards Karvy for all his financial needs.

An opinion poll commissioned by “The Merchant Banker Update” and conducted by the

reputed market research agency, MARG revealed that Karvy was considered the “Most

Admired” in the registrar category among financial services companies.

 We have grown from being a pure transaction processing business, to one of

complete shareholder solutions.

KARVY GLOBAL SERVICES LIMITED

The specialist Business Process Outsourcing unit of the Karvy Group. The

legacy of expertise and experience in financial services of the Karvy Group serves us

well as we enter the global arena with the confidence of being able to deliver and deliver

well.

Here we offer several delivery models on the understanding that business needs

are unique and therefore only a customized service could possibly fit the bill. Our service

matrix has permutations and combinations that create several options to choose from.

Be it in re-engineering and managing processes or delivering new efficiencies, our

service meets up to the most stringent of international standards. Our outsourcing models

are designed for the global customer and are backed by sound corporate and operations

philosophies, and domain expertise. Providing productivity improvements, operational

cost control, cost savings, improved accountability and a whole gamut of other

advantages.

We operate in the core market segments that have emerging requirements for

specialized services. Our wide vertical market coverage includes Banking, Financial and
Insurance Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy

and Utility and Healthcare.

Our horizontal offerings do justice to our stance as a comprehensive BPO unit

and include a variety of services in Finance and Accounting Outsourcing Operations,

Human Resource Outsourcing Operations, Research and Analytics Outsourcing

Operations and Insurance Back Office Outsourcing Operations. www.karvyglobal.com

KARVY COMMODITIES BROKING PVT. LTD.

At Karvy Commodities, we are focused on taking commodities trading to new

dimensions of reliability and profitability. We have made commodities trading, an

essentially age-old practice, into a sophisticated and scientific investment option.

Here we enable trade in all goods and products of agricultural and mineral origin

that include lucrative commodities like gold and silver and popular items like oil, pulses

and cotton through a well-systematized trading platform.

Our technological and infrastructural strengths and especially our street-smart skills

make us an ideal broker. Our service matrix is holistic with a gamut of advantages, the

first and foremost being our legacy of human resources, technology and infrastructure

that comes from being part of the Karvy Group.

Our wide national network, spanning the length and breadth of India, further

supports these advantages. Regular trading workshops and seminars are conducted to
hone trading strategies to perfection. Every move made is a calculated one, based on

reliable research that is converted into valuable information through daily, weekly and

monthly newsletters, calls and intraday alerts. Further, personalized service is provided

here by a dedicated team committed to giving hassle-free service while the brokerage

rates offered are extremely competitive.

Our commitment to excel in this sector stems from the immense importance that

commodities broking has to a cross-section of investors – farmers, exporters, importers,

manufacturers and the Government of India itself.

KARVY INSURANCE BROKING PVT. LTD.

At Karvy Insurance Broking Pvt. Ltd., we provide both life and non-life

insurance products to retail individuals, high net-worth clients and corporates. With the

opening up of the insurance sector and with a large number of private players in the

business, we are in a position to provide tailor made policies for different segments of

customers. In our journey to emerge as a personal finance advisor, we will be better

positioned to leverage our relationships with the product providers and place the

requirements of our customers appropriately with the product providers. With Indian

markets seeing a sea change, both in terms of investment pattern and attitude of investors,

insurance is no more seen as only a tax saving product but also as an investment product.

By setting up a separate entity, we would be positioned to provide the best of the

products available in this business to our customers.

 Our wide national network, spanning the length and breadth of India, further

supports these advantages. Further, personalized service is provided here by a dedicated

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

With our growing ambitions of reaching out to investors across the shores of this

country, we have set up Karvy Inc. in the US located in New York to provide various

financial products and information on Indian equities to potential foreign institutional

investors (FIIs) in the region. This entity soon would be ACC registered and would also

become a member of various important stock exchanges in the US. This entity would

extensively facilitate various businesses of Karvy viz., stock broking (Indian equities),

research and investment by QIBs in Indian markets for both secondary and primary

offerings, outsourcing of various assignments for the multiple streams of business in

Karvy Global Services Ltd (KGSL).

 CHAPTER TWO

MUTUAL FUNDS

Introduction
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 appreciation 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 investigable 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

Objective of Study and Methodology

The structure of the Indian mutual fund industry has been transformed during the

last ten years or so from a monolithic to a highly competitive structure. The investors

now have to choose from amongst a large number of MF organizations and schemes. An

important aspect examined in this study is how far competition has progressed and what

kind of pattern can be discerned in regard to the investors' preferences among MF

organizations/schemes. We also attempt to examine the MF industry's development

against a wider perspective by comparing the investors' preferences for MF products with

their preferences for other major financial products, including equity shares, bonds, bank

FDs and government savings schemes.

METHODOLOGY

The methodology of the research work for this project includes:

• Literature Research

• Different Mutual Fund Scheme

• Classification of Mutual fund scheme

• Data Collection

• Analysis

• Results

• Writing up

Literature Research

To study the various aspects of the mutual funds various literature works

has been considered which includes various books related to the Mutual

Funds, AMFI guidelines, SEBI and SBI guidelines, various business

magazines and news papers. All the basic information from this source

regarding the various aspects of Mutual Fund helps in understanding the

Mutual Fund industry.

Different Mutual Fund Scheme

Next to the literature work it is important to look over the various Mutual

Fund schemes, the service providers and other related information. This

may be gathered from the prospectus and websites of the Mutual Fund

service providers, various magazines and news papers.

Classification of Mutual fund scheme

For the analysis among different mutual fund schemes proper

classification of the schemes is the important. The scheme are available in

various pre classified forms.

So for the purpose of analysis here six different categories of mutual fund

schemes have been considered.

• Equity Funds

• Liquid Funds

• Balanced Funds

• Floating Rate Funds

• Gilt Funds

• Monthly Income Plan Funds

Data Collection

The main data required for the purpose of the analysis are:
 • List of Various Mutual fund schemes

For the analysis to know the various mutual funds schemes available

for the Indian investors it is important to look over then various

schemes. This information is being collected from the website

• High rated Mutual funds schemes

The mutual funds schemes analyzed in for the present analysis are

highly rated on annual average till 30 June 2004 as rated by Credit

Rating Information Services India Limited (CRISIL). The data

collected for this purpose is sourced from http://www.infoline.com.

• Various Data Related to Mutual Funds

Data like monthly returns, quartly returns, annual returns, corpus

size, risks involved, maturity period, expenses ratio etc. are also

important for the analysis of various mutual funds. Such

informations are collected from the prospectus and websites of

various matual funds services providers like Prudential ICICI

Mutual Fund , Tata Mutual Fund, Birla Sun Life Mutual Fund,

Kotak Mutual Fund, Tempelton Mutual Fund, SBI Mutual Fund,

UTI Mutual Fund etc.. The data are also collected from
 Objectives
 To define and maintain high professional and ethical standards in all areas of

operation of mutual fund industry.

 To recommend and promote best business practices and code of conduct to be

followed by members and other engaged in the activities of mutual fund and asset

management including agencies connected or involved in the field of capital

markets and financial services.

 To interact with the Securities and Exchange Board of India (SEBI) and to

represent to SEBI on all matters concerning the mutual fund industry.

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

matters

relating to the Mutual Fund Industry.

 To develop a cadre of well-trained Agent distributors and to implement a program

of training and certification for all intermediaries and others engaged in the

industry.

 To undertake nation wide investor awareness program so as to promote proper

understanding of the concept and working of mutual funds.

 To disseminate information on Mutual Fund Industry and to undertake studies and

Research directly and/or in association with other bodies.

Mutual Fund-Concept, Organizational Structure, Advantages and

Types
CONCEPT

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

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

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

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

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

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

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

The flow chart below describes broadly the working of a mutual fund:

Mutual funds operation flow

:ORGANISATION OF A MUTUAL FUND

There are many entities involved and the diagram below illustrates the

organizational set up of a mutual fund:

 orignisation of a Mutual Fund

ADVANTAGES OF MUTUAL FUNDS

The advantages of investing in a Mutual Fund are:

 Professional Management
 Diversification

 Convenient Administration

 Return Potential

 Low Costs

 Liquidity

 Transparency

 Flexibility

 Choice of schemes

 Tax benefits

 Well regulated

MUTUAL FUND SCHEMES

 Wide variety of Mutual Fund Schemes exists to cater to the needs such as

financial position, risk tolerance and return expectations etc. The figure below gives an

overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEMES

BY STRUCTURE

• Open-Ended Schemes

• Close-Ended Schemes

• Interval Schemes

BY INVESTMENT OBJECTIVE

• Growth Schemes

• Income Schemes

• Balanced Schemes

• Money Market Schemes

OTHER SCHEMES

• Tax Saving Schemes

• Special Schemes

Index Schemes

Sector Specie Schemes

 Structure of the Indian mutual fund industry

The Indian mutual fund industry is dominated by the Unit Trust of India which

has a total corpus of Rs 700bn collected from more than 20 million investors. The UTI

has many funds/schemes in all categories ie equity, balanced income etc with some being

open-ended and some being closed-ended. The Unit Scheme 1964 commonly referred to

as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs 200

bn. UTI was floated by financial institutions and is governed by a special act of

Parliament. Most of its investors believe that the UTI is government owned and

controlled, which, while legally incorrect, is true for all practical purposes.

The second largest category of mutual funds are the ones floated by nationalized

banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management

floated by the State Bank of India are the largest of these. GIC AMC floated by General

Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of

the other prominent ones. The aggregate corpus of funds managed by this category of

AMCs is about Rs 150 bn.

the third largest category of mutual funds is the ones floated by the private sector and by

foreign asset management companies. The largest of these are Prudential ICICI AMC and

Birla Sun Life AMC>The aggregate corpus of assets managed by this category of AMCs

is in excess of Rs 250 bn.

Some of the AMCs operating currently are :

Name of the AMC Nature of ownership

Alliance Capital Asset management (I) Private Limited Private foreign

Birla Sun Life Asset Management Company Limited Private Indian

Mank of Baroda Asset management Company Limited Banks

Bank of India Asset Management Company Limited Banks

Canbank Investment Management Servies Limited Banks

Cholamanadalam Cazenove Asset Management Company Private foreign

Limited

Dundee Asset Management Company Limited Private foreign

DSP Merrill Lynch Asset Management Company Limited Private foreign

Escorts Asset Management Limited Private Indian

First India Asset Management Limited Private Indian

GIC Asset Management Company Limited Institutions

IDBI Investment Management Company Limited Institutions

Indfund Management Limited Banks

ING Investment Asset Management Company Private Private foreign

Limited

JM Capital Management Limited Private Indian

Jardine Fleming (I) Asset Management Limited Private foreign

Kotak Mahindra Asset Management company Limited Private Indian

Jeevan Bima Sahayog Asset Management Company Institutions

Limited

Morgan Stanley Asset Management Company Private Private foreign

Limited
Punjab National Bank Asset Management Company Banks

Limited

Reliance Capital Asset Management Company Limited Private Indian

State Bank of India Funds Management Limited Banks

Shriram Asset Management company Limited Private Indian

Sun F and C Asset Management (I) Private Limited Private foreign

Sundaram Newton Asset Management Company Limited Private foreign

Tata Asset Management Company Limited Private Indian

Credit Capital Asset Management Company Limited Private Indian

Templeton Asset Management (India) Private Limited Private foreign

Unit Trust of India Institutions

Zurich Asset management Company (I) Limited Private foreign

Recent trends in mutual funds 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 has 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 experiece 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.

The foreign owned companies have deep pockets and have come in here with the

expectation of a long haul. They can be credited with introducing many new practices

such as new product innovation, sharp improvement in service standards and disclosure,

usage of technology, broker education and support etc. In fact, they have forced the

industry to upgrade itself and service levels of organizations like UTI have improved

dramatically in the last few years in response to the competition provided by these.

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 und is open for subscription only during a specified period. Investors

can invest in the scheme at the time of the initial public issue and thereafter they can buy

or sell the units of the scheme on the stock exchanges where they are listed. In order to

provide an exit route to the investors, some close-ended funds give an option of selling

back the units to the Mutual Fund through periodic repurchase at NAV related prices.

SEBI Regulations stipulate that at least one of the two exit routes is provided tot he

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.

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

helf 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 equites 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 ar5e ideal for investors looking for a combination of income and

moderate growth.

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 part their surplus funds for short periods.

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

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 Info Tech,

FMCG, Pharmaceuticals etc.

• Index Schemes

Index funds attempts to replicate the performance of a particular index number as

the BSE Sensex or the NSE 50.

• Sectoral Schemes

Sectoral funds are those which invest excusively in a specified industry or group

of industries or various segments such as ’A’ Group shares or initial public

offering.

Benefits of Mutual Funds Investment

Return Potential

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.

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.

Liquidity

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

value related prices from the Mutual Fund. In close-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.

Transparency

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

disclosure on the specific investments made by your scheme, the proportion invested in

each class of assets and the fund manager's investment strategy and outlook.

Flexibility

Through features such as regular investment plans, regular withdrawal plans and

dividend reinvestment plans, you can systematically invest or withdraw funds according

to your needs and convenience.

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.

Choice of Schemes
Mutual Funds offer a family of schemes to suit our varying needs over a lifetime.
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.

Net Asset Value (NAV)

The net asset value of the fund is the cumulative market value of the assets fund

net of its liabilities. In other words, if the fund is dissolved or liquidated, by selling off all

the assets in the fund, this is the amount that the shareholders would collectively own.

This gives rise to the concept of net asset value per unit, which is the value, represented

by the ownership of one unit in the fund. It is calculated simply by dividing the net asset

value of the fund by the number of units. However, most people refer loosely to the NAV

per unit as NAV, ignoring the ‘‘per unit’’. We also abide by the same convention.

Calculation of NAV

The most important part of the calculation is the valuation of the assets owned by

the fund. Once it is calculated, the NAV is simply the net value of assets divided by the

number of units outstanding. The detailed methodology for the calculation of the asset

value is given below.

Asset value is equal to

Sum of market value of shares/debentures + Liquid assets/cash held, if any +

Dividends/interest accrued Amount due on unpaid assets Expenses accrued but not paid.

Details on the above items

For liquid shares/debentures, valuation is done on the basis of the last or closing

market price on the principal exchange where the security is traded.

For illiquid and unlisted and/or thinly traded shares/debentures, the value has to

be estimated. For shares, this could be the book value per share or an estimated market

price if suitable benchmarks are available. For debentures and bonds, value is estimated

on the basis of yields of comparable liquid securities after adjusting for illiquidity. The

value of fixed interest bearing securities moves in a direction opposite to interest rate

changes Valuation of debentures and bonds is a big problem since most of them are

unlisted and thinly traded. This gives considerable leeway to the AMCs on valuation and

some of the AMCs are believed to take advantage of this and adopt flexible valuation

policies depending on the situation.

Interest is payable on debentures/bonds on a periodic basis say every 6 months.

But, with every passing day, interest is said to be accrued, at the daily interest rate, which

is calculated by dividing the periodic interest payment with the number of days in each

period. Thus, accrued interest on a particular day is equal to the daily interest rate

multiplied by the number of days since the last interest payment date.

Usually, dividends are proposed at the time of the Annual General meeting and

become due on the record date. There is a gap between the dates on which it becomes due

and the actual payment date. In the intermediate period, it is deemed to be ‘‘accrued’’.
Expenses including management fees, custody charges etc. are calculated on a daily

basis.

HISTORY OF MUTUAL FUNDS

Mutual Funds in India (1964–2000)

The end of millennium marks 36 years of existence of mutual funds in this

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

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

UTI commenced its operations from July 1964. The impetus for establishing a

formal institution came from the desire to increase the propensity of the middle and lower

groups to save and to invest. UTI came into existence during a period marked by great

political and economic uncertainty in India. With war on the borders and economic

turmoil that depressed the financial market, entrepreneurs were hesitant to enter capital

market. The already existing companies found it difficult to raise fresh capital, as

investors did not respond adequately to new issues. Earnest efforts were required to

canalize savings of the community into productive uses in order to speed up the process

of industrial growth. Then the Finance Minister, T.T. Krishnamachari set up the idea of a

unit trust that would be ‘‘open to any person or institution to purchase the units offered

by the trust. However, this institution as we see it, is intended to cater to the needs of

individual investors, and even among them as far as possible, to those whose means are

small.’’
 His ideas took the form of the Unit Trust of India, an intermediary that would help

fulfill the twin objectives of mobilizing retail savings and investing those savings in the

capital market and passing on the benefits so accrued to the small investors.

UTI commenced its operations from July 1964 ‘‘with a view to encouraging

savings and investment and participation in the income, profits and gains accruing to the

Corporation from the acquisition, holding, management and disposal of securities.’’

Different provisions of the UTI Act laid down the structure of management, scop of

business, powers and functions of the Trust as well as accounting, disclosures and

regulatory requirements for the Trust.

One thing is certain–the fund industry is here to stay. The industry was one-entity

show till 1986 when the UTI monopoly was broken when SBI and Canbank mutual fund

entered the arena. This was followed by the entry of others like BOI, LIC, GIC etc.

sponsored by public sector banks. Starting with an asset base of Rs 0.25b in 1964 the

industry has grown at a compounded average growth rate of 26.34% to its current size of

Rs 1130bn.

The period 1986-1993 can be termed as the period of public sector mutual funds

(PMFs). From one player in 1985 the number increased to 8 in 1993. The party did not

last long. When the private sector made its debut in 1993-94, the stock market was

booming.

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 it's 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.

May the Net Asset Values grow!!

Market Trends

A lone UTI with just one scheme in 1964, now competes with as many as 400 odd

products and 34 players in the market. In spite of the stiff competition and losing market

share, UTI still remains a formidable force to reckon with.

Last six years have been the most turbulent as well as exiting ones for the

industry. New players have come in, while others have decided to close shop by either

selling off or merging with others. Product innovation is now passe with the game

shifting to performance delivery in fund management as well as service. Those directly

associated with the fund management industry like distributors, registrars and transfer

agents, and even the regulators have become more mature and responsible.

The opening up of the asset management business to private sector in 1993 saw

international players like Morgan Stanley, Jardine Fleming, JP Morgan, George Soros

and Capital International along with the host of domestic players join the party. But for

the equity funds, the period of 1994-96 was one of the worst in the history of Indian

Mutual Funds.

1999-2000 Year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs

but the year 1999-2004 were immense future potential and developments in this sector.

These years signaled the years of resurgence of mutual funds and the regaining of

investor confidence in these MF's. This time around all the participants are involved in

the revival of the funds---the AMC's, the unit holders, the other related parties. However

the sole factor that gave lifr to the revival of the funds was the Union Budget. The budget

brought about a large number of changes in one stroke. An insight of the Union Budget

on mutual funds taxation benefits in provided later.

It provided centrestage to the mutual funds, made them more attractive and

provides acceptability among the investors. The Union Budget exempted mutual fund

dividend given out by equity-oriented schemes from tax, both at the hands of the investor

as well as the mutual fund. No longer were the mutual funds interested in selling the

concept of mutual funds they wanted to talk business which would mean to increase asset

base, and to get asset base and investor base they had to be fully armed with a whole lot

of schemes for every investor. So new schemes for new IPO's were inevitable. The quest
to attract investors extended beyond just new schemes. The funds started to regulate

themselves and were all out on winning the trust and confidence of the investors under

the aegis of the Association of Mutual Funds of India (AMFI)

One cam say that the industry is moving from infancy to adolescence, the industry

is maturing and the investors and funds are frankly and openly discussing difficulties

opportunities and compulsions.

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.

The industry is also having a profound impact on financial markets. While UTI

has always been a dominant player on the bourses as well as the debt markets, the new

generation of private funds which have gained substantial mass are now seen flexing their

muscles. Fund managers, by their selection criteria for stocks have forced corporate

governance on the industry. By rewarding honest and transparent management with

higher valuations, a system of risk-reward has been created where the corporate sector is

more transparent then before.

Funds have shifted their focus to the recession free sectors like pharmaceuticals,

FMCG and technology sector. Funds performances are improving. Funds collection,

which averaged at less than Rs 100bn per annum over five-year period spanning 1993-98
doubled to Rs 210 bn in 1998-99. In the current year mobilization till now have exceeded

Rs 300 bn. total collection of the current financial year ending March 2004 was archived

Rs 450 bn.

What is particularly noteworthy is that bulk of the mobilization has been by the

private sector mutual funds rather than public sector mutual funds. Indeed private MFs

saw a net inflow of Rs. 7819.34 Crore during the first nine months of the year 2004 as

against a net inflow of Rs. 604.40 crore in the case of public sector funds.

Mutual funds are now also competing with commercial banks in the race for retail

investor's savings and corporate float money. The power shift towards mutual funds has

become obvious. The coming few years will show that the traditional saving avenues are

losing out in the current scenario. Many investors are realizing that investments in

savings accounts are as good as locking up their deposits in a closet. The fund

mobilization trend by mutual funds in the current year indicates that money is going to

mutual funds in a big way. The collection in the first half of the financial year 2003-2004

matches the whole of 2001-2002.

India is at the first stage of a revolution that has already peaked in the U.S. the

U.S. boasts of an Asset base that is much higher than its bank deposits. In India' mutual

fund assets are not even 10% of the bank deposits, but this trend is beginning to change.

Recent figures indicate that in the first quarter of the current fiscal year mutual fund

assets went up by 115% whereas bank deposits rose by only 17% (Source : Thinktank,

The Financial Express September, 03). This is forcing a large number of banks to adopt

the concept of narrow banking wherein the deposits are kept in gilts and some other

assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be
ignored and they will not close down completely. Their role as intermediaries cannot be

ignored. It is just that Mutual Funds are going to change the way banks do business in

the future.

COMPARISION BETWEEN BANKS V/S MUTUAL FUNDS

BASICS BANKS MUTUAL FUNDS

Returns Low Better

Administrative exp. High Low

Risk Low Moderate

Investment options Less More

Network High penetration Low but improving

BASICS BANKS MUTUAL FUNDS

Liquidity At a cost Better

Quality of assets Not transparent Transparent

Interest calculation Minimum balance Everyday

between 10th.& 30th.

of every month

Guarantee Maximum Rs. 1 lakh on deposits None

Global Scenario
Some basic facts—

• The money market mutual fund segment has a total corpus of $ 1.48 trillion in the

U.S. against a corpus of $ 100 million in India.

• Out of the top 10 mutual funds worldwide, eight are bank-sponsored. Only

Fidelity and Capital are non-bank mutual funds in this group.

• In the U.S. the total number of schemes is higher than that of the listed companies

while in India we have just 277 schemes.

• Internationally, mutual funds are allowed to go short. In India fund managers do

not have such leeway.

• In the U.S. about 9.7 million households will manage their assets on-line by the

year 2003, such a facility is not yet of avail in India.

• On-line trading is a great idea to reduce management expenses from the current

2% of total assets to about 0.75% of the total assets.

• 72% of the core customer base of mutual funds in the top 50-broking firms in the

U.S. are expected to trade on-line by 2003.

Internationally, on-line investing continues its meteoric rise. Many have debated

about the success of e-commerce and its breakthroughs, but it is true that this aspect

of technology could and will change the way financial sectors function. However,

mutual funds cannot be left far behind. They have realized the potential of the

Internet and are equipping themselves to perform better.

In fact in advanced countries like the U.S.A. mutual funds buy-sell transactions have

already begun on the Net, while in India the Net is used as a source of Information.
 Such changes could facilitate easy access, lower intermediation costs and better

services for all. A research agency that specializes in internet technology estimates that

over the next four years Mutual Fund Assets traded on-line will grow ten folds from $

128 billion to $ 1,227 billion; whereas equity assets traded on-line will increase during

the period from $ 246 billion to $ 1,561 billion. This will increase the share of mutual

funds from 34% to 40% during the period.

Such increases in volumes are expected to bring about large changes in the way

Mutual Funds conduct their business.

Here are some of the basic changes that have taken place since the advent of the

Net.

• Lower Costs : Distribution of funds will fall in the online trading regime by

2003. Mutual funds could bring down their administrative costs to 0.75% if

trading is done on-line. As per SEBI regulations, bond funds can charge a

maximum of 2.25% and equity funds can charge 2.5% as administrative fees.

Therefore if the administrative costs are low, the benefits are passed down and

hence Mutual Funds are able to attract mire investors and increase their asset

base.

• Better advice: Mutual funds could provide better advice to their investors

through the Net rather than through the traditional investment routes where there

is an additional channel to deal with the Brokers. Direct dealing with the fund

could help the investor with their financial planning.

• In India, brokers could get more Net savvy than investors and could help the

investors with the knowledge through get from the Net.

 • Net investors would prefer online: Mutual funds can target investors who are

young individuals and who are Net savvy, since servicing them would be easier

on the Net.

• India has around 1.6 million net users who are prime target for these funds and

this could just be the beginning. The Internet users are going to increase

dramatically and mutual funds are going to be the best beneficiary. With smaller

administrative costs more funds would be mobilized. A fund manager must be

ready to tackle the volatility and will have to maintain sufficient amount of

investments which are high liquidity and low yielding investments to honor

redemption.

• Net based advertisements: There will be more sites involved in ads and

promotion of mutual funds. In the U.S. sites like AOL offer detailed research and

financial details about the functioning of different funds and their performance

statistics a is witnessing a genesis in this area. There are many sites such as

indiainfoline.com and indiafn.com that are doing something similar and providing

advice to investors regarding their investments.

In the U.S. most mutual funds concentrate only on financial funds like equity and

debt. Some like real estate funds and commodity funds also take an exposure to physical

assets. The latter type of funds are preferred by corporate’s who want to hedge their

exposure to the commodities they deal with.

For instance, a cable manufacturer who needs 100 tons of Copper in the month of

January could buy an equivalent amount of copper by investing in a copper fund. For

Example, Permanent Portfolio Fund, a conservative U.S. based fund invests a fixed
percentage of it’s corpus in Gold, Silver, Swiss francs, specific stocks on various bourses

around the world, short-term and long-term U.S. treasuries etc.

In U.S.A. apart from bullion funds there are copper funds, precious metal funds

and real estate funds (investing in real estate and other related assets as well.) In India,

the Canada based Dundee mutual fund is planning to launch a gold and a real estate fund

before the year-end.

In developed countries like the U.S.A there are funds to satisfy everybody’s requirement,

but in India only the tip of the iceberg has been explored. In the near future India too will

concentrate on financial as well as physical funds.

Mutual funds and the Budget 2004-2005

Important measures

Deletion of sections 54 EA and 54 EB of the Income Tax Act, 1961

The above two sections provided relief from capital gains tax if investments were made

in specified securities and locked in for a period of 3 years in the case of 54 EA and 7

years in the case of 54EB. Mutual funds units were one of the specified securities and this

resulted in a lot of money realized as profit from sale of securities being reinvested in the

market through mutual funds.

With the withdrawal of the exemption to mutual funds, investors have lost out on

a very viable alternative for tax saving and funds also would be faced with the problem of

`hot money’ as there would no longer be any lock in period for investments. It is

estimated that 54EA investments formed approximately 15% of the corpus.

Increase in dividend tax from 10% to 20% for debt funds.

 The existing dividend tax payable by debt schemes has been doubled to 20%. This

would lead to a reduction in returns available to investors by approximately 1.5% from

the average of approximately 14%. This is expected to hurt retail investment in debt

schemes and could lead to a pull out and reduced mobilization. Two implications of this

move could be :

• Reinvestment of dividends by investors, since capital gains would be taxed at a

lower rate as compared to dividend, investors would prefer to reinvest dividend

and earn long-term capital appreciation.

• Switch over from debt to equity schemes; since open ended equity schemes are

free from paying dividend tax, these schemes could attract some of the investment

that is pulled out from debt schemes.

Instead of taxing debt schemes so as to bring parity between the banks and mutual

funds, it is widely felt that the finance minister could have simply extended some of the

benefits enjoyed by mutual funds to banks and FIs. The experience with mutual funds has

in any case shown that turning dividends tax free in the hands of investors has simply

improved collections, widened the tax base and reduced procedural delays.

Tax implication for income received from schemes other than open-end equity

oriented scheme

By definition all schemes that are not open-end equity oriented schemes must pay

a distribution tax. This tax has been fixed at 10%. In fact, the actual tax will be 11% since

the mutual fund must pay a 10% surcharge as well.

 Regulatory Aspects

Schemes of a Mutual Fund

• The asset management company shall launch no scheme unless the trustees

approve such scheme and a copy of the offer document has been filed with the

Board.

• Every mutual fund shall along with the offer document of each scheme pay filing

fees.

• The offer document shall contain disclosures which are adequate in order to

enable the investors to make informed investment decision including the

disclosure on maximum investments proposed to be made by the scheme in the

listed securities of the group companies of the sponsor. A close-ended scheme

shall be fully redeemed at the end of the maturity period. “Unless a majority of

the unit holders otherwise decide for its rollover by passing a resolution”.

• The mutual fund and asset management company shall be liable to refund the

application money to the applicants,-

(i) If the mutual fund fails to receive the minimum subscription amount referred to in

clause (a) of sub-regulation (1);

(ii) If the moneys received from the applicants for units are in excess of subscription

as referred to in clause (b) of sub-regulation (1).

• The asset management company shall issue to the applicant whose application has

been accepted, unit certificates or a statement of accounts specifying the number

of units allotted to the applicant as soon as possible but not later than six weeks
 from the date of closure of the initial subscription list and or from the date of

receipt of the request from the unit holders in any open ended scheme.

Rules Regarding Advertisement :

The offer document and advertisement materials shall not be misleading or

contain any statement or opinion, which are incorrect or false.

Investment Objectives And Valuation Policies:

The price at which the units may be subscribed or sold and the price at which such

units may at any time be repurchased by the mutual fund shall be made available to the

investors.

General Obligations :

• Every asset management company for each scheme shall keep and maintain

proper books of accounts, records and documents, for each scheme so as to

explain its transactions and to disclose at any point of time the financial position

of each scheme and in particular give a true and fair view of the state of affairs of

the fund and intimate to the Board the place where such books of accounts,

records and documents are maintained.

• The financial year for all the schemes shall end as of March 31 of each year.

Every mutual fund or the asset management company shall prepare in respect of

each financial year an annual report and annual statement of accounts of the

schemes and the fund as specified in Eleventh Schedule.

• Every mutual fund shall have the annual statement of accounts audited by an

auditor who is not in any way associated with the auditor of the asset management

company.
Procedure For Action In Case of Default :

On and from the date of the suspension of the certificate or the approval, as the

case may be, the mutual fund, trustees or asset management company, shall cease to carry

on any activity as a mutual fund, trustee or asset management company, during the period

of suspension, and shall be subject to the directions of the Board with regard to any

records, documents, or securities that may be in its custody or control, relating to its

activities as mutual fund, trustees or asset management company.

Restrictions On Investments:

• A mutual fund scheme shall not invest more than 15% of its NAV in debt

instruments issued by a single issuer, which are rated not below investment grade

by a credit rating agency authorized to carry out such activity under the Act. Such

investment limit may be extended to 20% of the NAV of the scheme with the

prior approval of the Board of Trustees and the Board of asset management

company.

• A mutual fund scheme shall not invest more than 10% of its NAV in unrated debt

instruments issued by a single issuer and the total investment in such instruments

shall not exceed 25% of the NAV of the scheme. All such investments shall be

made with the prior approval of the Board of Trustees and the Board of asset

management company.

• No mutual fund under all its schemes should own more than ten per cent of any

company’s paid up capital carrying voting rights.

• Such transfers are done at the prevailing market price for quoted instruments on

spot basis.
 The securities so transferred shall be in conformity with the investment objective

of the scheme to which such transfer has been made.

• A scheme may invest in another scheme under the same asset management

company or any other mutual fund without charging any fees, provided that

aggregate interscheme investment made by all schemes under the same

management or in schemes under the management of any other asset management

company shall not exceed 5% of the net asset value of the mutual fund.

• The initial issue expenses in respect of any scheme may not exceed six per cent of

the funds raised under that scheme.

• Every mutual fund shall buy and sell securities on the basis of deliveries and shall

in all cases of purchases, take delivery of relative securities and in all cases of

sale, deliver in the securities and shall in no case put itself in a position whereby it

has to make short sale or carry forward transaction or engage in badla finance.

• Every mutual fund shall, get the securities purchased or transferred in the name of

the mutual fund on account of the concerned scheme, wherever investments are

intended to be of long-term nature.

• Pending deployment of funds of a scheme in securities in terms of investments

objectives of the scheme a mutual fund can invest the funds of the scheme in short

term deposits of scheduled commercial banks.

• No mutual fund scheme shall make any investment in;

i. Any unlisted security of an associate or group company of the

sponsor, or
 ii. Any security issued by way of private placement by an associate or

group company of the sponsor; or

The listed securities of group companies of the sponsor which is in excess of 30% of

the net assets [of all the schemes of a mutual fund]

• No mutual fund scheme shall invest more than 10 per cent of its NAV in the

equity shares or equity related instruments of any company. Provided that, the

limit of 10 per cent shall not be applicable for investments in index fund or sector

or industry specific scheme.

• A mutual fund scheme shall not invest more than 5% of its NAV in the equity

shares or equity related investments in case of open-ended scheme and 10% of its

NAV in case of close-ended scheme.

.
 FREQUENTLY USED TERMS

Net Asset Value (NAV)

Net Asset Value is the market value of the assets of the scheme minus its

liabilities. The per unit NAV is the net asset value of the scheme divided by the number

of units outstanding on the Valuation Date.

Advisor

The organization employed by a mutual fund to give professional advice on the

fund’s investments and to supervise the management of its assets.

Asked or Offering Price

The price at which a mutual fund’s shares can be purchased. The asked or

offering price means the current net asset value (NAV) per share plus sales charge, if any.

For a no-load fund, the asked price is the same as the NAV.

Asset Allocation Fund

A fund that spreads its portfolio among a wide variety of investments, including domestic

and foreign stocks and bonds, government securities, gold bullion and real estate stocks.

This gives small investors far more diversification than they could get allocating money

on their own some.

Capital Appreciation Fund

A mutual fund that seeks maximum capital appreciation through the use of

investment techniques involving greater than ordinary risk, such as borrowing money in

order to provide leverage, short-selling and high portfolio turnover.

 Capital Gains Distributions

Payments (usually annually) to mutual fund shareholders of gains realized on the

sale of portfolio securities.

Capital Growth

A rise in market value of a mutual fund’s securities, reflected in its net asset value

per share. This is a specific long-term objective of many mutual funds.

Certificate of Deposit

Interest-bearing, short-term debt instrument issued by banks and thrifts.

Closed-End Investment Company

An investment company that offers a limited number of shares. They are traded in

the securities markets, usually through brokers. Price is determined by supply and

demand. Unlike open-end investment companies (mutual funds), closed-end funds do not

redeem their shares.

Commercial Paper

Short-term, unsecured promissory notes with maturates no longer than 270 days.

They are issued by corporations, to fund short-term credit needs.

Common Stock Fund

An open-end investment company whose holdings consist mainly of common

stocks and usually emphasize growth of these funds keep the proportions allocated

between different sectors relatively constant, while others alter the mix as market

conditions change.
 Automatic Reinvestment

A service offered by most mutual funds whereby income dividends and capital

gain distributions are automatically invested into the fund by buying additional shares

and thus building up holdings through the effects of compounding.

Balanced Fund

A mutual fund that maintains a balanced portfolio, generally 60% bonds or

preferred stocks and 40% common stocks.

Bid or Sell Price

The price at which a mutual fund’s shares are redeemed (bought back) by the

fund. The bid or redemption price means the current net asset value per share, less any

redemption fee or backend load.

Bond Fund

A mutual fund whose portfolio consists primarily of corporate or Government

bonds. These funds generally emphasize income rather than growth.

Bond Rating

System of evaluating the probability of whether a bond issuer will default.

Various firms analyze the financial stability of both corporate and government bond

issuers. Ratings range from AAA or Aaa (extremely unlikely to default) to D (currently

in default). Bonds rated BBB or below are not considered to be of investment grade.

Mutual funds generally restrict their bond purchases to issues of certain quality ratings,

which are specified in their prospectuses.

 Rupee-Cost Averaging

The technique of investing a fixed sum at regular intervals regardless of stock

market movements. This reduces average share costs to the investor, who acquires more

shares in periods of lower securities prices and fewer shares in periods of high prices. In

this way, investing risk is spread over time.

Exchange Privilege (Or switching privilege)

The right to transfer investments from one fund into another, generally within the

same fund group, at nominal cost.

Ex-Dividend Date

The date on which a fund’s Net Asset Value (NAV) will fall by an amount equal

to the dividend and/or capital gains distribution (although market movements may alter

the fund’s closing NAV somewhat). Most publications which list closing NAVs place an

“X” after a fund’ name on its ex-dividend date.

Expense Ratio

The ratio of total expenses to net assets of the fund. Expenses include

management fees, the cost of shareholder mailings and other administrative expenses.

The ratio is listed in a fund’s prospectus. Expense ratios may be a function of a fund’s

size rather than of its success in controlling expenses.

Fiscal Year

An accounting period consisting of 12 consecutive months.

Global Fund

A fund that invests in both Indian and foreign securities.

 Confirm Date

The date the fund processed your transaction, typically the same day or the day

after your trade date.

Contingent Deferred Sales Charge (CDSC)

A fee (or back-end load) imposed by certain funds on shares redeemed within a

specific period following their purchase. These charges are usually assessed on a sliding

scale, such as four percent to one percent of the amounts redeemed, with the fee reduced

each year the units are held.

Custodian

The bank or trust company that maintains a mutual fund’s assets, including its

portfolio of securities or some record of them. Provides safekeeping of securities but has

no role in portfolio management.

Daily Dividend Fund

This term applies to funds that declare their income dividends on a daily basis and

reinvest or distribute monthly.

Deferred Compensation Plan

A tax-sheltered investment plan to which employees of state and local

governments can defer a percentage of their salary.

Distributor

An individual or a corporation serving as principal underwriter of a mutual fund’s

shares, buying shares directly from the fund, and reselling them to other investors.
 Diversification

The policy of spreading investments among a range of different securities to

reduce the risks inherent in investing.

Growth Fund

A mutual fund whose primary investment objective is long-term growth of

capital. It invests principally in common stocks with significant growth potential.

Income Dividend

Payment of interest and dividends earned on the fund’s portfolio securities after

operating expenses are deducted.

Income Fund

A mutual fund that primarily seeks current income rather than growth of capital. It

will tend to invest in stocks and bonds that normally pay high dividends and interest.

Index Fund

A mutual fund that seeks to mirror general stock-market performance by

matching its portfolio to a broad-based index, most often the S & P CNZ Nifty index.

International Fund

A fund that invests in securities traded in markets outside India.

Investment Company

A corporation, partnership or trust that invests the pooled monies of many

investors. It provides greater professional management and diversification of investments

than most investors can obtain independently. Mutual funds, or “open-end” investment

companies, are the most popular form of investment company.

 Investment Objective

The financial goal (long-term growth, current income, etc.) that an investor or a

mutual fund pursues.

Junk Bond

A speculative bond rated BB or below “Junk bonds” are generally issued by

corporations of questionable financial strength or without proven track records. They tend

to be more volatile and higher yielding than bonds with superior quality ratings. “Junk

bond funds” emphasize diversified investments in these low-rated, high-yielding debt

issues.

Load

A sales charge or commission assessed by certain mutual funds (“load funds,”) to

cover their selling costs. The commission is generally stated as a portion of the fund’s

offering price, usually on a sliding scale from one to 8.5%.

Load Fund

A mutual fund that levies a sales charge up to 6%, which is included in the

offering price of its shares, and is sold by a broker or salesman. A front-end load is the

fee charged when buying into a fund; a back-end load is the fee charged when getting out

of a fund.

Low-Load Fund

A mutual fund that charges a small sales commission, usually 3.5% or less, for the

purchase of its shares.

 Management Fee

The amount a mutual fund pays to its investment adviser for services rendered,

including management of the fund’s portfolio. In general, this fee ranges from .5% to 1%

of the fund’s asset value.

Money Market Fund

A mutual fund that aims to pay money market interest rates. This is accomplished

by investing in safe, highly liquid securities, including bank certificates of deposit,

commercial paper, government securities and repurchase agreements. Money Market

funds make these high interest securities available to the average investor seeking

immediate income and high investment safety.

Prospectus

An official document that each investment company must publish, describing the

mutual fund and offering its shares for sale. It contains information required by the

Securities and Exchange Commission.

Record Date

The date the fund determines who its shareholders are, “shareholders of record”

who will receive the fund’s income dividend and/or net capital gains distribution.

Frequently the business day immediately prior to the Ex-Dividend Date.

Redemption Fee

A fee charged by a limited number of funds for redeeming, or buying back, fund

shares.
 Redemption Price

The price at which a mutual fund’s shares are redeemed (bought back) by the less

expensive fund. The redemption price is usually equal to the current net asset value per

share.

Regional Fund

A mutual fund that concentrates its investments within a specific geographic area,

usually the fund’s local region. The objective is to take advantage of regional growth

potential before the national investment community does.

Reinvestment Date (Payable Date)

The date on which a share’s dividend and/or capital gains will be reinvested (if

requested) in additional fund shares.

Reinvestment Privilege

A service that most mutual funds offer whereby a shareholder’s income dividends

and capital gains distributions are automatically reinvested in additional shares.

Mutual Fund

An open-end investment company that buys back or redeems its shares at current

net asset value.

Most mutual funds continuously offer new shares to investors.

Net Asset Value Per Share

The current market worth of a mutual fund share. Calculated daily by taking the

funds total assets securities, cash and any accrued earnings deducting liabilities, and

dividing the remainder by the number of shares outstanding.

 No-Load Fund

A commission-free mutual fund that sells its shares at net asset value, either

directly to the public or through an affiliated distributor, without the addition of a sales

charge.

Payable Date

The date on which distributions are paid to shareholders who do not want to

reinvest them. This date can be anywhere from one week to one month after the Record

Dae.

Payroll Deduction Plan

An arrangement between an employer and a mutual fund, authorized by the

employee, through which a specified sum is deducted from an employee’s salary to buy

shares in the fund.

Portfolio Turnover Rate

The rate at which the fund’s portfolio securities are changed each year. If a fund’s

assets total Rs 100mn and the fund bought and sold Rs 100mn worth of securities that

year, its portfolio turnover rate would be 100%. Aggressively managed funds generally

have higher portfolio turnover rates than do conservative funds that invest for the long

term. High portfolio turnover rates generally add to the expenses of a fund.

Voluntary Plan

A flexible plan for capital accumulation, involving no specified time frame or

total sum to be invested.

 Yield

Income or return received from an investment, usually expressed as a percentage

of market price, over a designated period. For a mutual fund, yield is interest or dividend

before any gain or loss in the price per share.

Zero Coupon Bond

Bond sold at a fraction of its face value. It appreciates gradually, but no periodic

interest payments are made. Earnings accumulate until maturity, when the bond is

redeemable at full face value. Nonetheless, interest is taxable as it accrues.

Sector Fund

A fund that operates several specialized industry sector portfolios under one

umbrella. Transfers between the various portfolios can usually be executed by telephone

at little or no cost.

Short Selling

The sale of a security which is not owned by the seller. The “short seller” borrows

stock for delivery to the buyer, and must eventually purchase the security for return to the

lender.
CHAPTER THREE

COPARISION OF MUTUAL FUNDS

 SCHEMES COMPARISIONS OF

VARIOUS MUTUAL FUNDS

BALANED FUND

DSP MERRILL
BASE SBI ING VYSYA HDFC TATA
LYNCH

GAURAV
FUND ANUP SANDIP NARAIN& TUSHAR
M. VENUGOPAL
MANAGER MAHESHWARI SABHARWAL SHRIRAM PRADHAN
RAMANDTHAN

DSP MERRILL
HDFC
NAME OF LYNCH ING VYSYA TATA TRUSTEE
TRUSTEE
TRUSTEE TRUSTEE CO. MUTUAL FUND CO.PVT. LTD.
CO.LTD
PVT. LTD.

TO
GENERATE
CAP.
APPRECIATIO TO PROVIDE
N ALONG INCOME
TO GENERATE
WITH DISTRIBUTION &
LONGTERM
CURRNT MEDIUM TO
GROWTH OF
TO GENERATE INCOME LONG TERM CAP.
INVESTMEN CAP. &CURRENT
LONGTERM FROM A GAINS WHILE AT
T INCOME FROM A
CAP. COMBINED ALL TIME
OBJECTIVE PORTFOLIO OF
APPRECIATION PORTFOLIO EMPHASISING
EQUITY & FIXED
OF EQUITY & THE
INCOME
EQUITY IMPORTANCE OF
SECURITIES
RELATED & CAP.
DEBT & APPRECIATION
MONEY
MARKET
INSTRUMENT

LODE
STRUCTURE
2.25%<Rs.5 Cr. 2.25%<=Rs. 50 2% <Rs. 1 Cr. 2.25% < Rs. 5 2.25% < Rs. 2 Cr.
ENTRY Lk Cr.
EXIT NIL NIL NIL NIL NIL
PERFORMA
NCE
LAST 1 Yrs.
38.94% 29.51% 20.02% 23.52% 31.48%
LAST 3 Yrs.
44.74% 33.30% 20.12% 22.52% 32.83%
LAST 5 Yrs.
9.34% 8.72% _ _ 11.76%

GROWTH FUND

DSP MERRILL FRANKIN

BASE RELIANCE HDFC TATA
LYNCH TEMPLETON

ANUP
MAHESHWARI
FUND DR. J. MARK SUNIL TUSHAR
& M. VENUGOPAL
MANAGER MOBIUS SINGHANIA PRADHAN
SOUMENDRA
NATH LAHIRI

DSP MERRILL
HDFC
NAME OF LYNCH TATA TRUSTEE
TRUSTEE
TRUSTEE TRUSTEE CO. CO.PVT. LTD.
CO.LTD
PVT. LTD.

TO
GENERATE
TO ACHIVE CAP.
LONGTERM APPRECIATIO TO PROVIDE
GROWTH OF N ALONG INCOME
CAP. BY WITH DISTRIBUTION &
INVESTING IN CURRNT MEDIUM TO
EQUITY INCOME LONG TERM CAP.
INVESTMEN SEEK TO SEEK TO
&EQUITY FROM A GAINS WHILE AT
T GENERATE CAP. PROVIDE CAP.
RELATED COMBINED ALL TIME
OBJECTIVE APPRECIATION GROWTH
SECURITIES PORTFOLIO EMPHASISING
THROUGH A OF EQUITY & THE
RESEARCH EQUITY IMPORTANCE OF
BASED RELATED & CAP.
INVESTMENT DEBT & APPRECIATION
APPROACH MONEY
MARKET
INSTRUMENT

LODE
STRUCTURE
2.25%<Rs.5 Cr. 2% <Rs. 1 Cr. 2.25% < Rs. 5 2.25% < Rs. 2 Cr.
ENTRY 2.25%
Cr.
NIL
EXIT NIL NIL NIL NIL
PERFORMA
NCE
LAST 1 Yrs. 31.91% 21.92% 53.71% 41.47% 47.27%
LAST 3 Yrs. 48.34% 39.31% 67.25% 38.56% 41.93%
LAST 5 Yrs. - 20.76% 32.50% _ 25.20%

INCOME FUND

FRANKIN
BASE ING VYSYA RELIANCE HDFC SBI
TEMPLETON

SAMEER
KULKARNI/
FUND MR. SHRI RAM PRASHANT R. SHABBIR
SACHIN GANTI MURTHY
MANAGER RAMANATHAN PIMPLE KAPASI
PADWAL-
DESAI

HDFC
NAME OF ING VYSYA
TRUSTEE .
TRUSTEE MUTUAL FUND.
CO.LTD

TO GENERATE
TO GENERATE OPTIMAL
ATTRACTIVE RETURNS
INCOME BY CONSISTANT
INVESTING WIH
INN A MODERATE
DIVERSIFIED LEVELS OF
TO OPTIMISE
TO GENERATE PORTFOLIO OF RISK.THIS
RETURNS
A STEADY DEBT & INCOME MAY
WHILE
STREAM OF MONEY BE
INVESTMEN MAINTAININ
INCOME MARKET COMPLEMENTE
T GA
THROUGH INSTRUMENT D BY CAPITAL
OBJECTIVE BALANCE OF
INVESTMENT IN OF VARYING APPRECIATION
SAFETY
FIXED INCOME MATURITIES & OF THE
YIELD &
SECURITIES AT THE SAME PRTFOLIO
LIQUIDITY
TIME PROVIDE INVESTMENTS
CONTINUOUS SHALL
LIQUIDITY PREDOMINANT
ALONG WITH LY BE MADE IN
ADEQUATE DEBT & MONEY
SAFETY MARKET
INSTRUMENT
 LODE NIL
NIL NIL
STRUCTURE
(.5% <=
ENTRY (.5% <= Rs.5 Lk) (.5%<=Rs.10Lk
Rs.10Lk)
(NIL >Rs.10Lk)
EXIT (.25% > Rs.10Lk)

PERFORMA
NCE
LAST 1 Yrs. .32% .20% 2.04% .89% -1.26%
LAST 3 Yrs. 6.79% 6.88% 7.59% 9.72% 5.75%
LAST 5 Yrs. 8.97% 9.67% 9.75% _ 8.69%

OPPORTUNITIES FUND

DSP
FRANKIN MERRILL
BASE ING VYSYA TATA LYNCH RELIANCE
TEMPLETON

SUNIL SINGHANIA
FUND K.K. SIVA GAURAV M. ANUP /
MANAGER SUBRAMANIAN NARAIN VENUGOPAL MAHESWARI SAILESH
RAJBHAN

DSP MERRILL
ING VYSYA TATA LYNCH
NAME OF
MUTUAL TRUSTEE TRUSTEE CO.
TRUSTEE
FUND. CO.PVT. LTD PVT. LTD.

TO SEEK TO TO
PROVIDE GENERATELO
LONG TERM NG TERM
CAP. LONG CAP.
TERM CAP. APPRECIATIO
TO PROVIDE
APPRECIATIO N & THE
SEEKS INCOME TO GENERATE
N FROM SECONDARY
PROVIDE DISTRIBUTIO CAP.
PORTFOLIO OBJ. IS THE
LOMG TERM N AND APPRECIATION &
THAT IS DISTRIBUTIO
CAP. MEDIUM TO PROVIDE LONG
PRIMARILY N OF
APPRECIATION LONG TERM TERM GROWTH
INVESTED IN DIVIDEND
INVESTME BY CAPITAL OPPORTUNITIES
COMPANIES FROM A
NT CAPITALLISIN GAINS WHILE BY INVESTING IN
WHICH PORTFOLIO
OBJECTIVE G ON THE AT ALL TIME A PORTOLIO
DERIVE A CONSTITUTE
LONG TERM EMPHASISIN CONSTITUTED OF
SIGNIFICANT D OF EQUITY
GROWTH G THE EQUITY
PROPOTION RELATED
OPPURINITIES IMPORTANCE SECURITIES &
OF THEIR SECURTIES
IN INDIAN OF CAPITAL EQUITY RELATED
REVENUES CONCENTRAT
ECONOMY APPRECIATIO SECURITIES
FROM THE ING ON THE
N.
DOMISTIC INVESTMENT
INDIAN FOCUS OF
MARKET THE SCHEME
PLACE/
MONEY
 LODE
STRUCTUR _
2.25% 2.25% 2.25% 2.25%
E
_
NIL NIL NIL NIL
ENTRY
EXIT

PERFORMA
NCE
LAST 1 Yrs. 28.74% 16.80% 34.34% 31.91%
-2.79%
LAST 3 Yrs. 28.83% SINCE 52.74% 48.34%
SINCE INCEPTION
LAST 5 Yrs. 3.32% INCEPTION 21.45% _
 Conclusion
Mutual Funds Should Creative Value

Mutual funds can create value in several ways, such as by

(1) adopting a research-driven investment strategy aimed at discovering value and

identifying the best performing companies and stocks, thereby also putting pressure

on company management’s to improve their performance.

(2) Designing investment products based on a better understanding of the investor’s

needs.

(3) Providing liquidity (through open-ended schemes which are akin to market-making

service) to securities, like bonds or infrequently traded shares, which may otherwise

be liquid.

(4) Providing an easy way to investors to diversity risk.

(5) Improving the reach of investment products to small investors through widest

possible distribution networks.

The flexibility of mutual funds as institutional investors

Mutual funds, as institutional providers of investment products, have a

tremendous advantage over other institutional providers, viz Banks, insurance to Rs. 15

due to market boom against his purchase price of Rs. 10. He decides to exit from the

scheme realizing Rs. 15,00,000 from the Fund. Subsequently, the NAV falls ro Rs. 12.50

and he re-invests the whole of Rs. 15,00,000 at the reduced price of Rs. 12.50 per unit,

thus increasing his holding from the original 100,000 units to 1,20,000 units without

having to increase his original investment. This dilutes the earnings of all the other unit
holders who have stayed with the scheme through out. Tit hurts the scheme for another

reason too, because the presence of such trader-unit holders requires the maintenance of a

larger proportion of assets in low-yielding liquid forms in order to meet the demand for

repurchases.

If the Indian mutual fund industry has not been able to achieve a sustained and

fast growth in its savings mobilization role despite the emergence of so many new mutual

fund organizations, it is mainly because it has been relying more on special tax

concessions in order to sell its wares than on the creation of value for investors through

its services. This attitude has to change.

In order to facilitate a steady growth of the mutual fund industry, there is also a

clear responsibility on the Government, viz. to provide a rational and stable tax

environment relating to mutual funds. The present tax system is irrational and there is too

much adochism Further as the mutual fund industry’s fortunes are directly linked to the

stock market, any manufacturing of the market impinges on the mutual funds. Ensuring

the stock market’s orderly functioning is also the Government’s regulatory responsibility.

There is much to be done on the Government’s part in regard to the above.