Mutual Fund Industry

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 An Overview

Mutual Funds – Concept

A Mutual Fund is a trust that pools the savings of a number of investors who share a co
mmon financial goal. The money thus collected is then invested in capital market instruments suc
h as shares, debentures and other securities. The income earned through these investments and th
e capital appreciations 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 of
fers an opportunity to invest in a diversified, professionally managed basket of securities at a rela
tively low cost. The flow chart below describes broadly the working of a mutual fund:

Organization of a Mutual Fund

There are many entities involved and the diagram below illustrates the organizational set
up of a mutual fund:

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Mutual Funds Industry in India

The origin of mutual fund industry in India is with the introduction of the concept of mutual fund
by UTI in the year 1963. Though the growth was slow, it accelerated from the year 1987 when n
on-UTI players entered in the industry.

In the past decade, Indian mutual fund industry had seen dramatic improvements, both quality wi
se as well as quantity wise. Before, the monopoly of the market had seen an ending phase; the As
sets under Management (AUM) were Rs. 67bn. The private sector entry to the fund family raised
the AUM to Rs. 470 bn. in March 1993 and till April 2004; it reached the height of 1,540 bn.

The main reason of its poor growth is that the mutual fund industry in India is new in the country.
Large sections of Indian investors are yet to be intellectuated with the concept. Hence, it is the pr
ime responsibility of all mutual fund companies, to market the product correctly abreast of sellin
g.

First Phase1964-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the
Reserve Bank of India and functioned under the Regulatory and administrative control of the Res

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erve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Ba
nk of India (IDBI) took over the regulatory and administrative control in place of RBI. The first s
cheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6700 crores of a
ssets under management.

Second Phase-1987-1993 (Entry of public sector funds): -

Entry of non-UTI mutual funds, SBI Mutual Fund was the first followed by Canbank Mutual Fun
d (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), B
ank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92), LIC in 1989 and GIC in 1990. The
end of 1993 marked Rs.47004 as assets under management.

Third Phase-1993-2003 (Entry of private sector funds): -

With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industr
y, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which t
he first Mutual Fund Regulations came into being, under which all mutual funds, except UTI wer
e to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Temp
leton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revise
d mutual fund regulation in 1996. The industry now function under the SEBI (Mutual Fund) Reg
ulations 1996.

The number of mutual fund houses went on increasing, with many foreign mutual funds setting u
p funds in India and also the industry has witnessed several mergers and acquisitions. As at the e
nd of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit
Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual
funds.

Fourth Phase-since February 2003: -

This phase had bitter experience for UTI. It was bifurcated into two separate entities. One is the
Specified Undertaking of the Unit Trust of India with AUM of Rs.29, 835 crores (as on January
2003). The Specified Undertaking of Unit Trust of India, functioning under an administrator and
under the rules framed by Government of India and does not come under the purview of the Mut
ual Fund Regulations.

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The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered
with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhil
e UTI which had in March 2000 more than Rs.76,000 crores of AUM and with the setting up of a
UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers ta
king place among different private sector funds, the mutual fund industry has entered its current
phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which
manage assets of Rs.153108 crores under 421 schemes.

Growth of Mutual Funds in India

Let us start the discussion of the performance of mutual funds in India from the day the concept o
f mutual fund took birth in India. The year was 1963. Unit Trust of India invited investors or rath
er to those who believed in savings, to park their money in UTI Mutual Fund.

For 30 years it goaled without a single second player, though the 1988 year saw some new mutua
l fund companies, but UTI remained in a monopoly position.

The performance of mutual funds in India in the initial phase was not even closer to satisfactory l
evel. People rarely understood, and of course investing was out of question. But yes, some 24 mil
lion shareholders were accustomed with guaranteed high returns by the beginning of liberalizatio
n of the industry in 1992. This good record of UTI became marketing tool for new entrants. The
expectations of investors touched the sky in profitability factor. However, people were miles awa
y from the preparedness of risks factor after the liberalization.

The Assets under Management of UTI was Rs. 67bn. by the end of 1987. Let me concentrate abo
ut the performance of mutual funds in India through figures. From Rs. 67bn. the Assets under Ma
nagement rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance
by April 2004. It rose as high as Rs. 1,540bn.

The net asset value (NAV) of mutual funds in India declined when stock prices started falling in t
he year 1992. Those days, the market regulations did not allow portfolio shifts into alternative in
vestments. There was rather no choice apart from holding the cash or to further continue investin

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g in shares. One more thing to be noted, since only closed-end funds were floated in the market, t
he investors disinvested by selling at a loss in the secondary market.

The performance of mutual funds in India suffered qualitatively. The 1992 stock market scandal,
the losses by disinvestments and of courses the lack of transparent rules in the where about rocke
d confidence among the investors. Partly owing to a relatively weak stock market performance,
mutual funds have not yet recovered, with funds trading at an average discount of 1020% of their
net asset value.

The supervisory authority adopted a set of measures to create a transparent and competitive envir
onment in mutual funds. Some of them were like relaxing investment restrictions into the market,
introduction of open-ended funds, and paving the gateway for mutual funds to launch pension sc
hemes. The measure was taken to make mutual funds the key instrument for long-term saving. T
he more the variety offered, the quantitative will be investors.

At last to mention, as long as mutual fund companies are performing with lower risks and higher
profitability within a short span of time, more and more people will be inclined to invest until an
d unless they are fully educated with the dos and don’ts of mutual funds.

Mutual Fund Companies in India

The concept of mutual funds in India dates back to the year 1963. The era between 1963 and 198
7 marked the existence of only one mutual fund company in India with Rs. 67bn assets under ma
nagement (AUM), by the end of its monopoly era, the Unit Trust of India (UTI). By the end of th
e 80s decade, few other mutual fund companies in India took their position in mutual fund marke
t.

The new entries of mutual fund companies in India were SBI Mutual Fund, Canbank Mutual Fun
d, Punjab National Bank Mutual Fund, Indian Bank Mutual Fund, Bank of India Mutual Fund.

The succeeding decade showed a new horizon in Indian mutual fund industry. By the end of 199
3, the total AUM of the industry was Rs. 470.04 bn. The private sector funds started penetrating t

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he fund families. In the same year the first Mutual Fund Regulations came into existence with re-
registering all mutual funds except UTI. The regulations were further given a revised shape
in 1996.

Kothari Pioneer was the first private sector mutual fund company in India which has now merged
with Franklin Templeton. Just after ten years with private sector player’s penetration, the total as
sets rose up to Rs. 1218.05 bn. Today there are 33 mutual fund companies in India.

SEBI guidelines

• Mutual funds cannot invest more than 10 percent of the total net assets of a scheme in the
short-term deposits of a single bank, the Securities and Exchange Board of India said on
Monday.

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

ial banks (SCBs) by mutual funds, the regulator said that investment cap would also take i
nto account the deposit schemes of the bank's subsidiaries.

• The SEBI has also defined 'short term' for funds' investment purposes as a period not exce
eding 91 days.

• Besides, the parking of funds in short-term deposits of all SCBs has been capped at 15 pe
r cent of the net asset value (NAV) of a scheme, which can be raised to 20 per cent with p
rior approval of the trustees.

• The parking of funds in short-term deposits of associate and sponsor SCBs together shoul
d not exceed 20 per cent of total deployment by the MF in short-term deposits, it added.

• The SEBI said that these guidelines are aimed at ensuring that funds collected in a schem
e are invested as per the investment objective stated in the offer document of an MF sche
me.

• The new guidelines would be applicable to all fresh investments whether in a new scheme
or an existing one. In cases of an existing scheme, where the scheme has already parked f
unds in short-term deposits, the asset management companies have been given three-mont
hs time to conform to the new guidelines.

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• The SEBI has also asked the trustees of a fund to ensure that no funds are parked by a sch
eme in short term deposit of a bank, which has invested in that particular scheme.

• The SEBI guidelines say that asset management companies (AMCs) shall not be permitte
d to charge any investment and advisory fees for parking of funds in short-term deposits o
f banks in case of liquid and debt-oriented schemes.

Company Profile
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 Prudential ICICI becomes No.1 in mutual fund

ICICI Prudential Asset Management Company enjoys the strong parentage of Prudential plc, one
of UK's largest players in the insurance & fund management sectors and ICICI Bank, a well-kno
wn and trusted name in financial services in India. ICICI Prudential Asset Management Compan
y, in a span of just over eight years, has forged a position of pre-eminence in the Indian Mutual
Fund industry as one of the largest asset management companies in the country with average ass
ets under management of Rs. 73,822.45 Crores (as of June 30, 2010). The Company manages a c
omprehensive range of schemes to meet the varying investment needs of its investors spread acr
oss 230 cities in the country.

Key Indicators

At inception - May 1998 As on June 30, 2010

Average Assets Under Ma Rs. 160 Crores Rs. 73,822.45 Crores
nagement
Number of Funds Manage 2 40
d

Prudential ICICI MF is now ICICI Prudential MF

Sponsors:-

Securities and Exchange Board of India, vide its letter no. MFD/PM/567/02 dated June 4, 2002,
has accorded its approval in recognizing ICICI Bank Ltd. as a co-sponsor consequent to the merg
er of ICICI Ltd. with ICICI Bank Ltd.
ICICI Bank is India's second-largest bank with total assets of Rs. 3,997.95 billion (US$ 100 billio
n) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the year ended March 31, 2008.
ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in terms of
free float market capitalization Free float holding excludes all promoter holdings, strategic inves

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tments and cross holdings among public sector entities. The Bank has a network of about 1,308
branches and 3,950 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range
of banking products and financial services to corporate and retail customers through a variety of
delivery channels and through its specialized subsidiaries and affiliates in the areas of investment
banking, life and non-life insurance, venture capital and asset management. The Bank currently h
as subsidiaries in the United Kingdom, Russia and Canada, branches in Unites States, Singapore,
Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representativ
e offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Ind
onesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equi
ty shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of Indi
a Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Excha
nge (NYSE).

Headquartered in London, Prudential plc and its affiliated companies together constitute one of t
he world's leading financial services groups. Prudential provides insurance and financial services
in a number of markets around the world, including in Asia, the US, the UK, Europe and the Mid
dle East. Founded in 1848, the company has £249 billion in funds under management (as of 31 D
ecember 2008) and more than 21 million customers worldwide.
Prudential has been writing life insurance in the United Kingdom for 160 years and has had the l
argest long-term fund in the United Kingdom, for over a century. In the United Kingdom, Pruden
tial is a leading retirement savings and income solutions and life assurance provider. M&G is Pru
dential's fund management business in the United Kingdom and Europe, with almost £140 billion
in funds under management (as of 31 December 2008). In the United States, Jackson National Li
fe, which we acquired in 1986, is one of the largest life insurance companies providing retiremen
t savings and income solutions.

Vision of the company

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Vision:
To be the leading provider of financial services in India and a major global bank.

Mission:
We will leverage our people, technology, speed and financial capital to:

• Be the banker of first choice for our customers by delivering high quality, world-class pro
ducts and services.

• Expand the frontiers of our business globally.

• Play a proactive role in the full realization of India’s potential.

• Maintain a healthy financial profile and diversify our earnings across businesses and geog
raphies.

• Maintain high standards of governance and ethics.

• Contribute positively to the various countries and markets in which we operate.

• Create value for our stakeholders.

Products of the Company

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 Current Mutual Fund Schemes:

You can select specific Investment Avenue from among the products offered by the ICICI Asset
Management Company:

• ICICI Prudential Child Care

• ICICI Prudential Flexible Income Plan Premium-

• ICICI Prudential Gilt Fund Investment Plan PF Option

• ICICI Prudential MIP

• ICICI Prudential Services Industries Fund

• ICICI Prudential Discovery Fund

• ICICI Prudential Dynamic Plan

• ICICI Prudential Emerging Star

• ICICI Prudential Equity & Derivatives Fund

• ICICI Prudential FMCG Plan

• ICICI Prudential Growth Plan

• ICICI Prudential Index Fund

• ICICI Prudential Infrastructure Fund

• ICICI Prudential Power

• ICICI Prudential Technology Fund

• Sensex ICICI Prudential Exchange Traded Fund
• ICICI Prudential Balanced Plan
• ICICI Prudential MIP

• ICICI Prudential Sweep Plan

• ICICI Prudential Tax Plan

• ICICI Prudential Aggressive Plan

Asset management companies

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ABN AMRO Mutual Fund:-

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. L
td. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorp
orated on November 4, 2003. Deutsche Bank AG is the custodian of ABN AMRO Mutual Fund.
Birla Sun Life Mutual Fund:-

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Su
n Life Financial is a global organization evolved in 1871 and is being represented in Canada, the
US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund
follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,00
0 crores.

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

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the spo
nsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mu
tual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC Mutual Fund: -

HDFC Mutual Fund was setup on June 30, 2000 with two sponsorers namely Housing Developm
ent Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund: -

HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (Indi
a) Private Limited as the sponsor, Board of Trustees, HSBC Mutual Fund acts as the Trustee Co
mpany of HSBC Mutual Fund.

ING Vysya Mutual Fund: -

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

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y. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. L
td. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund: -

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest lif
e insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of Octob
er, 1993 with two sponsorers, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Pru
dential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited
incorporated on 22nd of June, 1993.

Sahara Mutual Fund: -

Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as
the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 19
95 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8
crores.

State Bank of India Mutual Fund: -

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fun
d, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Ban
k sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 hav
e already yielded handsome returns to investors. State Bank of India Mutual Fund has more than
Rs. 5,500 Crores as AUM.

Tata Mutual Fund: -

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata M
utual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is
Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Manage
ment Limited's is one of the fastest in the country with more than Rs. 7,703 crores (as on April 3
0, 2005) of AUM.

Kotak Mahindra Mutual Fund: -

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Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is present
ly having more than 1,99,818 investors in its various schemes. KMAMC started its operations in
December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying
risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in g
overnment securities.

Unit Trust of India Mutual Fund: -

UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI
Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management
Company presently manages a corpus of over Rs.20000 Crores. The sponsorers of UTI Mutual F
und are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Lif
e Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Inc
ome Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund: -

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponso
r of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It
was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March
11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units
are issued to the Public with a view to contribute to the capital market and to provide investors th
e opportunities to make investments in diversified securities.

Standard Chartered Mutual Fund: -

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered
Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset M
anagement Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,
1999.

Franklin Templeton India Mutual Fund: -

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The group, Franklin Templeton Investments is a California (USA) based company with a global
AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in
the world. Investors can buy or sell the Mutual Fund through their financial advisor or through m
ail or through their website. They have Open end Diversified Equity schemes, Open end Sector E
quity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and
Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

LIC Mutual Fund:-

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs
2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accorda
nce with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th
April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Mana
gement Company Ltd as the Investment Managers for LIC Mutual Fund.

GIC Mutual Fund:-

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of
India undertaking and the four Public Sector General Insurance Companies, viz. National Insuran
ce Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OI
C) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the
provisions of the Indian Trusts Act, 1882.

ICICI Prudential organization structure

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Research Methodology
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This report is based on primary as well secondary data, however primary data collection wa

s given more importance since it is overhearing factor in attitude studies. One of the most i

mportant users of research methodology is that it helps in identifying the problem, collectin

g, analyzing the required information data and providing an alternative solution to the probl

em .It also helps in collecting the vital information that is required by the top management t

o assist them for the better decision making both day to day decision and critical ones.

Data sources:

Research is totally based on primary data. Secondary data can be used only for the referenc

e. Research has been done by primary data collection, and primary data has been collected

by interacting with various people. The secondary data has been collected through various j

ournals and websites.

Duration of Study:

The study was carried out for a period of 6 week, from 28th June 2010 to 12th Aug 2010

Sampling:

• Sampling procedure:

The sample was selected of them who are the customers/visitors of ICICI Bank C-

Scheme Branch, irrespective of them being investors or not or availing the service

s or not. It was also collected through personal visits to persons, by formal and inf

ormal talks and through filling up the questionnaire prepared. The data has been a

nalyzed by using mathematical/Statistical tool.

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 • Sample size:

The sample size of my project is limited to 200 people only. Out of which only 12

0 people had invested in Mutual Fund. Other 80 people did not have invested in M

utual Fund.

• Sample design:

Data has been presented with the help of bar graph, pie charts, line graphs etc.

Objective Of the Study

• To find out the Preferences of the investors for Asset Management Compan

y.

• To know the Preferences for the portfolios.

• To know why one has invested or not invested in ICICI Mutual funds.

• To find out the most preferred channel.

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

Scope of the study

A big boom has been witnessed in Mutual Fund Industry in resent times. A large number of

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new players have entered the market and trying to gain market share in this rapidly improvi

ng market.

The research was carried on in C-Scheme Jaipur. I had been sent at one of the branch of IC

ICI Bank C-Scheme where I completed my Project work. I surveyed on my Project Topic

“An Analysis of performance of ICICI Mutual Funds” on the visiting customers of the I

CICI Bank C-Scheme Branch.

The study will help to know the preferences of the customers, which company, portfolio, m

ode of investment, and option for getting return and so on they prefer. This project report m

ay help the company to make further planning and strategy.

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 Limitation

• Some of the persons were not so responsive.

• Possibility of error in data collection because many of investors may have n

ot given actual answers of my questionnaire.

• Sample size is limited to 200 visitors of ICICI Bank, C-scheme Branch.

• Branch, Jaipur out of these only 120 had invested in Mutual Fund. The samp
le size may not adequately represent the whole market.

• Some respondents were reluctant to divulge personal information which can

affect the validity of all responses.

• The research is confined to a certain part of Jaipur.

Systematic portfolio management

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ICICI Prudential Asset Management Company, a joint venture between Prudential, U.K.'s leadin
g insurance company and ICICI Bank Ltd., India's largest private sector bank, is the investment
manager for ICICI Prudential Mutual Fund. ICICI Prudential Mutual Fund is the largest and amo
ngst the fastest growing mutual funds in the country with a rapidly growing family of over 14.50
lakh investors.

ICICI Prudential Portfolio Managers, a division of ICICI Prudential Asset Management Compan
y, is created especially to meet the investment needs of a select clientele who require focused por
tfolios.

Portfolio Management with a difference

As Portfolio Managers, we endeavor that every portfolio created by us reflects the values on whi
ch ICICI Prudential has been built. A commitment towards transparency and service, Add to that,
a strong research driven investment process.

Since the aim is to create a portfolio that suits your requirements, we will first try and understand
your needs and investment objectives and on that basis offer you portfolios that best suit your obj
ectives.

Information and accessibility is the key

By providing you with information that is updated on a daily basis and unmatched interactivity, a
whole new era in portfolio management has now been ushered in. A first in the industry; via a pa
ssword protected website, you will have access to:

• A portfolio disclosure statement where the entire portfolio will be disclosed. ·

• A financial summary comprising the Income Statement and Balance Sheet. ·

• A detailed client account statement that allows you to track your inflows and outflows. ·

• A transaction statement listing all the transactions made. · Calculations of capital gains ·

• Comprehensive performance tracking

Convenience and customization through our services

One more advantage of being with us is that you will have a team to support you. Initially, you w

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ill interface with a Customer Relationship Manager - your one point contact, and a personal Portf
olio Manager - your portfolio investment guide, to discuss in depth and understand your investm
ent objectives, your risk-return appetite and establish required service levels. On the basis of this,
we shall evolve a portfolio that is best-suited for you.
Thereafter, your Customer Relationship Manager will periodically interact with you for any other
clarifications and services that you may require.
You may review your portfolio with your personal Portfolio Manager and your Customer Relatio
nship Manager at least once every quarter.
Our Product Range

• Aggressive Portfolio

This portfolio is aimed at investors who are looking for higher returns. The portfol
io is constructed with a value-orientation and with adequate diversification, but w
hich will at times take on certain aggressive positions. Depending on the market c
onditions these could include a greater exposure to high beta / mid-cap / illiquid st
ocks, an exposure in momentum stocks etc.

• Dividend Yield Portfolio

This portfolio Endeavour’s to generate superior risk-adjusted returns through a co

mbination of dividend income and capital appreciation. This portfolio may be con
sidered appropriate for investors with a relatively low risk appetite, who wish to e
arn potentially higher returns, offered through the equity markets. It is also suitab
le for investors looking for tax-efficient investment options that offer the scope for
high-returns. Investments are proposed to be made primarily in stocks that offer a
n attractive dividend yield. Portfolio Manager seeks to pay particular attention to t
he dividend track record, sustainability of free cash flows / dividends, industry pro
spects, management quality, business fundamentals etc., with an attempt to includ
e only high-quality companies in the portfolio.

• Deep Value Portfolio

The objective of the portfolio is to generate returns over the long term, by investin

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 g in a diversified portfolio of undervalued stocks. Various parameters may be use
d to judge the degree of under valuation of the stocks including, but not limited to,
price/earnings (p/e), price/book (p/book), dividend yield (DY), price/cash flow, re
placement cost, valuations relative to history/sector/markets, etc. Due attention w
ill be paid to qualitative parameters such as management quality, industry prospec
ts, liquidity etc.

• The Focused Portfolio

The Focused Portfolio endeavors’ to generate capital appreciation by taking conce

ntrated positions in stocks and sectors, Greater concentration of the portfolio will i
ncrease both the risks and potential returns from the portfolio. The Focused Portfo
lio is not limited by any particular theme / sector / market capitalization and has th
e flexibility to choose between stocks across themes / sectors / investment styles

• Preservation of Investment Amount (Asset Shield)

In addition to the above portfolios, the Portfolio Manager also offers products to
meet specific objectives such as products endeavouring to preserve Investment A
mount. Portfolio Manager would endeavour preservation of a certain percentage o
f the Investment Amount by investing in a mix of fixed income and equity derivati
ves (these could include both call and put options on indices or individual stocks)
in such a manner so that the same endeavours to preserve the stated percentage of
the Investment Amount while attempting to enhance returns by the use of equity d
erivatives. Arbitrage opportunities between the cash and futures market may also
be undertaken (more specifically described in the section below) as part of the fix
ed income component. Herein the portfolio is invested in a mix of fixed income m
utual funds / securities and equity derivatives in such a manner so that the same en
deavours to preserve the stated percentage of the Investment Amount while at the
same time an attempt would be made to enhance returns by the use of equity deriv
atives.

• Cash future arbitrage

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 The cash futures arbitrage strategy can be employed when the price of the futures
exceeds the price of the underlying stock. Two simultaneous transactions are unde
rtaken: (a) selling the futures (b) Buying the underlying stock. The sale of the futu
res would require a payment of an initial margin (of which 50% can be paid in the
form of securities i.e. the stock purchased) to the exchange and also mark to mark
et margins which are a function of market movements. The position may be held t
ill expiry of the futures contracts. By definition, the price of the futures will equal
the closing price of the stock. Thus, the price differential between the futures and t
he stock is realized. However, the position could even be closed earlier in case the
price differential is realised before expiry or better opportunities are available in o
ther stocks.

• Index (Nifty) arbitrage (Future)

The Index (Nifty) arbitrage (Future) would attempt to capture arbitrage opportunit
ies between the futures on stocks comprising the Nifty Index (by market weight a
ge) and futures on the Nifty either by buying futures on stocks constituting the Nif
ty Index and selling futures on the Nifty or vice-versa. This strategy would require
payment of initial margin to the exchange for taking position in both Nifty and sto
ck futures. The position would either be held till the expiry of the futures contracts
or may be closed earlier if arbitrage gets realized.

• Only Options Portfolio

The objective of the portfolio is to earn capital appreciation on the client’s capital,
by investing in a mix of stock options and index options. The investment in option
s could include pure long positions in call and put options as well as spreads wher
e the total liability is limited to the premium paid. The total capital to be invested
will be staggered over the investment tenure, so as to spread the exposure to the o
ption premiums through the investment tenure (i.e. only a proportion of the total c
lients capital will be invested in stock option premium in any month). In no month
will an amount greater than the client’s initial capital be invested in options. Retur
ns on the portfolio will be generated through capital appreciation on the options in
vestments. For the purchase of options, while the upside is unlimited, losses are li

25
 mited to the premium paid. Thus under all possible circumstances, the losses on th
e portfolio will be limited to the clients initial capital.

• Non-Discretionary Portfolio

In the case of non-discretionary portfolios, the investment objectives and the secur
ities to be invested would be entirely decided by the Portfolio Manager based on t
he Agreement executed with the Client. The same could vary widely between clie
nts to client.

• Principal Protected Portfolio

The portfolio aims to achieve capital growth along with relatively low capital risk.
The portfolio would have a defined tenure and principal protection level. This obj
ective is achieved by investing a part of the capital in an actively managed equity
portfolio, while rest of the capital is invested in fixed income, which forms the flo
or for capital preservation. The portfolio aims to provide capital preservation with
the help of a third party guarantee. The third party guarantee would get invoked if
the portfolio falls below a certain threshold level.

• Infrastructure Portfolio

The infrastructure portfolio will invest in companies that are directly or indirectly
linked to the infrastructure theme. This could include sectors such as construction,
capital goods, power, cement, metals, banking, logistics and other related sectors/s
ub-sectors.

• Diversified Portfolio

The portfolio will have a defined tenure. The Portfolio Manager has discretion to i
nvest in a combination of different asset classes including but not limited to listed
equities, equity related instruments, or other unlisted securities/instruments (privat
e equity) including but not limited to units issued by SEBI Registered

26
 Venture Capital Funds and money market instruments. The terms of tenure of the
product, subscription and redemption etc. will be as per the agreement executed w
ith the Investor.

• India Opportunities Portfolio

The objective of this close-ended portfolio is to generate superior risk-adjusted ret

urns on clients’ capital over the long term by investing in instruments including b
ut not limited to equity, equity-linked products, debt, units, hybrid products, conve
rtibles, mortgage backed securities, commercial paper(s), notes and instruments of
fered by unlisted and listed companies involved in, investing in, developing, const
ructing, owning, asset managing, project / facility managing and operating real est
ate assets and related infrastructure opportunities. The portfolio manager would se
ek to generate capital appreciation as well as regular returns (annual dividends / in
terest) on clients’ capital by such investments. Until such time the portfolio manag
er finds appropriate investment opportunities, the Portfolio Manager may, at its di
scretion invest the funds in bank deposits, units of Mutual Funds, money market i
nstruments and / or gilt securities issued by central / state governments.

Type of Mutual Fund Schemes

27
Income Funds

These are also known as debt funds since they invest in debt instruments issued by the governme
nt, private companies’ banks and financial institutions. By investing in debt, these funds target lo
w risk and stable income to the investors. While returns in these funds may be regular, their scale
may fluctuate depending on the prevailing interest rates and the credit quality of the debt securiti
es.

Liquid Funds

Also know as Money market funds as they invest in securities of short term nature, typically secu
rities of less than one-year maturity like Treasury Bills issued by the government, Certificate of
Deposits issued by banks and Commercial Paper issued by companies as well as in the inter- ban
k call money market. These funds are considered to be at the lowest rung in the hierarchy of risks

Equity Funds

As the name suggests these funds invest in stock market securities. They are exposed to the equit
y price fluctuation risk at the market level, industry level and also the specific company level. Th
ese price movements are caused by external factors, political and social as well as economic fact
ors. Thus the Net Asset values of these funds fluctuate with all price movements. Equity investm
ents are for a longer time horizon and a well managed equity fund can get you higher returns but
also carries higher risks.

Gilt Funds

These funds invest in government paper called dated securities. As the investments are in govern
ment paper these funds have little risk of default and hence offer better protection of principal. H
owever, one must recognize the potential changes in values of debt securities held by the funds th
at are caused by changes in the market price of these securities as a result of change in the market
price of these debt securities.

28
Balanced Funds

These funds, as the name suggests, are a mix of both equity and debt funds. They invest in both e
quities and fixed income securities in line with pre-defined investment objectives. The aim at pro
viding a balanced mix of capital appreciation through investments in equities coupled with invest
ments in stable instruments like bonds etc.

TYPES OF MUTUAL FUNDS

A Mutual Fund may float several schemes, which may be classified on the basis of its structure, i
ts investment objectives and other objectives.

Types of Scheme

MUTUAL FUND SCHEME BY STRUCTURE:

Open-Ended Funds:

Open-Ended fund scheme is open for subscription all through year. An

investor can buy or sell the units at "NAV" (Net Asset Value) related
price at any time.

The investments of these schemes will predominantly be in the stock

markets and endeavor will be to provide investors the opportunity to b
enefit from the higher returns which stock markets can provide. Howe
ver they are also exposed to the volatility and attendant risks of stock markets and hence should b

29
e chosen only by such investors who have high risk taking capacities and are willing to think lon
g term. Equity Funds include diversified Equity Funds, Sectoral Funds and Index Funds. Diversif
ied Equity Funds invest in various stocks across different sectors while sectoral funds which are s
pecialized Equity Funds restrict their investments only to shares of a particular sector and hence,
are riskier than Diversified Equity Funds. Index Funds invest passively only in the stocks of a par
ticular index and the performance of such funds move with the movements of the index

Close-Ended Funds:

A Close-Ended fund is open for subscription only during a specified peri

od, generally at the time of initial public issue that generally ranges from
3 to 15 years. The Close-Ended fund scheme is listed on the some stock e
xchanges where an investor can buy or sell the units of this type of schem
e.

SEBI Regulations stipulate that at least one of the two exit routes is provi
ded to the investor.

Interval Funds:

Interval Funds combines both the features of Open-Ended funds and Close-Ended funds.

MUTUAL FUND SCHEME BY INVESTMENT OBJECTIVES:

Growth Funds:

The objective of Growth Fund scheme is to provide capital appreciation over the medium to long

30
term. This type of scheme is an ideal scheme for the investors seeking capital appreciation for a l
ong period.

Income Funds:
The Income Fund schemes objective is to provide regular and steady income to investors.

Balanced Funds:
The objective of Balanced Fund schemes is to provide both growth and regular income to investo
rs.

Money Market Funds

The objective of Money market funds is to provide easy liquidity, regular income and preservatio
n of income.

Money market funds also come in two varieties, taxable and tax-free. Taxable funds buy the bes
t-yielding short-term corporate, agency, or government issues available, while tax-free funds are

31
limited to buying primarily municipal debt. Taxable funds pay slightly higher income than tax-fr
ee funds, but you must pay tax on any distributions they make. In either case, the rate a fund pays
is roughly the same as bank money market accounts or CDs.

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 is payable. Typically entry and exit loads range from 1% to 2%. I
t 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 the entry or exit. That is, no comm
ission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that t
he entire corpus is put to work.

OTHER FUNDS:
Tax Saving Schemes:
The objective of Tax Saving schemes is to offer tax rebates to the investors under specific provisi
ons of the Indian Income Tax Laws. Investments made under some schemes are allowed as dedu
ction u/s 88 of the Income Tax Act.

Industry specific Schemes:

Industry specific schemes invest only in the industries specified in the offer document of the sche
mes.

Sectorial Schemes:
The schemes invest particularly in a specified industries or initial public offering.

Index schemes:
Such schemes link with the performance of BSE Sensex or NSE.

32
 Advantages of mutual fund
Mutual Funds offer several benefits to an investor that unmatched by the other investment option
s. The major benefits are good post-tax returns and reasonable safety, the other benefits in investi
ng in Mutual Funds are

Professional Management:
Mutual Funds employ the services of experienced and skilled professionals and dedicated invest
ment research team. The whole team analyses the performance and balance sheet of companies a
nd selects them to achieve the objectives of the scheme.

Potential Return:
Mutual Funds have the potential to provide a higher return to an investor than any other option o
ver a reasonable period of time.

Diversification:
Mutual Funds invest in a number of companies across a wide cross section of industries and sect
ors.

Liquidity:
The investor can get the money promptly at the net asset value related prices from the Mutual Fu
nds open-ended schemes. In close-ended schemes, the units can be sold on a stock exchange at th
e prevailing market price.

Low Cost:
Investment in Mutual Funds is a less expensive way in comparison to a direct investment in capit
al market.

Transparency:
Mutual Funds have to disclose their holdings, investment pattern and the necessary information b
efore all investors under a regulation framework.

Flexibility:
Investment in Mutual Funds offers a lot of flexibility with features of schemes such as regular in
33
vestment plan, regular withdrawal plans and dividend reinvestment plans enabling systematic inv
estment or withdrawal of funds.

Affordability:
Small investors with low investment fund are unable to high-grade or blue chip stocks. An invest
or through Mutual Funds can be benefited from a portfolio including of high priced stock.

Well regulated:
All Mutual Funds are registered with SEBI, and SEBI acts a watchdog, so the Mutual Funds are
well regulated

Choice of Scheme:

Mutual funds offer a family of schemes to suit investor’s varying needs over a lifetime.

34
 Disadvantages of Mutual Funds

Fluctuating Returns:
Mutual funds are like many other investments without a guaranteed return. There is always the p
ossibility that the value of your mutual fund will depreciate. Unlike fixed-income products, such
as bonds and Treasury bills, mutual funds experience price fluctuations along with the stocks that
make up the fund.

Diversification:
Although diversification is one of the keys to successful investing, many mutual fund investors te
nd to over diversify. The idea of diversification is to reduce the risks associated with holding a si
ngle security; over diversification (also known as diversification) occurs when investors acquire
many funds that are highly related and so don't get the risk reducing benefits of diversification.

Cash, Cash and More Cash

Mutual funds pool money from thousands of investors, so everyday investors are putting money i
nto the fund as well as withdrawing investments. To maintain liquidity and the capacity to accom
modate withdrawals, funds typically have to keep a large portion of their portfolio as cash. Havin
g ample cash is great for liquidity, but money sitting around as cash is not working for you and th
us is not very advantageous.

Costs:

In mutual funds the fees are classified into two categories: shareholder fees and annual fund-oper
ating fees.

The shareholder fees, in the forms of loads and redemption fees are paid directly by shareholders
purchasing or selling the funds. The annual fund operating fees are charged as an annual percenta
ge - usually ranging from 1-3%. These fees are assessed to mutual fund investors regardless of th
e performance of the fund. When the fund doesn't make money these fees only magnify losses.

35
Misleading Advertisements:

The misleading advertisements of different funds can guide investors down the wrong path. Som
e funds may be incorrectly labeled as growth funds, while others are classified as small-cap or in
come.

Evaluating Funds:

Another disadvantage of mutual funds is the difficulty they pose for investors interested in resear
ching and evaluating the different funds. Unlike stocks, mutual funds do not offer investors the o
pportunity to compare the P/E ratio, sales growth, earnings per share, etc.

Selection of a fund
Prospectus

36
 By law, you should receive a prospectus from the fund company before you invest in it. M
any investors ignore the prospectus, but this is a must read. The mutual fund's objectives are displ
ayed in the prospectus. It tells you the goals of the fund and how it intends to achieve them. You
will also find information about the fund's past performance and fees.

Mutual Fund Families

Mutual Fund Glossary

Mutual Fund Fees

The fees are displayed in the prospectus as well as on many mutual fund research si
tes. Try to buy funds with low expense ratios and certainly avoid 12b-fees. I have yet to hear a va
lid argument on why you should ever buy a loaded fund. A loaded fund is a fund that carries fron
t-end loads, back-end loads or deferred loads. These loads are basically sales charges. There are p
lenty of no-load funds to meet your objectives.

What is `deposit?

The term `deposit’ has been defined as receipt of any money borrowed by the company but not in
cluding any of the following:-

• Government Borrowings

• Borrowings from any financial institutions;

• Borrowings from any Banks;
• Borrowings from any company
• Security deposit;
• Advance from purchasing/selling agent
• Money received in Trust;
• Subscription against application for shares;
• Subscription against bonds, debentures, etc. secured by a mortgage with or without option
to convert into shares;
• Money brought in by issue of any secured bonds/debenture
• Money received from the shareholders of a private limited company or a deemed public c

37
 ompany.

What are the limits for accepting deposits?

• A company can borrow deposits up to the extent given below :-

• Up to 25% of the paid-up capital and free reserves of the company from the public and up
to 10% of its paid-up capital and free reserves from its shareholders,
• Therefore, maximum deposit a company can accept from public/shareholders is 35% of it
s paid up capital and free reserves as mentioned above.
• If the company is a `Government Company’, then it can accept or renew deposits from pu
blic up to 35% of its paid up capital and free reserves.
• “Free Reserves" mean the balance in the share premium account, capital and debenture re
demption reserves and any other reserves shown in the balance-sheet of the company and
created by appropriation out of the profits of the company, but does not include the balan
ce in any reserve created for repayment of any future liability or for depreciation in assets
or for bad debts;
• Revaluation of any assets of the company

Period of accepting deposits:-

A company can invite/accept deposits for a period not less than 6 months and not more than 36 m
onths from the date of acceptance of such deposits or from the date of its renewal. Therefore, a c
ompany can accept/invite deposits for a period between 6-36 months.

However, a company may accept deposits up to 10% of its paid up capital and free reserves whic
h are repayable after three months, from the date of such deposits or renewal thereof to meet any
of its short term requirements.

Rate of interest

Maximum rate of interest that a company can offer on fixed deposits is 15%.

38
Fixed Deposits

Fixed deposits remain the most popular instrument for financial savings in India. They are the mi
ddle path investments with adequate returns and sufficient liquidity. There are basically three ave
nues for parking savings in the form of fixed deposits. The most common are bank deposits. For
nationalized banks, the yield is generally low with a maximum interest of 10 to 10.5% per annum
for a period of three years or more. As opposed to that, NBFCs and company deposits are more a
ttractive.

The idea is to select the right company to minimize the risk. Company deposits as a saving instru
ment have declined in popularity over the last three years. The major reasons being the slowdow
n in economy resulting in default by some companies, Also, some NBFCs simply vanished with t
he depositors' money. All that is likely to change for the better, corporate performance is likely to
improve and stricter control by RBI should improve NBFCs record. But one still needs to be sele
ctive. Let us help you in making the right decision.

Post office is a very safe and secure investment avenue. The money is used in the development of
the society as a whole, while it provides steady returns. The biggest advantage of investing in pos
t office schemes is the tax benefit that they provide. Thus a lot of savings go through this channel
to dual advantage - tax benefits and steady returns

Deposit account

A deposit account is an account at a banking institution that allows money to be held on behalf of
the account holder. Some banks charge a fee for this service, while others may pay the client inte
rest on the funds deposited.

The account holder retains rights to their deposit, although restrictions placed on access depend u
pon the terms and conditions of the account and the provider.

A deposit is a type of asset.

Saving deposit

Savings deposits are accounts maintained by commercial banks, savings and loan associations, cr
edit unions, and mutual savings banks that pay interest but can not be used directly as money (by,

39
for example, writing a check). These accounts let customers set aside a portion of their liquid ass
ets that could be used to make purchases. But to make those purchases, savings account balances
must be transferred to "transaction deposits" (or "checkable deposits") or currency. However, this
transference is easy enough that savings accounts are often termed near money. Savings accounts,
as such constitute a sizeable portion of the M2 monetary aggregate.

With savings accounts you can make withdrawals, but you do not have the flexibility of using ch
ecks to do so. As with a MMDAs (money market deposit account), the number of withdrawals or
transfers you can make on the account each month is limited

Time deposit

A time deposit (also known as a term deposit, particularly in Australia and New Zealand) is a mo
ney deposit at a bank that cannot be withdrawn for a certain "term" or period of time. When the t
erm is over it can be withdrawn or it can be held for another term. Generally speaking, the longer
the term the better the yield on the money, a certificate of deposit is a time-deposit product.

Note that the M2 money supply includes funds that can be used directly in payment, such as mon
ey market mutual funds and money market deposit accounts (MMDAs). MMDAs are considered
by the United States Federal Reserve (the Fed) to be savings accounts and are thus exempt from r
eserve requirements. These large transaction accounts not being included in the M1 money suppl
y suggests that the Fed does not pay much attention to ordinary transaction deposits, and in July
2000, it announced that it was no longer setting target ranges for growth rates of the monetary ag
gregates

Transaction deposit

Transaction accounts include all deposits against which the account holder is permitted make wit
hdrawals by negotiable or transferable instruments, payment orders of withdrawal, or telephone o
r preauthorized transfers for the purpose of making payments to third persons or others. However,
accounts subject to the rules that permit no more than six preauthorized, automatic, or other tran
sfers per month (of which no more than three may be by check, draft, debit card, or similar order
payable directly to third parties) are savings deposits, not transaction accounts

Current account

40
A current account is a deposit account in the UK and countries with a UK banking heritage offeri
ng various flexible payment methods to allow customers to distribute money directly to others.
Most current accounts have a cheque book, offer the facility to arrange standing
orders, direct debits and payment via a debit card. Current accounts may also allow borrowing vi
a an overdraft facility.

Current accounts providers include banks, building societies and credit unions.

Since the internet revolution most retail banking institutions offer access to current accounts via
online banking.

Demand deposit

A demand account (or demand deposit, demand deposit account) is a deposit account held at a ba
nk or other financial institution, the funds deposited in which are payable on demand. The primar
y purpose of demand accounts is to facilitate cashless payments by means of check, bank draft, di
rect debit, electronic funds transfer, etc.

A demand account is commonly known as:

• a checking account
• a share draft account
• a current account
• a current account
• a cheque account

REASON WHY PEOPLE INVEST IN DEPOSITS

There has been an age old concept of people investing in fixed deposits and other methods of dep
osits .They follow this concept because again and again investing in different fields might fetch t
hem loss at different stages of life and in order to have a secure future people prefer to invest in o

41
ne deposit for a particular period of time and withdraw them whenever they need.

In today’s era where people are more concerned about their secure future and due to their busy lif
e they lack knowledge about other methods if investment.

REASONS OF INVESTMENTS

BASIC INVESTMENT OBJECTIVE

The investment approach will be based on a set of well established but flexible principles that em
phasize the concept of sustainable economic earnings and cash return on investment as the means
of valuation of companies.

Five basic principles serve as the foundation for this investment approach. They are as follo
ws:

42
Focus on the long term

There is substantive empirical evidence to suggest that equities provide the maximum risk adjust
ed returns over the long term. In an attempt to take full advantage of this phenomenon, investmen
ts would be made with a long term perspective.

Investments confer proportionate ownership

The approach to valuing a company is similar to making an investment in a business. Therefore, t

here is a need to have a comprehensive understanding of how the business operates. The key issu
es to focus on are growth opportunities, sustainable competitive advantage, industry structure and
margins and quality of the management.

Maintain a margin of safety

The benchmark for determining relative attractiveness of stocks would be the intrinsic value of th
e business. The Investment Manager would endeavor to purchase stocks that represent a discount
to this value, in an effort to preserve capital and generate superior growth.

Maintain a balanced outlook on the market

The investment portfolio would be regularly monitored to understand the impact of changes in bu
siness and economic trend as well as investor sentiment. While short-term market volatility woul
d affect valuations of the portfolio, this is not expected to influence the decision to own fundame
ntally strong companies.

Facilities available to investors

Tax aspect of Mutual fund

Dividend Made Tax-free

Dividend received from a domestic company and income distributed by UTI-I or any MF, to its u
nit holders has been made tax-free from 1.4.03 onwards. However, dividend declared, distributed
or paid by such sources shall be charged a distribution tax of @12.8125% flat. This distribution t
ax is in addition to the normal income tax payable by them.

43
Capital Gain Tax:
Capital gains are generated through the sale of stocks, bonds and other investments, which have a
ppreciated in value, from the fund’s portfolio. Net capital gains are taxed at the 15% cap.

LTCG on Equities Exempt

Long-term capital gains arising from transfer of shares purchased through a recognized stock exc
hange, on or after 1.3.03 but before 1.3.04 are exempt from income tax. This exemption is restric
ted to only those shares figuring in the BSE-500 index as on 1.3.03. If during the course of the ye
ar, any of these shares are replaced with another stock in the index, investors who had purchased
the share prior to its replacement will continue to enjoy the benefit.
The benefit is also extended to shares of companies making Initial Public Offers during the year.

Income received from Mutual Fund:

The Internal Revenue Service might depend upon the nature of your mutual fund investment. Ge
nerally, most income generated from a mutual fund account, with the exception of tax-exempt m
oney market or municipal bond funds, is subject to federal taxes as ordinary income or capital gai
ns.

Gift Tax:
Mutual Fund may be given as a gift and no tax is applicable by donor or donee.

TDS on Redemption:
No TDS is required to be deducted from capital gain at the time of redemption in case of mutual
fund.

Tax benefits on investment in Mutual Fund

100% Income Tax Exemption on all Mutual Fund dividends

44
Capital Gains tax to be lower of –
10% on the capital gains without factoring indexation benefits and

20% on the capital gains after factoring indexation benefits.

Open-end funds with equity exposure of more than 50% are exempt of dividend tax for a period
of 3 years from 1999-2000.

Another Investment Avenue featuring in the list of “eligible” instruments is the Equity Linked Sa
ving Scheme or tax saving funds. Simply put, these are mutual fund schemes wherein investment
upto Rs 10,000 qualify for Section 88 benefits. Investors are given the unique opportunity to inve
st in an equity-linked product and still claim tax benefits on the same; which is quite a departure f
rom conventional tax saving instruments. Tax saving funds has a mandatory 3-Yr lock in period,
which distinguishes them from conventional equity-oriented funds, which have no constraints on
liquidity.

Tax benefits of investing in the Mutual Fund

As per the taxation laws in force as at the date of the Offer Document, some broad income tax im
plications of investing in the units of the Scheme are stated below. The information so stated is b
ased on the Mutual Fund's understanding of the tax laws in force as of the date of the Offer Docu
ment, which have been confirmed by its auditors. The information stated below is only for the pu
rposes of providing general information to the investors and is neither designed nor intended to b
e a substitute for professional tax advice. As the tax consequences are specific to each investor an
d in view of the changing tax laws, each investor is advised to consult his or her or its own tax co
nsultant with respect to the specific tax implications arising out of his or her or its participation in
the Scheme.

Implications of the Income-tax Act, 1961 as amended by the Finance Act, 2006

How to invest in Mutual Fund

45
Step One - Identify your Investment needs
Your financial goals will vary, based on your age, lifestyle, financial independence, family com
mitments, and level of income and expenses among many other factors. Therefore, the first step i
s to assess your needs. You can begin by defining your investment objectives and needs which co
uld be regular income, buying a home or finance a wedding or educate your children or a combin
ation of all these needs, the quantum of risk you are willing to take and your cash flow requireme
nts.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your requirements. Th
e offer document of the scheme tells you its objectives and provides supplementary details like th
e track record of other schemes managed by the same Fund Manager. Some factors to evaluate b
efore choosing a particular Mutual Fund are the track record of the performance of the fund over
the last few years in relation to the appropriate yardstick and similar funds in the same category.
Other factors could be the portfolio allocation, the dividend yield and the degree of transparency
as reflected in the frequency and quality of their communications.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You may con
sider investing in a combination of schemes to achieve your specific goals.

Step Four - Invest regularly

The best approach is to invest a fixed amount at specific intervals, say every month. By investing
a fixed sum each month, you buy fewer units when the price is higher and more units when the pr
ice is low, thus bringing down your average cost per unit. This is called rupee cost averaging and
is a disciplined investment strategy followed by investors all over the world. You can also avail t

46
he systematic investment plan facility offered by many open end funds.

Step Five- Start early

It is desirable to start investing early and stick to a regular investment plan. If you start now, you
will make more than if you wait and invest later. The power of compounding lets you earn incom
e on income and your money multiplies at a compounded rate of return.

Step Six - The final step

All you need to do now is to Click here for online application forms of various mutual fund sche
mes and start investing. You may reap the rewards in the years to come. Mutual Funds are suitabl
e for every kind of investor - whether starting a career or retiring, conservative or risk taking, gro
wth oriented or income seeking

Risk factors in mutual fund

Mutual funds have been a significant source of investment in both government and corporate sec
urities. It has been for decades the monopoly of the state with UTI being the key player, with inv
ested funds exceeding Rs.300bn. (US$ 10bn.). The state-owned insurance companies also hold a
portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign compa
nies. Banks--- mainly state-owned too have established Mutual Funds (MFs). Foreign participati

47
on in mutual funds and asset management companies is permitted on a case by case basis.

UTI, the largest mutual fund in the country was set up by the government in 1964, to encourage s
mall investors in the equity market. UTI has an extensive marketing network of over 35, 000 age
nts spread over the country. The UTI scrip’s have performed relatively well in the market, as co
mpared to the Sensex trend. However, the same cannot be said of all mutual funds.

All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the functioning
of mutual funds, and it requires that all MFs should be established as trusts under the Indian Trus
ts Act. The actual fund management activity shall be conducted from a separate asset manageme
nt company (AMC). The minimum net worth of an AMC or its affiliate must be Rs. 50 million to
act as a manager in any other fund. MFs can be penalized for defaults including non-registration
and failure to observe rules set by their AMCs. MFs dealing exclusively with money market instr
uments have to be registered with RBI. All other schemes floated by MFs are required to be regis
tered with SEBI.

In 1995, the RBI permitted private sector institutions to set up Money Market Mutual Funds (M
MMFs). They can invest in treasury bills, call and notice money, commercial paper, commercial
bills accepted/co-accepted by banks, certificates of deposit and dated government securities havi
ng unexpired maturity upto one year.

Before investing in a Mutual Fund an investor must identify his needs and preferences. While sel
ecting a Mutual Fund's schemes he should consider the effect of inflation rate, diversification of i
nvestment, the time period of investment and the risk factors. There are various type of risk facto
rs as:

• Market Risk
• Credit Risk
• Interest Rate Risk
• Inflation Risk
• Political Environment

CRISIL's composite performance ranking (CPR) measures the performance for each of the open-

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ended scheme of Mutual Fund. There are four parameters considered to measure the performance
of a mutual fund such as Risk-adjusted returns of the scheme's NAV, Diversification of Portfolio,
Liquidity and Asset Size

By December 2004, Indian mutual fund industry reached Rs 1, 50,537 crores. It is estimated that
by 2010 March-end, the total assets of all scheduled commercial banks should be Rs 40, 90,000 c
rores.

The annual composite rate of growth is expected 13.4% during the rest of the decade. In the last
5 years we have seen annual growth rate of 9%. According to the current growth rate, by year 20
10, mutual fund assets will be double.

Some facts for the growth of mutual funds in India:

• 100% growth in the last 6 years.

• We have approximately 48 mutual funds which is much less than US having more
than 800. There is a big scope for expansion.

• 'B' and 'C' class cities are growing rapidly. Today most of the mutual funds are co
ncentrating on the 'A' class cities. Soon they will find scope in the growing cities.

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 • Mutual fund can penetrate rural like the Indian insurance industry with simple and
limited products.

• SEBI allowing the Mutual Fund's to launch commodity mutual funds.

• Emphasis on better corporate governance.

• Trying to curb the late trading practices.

• Introduction of Financial Planners who can provide need based advice.

Data Analysis
1. Do you invest your savings?

Objective: - To know about of people to invest their savings.

Response %age of respondents

Yes 60%

No 40%

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Interpretation: The evident from above finding showed that out of 200 respondents, 60 % respo
ndent is investing their savings and rest of the respondent are not invest their saving.

2. Where all do you invest you savings?

Objective: - To know about the awareness of mutual fund industry.

Response %age of respondents

Shares 8%

Insurance 40%

Govt. Securities 40%

Mutual Funds 12%

Interpretation: The above figure depict that mostly respondent invest our saving in Insurance &
Govt. Securities i.e. 40%, 12% respondent are invest in Mutual funds and rest of invest in Shares.

3. Why do you invest in Mutual Fund?

Objective: - To know about the growth rate of Mutual Fund Industry.

Response %age of respondents

Diversification 10%

Return Potential 60%

Flexibility 20%

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 Well regulated 10%

Interpretation: The above figure depict that mostly respondent invest Mutual Fund 60% return
potential, 20% Flexibility and 10% Diversification & well regulated.

4. How do you evaluate schemes of Mutual Fund?

Objective: - To know about the perception of people at time of evaluation of Mutual Funds Sche
mes.

Response %age of respondents

On the basis of NAV 20%

Advertisement 16%

Past Performance 44%

Any other 20%

Interpretation: The above figure depict that mostly respondent evaluate the mutual funds schem
es for past performance i.e. 44%, 20% respondent in the basis of NAV and 16% advertisement.

5. In which scheme do you pike to invest?

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Objective: - To know about the trend of popular schemes in Mutual Funds.

Response %age of respondents

Growth 60%

Balanced 10%

Specific 30%

Interpretation: The above figures depict that 60% respondent growth, 30% specific, 10% in Bal
anced.

6. What factors do you consider while investing in any scheme?

Objective: - To know about the factor which are commonly consider at the tie of investment.

Response %age of respondents

Return 36%

Risk 30%

Tax benefit 30%

Any other 4%

Interpretation: The above figures depict that mostly respondent Investing in Mutual Fund for be
tter return, and rest of Tax benefits.

7. Have you ever faced problem while investing money in Mutual Fund?

Objective: - To know about the general problems at time of investment.

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 Response %age of respondents

Yes 10%

No 90%

Interpretation: The evident from above finding showed that out of 100 respondents, 90% respo
ndents are investing their money in Mutual Fund without faced any problem.

8. Tick the most professional Mutual Fund companies according to you?

Objective: - To know about the awareness of ICICI Mutual Fund.

Response %age of respondents

ICICI 30%

HDFC 25%

TATA 5%

Reliance 25%

DSP Blackrock 15%

Interpretation: The evident from above finding showed that out of 100 respondents, 60% respo
ndent are awareness UTI Mutual Fund Companies, 20% respondent are aware Franklin, 10% reli
ance, 5% HDFC & TATA both.

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 Conclusion & Recommendations
• After going through a two months summer training and survey, I have come to know abo
ut different aspects of mutual funds and mutual funds industry. India is an emerging mark
et. Consumption level is rising with rising earning level. Economic indicators micro and
macro both show a sky facing arrows. Data shows that there will be more number of billi
onaires from India than any of other country.

• We know that Indians are earning more therefore spending more, but how much they sav
e/invest in order to secure future. There are numbers of traditional ways of saving. They g
ive guaranteed return with low risk. High risk associated investment options was not cons
idered a right decision. India is a young country having a considerably big part of young
people. They are more risk taker. They need a right direction for investment options.

• This study and survey on mutual funds is a small eye hole to see the picture of mutual fun
ds industry in India. This provides almost clear view to the readers.

• Number of investors is rising, and number of AMCs is going up. These changes are likely
to happen. Indian monetary policy is supporting new business. Private sector is aggressiv
ely participating in mutual funds business. Numbers of schemes are much more than earli
er.

• With such shining sides, double digit inflation rate, bearish stock market, RBI’s high ban
k rates, squeezing liquidity and other dark sides putting pressure on consumers saving. Th
is situation pushes investors back from investment. They wait and hold cash rather than in
vesting. This study found that investors are willing to invest with high rate of return. The
y know high return always adhere to high risk but market still is not in correction mode. It
will take time.

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• Indian market potential is high, investors are willing to pour money in mutual funds, desp
ite some temporary restraints, and other economic factors are in favorable mode. Thus we
need proper management of advisory services, more schemes, financial advisors and insti
tutions to cater untouched markets.

• Industry need to revise its business strategy. Investor’s perception is not prioritized yet. In
stead of completing targets, advisors working under institutions should consider the requi
rement of investors. We need to change pattern of selling mutual funds schemes.

• I hope this study will help readers to identify industry’s unidentified areas where they nee
d to work out.

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 Bibliography

Webliography

• Kothari C.R, Research Methods in Management, New Delhi, New Age International (P)
Ltd. 2nd Revised Edition 2004.

• Philip Kotler, Kevin Lane Keller, Marketing Management, Prentice-hall Of India (P) Ltd
(2000), 13th Edition 2009.

Bibliography

 AMFI Handbook

 www.investopedia.com

 www.mutualfundsindia.com

 www.valueresearchonline.com

 www.myiris.com

 www.amfi.com

 www.iciciprudentialamc.com

 Fund Factsheet- ICICI Prudential Mutual Funds

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 Questionnaires

1. Which of the following age bands do you fall in to?

 Less than 21

 21 to 25

 25 to 35

 35 to 60

 Above 60

2. What is your primary source of income?

 Your pension

 Your salary

 Income from your business

 Rental income from investment properties

3. What is your return expectation on your investment?

 Up to 8%

 Between 8% to 18%

 Above 18%

4. How would you describe/rate your level of knowledge of financial products?

 Low level of knowledge

 Medium level of knowledge

 High level of knowledge

5. What level of risk are you willing to accept on your investment?

 I want to protect my capital

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  I am comfortable with a small degree of risk

 I am comfortable accepting the fact that investment could decline

 I am willing to tolerate putting my principal at risk by investing in volatile

investments

6. What percent of your disposable income do you keep aside for different investment optio
ns?

 0% to 5%

 5% to 10%

 10% to 15%

 15% to 20%

 20% to 30%

 Above 30%

7. What percent of above mentioned percentage part do you invest in mutual funds?

 0% to 5%

 5% to 10%

 10% to 20%

 20% to 30%

 30% to 50%

 Above 50%

8. Which of the following source of mutual funds information do you like to opt for?

 Professional advisory

 Company advisory

 Mutual fund prospects

 Newspaper, magazine, television

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9. How long are you planning to stay invested?

 Long term > 12 months

 Medium term 6 – 12 months

 Short term < 6 months

10. How likely are you stay invested during volatile times?

 Unlikely you will stay invested

 Likely you will stay invested

 Highly likely to remain invested

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