business opportunities in mutual fund in india”

8/3/2019 BUSINESS OPPORTUNITIES IN MUTUAL FUND IN INDIA”

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“BUSINESS OPPORTUNITIES IN MUTUAL FUND IN INDIA” - NJ IndiaInvest Pvt. Ltd.

TABLE OF CONTENTS

No. Particular Page NO.1 Title page 12 Certificate 23 Declaration 34 Acknowledgement 45 Table of content 56 Table of charts and tables 67 Executive Summery 78 Introduction 99 Research methodology 10

10 Industry Profile 1311 Company Profile 6012 Data Analysis and Interpretation 6613 Findings 7514 Conclusion 7615 Recommendation 7716 Annexure 7817 Bibliography 8118 Glossary 82

TABLE OF CHARTS AND EXAMPLES2




Sr

NoName Of Graphs Or Tables

Page

No

1 Growth In AUM 16

2. Investment Instruments Issued By The Company’s 25

3. Comparison Of Bank V/S Mutual Fund 26

4. Comparison Of FD ,Bond , Mutual Fund 27

5. Risk Return Trade Off In Mutual Fund 28

6. Mutual Fund Operation Flow Chart 31

7. Organisation Structure Of Mutual Fund 31

8 AMC’s with NJ IndiaInvest 63

9 Investment Option Suggested By IFA’s 66

10 Parameter Ranks Given By IFA’s 67

11 Services Provided By IFA’s 68

12 IFA’s Suggesting Mutual Fund 68

13 AMC Suggested By IFA’s For There Clients 69

14 IFA’s Reason For Working With A Particular Dealer 70

15 IFA’s Getting Online Valuation Report 71

16 IFA’s Interested In Providing Online Valuation Report To There Clients 71

17 IFA’s Interested In There Own Website 72

18 IFA’s Interested In Attending Business Opportunity Program Of NJ IndiaInvest 73

19 IFA’s Interested In Meeting Representatives Of NJ IndiaInvest 73

20 IFA’s Who Have Cleared AMFI(Advisory) Module 73

21 IFA’s Interested In Giving AMFI Exam 74

EXECUTIVE SUMMARY

The economy is highly influence d by the Financial System of the country. The

Indian Financial System has been broadly divided into two segments: the organized and

unorganised. An investor has a wide array of investment avenues available. Economic well being

in the long run depends significantly on how wise he invests.

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In present financial scenario where the economy is poised to grow at 7% ,as stated by our

finance minister P Chidambaram, and the present bulls run in the capital market ,where lot of

money is being pumped into the economy by FII, and increasing disposable income with the

generation next has created a problem of investment because there is lot money on hand but theydon’t know where to invest as there is no attractive return in the bank FD, PPF, KVP, NSC, MIS,

and other Post saving scheme. Due to uncertainty in share market and low returns due to low

interest rates has left investor are puzzled, i.e. to spend the money or save the money. If to save

the money then where to save it, so that they can get better return with flexibility, tax benefit and

as well as capital appreciation. So it is necessary for investor to find the answer and way of

capital growth with better return rather than uncertain share market and other low yield

investment avenues.

All investments involve risk in varying degrees, and hence it is necessary to understand

risk profile of each investment avenues and know how it can affect your investments. There

should be trade off between risk and return. There are also risks that are not in our control like

inflation risk, credit risk, risk of sudden rise in oil prices, risk pertaining to political environment

for instance. In present financial system, investment has lost their potential to earn additional

income, which can help for growth of their capital because the interest return which varies from

approx 4% to 8% and the inflation rate hovering in and around 5%-6% so the real return is

varying between (-)2% to 2% so this is the real return what a investor gets by investing in FIXED

DEPOSIT, GOVERNMENT SECURITY ,KVP,NSC,PPF,MIS and also blocking there money

for min of 2-5 years ,in these instruments ,which is not very encouraging for an investor to invest

in these instruments .So the investor is likely to spend his earnings than invest(save), which what

is happening in our country.

Mutual fund is indeed of great benefit in this respect. They provide the services of

experienced and skilled professionals who determine this risk and monitor them on going basisThey are also backed up by research ,done by individual asset management company based on

the fund objectives .

When investors are confronted with an outstanding range of products, form traditional

bank deposits to downright shady money-multiples schemes, it has to be judged on the yardsticks

of returns, liquidity, safety, convenience and tax efficiency. An important question facing many

investors across the country today is whether one should invest in a bank fixed deposit or in a

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debt-oriented Mutual Fund. Mutual fund gives an opportunity to the IFA’s to select from

different investment options ranging from liquid funds to diversified equity ,based on there

clients appetite for risk and and the return they want .

The data is contained from insurance advisors, income tax consultant, post office agent.So the basic objective of the study was to test the potentiality and develop the business of mutual

funds by obtaining the data form Independent financial advisors.

During the training period and interaction with people it was found that awareness of

Mutual Fund among IFA’s was there to a limited extent but there was lot of misconceptions

among them about mutual fund as I had meet few who had lost there money in UTI scam and

others though where aware of mutual fund where not suggesting this to there clients as they

thought it as to be to risky for there clients and those who where aware where really aggressive to

take the opportunity offered by mutual fund to earn a high return. On the whole if I have to

conclude my survey I would like to say that if we have to create awareness about diversified

portfolio, professional management and SEBI Regulations and benefits it offers to IFA’s and

there clients and also we have to clear few misconception which IFA’s have, to tap the huge

potential which mutual fund market has to offer .

The sample size is 100 for the survey of “ Behaviour Study Of Independent Financial Advisors And

Finding Awareness Of Mutual Fund Among Them ”. The researcher has used convenient samplings for

conducting survey on IFA, the data is being collected by contacting the person personally and interacting with them.

The communication approach is questionnaire .

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 is shared by its units 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

portfolio at a relatively low cost. The small savings of all the investor are put together to increase

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the buying power and hire a professional manager to invest and monitor the money. Anybody

with an ingestible surplus of as a few thousand rupees can invest in mutual funds. Each mutual

fund scheme has a defined investment objective and strategy.

In the preset time stock market is more volatile at that time small investor invest its

money via mutual fund it gives safety and secure return. For the small investor mutual fund is the

best investment option.

Mutual fund is a one of the investment instrument in the global market special in USA,

more than 30% saving invested in mutual fund but in India only 1-2% saving mutual fund

investment. Size of the mutual fund industries % of GDP in USA 67% where in India only 6% so

its reflect mutual fund industries is good potential

RESEARCH METHODOLOGY

Research methodology give students the necessary training in gathering materials and arranging

them, participation in the field work when required and techniques for the collection of data

appropriate to a particular problem in the use of statistics questionnaire and controlledexperimentation and in recording evidence, sorting it out and interpreting it thereafter.

[1] Problem Formulation:

It has been perceived that there is a huge potential market in the Rajkot city. The

strategy0020is to know the awareness of mutual fund among the independent financial advisors.

And also to know investment options suggested by the IFA(independent financial advisors) to

there clients based on secured and risk taking investments

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This is analytical research. The awareness of mutual fund is to be found out after doing

the behavioral study of independent financial advisors and what are the various investment

options they are giving to there clients which are available in the market.

[2] Research Objectives:

Primary Objective:

• The study of Mutual Fund Market in Rajkot was conducted with the primary objective to

know awareness of mutual fund among the Independent Financial Advisers.

Secondary Objective :

• To study the perception of independent financial advisors about different investment

options available in the market.• To know priority level between different criteria of investment like safety level, retunes,

liquidity, tax benefit, maturity of investment.

• To study about different type of services provided by independent financial advisors to

their clients.

• To know the awareness of Mutual Funds in the market of Rajkot and its surrounding

areas.

• To study about the different types of services provided by professional Mutual Fund

Distributors.

• To find out how many independent financial advisors want to attain the Business

Opportunity program arranged by N.J. India Invest.

• To find how many independent financial advisors are AMFI certified and how many are

interested to become registered mutual fund advisor.

[3] Methods of data collectiona) Research Design:

A research design is simply the framework or plan for a study, used as a guide in

collecting and analyzing data. It is the blue print that is followed in completing the study.

Research design is the conceptual structure within which the research would be conducted. In

the context of this project report I have utilize descriptive research design This cover research

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design that is intended to produce accurate description of variable relevant to the decision face

without demonstrating relationship exists between variables.

b) Sampling Design:

• Sampling Method

In the context of this project the survey, which is of independent financial advisors, done

by convenient sampling method.

• Sample size

Our total sample size is 200

• Sample Area

The survey is done in the central city of Rajkot.

c) Sources of data

• Primary Data

In the context of this project report the resource of data used by researcher is primary

data. Researcher has collected the data by contacting personally the respondent and by

interviewing them.

• Secondary Data

To know the information about current market scenario making use of internet,

magazines, newspaper, periodicals and fact sheets of different AMCs and NJ IndiaInvest.

• Communication ``Approach .

Research tool is the questionnaire filled up by the independent financial advisors and informal

interview of independent financial advisors conducted by me.

[4] Limitations of Study:

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• Sample size is 200 that is not enough to study the awareness of Independent Financial

Advisors.

• As sampling technique is convenient sampling so it may result in personal bias.

• Even respondents may give bias answer.

• Time is main constraint of the research as we have been given training period of 8 weeks

is short for such studies.

• This research reflects the awareness of Independent Financial Advisor in Rajkot city. It

cannot be generalized for other cities.

INDUSTRY PROFILE

[1]A SHORT HISTORY OF MUTUAL FUNDS

Where did they come from?

Mutual funds are not an American invention. The first was started in the Netherlands in 1822,

and the second in Scotland in the 1880's.

Originally called investment trusts, the first American one was the New York Stock Trust,established in 1889. Most that followed were begun in Boston in the early 1920's, including the

State Street Fund, Massachusetts Investor's Trust (now called MFS), Fidelity, Scudder, Pioneer,

and the Putnum Fund. The Wellington Fund, the first balanced fund that included both stocks

and bonds, was founded in 1928, and today is part of the giant Vanguard Funds Group.

In the 1960's there was a phenomenal rise in aggressive growth funds (with very high risk).

Sometimes called "go-go" or "hot-shot" funds, they received the majority of the billions of

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dollars flowing into mutual funds at that time. In 1968 and 1969, over 100 of these new

aggressive growth funds were established.

A severe bear market began in the autumn of 1969. People became disillusioned with stocks and

mutual funds. "The market's toast. It’ll never get back to where it was!" was echoed by panicked

investors.

Unemployment grew; inflation went crazy, and investors pulled billions back out of the funds.

They should have hung in there! Many funds have risen 9,000% since then.

The 1970's saw a new kind of fund innovation: funds with no sales commission called "no load"

funds. The largest and most successful no load family of funds is the Vanguard Funds, created by

John Bogle in 1977.

At the end of the 1920's there were only 10 mutual funds. At the end of the 1960's there were

244. Today there are more than 6,500 unique funds and even thousands more that differ only by

their share class (how they are sold, and how their expenses are charged).

Before we continue with all you need to know about mutual funds, here is something that merits

your attention. Since 1940, no mutual fund has gone bankrupt. You sure can't say that about

banks and savings and loans!

History of mutual fund shown in Phases

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the

initiative of the Government of India and Reserve Bank the. The history of mutual funds in India

can be broadly divided into four distinct phases.

First Phase – 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up

by the Reserve Bank of India and functioned under the Regulatory and administrative control of

the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial

Development Bank of India (IDBI) took over the regulatory and administrative control in place

of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had

Rs.6,700 crores of assets under management.

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

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the erstwhile UTI which had in March 2000 more than Rs.76,000 crores of assets under

management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual

Fund Regulations, and with recent mergers taking place among different private sector funds, the

mutual fund industry has entered its current phase of consolidation and growth. As at the end of march 2006, there were 30 funds, which manage assets of Rs.231862 crores under 421 schemes.

The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

Note:Erstwhile UTI was bifurcated into UTI Mutual Fund and the Specified

Undertaking of the Unit Trust of India effective from February 2003. TheAssets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as awhole from February 2003 onwards.

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IL & FS Asset Management Co. Ltd.

Jeevan Bima Sahayog Asset Management Co. Ltd

PRIVATE SECTOR

Benchmark Asset Management Co. Pvt. Ltd.

Cholamandalam Asset Management Co. Ltd.

Escorts Asset Management Ltd.

J.M. Capital Management Pvt. Ltd.

Kotak Mahindra Asset Management Co. Ltd.

Reliance Capital Asset Management Ltd.

Sahara Asset Management Co. Pvt. Ltd

Sundaram Asset Management Company Ltd.

Tata Asset Management Private Ltd.

JOINT VENTURES- PREDOMINANTLY INDIAN

Birla Sun Life Asset Management Co. Ltd.

Credit Capital Asset Management Co. Ltd.

DSP Merrill Lynch Fund Managers Ltd.

HDFC Asset Management Co. Ltd.

JOINT VENTURES - PREDOMINANTLY FOREIGN

Alliance Capital Asset Management (India) Pvt. Ltd.

Deutsche Asset Management (India) Pvt. Ltd.

Franklin Templeton Asset Management (India) Pvt. Ltd.

HSBC Asset Management (India) Private Ltd.

ING Investment Management (India) Pvt. Ltd.Morgan Stanley Investment Management Pvt. Ltd.

Prudential ICICI Asset Management Co. Ltd.

Principal Asset Management Co. Pvt. Ltd.

Standard Chartered Asset Mgmt Co. Pvt. Ltd.

GLOBAL SCENARIO

Some basic facts:14




In US, every third household is a mutual fund investor.

In US, the MF Industry size is about 67% of the US GDP whereas the Indian MF

Industry is just 6% of our GDP.

In US,MF assets are 1.5 times the bank deposit.

In India the bank deposits are about 10.50 times the MF assets.

In India for the past 3 years its has been seen that nearly 2,500 crore is being transferd

from bank deposits to Mutual funds on a yearly basis .

75% of the core customer bases of mutual funds in the top 50-broking firms in the U.S.

are expected to trade on-line by 2004.

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 and as we start using advanced technologyin this industry this cost will further cut down the administration cost.

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 and also

net is used for transaction purpose is on the initial stage but is catching up quickly with all

dealing in this industry as it helps in reducing administrative cost.

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 online 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.

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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 online. 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 passeddown and hence Mutual Funds are able to attract more 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. New 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

honour 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.

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.

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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.

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.

The mutual fund industry is awaiting the introduction of DERIVATIVES in the country

as this would enable it to hedge its risk and this in turn would be reflected in its Net Asset Value

(NAV).

17




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.

INVESTMENT PRODUCTS

A. Physical Assets and Financial Assets.

Gold and real estate are example of physical assets, which have a physical form to them.

There is a strong preference for these assets as investments, as these assets can be purchased with

cash and held for the long term. The obvious disadvantages are :the physical form with the risk of loss and theft, lower level of return, illiquid secondary markets; and ad hoc valuations and

transactions costs.

Financial assets are securities which are certificates embodying a financial contract

between parties. Bonds, equity shares, deposits, and insurance policies are all financial assets,

where investors only hold the proof of their investment in the form of a certificate or account.

These products are usually liquid, transferable and in most cases, stored electronically with high

degree of safety.

B. Equity and debt.Investors can invest in debt products, which typically have a pre stated periodic interest

payment, and or for fix tenure. Equity investments do not guarantee a return and for perpetuity.

However, equity shares can be sold in the secondary markets, where they are listed and traded.

Investors’ returns are in the form of dividends and capital gains / loss from selling the shares

C. Government securities and non-Government securities.

The Government, all of these being debt instruments, issues Varity of investment

instruments. Some of these have pre determined a fixed rate of interest. Some of this is floating

rate instrument where the interest rate is fixed periodically. Securities issued by the Central Govt.

do not carry default risk.

The non-Govt. issuers can be classified into public sector and private sector. Securities

issued by many public sector units have a special tax features. Some of these securities are also

guaranteed by the central/state Govt.

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Other investment instruments

a) PPF (Public Provident Fund)

This is a 15-year deposit product of the Govt. offered through banks.

Interests are fixed by Govt. and are paid on monthly balances.

Current interest rate is 8.5 % per annum. There is a proposal to make the interest a

floating rate, linked to Govt. yields.

Minimum investment of Rs.100 per year has to be made and maximum investment has

been recently capped at Rs. 60,000 per year.

Investment up to Rs 1,00,000 is tax deductable is available for investors with taxable

income Irrespective of the amount of income earned. The investment has to be made from thetaxable income of the year.

Both interest receipts and withdrawal if principal is exempt from tax.

Limited liquidity is available. Investors can draw up to 50 % of their 4th year balances,

from the 7 th year onwards

b) RBI Relief Bonds:

Issued by banks on behalf of the RBI, these bonds are borrowings of the Central

Government.

Tenure of 5 years.

Interest is fixed by the Govt. and is paid semi-annually. Current interest rate is 8% per

annum. There is a proposal to make the interest a floating rate, linked to Govt. yields.

Investors can receive interests or choose to accumulate interest in the scheme.

Interest income is fully exempt from tax.

Transferable by endorsement and delivery.

C) Mutual Fund:

A Mutual Fund is a pool of money, collected from investors, and is invested according to

certain investment objective.

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A Mutual Fund is created when investors put their money together. It is therefore a pool

of the investors’ funds.

The most important characteristic of a mutual fund is that the contribution and the

beneficiaries of the funds are the same class of people, namely the investors.The term mutual fund means that investors contribute to the pool, and also benefit from

the pool. There are no other claimants to the funds. The pool of funds held mutually by

investors is the mutual fund.

Benefit of Mutual Fund :

• Portfolio Diversification

• Professional Management

• Reduction in Risk • Reduction of Transaction Cost

• Liquidity

• Convenience and Flexibility

d) Other Government Scheme:

Indira Vikas Patra and Kishan Vikas Patra are instrument with fixed interest issued by

Central Govt., and sold by Post Office. Interest is taxable. Investor identity is protected

and investment in cash is possible

Post Office saving and recurring deposits are Govt. guaranteed deposits, with fixed rate

of interest. They are not transferable. Attractive for their safety and cash investment

options.

e) Investment Instrument issued by Companies *:

Commercial Papers:

- Short term (usually 90 days)

- Credit rated

- Wholesale market for issuance and tradingDebenture : - Medium to long term

- Put and call options and various structures

* NJ IndiaInvest fact sheet dec 2004

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- Secured and unsecured

- Fixed or floating interest rate

- Credit rated

- Privately placed or listed- Limited secondary market trading

- Limited electronic holding

Equity Share:

- Listed and traded on markets

- Dividend and capital gains uncertain

- Investment return depends on future profitability of the company

- Historical return and risk are highest amongst investment options

Fixed Deposit :

- Medium term (1-5 years)

- Fixed rate of interest- Credit rating

- Unsecured

- Not listed or traded-limited liquidity

Bonds of PublicFinancial Institution

:

- Widely distributed to retail investors

- Tenure ranging from 5-25 years, with put and call option

- Various structures, including regular income, deep discount and monthly

income bonds.

- Credit rated

- Limited secondary market trading

- Some bonds eligible for tax rebate as infrastructure bonds (20 % rebate

on investment up to Rs. 80000 under section 88, depending on taxable

income of investor). 3 – year lock on this bond of NHB, NABARD,

NHAI and SIDBI eligible investments for investing capital gain.

Comparison between various investment options available

A. Banks v/s Mutual Funds *

Banks Mutual FundsReturns Low Better

Administrative Expenses High Low

*

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Risk Low Moderate

Investment Options Less More

Network High Penetration Low but Improving

Liquidity At a Cost Better

Quality of Assets Not transparent Transparent

Interest CalculationMin. balance between 10 th & 30 th

of every monthEveryday

Guarantee Max. Rs.1 lakhs on deposits None

Comparison between FD, Bonds and Mutual Fund – Features *

FD's Bonds Mutual FundsAccessibility Low Low High

Tenor Fixed(medium) Fixed(Long) No Lock-in

Min. Investment Rs.1000 Rs.5000 Rs.500

Tax Benefits None 80L, 88 Dividend Tax-FreeLiquidity Low Very Low Very High

Convenience Medium Tedious Very High

Transparency None None Very High

As can be seen from the above table mutual funds offer the maximum benefits in respect

of all the features of investment. The quality of the services and features of investment as

well as the interpersonal relationship between the customers and the organization

providing the services significantly influence the marketing of mutual funds. Mutualfunds play a significant role in servicing as in any other financial service industry.

Liquidity is an important consideration for any investor and mutual funds offer sufficient

liquidity. The units of a fund can be sold and repurchased on the basis of the NAV. Many

mutual funds also allow investors to switch from one fund to another. Thus, the absence

of a lock-in period serves to benefit the investors who might want to withdraw at any

* source: invest care for retirement Prudential icicic fact sheet 2004

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Risk

Liquid Funds

The Risk Return Trade -off

Growth Funds Aggressive, Value,

Growth

Balanced Funds

Sectoral Funds

Ratio of Debt : Equity

Potentialfor return


moment of time. The amount a person has to invest in a mutual fund is usually very low.

There are also schemes that offer benefits by allowing payments in small denominations

better known as systematic investment plan (SIP).

Mutual fund investors all over the world enjoy certain tax benefits. The dividend receivedis tax exempt in the hands of the investor and this naturally augments the net yield of the

investments. The greatest benefit offered by mutual is the transparency it provides in the

form of fact sheets which clearly discloses the various companies in which the funds have

been invested and it also shows the percentage of the total amount invested into each

company. The fact sheet also provides the compounded annualized returns for the last 30

days till the last 5 years against the benchmark of the Bombay Stock Exchange. It also

provides for the benefits of the systematic investment plan.

Mutual Fund - One of the good options

Considering the almost all investment options as mentioned above, we can see that to

compensate for the increase in price, our wealth creation should be in proportion. Mutual

Fund is one of the better available options available. Though the risk is associated with the

returns are in accordance.

*

Return

* source: NJ IndiaInvest BOP PPt

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According to the investors psyche of taking risk, various options are available from this

products. The risk – return trade off as shown in the above figure is indicator of expected

return from risk taking capacity from the Mutual Fund.

PRODUCT DETAIL

A MUTUAL FUND IS A POOL OF MONEY THAT IS

INVESTED IN VARIOUS SECURITIES AND PROFESSIONALLY

MANAGED BY AN INVESTMENT MANAGER…

What is a Mutual Fund?

Like most developed and developing countries the mutual fund cult has been catching on

in India. There are various reasons for this. Mutual funds make it easy and less costly for

investors to satisfy their need for capital growth, income and/or income preservation.

And in addition to this a mutual fund brings the benefits of diversification and moneymanagement to the individual investor, providing an opportunity for financial success that was

once available only to a select few.

Understanding Mutual funds is easy as it's such a simple concept: a mutual fund is a

company that pools the money of many investors -- its shareholders -- to invest in a variety of

different securities. Investments may be in stocks, bonds, money market securities or some

combination of these. Those securities are professionally managed on behalf of the shareholders,

and each investor holds a pro rata share of the portfolio -- entitled to any profits when the

securities are sold, but subject to any losses in value as well.

A mutual fund, by its very nature, is diversified -- its assets are invested in many different

securities. Beyond that, there are many different types of mutual funds with different objectives

and levels of growth potential, furthering your chances to diversify

>> Definition of Mutual Fund

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Investor

FundManagerReturns

Securities

Passed back to

Invest inGenerates

Pooled theirmoney with


ORGANISATION STRUCTURE OF A MUTUAL FUND *

* NJ IndiaInvest PPT Presentation

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SPONSOR TRUSTEE

SEBI




In case of developed countries, Mutual Fund industry is highly regulated keeping in view the

protection of investors’ interest as well as to maintain operational transparency. There is a clear

demarcation between open-ended schemes and close-ended schemes for which usually two

different types of structural and management approaches are followed. Open-ended funds (unit

trusts) follows the ‘trust approach’ while close-ended schemes (investment trust) follow

‘corporate approach’. The management and operations are guided by separate regulatory

mechanisms, separate controlling authorities as well. With regards to India, there are no

distinctions to the followed and are integrated by Indian Regulatory Authority, SEBI.

SEBI Regulations Act, 1996, guides the formations and operations of Mutual Funds. A

Mutual Fund comprises of four separate entities, (a) Sponsor (b) Mutual Fund Trust (c) AMCand (d) Custodian. They are assisted by independent administrative entities like banks, registrars

and transfer agents.

Sponsor

Sponsor can be any person, acting alone or in a combination with another body corporate,

establishes the Mutual Funds and get it registered with SEBI. As per SEBI regulations, 1996:

Required to contribute 40% of minimum net worth (Rs. 10 crores) of the AMC.

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OPERATIONS

AMC

MKT./ SALES

DISTRIBUTER

MKT./ SALES

FUNDMANAGER

MUTUAL FUND

SCHEMES

INVESTORS




Must have sound track record and general reputation of fairness and integrity in all

his/her transactions.

Mutual Fund shall be constituted in form of a trust and the instrument of trust shall be in

form of a deed, duly registered under the provisions of Indian Registration Act, 1908,executed by sponsor in favor of trustees.

Board of Trustees

Board of trustees manages a Mutual Fund and the sponsor executes the trust deeds.

Mutual Funds raise money through sale of units under one or more schemes, for investing in

securities. BoT sees to it that the schemes floated and managed by AMC appointed by trustees

are in accordance with trust deeds and SEBI guidelines. As per SEBI Regulations, 1996:The BoT has the right to obtain relevant information from the AMC and dismiss the

AMC under specific conditions also.

Half the trustees should be independent persons. Neither the AMC, not its employees can

act as a trustee.

As a trustee of Mutual Fund, he cannot be appointed as a trustee of another Mutual Fund,

until and unless he is an independent person or has permission from the Mutual Fund

where he is a trustee.Trustees have the right to appoint custodian and supervise their activities.

Trustees can be removed only by prior approval of SEBI.

Asset Management Company

AMC is appointed by the trustees to float the schemes and manage the funds raised by

selling units under the scheme. They are to act as per SEBI guidelines, trust deeds and

management agreement between the trustees and AMC.They should be registered under the SEBI.

Net worth of the AMC should be in cash and all assets should be in the name of AMC.

AMC cannot give or guarantee loans and is restricted from acquiring assets, which

involve the assumption of unlimited liability.

AMC are required to disclose scheme particulars and base of calculation of NAV.

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The director of AMC should be a person of reputed of high standing and at least have five

years experience in relevant field.

AMC can be terminated with 75% unit holders or majority of trustees.

Custodian

As per SEBI Regulations Mutual Funds shall have a custodian who is not any way

associated with the AMC. It carry outs the activity of safekeeping the securities or participating,

in any clearing system.

Custodian should have a sound track record and adequate relevant experience.

Should not be associated with AMC or act as a sponsor or trustee to any Mutual Fund.

Where do Mutual Funds invest?

Broadly mutual funds invest basically in 3 types of asset classes:

Stocks:

Stocks represents ownership or equity in a company, popularly known as shares.

Bonds:

These represents debt from companies, financial institutions or government agencies.

Money market instruments:

These includes short term debt instrument such as treasury bills, certificate of

deposits and inter-bank call money.

Valuation of units of Mutual Fund:

The units are available continuously for sale on all working days at NAV related prices

excepting during the period when there is a book closure.

The performance of a particular scheme of a mutual fund is denoted by Net Asset Value

(NAV).

Mutual funds invest the money collected from the investors in securities markets. In

simple words, Net Asset Value is the market value of the securities held by the scheme. Since

market value of securities changes every day, NAV of a scheme also varies on day to day basis.

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The NAV per unit is the market value of securities of a scheme divided by the total number of

units of the scheme on any particular date. For example, if the market value of securities of a

mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units of Rs. 10 each

to the investors, then the NAV per unit of the fund is Rs.20. NAV is required to be disclosed bythe mutual funds on a regular basis - daily or weekly - depending on the type of scheme.

NAV of units under each scheme / plan shall be calculated as shown below:

Market or fair value of the scheme/plan’s investment

+ Current Assets (including accrued income)

– Current Liabilities and Provisions (including accruedexpenses)

NAV (Rs.) per unit =

Number of units outstanding under the scheme / plan

Types of Mutual Fund Schemes:

The various types of Mutual Funds can be classified according to various

investors’ objectives and their expectations. They can be segregated as under into the following

criteria.

By Investment Objectives.

By Duration/Constitution.

Load and No-Load Funds.

Other types of schemes.

Hereby, let us discuss the various types of Mutual Funds in detail.

By Investment Objectives

Growth/Equity Funds

These funds re high risk-high return funds, wherein major chunk of investment goes in

equity shares of companies. The NAV of such funds keep fluctuating, but the potential to earn in

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such funds is higher provided they are invested with long-term (more than 5 years) financial

goals. The leading examples of such funds are, Kothari Pioneer Prima Fund, Prudential ICICI

Equity Fund, Birla Sun Life Fund, etc.

Income/ Debt FundsThese funds are low risk-low return funds, where in the investments are made in income

bearing instruments such as bonds, debentures, government securities, commercial papers etc.

The share prices of these funds tend to be more stable in value and are best suitable for regular

income investment goals, provided minimum investment period is more than one year. The

leading examples are monthly income funds of UTI, Prudential ICICI Income Plan, JM Income,

Alliance Liquid Fund etc.

Balanced Funds

These funds invest in both, equity shares and income bearing instruments. The idea is to

reduce volatility of fund, while providing some upside for capital appreciation. In all, it is a

combination of income and growth funds, more return – more risk than income funds and less

return – less risk than growth funds. They are best suited for people looking for a combination

for capital appreciation and regular income and best time – span for such investments is more

than 3 years. The examples are PRUICICI Balanced Fund, IDBI-PRINCIPAL Balanced Fund,

and IDBI-PRINCIPAL Child Benefit Fund etc.

Money Market Funds

These funds invest in highly liquid instruments such as certificate of deposits and short-

term bonds. They have emerged as an alternative for savings and short-term fixed deposit

accounts. They are best suited for capital preservation investment objectives, where time-span is

least.

Gilt Funds

These funds are sort of government funds wherein the investments are made in debt

instruments of the government, which carry no risk of non-payment of interest as the RBI

manages the payment of interest and principal on the instruments. These funds are best suited to

the regular income and long-term investment objectives. The time-span matters a lot as there are

chances of price volatility, which may lead to possibility of loss of principal invested, if invested

for short-term. Examples are PRUICICI Gilt Fund, IDBI-PRINCIPAL Government Securities

Fund etc.

International Funds

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These are funds investing in international assets or shares of emerging market origin.

These are not possible in India due to regulation against investing overseas. Most of the foreign

institutional investors (FIIs) investing in India are actually funds of this type.

By Duration/By Constitution

Open – ended Funds

These funds are open for subscription and redemption every day at prices linked to the

daily net asset value per share. That means buying and selling is done directly with the fund.

From the investors’ perspective, these funds are more liquid compared to the close-ended funds.

The key features of such funds are there in fixed maturity, the corpus keeps on fluctuating and

they are typically not listed in any stock exchange.

Close – ended Funds

The investment in such funds is made during the initial issue period and the money gets

lock-in for a stipulated period (ranging from 2 to 15 years). After the initial issue, these funds

can be bought or sold on the stock exchange where the fund is listed. Generally, the close-ended

funds are traded at a discount to their NAV. Its key features are the maturity is fixed, the corpus

is also fixed and they are listed in stock exchange.

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 Entry/Exit Charges

Load Funds

Load funds are those funds wherein the investor has to incur a one-time charge at the

time of either entry or exit into the fund. The entry charge is called front – end load, whereas the

exit charge is called back – end load. This load is limited to a maximum of 6% of the investment

value.

No – load Funds

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No – load funds are those wherein the investor has to incur charges on every transaction

made by him, but then the investor is free from entry or exit fee as in the case of load funds.

Here the AMC is entitled to collect 1% additional management fees (this fee is less than load

funds but then the transaction made will be higher, so the actual amount incurred will be nearlysimilar). Thus, while the investor saves some upfront cost, he incurs high ongoing cost.

red return schemeAssured return schemes are those schemes that assure a specific return to the unit holders

irrespective of performance of the scheme. A scheme cannot promise returns unless such returns

are fully guaranteed by the sponsor or AMC and this is required to be disclosed in the offer

document. Investors should carefully read the offer document whether return is assured for the

entire period of the scheme or only for a certain period. Some schemes assure returns one year ata time and they review and change it at the beginning of the next year.

Other Types of Schemes

Tax Saving Funds

These funds offer tax rebate to the investor along wit capital growth and steady returns.

An Equity United Savings Scheme is available wherein investments are made primarily in

stocks. The investment can be made any time, but it gets lock-in for a period of 3 years and inreturn tax rebate @ 20% is obtained if investments exceed Rs.1, 00,000. Another such scheme is

pension scheme, wherein tax rebate @ 20% can be obtained for investment up to Rs.60, 000.

Index Funds

Index funds invest only in stocks of a particular index such as BSE, S&P CNX 500 etc.

The principle is to duplicate performance of these widely followed indexes while keeping trading

and other costs to a minimum. The returns in case of such funds depend on the index’s

performance. It is best suited to the investors who are satisfied with the returns of an index.

Sector Funds

Sector funds primarily invest in companies of a particular sector/ industry such as

information technology, pharmaceuticals, FMCGs etc. These types of funds are subject to more

risk as the performance of funds depends on the performance of the industry as a whole and also

because the diversification of risk is reduced. Also with the new rule of government not

allowing investing more than 10% in a particular company, is a big problem as the number of

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companies are not very large and at the same time all of them are not very successful. It is best

suited to people willing to take high risk.

Special Purpose Funds

Special purpose funds are those fund that target a specific customer segments, suchas children, women, retired people etc. Making their fund oriented towards the need of the

group they are targeting.

Off Shore Funds

These funds will have non-residential investors and are regulated by the provision of the

foreign countries where they are registered. Further these funds are governed by the rules and

procedures laid down for the purpose of approving and monitoring their performance by the

department of economic affairs, Ministry of Finance and the directions of RBI.

Why Investors need Mutual Funds?

Mutual Funds offer benefits, which are too significant to miss out. Any investment has to

be judged on the yardsticks of return, liquidity and safety. Convenience and Tax efficiency are

the other benchmark relevant in Mutual Fund investments. In the wonderful game of finance

safety and return are two opposite goals and investor cannot be nearer to both at the same time.

Mutual Funds are pooled resources that get invested in a diversified portfolio. The crux of

Mutual Fund investing is averaging the risk. When risk are equalized so are the returns.

When investor are confronted with a mind-boggling range of products, from traditional

bank deposits to downright shady money-multiplier schemes-let alone the physical assets and

non-conventional investments. Investor choice perhaps normally falls somewhere amongst the

products shown in the table below:

(Source: Mutual Fund Review, Dec. 2003)

Option

Current

Yield

Capital

Appreciation Risk

Marketability

or Liquidity Convenience

Equity Low High High Variable High

Non Conv.

Debentures

High Negligible Low Average High

Growth

Schemes

Low High High High Very High

Income High Low Low High Very High

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Schemes

Bank

Deposits

Moderate Nil Negligible High Very High

PPF Nil High Nil Average Very HighLife Insur. Nil Moderate Nil Average Very High

Residential

House

Low High Negligible Low Fair

Gold and

ilver

Nil Moderate Average Average Average

Many investors possibly don’t know that considering returns alone, many Mutual Funds

have outperformed a host of other investment products. Mutual Funds have historically

delivered yields averaging between 9% to 25% over a medium to long time frame (source:

www.moneycontrol.com). The duration is important because like wise, Mutual Fund returns

taste better with the passage of time. Investor should be prepared to lock in your investments

preferably for 3 years in an income fund and 5 years in an equity fund. Liquid Funds of course,

generate returns even in a very short term.

Performance analysis of several funds show that depending on the scheme and the

duration returns from funds average between 9% to 25%. Such average may be misleading, as

some would have fared poorly while others would have posted phenomenally high returns. The

burden of intelligent choice therefore rests on investor. As the market matures and funds developequal capabilities – returns may however level out.

Besides, unlike in a bank deposit or an investment in bonds, returns in Mutual Funds may

fluctuate according to market volatility. A sufficiently longer time span will help Mutual Funds

yield their best returns.

Another critical benchmark for comparing investment options is liquidity. Liquidity

refers to the case with which investor can quickly convert investments back into cash at least

cost. Mutual Fund score high on this benchmark too. And depending on the schemes investor

chooses, Mutual Funds have diverse risk profiles high, medium and even low. Investor can

choose the scheme that best matches his risk appetite.

But the decisive charm of Mutual Funds lies not so much in their returns. It is the

convenience and tax efficiency that till the balance in favor of Mutual Funds. Convenience of

open-end funds is evident in their free entry and exits, systematic investment and withdrawal

plans.

How to invest in Mutual Fund35




Step One - Identify your Investment needs

Your financial goals will vary, based on your age, lifestyle, financial independence,

family commitments, and level of income and expenses among many other factors. Therefore,

the first step is to assess your needs. You can begin by defining your investment objectives andneeds which could be regular income, buying a home or finance a wedding or educate your

children or a combination of all these needs, the quantum of risk you are willing to take and your

cash flow requirements.

Step Two - Choose the right Mutual Fund

The important thing is to choose the right mutual fund scheme which suits your

requirements. The offer document of the scheme tells you its objectives and provides

supplementary details like the track record of other schemes managed by the same FundManager. Some factors to evaluate before 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. For selecting the right scheme as per your specific requirements, click here.

Step Three - Select the ideal mix of Schemes

Investing in just one Mutual Fund scheme may not meet all your investment needs. You

may consider 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 price 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 the 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 income on income and your money multiplies at a compounded rate of return.

Step Six - The final step

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All you need to do now is to Click here for online application forms of various mutual

fund schemes and start investing. You may reap the rewards in the years to come. Mutual Funds

are suitable for every kind of investor - whether starting a career or retiring, conservative or risk

taking, growth oriented or income seekin

Benefits of Mutual Funds

Professional Management

Mutual Funds provide the services of experienced and skilled professionals, backed by a

dedicated investment research team that analyses the performance and prospects of companies

and selects suitable investments to achieve the objectives of the scheme.

Diversification

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

and sectors. This diversification reduces the risk because all stock cannot go through a

downtrend at the same time and in the same proportion. You achieve this diversification through

a Mutual Fund with far less money than you can do on your own.

Conventional Administration

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

as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds

save your time and make investing easy and convenient. 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

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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 investor

Liquidity

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

prices from the Mutual Fund. They are also prompt in meeting redemption demands. 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.

Thus, Mutual Funds can be easily converted into cash whenever required, highlighting its

function of high liquidity, whether open-ended or close-ended.

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

An added advantage of investing in Mutual Funds is an investor can invest money

whenever he has a surplus even when the amount is very small.

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.

Variety

Mutual Funds offer schemes to suit specific investment needs. For instance, there are

growth schemes for investors who are willing to bear a greater risk, gilt schemes for investors

who are risk-averse and retirement plans for those with an eye on the future.

Highly Regulated

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All Mutual Funds in India have to be regulated with the SEBI, and comply with its

regulations, which means strict safeguard of investors’ funds implying appropriate protection of

funds against fraud and misuse.

Tax BenefitsSection 88,88B,88C scraped. New section 80C introduced under which tax

payers can directly claim deduction upto Rs 1 lakh from their income .All

investments eligible U/S 88 are being placed under section 88C without any

sectoral caps.Amount invested under section 88CCC,88CCD to be included under

section 88C.

• NO changes in tax treatment on capital gains on Mutual fund

units .• Investment in ELLS can be done upto 1 lakh to claim deduction

under section 88C as against previous limit of on investment of Rs 10,000

under section 88

• Securities turnover tax would be 0.020% from FY2004-05 at the

tredemption /switch-out from equity/balance schemes.

• Taxation of mutual fund dividend

Dividend continue to tax free at the hands of the investors.Dividend distribution tax(DDT) has to be paid by the mutual funds

as follows :

Equity and

Balance schemes NIL

Debt schemes For HUF & Individuals-12.50%

For Others -20.00%

(Includes firms,corporates,trusts,socities etc)• Capital gains tax

LT capital gain in equity investment(including equity and balanced mutual funds) after October

1, 2004 would be tax free:

SET – OFF AGAINSTLTCG STCG

LTCL YES NOSTCL YES YES

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LTCL=Long Term Capital Loss STCL=Short Term Capital Loss

LTCG=Long Term Capital Gain STCG=Short Term Capital Gain

Limitations of Mutual Fund

Mutual Funds are a victim of their own success. When a large body like a fund invests in

shares, the concentrated buying or selling often results in adverse price movements i.e. at the

time of buying, the fund ends up paying a higher price and while selling it realizes a lower price.

For obvious reasons, this problem is even more severe for funds investing in small capitalization

stocks. However, given the large size of the debt market, excluding UTI, most debt funds do not

face this problem.

Waiting time before investment

It takes time for a Mutual Fund to invest money. Since it is difficult to invest all funds in

one day, there is dome money waiting to be invested. Further, there may be a time lag before

investment opportunities are identified. This ensures that the fund under performs the index. For

open-ended funds, there is the added problem of perpetually keeping some money in liquid assets

to meet redemption. The problem of impracticability of quick investments is likely to be reduced

to some extent with the introduction of index futures.

Fund management costsThe costs of the fund management process are deducted from the fund. This includes

marketing and initial costs deducted at the time of entry itself, called “load”. Then there is the

annual asset management fee and expenses, together called the expense ratio. Usually, the

former is not counted while measuring performance, while the later is. A standard 2% expense

ratio means that, everything else being equal, the Fund manager under performs the benchmark

index by an equal amount.

Cost of churningThe portfolio of a fund does not remain constant. The extent to which the portfolio

changes is a function of the style of the individual fund manager. It is also dependent on the

volatility of the fund size i.e. whether the fund constantly receives fresh subscriptions and

redemption. Such portfolio changes have associated costs of brokerage, custody fees, and

registration fees etc. that lowers the portfolio return commensurately.

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Change of index composition

The indices keep changing over the world to reflect changing market conditions. There is

an inherent survivorship bias in this process, with the bad stocks weeded out and replaced by

emerging blue chips. This is a severe problem in India with the Sensex having been changes

twice in the last five years, with each change being quite substantial. Another reasons for change

index composition is Mergers & Acquisitions. The weight age of the shares of a particular

company in the index changes if it acquires a large company not a part of the index.

Tendency to take conformist decisions

From the above points, it is quite clear that the only way a fund can beat the index is

through investment of some part of its portfolio in some shares where it gets excellent returns,

much more than the index. This will pull up the overall average return. In order to obtain suchexceptional returns, the fund manager has to take a strong view and invest in some uncommon or

unfenced investment options. Most people are unwilling to do that. They follow the principle

“No fund manager ever got fired for investing in Hindustan Lever” i.e. if something goes wrong

with an unusual investment, the fund manager will be questioned but if anything goes wrong

with the blue chip, then you can always blame it on the “environment” or “uncontrollable

Factors” knowing fully well that there are many other fund managers who have made the same

decision.

Unfortunately if the fund manager does the same thing as several other of his class,

chances are that he will produce average results. This does not mean that if a fund manager takes

“active” views and invests in heavily researched “uncommon” ideas, the fund will necessarily

out perform the index.

Challenges in Mutual Fund Industry

Today, the Mutual Funds have become the most favored investment vehicle across the

world. As in the history of the Indian financial system, the stock markets had not performed well

and the interest rates also stayed depressed, due to which even the Mutual Funds could not do

well. So earlier was the scenario where people did not preferred Mutual Funds and the only

industry that came to their minds while investing was the banking sector. But now the trends are

changing and the investors are making their investments the most in the Mutual Funds industry.

Today, the Mutual Funds industry is of about $18 –19 billion. Right now it is very small

with barely 11% of the net demand. But the scope of its development is very high, with the

41




changing trends of more popularity of the Mutual Funds. There are certain challenges relating to

the Mutual Funds industry which are discussed as follows:

Customer Perspective

Today the customer profile is changing as they are more educated and are aware of

what’s happening in the markets. They want to invest only in those schemes where they know

where the money is going. Apart from this they want fair amount of returns with moderate risk

or rather low risk. And considering to these needs, it can be easily noted that Mutual Fund

fulfills these expectations of the customers, where their operations are pretty transparent and also

wide range of schemes are available for different investment objectives (right from high risk –

takers to no risk – takers). Earlier Mutual Fund meant high risk because of improper knowledge

of Mutual Funds, but today even this issue is taken care of and customers are satisfied with the performance of Mutual Funds which has made this instrument a hot spot.

Increasing Number Of Players

Earlier was the scenario where only one player, UTI was operating the Mutual Funds.

Later the market got monopolistic, where only few giants operated in the market. This scenario

continued for nearly 35 years. But now, large number of players has entered into this market,

coming up with better schemes, better services and superior performance. Today services like

redemption of units within 48 hours, toll-free telephone nos., cheque writing facility against

Mutual Fund account, ATM cards and switching between two accounts have been reduced for

high customer satisfaction. (And continuation to this scenario it won’t take long when the

transactions will take place on the Internet, with more customized services.)

Growing Market

The Mutual Funds market is growing at a very quick span, taking away major chunk of

financial savings from other instruments in the market. Currently, Mutual Funds are giving a big

threat to the banks by taking away share of savings from their fixed deposits, savings deposits

and other cash management products. This has led to banks, also entering into the Mutual Funds

markets.

Preference To Equity And Mixed Funds

42




The investors are finding deals in the equity funds pretty profitable with good range of

returns. Though the risks are high in such investments the investors have started confiding in the

AMC which prefer equity funds (as against what happened earlier when people used to prefer

debt funds against equity fund due to low risk). Also moderate investors are going for mixed or balanced funds so as to obtain high gains of the equity stocks.

Marketing Of The Funds

This is a critical issue that is getting due importance these days. As such, there is no

much product differentiation and almost all the funds are offering similar services to the

investors. So the funds are now a days focusing on their core competence of managing money

and marketing their funds. Also the funds are changing their focus from scheme oriented tocustomer – oriented to tap the unexplored market for investments. They are trying to tap the

rural and semi urban markets where people are not much educated about the funds and their

savings are going to the banks, by spreading awareness of the added benefits of the Mutual Fund

schemes as well as the customer incentives that are offered these days.

Clear Investment Policies

This is the new approach adopted by the funds to attract more investments. Here the

objectives are clear and are properly communicated so that the fund is more transparent and it isalready noted that the more transparent the fund the better satisfied the customer.

Lower Cost

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. Therefore if the

administrative costs are low, the benefits are passed down and hence Mutual Funds are able to

attract minor investors and increase their asset base.

Better AdviceMutual 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.

Net Based Advertisement

Mutual Funds can target investors who are young individuals and who are Net savvy, since

servicing them would easier on the Net. India has around 1.6 million net users who are prime

43




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.

Safety Perspectives

Any Mutual Fund is as safe or unsafe as the assets that it invests in. There are two

categories of Mutual Funds with others being variations or mixtures of these. Firstly, there are

those that invest purely in equity shares (called equity funds or growth funds) and secondly, there

are those that invest purely in bonds, debentures and other interest bearing instruments called

Income or Debt funds. The NAV of growth funds fluctuates in line with the fluctuation of the

shares held by them. They can also witness face substantial erosion in value, which a much

lesser degree and an income fund is extremely unlikely to face erosion in value especially of the

permanent kind.

Most Mutual Funds have qualified and experienced personnel, who understand the risks

of investing. But, nobody is immune from making mistakes. However, funds diversify the

investment portfolio substantially so that default in any single investment (in the case of an

income fund) will not affect the overall performance of a fund in a significant manner. In the

event of default of a participant of the portfolio, an income fund is extremely unlikely to face

erosion in the face value.Generally, Mutual Funds are not guaranteed by anybody. However, in the Indian context,

some of the Mutual Funds have floated “guaranteed” or “assured” return schemes, which

guarantee certain annual return or guarantee a buyback at a specified price after some time.

Examples of these include funds floated by the UTI, Canbank Mutual Fund, SBI Mutual Fund,

LIC Mutual Fund etc. Many of these funds have not earned returns that they promised and the

AMCs of the respective Mutual Funds or their sponsors have made good their promises. The

biggest case pertains to the US 64, which never guaranteed any returns but is being bailed out by

the Government due to the millions of individuals who have invested in i

Risk Tolerance

The discussion on investment objectives would not be complete without a discussion on

the risks that investing in a Mutual Fund entails. At the cornerstone of investing is the basic

principal that the greater the risk you take, the greater the potential reward. Remember that the

value of all financial investments will fluctuate. Typically, risk is defined as short – term price

44




variability. But on a long – term basis, risk is the possibility that your accumulated real capital

will be insufficient to meet your financial goals.

Managing Risk

Mutual Funds offer incredible flexibility in managing investment risk. Diversification

and Automatic Investing (SIP) are two key techniques you can use to reduce your investment

risk considerably and reach your long – term financial goals.

Diversification

When you invest in one Mutual Fund, you instantly spread your risk over a number of

different companies. You can also diversify over several different kinds of securities by

investing in different Mutual Funds, further reducing your potential risk. Diversification is a

basic risk management tool that you will want to use throughout your lifetime as you rebalanceyour portfolio to meet your changing needs and goals. Investors, who are willing to maintain a

mix of equity shares, bonds and money market securities have a greater chance of earning

significantly higher returns over time than those who invest in only the most conservative

investments. Additionally, a diversified approach to investing combining the growth potential of

equities with the higher income of bonds and the stability of money markets helps moderate your

risk and enhance your potential return.

Understanding how Systematic Investment Plan works?A SIP is a sensible way of investing money in a fluctuating market by reducing your average cost

. when you invest a fixed amount every month , the number of mutual funds units you actually

buy depends upon the market pricing (NAV) at that pint in time . therefore you tend to buy less

units when the market is moving up and more units when market is moving down. This means

your averaging your cost.

To illustrate this principle , let’s suppose you had invested Rs 1,000 on 10 th of every

month from January to December 2003 in suppose PruICICI Power.

On December 31 st 2003, what do you think would be average purchase cost per unit would have

been?

Is it average of 12 NAV’s at which you would be investing during the year?

No! It is infact lower since you where investing a fixed sum every month, you actually ended up

buying more units when the NAV is lower and less units when NAV was high.

Month NAV on Date You invested No of units Your average Average

45




(in Rs) Allotted cost* price(NAV) +

10-jan-03 13.33 1,000 75.02 13.33 13.3310-feb-03 13.41 1,000 74.57 13.37 13.3710-nar-03 12.72 1,000 78.62 13.15 13.15

10-apr-03 13.56 1,000 73.75 13.25 13.2610-may-03 13.98 1,000 71.53 13.39 13.4010-jun-03 15.17 1,000 65.92 13.65 13.7010-jul-03 17.74 1,000 56.37 14.12 14.2710-aug-03 18.98 1,000 52.69 14.59 14.8610-sep-03 21.57 1,000 46.36 15.13 15.6110-oct-03 24.11 1,000 41.48 16.72 16.4610-nov-03 25.46 1,000 39.28 16.28 17.2810-dec-03 27.23 1,000 36.72 16.85 18.11

*Your average cost = total money invested/number of units

for eg as on 10 th dec 2003 , the average cost per unit =12,000/712.3=16.85

+Average price(NAV)=sum of all NAV’s at which you invested/number of months you have

invested.

For eg ,as on 10 th dec 2003 , the average price=217.2/12=18.11.

Types of Risk

All investments involve some form of risk. Even an insured bank account is subject to

the possibility that inflation will rise faster than your earnings, leaving you with less real

purchasing power than when you started (Rs.1000 gets you less than it got your father when he

was your age). Consider these common types of risk and evaluate them against potential rewards

when you select an investment.

Market Risk

At times the prices or yields of all the securities in a particular market rise or fall due to

broad outside influences. When this happens, the stock prices of both an outstanding, highly

profitable company and a fledgling corporation may be affected. This change in price is due to

“Market Risk”.

Inflation Risk

46




Sometimes referred to as “Loss of Purchasing Power”. Whenever inflation sprints

forward faster than the earnings on your investment, you run the risk that you’ll actually be able

to buy less, not more. Inflation risk also occurs when prices rise faster than your returns.

Credit Risk In short, how stable is the company or entity to which you lend your money when you

invest? How certain are you that it will be able to pay the interest you are promised, or repay

your principal when the investment matures?

Interest Rate Risk

Changing interest rates affect both equities and bonds in many ways. Investors are

reminded that “predicting” which way rates will go is rarely successful. A diversified portfolio

can help in offsetting these changes.Employee Risk

An industries’ key asset is often the personnel who run the business i.e. intellectual

properties of the key employees of the respective companies. Given the ever – changing

complexion of few industries and the high obsolescence levels, availability of qualified, trained

and motivated personnel is very critical for the success of industries in few sectors.

Exchange Risk

A number of companies generate revenues in foreign currencies and may have

investments or expenses also denominated in foreign currencies. Changes in exchange rates

may, therefore, have a positive or negative impact on companies which in turn would have an

effect on the investment of the fund.

Investment Risk

The sectorial fund schemes, investments will be predominantly in equities of select

companies in the particular sectors. Accordingly, the NAV of the schemes are linked to the

equity performance of such companies and may be more volatile than a more diversified

portfolio of equities.

Change in Government Policy

Changes in Government policy especially in regard to the tax benefits may impact the

business prospects of the companies leading to an impact on the investments made by the fund.

47




H. Budget proposals- assessment year 2006-07

Highlights:

Corporate Tax reduced to 30%from 35%, though surcharge

increased to 10%.

Fringe Benefit tax introduced at the rate of 30% in the hand of

employer.

Basic exemption limit has been raised from existing Rs. 50,000 to

Rs. 1,00,000.

Education Cess to remain same at 2%.

Surcharge of 10%on Income more than Rs. 10 lac.

Standard Deduction abolished.

Section 88,88B,88C scraped. New section 80C introduced under

which taxpayers can directly claim deduction upto Rs. 1Lac. From their income.

All investments eligible u/s 88 are being placed u/s 80C without any sectoral caps.

Limit of rebate under section 88 upto income of Rs. 5 Lac for

home loans under section 80C. Amount invetsde under Section 80CCC,80CCD to

be included in Section 80C.

Deduction on Principal payment of Rs 1 lakh for home loans under Section 80C .Section 80L scraped-interest income would now taxable (u/s 80L

upto Rs.12,000 of interest income exempted upto FY2004-05)

Exemption limit for senior citizens and for woman raised to

Rs.185,000 and Rs. 135,000 Respectively.

Cash Transaction Tax introduced on current account holder, it will

be 0.1% for withdrawal of more than Rs

25,000/- for individual and 0.1% for withdrawal of more than Rs.1,00,000/- for

companies.

Regulatory Aspects of Mutual Funds:

Schemes of a Mutual Fund

48




• 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 theinvestors 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

• 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:

49




• 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 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.

50




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 interschemeinvestment 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 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 investment 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

iii. 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.

51




52




COMPANY PROFILE :

NJ IndiaInvest Pvt. Ltd. Two dynamic young men after completing their education were about to start their career

when they sow the growing scope of the financial service sector. Both of them decided to jump

into the same field and came out with the dynamic concept of NJ Capitalstock now, which is

known as NJ IndiaInvest. The word NJ stands for the first letter of Neeraj Choksi and Jignesh

Desai the founder directors of NJ IndiaInvest.

This business was started in the year 1994 ; it was the period when private company was

entering the field of financial services. This is the time when NJ IndiaInvest evolved out as a

client focused need based investment advisory firm. NJ has achieved expertise in need base

investment of clients.

NJ has a very well trained men power to meet the need of the clients and market. With the

help of which the organization has achieved growth in past, is growing and will be growing in

future. At NJ we regard mutual fund as one of the best investment avenue available to satisfy

any kind of investment need. With a very well qualified work force we have gained expertise in

analyzing mutual fund schemes, and in-depth study on various parameters is carried out on a

regular basis.

NJ IndiaInvest is a company, which is involved in this business from past 11 years as a

client focused need based investment advisory firm. It has developed its own IT Industry known

as Finlogic India Pvt. Ltd. i.e. technology to support for client as well as its employees in their

daily routine work. There is a very qualified staff for IT who have prepared a website for theorganization known as www.njindiainvest.com which provides a valuable support to clients as

well as to the employees in trading. All the valuable information , are available on our above

mentioned web site.

NJ IndiaInvest is a modern concept organization that was growing in past, growing in

present and will be growing in future.

NJ IndiaInvest Process :

53

http://www.njindiainvest.com/





The sole business of the organization is to manage clients’ investments and to fulfill their

need from cap-a-pie. At NJ the people are education centric, the relationship managers will help

you in identifying and understanding your need and help you develop a portfolio across different

asset classes commensurate to your needs. This practice is only performed at NJ and this is whatmakes it superior to other competition in this same field.

There are well-trained experts who will give a feel on the various asset classes and explain

you the risk associated with each in a simple and lucid manner to put you at calm. Once the

investment is planned and done we don’t leave our client in between, but we back them by

periodic valuation reports and regular relevant information through newsletters, mailers, e-mail,

road shows etc.

The prime concern of the people at NJ will be to help you attain peace of mind on the

investment front

Services provided to valuable Clients & Agents:

Dedicated portfolio planning & restructuring on demand

The Weekly Performance Sheet (it covers performance of leading mutual fund schemes)

The Monthly Fund Fact Sheet (it covers comprehensive analysis of various mutual fund)

Various Subscription services via e-mailSharing relevant information related to the Indian Investment world.

Over and all we also provide net-based services to our clients and agents. Our e-services

are powered by a comprehensive website http:/www.njindiainvest.com. It covers detailed

information about the Mutual industry, it passes various financial planners to satisfy investment

goals like retirement planning, child’s marriage planning etc, it also posses various analytical

tools to measure the performance of Mutual Fund schemes viz. Returns Calculators, SIP Returns

Calculator, and many others. There is a separate desk for the clients to get their portfolio

information on fingertips.

54




THE CLIENT DESK @ njindiainvest.com

Transaction Summary Report (Mutual Funds, fixed Deposits, RBI Bonds &

others)

Portfolio Valuation Report

Portfolio performance Report

Profit & Loss Account (FY wise)

Consolidated sector & stock profile for equity investments through mutual funds

Consolidated rating & script – profile across debt funds through mutual funds.

Consolidate Asset Allocation Report Across various Assets

Alert processing facility across different parameters

Philosophy at NJ IndiaInvest:

To provide reliable information

To honor our service commitments

To maintain all records in privacy

To preserve client capital

To provide appropriate feedback

To guide their future investment

To restructure investment plan on demand

Finally to provide complete solution & peace of mind on the investment front .

55




AMC’s with NJ IndiaInvest:

Alliance Capital Mutual Fund

Birla Mutual Fund

Cholamandalam Cazenove Mutual Fund

DSP Merrill Lynch Mutual Fund

Dundee Mutual Fund

Escorts Mutual Fund

First India Mutual Fund

Franklin Templeton Mutual Fund

Pioneer ITI

HDFC Mutual Fund

HSBC Mutual Fund

IDBI Principal

IL & FS Mutual Fund

ING Savings Trust

JM Mutual Fund

LIC Mutual Fund

Prudential ICICI Mutual Fund

56

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=D0002


http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=E0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=F0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=T0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=K0002

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=H0001


http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=I0004



http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=J0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=L0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=P0001



http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=E0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=F0001


http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=K0002






http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=J0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=L0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=P0001




Reliance Capital

SBI Mutual

Standard Chartered Mutual FundSun F&C Mutual Fund

Sundaram Mutual Fund

Tata Mutual

Unit Trust Of India

Zurich India Mutual Fund

57

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=R0001

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=S0002

http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=A0002




http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=U0001


http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=R0001


http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=A0002




http://www.njindiainvest.com/mf/aboutfund/amcscheme.asp?ccode=U0001





Vision and Mission Statement of N J IndiaInvest Pvt. Ltd.

VISION STATEMENT

“To be the leader in our sector of business through:

Total Customer Satisfaction, Commitment to Excellence,

Determination to Succeed & Finally to provide

peace of mind on investment front to society.”

MISSION STATEMENT:

“Ensure creation of value by providing a

Differentiating edge to the activities of

Our customers, investors and distributors

through Technnovative solutions while

Fulfilling our social obligations and maintaining

high Professional and ethical Standards

along with the service standards.”

QUALITY POLICY OF NJ INDIAINVEST

NJ AIMS AT PROVIDING HIGH QUALITY SERVICE ONINVESTMENT FRONT

THROUGH SYSTEMATIC &PROFESSIONAL APPROACH BACKED BY TOTAL

MANAGEMENTCOMMITMENT & TEAM WORK. TO ACHIEVE CUSTOMER

58




SATISFACTIONAT A COST THAT REPRESENTS VALUE. WE AS A WHOLE

ARE COMMITTED TO PRACTICE A POLICY

“RIGHT AT THE FIRST TIME”

& THEN CONTINEOUS IMPROVEMENT IN OUR

ACTION & DEALING

Organization Structure

59

Sales Dept.

Operations Dept.

Accounts Dept.

Research Depart.

Legal Compliances

HR Dept.




DATA ANALYSIS & INTERPRETATION

ANALYSIS OF DATA

There are 15 questions in this questionnaire. Now we will see the analysis of the

questions included in this questionnaire.

1) Investment options suggested to clients by the IFA’s

SR. NO. Investment avenue No of IFA’s Recommending it1 Stocks 352 Insurance 1433 Fixed Deposit 174 Govt.Sec 135 KVP 486 NSC 38

7 PPF 348 MIS 529 OTHER 11

10 Mutual fund/unit link plan 68

60




INVESTMENT OPTIONS

35

143

17 13

4838 34

52

1129

0

20

40

60

80

100

120

140

160

1 2 3 4 5 6 7 8 9 10

SR. NO.

N O

. O F P E O P L E

(2) Parameter ranks given by IFA’s

INVESTERRSPREFERENCE 1 2 3 4 5 Total

Safety 122 28 24 18 8 200

Liquidity 7 18 72 57 46 200

Returns 62 73 26 23 16 200

Tax Benefit 9 62 66 27 36 200

Maturity 0 19 12 75 94 200

(3) The services provided by the IFA’s to there clients.

61




(4) IFA’s

suggesting

mutual fund.

If ‘YES’

Services No of Respondents

Pre Investment Service 192

Post Investment Service 195

Door Step Collection Service 189

Sharing Of Brokerage 15

Online Valuation Service 32

Answer Yes No Total

No of Respondents 72 128 200

62




If “NO”

(5) Asset Management company

suggested by IFA’s .

Reasons No Of Respondents

Low Risk 29

Prof Mgmt 46

Tax Benefit 38Flexibility 29

Liquidity 32

Good Incentives 28

Reasons No Of Respondents

High Risk 90

Poor Incentives 36

Lack Of Knowledge 74

Poor Performance 18

Unassured Return 69

Amc’s No Of RespondentsFranklin 36

Tata 36Hdfc 28

Reliance 27Sbi 18

Birla 4Kotak 3Other 17

63




There are IFA’s who suggest more than one AMC to there clients to invest in

Response about AMC

05

10152025303540

F r a n

k l i n T a

t a H d

f c

R e l i a n

c e S b i

B i r l a

K o t a k

O t h e

r

AMC

N u m

b e r Franklin

Tata

Hdfc

Reliance

Sbi

Birla

Kotak

Other

.

(6) Reasons for choosing a particular dealer:

64




Reasons No Of RespondentsBetter Service 27

Good Amc 4

Good Reputation 36Better Incentive 18

Timely Brokerage 9

65




PROVIDING ON LINE VALUATIONREPORT TO CLIENT

Yes

No

(9) Are you interested in your own website?

Answer No Of RespondentYes 49

No 151

Total 200

INTRESTED IN OWN WEBSITE

Yes

No

67




(10) IFA’s interested in attending Business Opportunity Program of NJ IndiaInvest.

Answer No Of Respondents

Yes 128

No 72

Total 200

0

20

40

60

80

100

120

140

Yes

No

(11) IFA’s interested in NJ IndiaInvest representatives to meet them?


Yes 109

No 91

Total 200

(12) IFA’s who have cleared AMFI exam?


Yes 12

No 188

Total 200

68




(13) IFA’s who are interested in giving AMFI exam?


Yes 70

No 118

NOT APPLICABLE 12

Total 100

69




FINDINGS

In analysis of Question -1 , about 72% of IFA’s suggest insurance as ainvestment option to there clients. insurance gives the tax benefits, and peopleprefer it because it is the safer than others and this is followed by post officeschemes because it gives 7-9% returns.

Most of the IFA’s think of safety of investment when suggesting any investmentoptions to there clients.

Almost 96% of IFA’s give Pre-investment services to there clients followed bypost investment services.

In analysis of question 34% of IFA’s like to suggest or do suggest mutual fund tothere clients. Those who suggest mutual fund recommend it, because they thinkit gives better liquidity and flexibility. Those who don’t suggest mutual fund

because of high risk and lack of knowledge.In analysis of question 5, Franklin & Tata are the most preferred fund by IFA’sfrom those who suggest mutual fund as an investment option.

In analysis of question6, IFA’s think of good reputation and better service whenworking with a dealer or broker.

In analysis of question 7 , 33% of IFA’s are getting Online Valuation report for there investment.

In analysis of question 8, 27% of IFA’s are interested in providing online valuationreport to there clients.

In analysis of question 9 ,25 % of IFA’s are interested in having there ownwebsite.

In analysis of question 10 , 64% of IFA’s are interested in attending BOPconducted by NJ IndiaInvest .

In analysis of question 11 , 55% of IFA’s want NJ IndiaInvest representatives besent to meet them because most of th IFA’s are very busy so they wont be ableto come to the office.

In analysis of question 12, 6% of IFA’s are pass AMFI exam

In analysis of question 13 , 59% of IFA’s are don’t want to give AMFI exam.

In analysis of question 13 , 35% of IFA’s are interested in giving AMFI exam NJIndiaInvest .

70




RECOMMENDATIONS

• Give more stress on safety attributes because Independent Financial Advisors are more

concern about safety of the investments of their clients.

• 34% of Independent Financial Advisors who are not suggesting their clients to invest in

mutual funds due to their lack of knowledge of mutual funds. So NJ India Invest should

arrange mutual fund awareness Programme of Independent Financial Advisors on regular

basis and this program should not be restricted to just Independent Financial Advisors but

also general people and employees so by doing this they will create new investors andalso would be able to get IFA’s from this group there by increasing the reach of mutual

fund among people.

• By providing better service NJ India Invest should try to switch the Independent

Financial Advisors who are directly working with AMC to join with them.

• Majority of the Salaried class and business man take into consideration tax benefits

before making any investment. So NJ India Invest should highlight tax benefits in mutual

funds.

• NJ IndiaInvest should be lenient while interacting with potential people who want to sell

mutual fund and should have patience when interacting with them and should explain

things with the core basics.

• NJ indiainvest should interact with Pvt insurance companies and have a

presentation there and should highlight how both can benefit from this as there is

negative attitude towards NJ indiainvest and the way they approach there insurance

advisors. There is a great potential if they can tap this area as they will get lot of

advisors who will sell mutual fund .they can have tie-ups insurance Co’s and can let

72




the insurance advisors of that insurance Co give AMFI exam from NJ indiainvest as

the insurance Co’s are selling Unit link plan which is based on mutual fund so by

giving this exam they can get better insight into mutual fund and can easily solve

customer queries and can get more money as investment from them so this way allthe parties will be in a win-win situation as the IFA will become One Window

service Center with wide portfolio to there clients .

73




ANNEXURE

a. QUESTIONNAIRE

1. What investment option(s) do you suggest for your clients?

Stocks KVP

Insurance NSC

Fixed Deposit PPF

Government Securities MIS

Any other Specify___________________

2. Rank the parameters given below according to your client’s preferences?

Safety Tax benefit

Liquidity Maturity

Returns Any other Specify ___________________

3. The Services You provide for your clients are ::

Pre Investment advisory ServicePost investment advisory service

Door step collection service

Sharing of Brokerage

Online Valuation Services

Any other Specify___________________

Name ::___________________________________________

Address :: ___________________________________________

Profession::____________________________________________

Experience in your Profession::__________________________________

Telephone no ::_______________________________

Mobile No ::_______________________________

74




4. Do you suggest mutual fund for your clients?

Yes No

5. In which asset management company do you generally recommend your clients to invest and

why?

If Yes If No

Low Risk High Risk

Professional management Poor Incentives Structure

Tax Benefit Lack Of Knowledge

Flexibility Poor Performance

LiquidityUnassured Returns

Good Incentives Any Other____________________

Any Other ____________________

75




7. Reasons for selecting a Particular dealer?

Better service Better incentives

Good AMC’s Timely BrokerageGood Reputation Any other specify ___________________

8. Are you getting online valuation report?

Yes No

9. Are you interested in providing online valuation report to your clients?

Yes No

10. Are you interested in your own Website?

Yes No

11. Would you like to attend business opportunity program arranged by N.J.IndiaInvest?

Yes No

12. Can we send representatives from N.J.IndiaInvest for more information about mutual funds

for you?

Yes No

13. Have you cleared your AMFI exam?

Yes No

14. If No, would you like to give the exam?

Yes No

77




BIBLIOGRAPHY

WEBSITES:

www.thebharat.com

www.indiainfoline.com

www.amfiindia.com

www.valueresearchonline.com

www.mutualfundindia.com

www.myris.com

www.moneycontrol.com

www.njindiainvest.com

www.njfundz.com

www.mostchoice.com

www.mutualfunds.about.com

www.rediff.com

www.business-standard.com

Others:

Fact Sheet of NJ IndiaInvest Pvt Ltd.

Fact sheets of other AMC’s

Pamphlets and other materials relating to mutual fund

Weekly Report of NJ Indiainvest Pvt. Ltd.

GLOSSARY

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http://www.valueresearchonline.com/

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http://www.moneycontrol.com/


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http://www.mostchoice.com/

http://www.rediff.com/

http://www.business-standard.com/

http://www.thebharat.com/

http://www.indiainfoline.com/

http://www.amfiindia.com/

http://www.valueresearchonline.com/

http://www.mutualfundindia.com/

http://www.myris.com/

http://www.moneycontrol.com/


http://www.njfundz.com/

http://www.mostchoice.com/

http://www.rediff.com/

http://www.business-standard.com/




Active Portfolio Management

Is a systematic and proactive approach to investment with the goal of beating the market. This

strategy is based on the premise that markets are not efficient and that there is scope to earn

abnormal profits through an active investment strategy.

Annualized Return

The return a fund would have generated over a year on a compounded basis. This method is the

best indicator to measure the performance of a fund.

Asset Management Company (AMC)

A Company registered with SEBI, which takes investment/ divestment decisions for the mutual

fund, and manages the assets of the mutual fund. e.g. for Sun F&C mutual fund , the AMC is Sun

F&C Asset Management (India) Pvt. Ltd.

Asset Allocation

It is the process of allocating the overall corpus to different assets like equities, bonds, real estate,

derivatives etc.

Back-end Load

A kind of redemption charge that an investor has to pay for withdrawing his money from the

mutual fund. It is basically imposed to discourage investors from exiting the fund. It is also

popularly referred to as an Exit Load.

Balanced fund

A fund that invests substantially both in debt and equity.

Bottom-up Investing

It is a strategy of selecting the company for investment first and then cross checking it by

evaluating factors pertaining to the industry and the economy. It is the opposite of the -down

approach to investing.

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Closed-ended fund

A fund where investors have to commit their money for a particular period. In India these closed-

ended funds have to necessarily be listed on recognized stock exchanges which provide an exit

route.

Contingent deferred sales charge (CDSC)

An exit charge permitted under the regulations for a no-load scheme.

Continuous Offer Period

Is the date from which the units are available for sale and repurchase at a price linked to NAV of

the scheme.

Corpus

The total investable funds available with a mutual fund scheme at any point of time.

Credit Risk

It is the risk that the issuer of a fixed income security may default on payment of interest and

repayment of principal. It is also referred to as default risk.

Dated Security

A debt instrument that is long term in nature and has a fixed date of redemption.

Debt fund

A fund that invests in debt securities like Government securities, Treasury Bills, corporate Bonds

etc. These funds are generally preferred by investors wanting steady income and not willing to

take higher risks.

Dematerialization

The process of converting the physical /paper shares in Electronic form. SEBI had made it

compulsory to get the shares of some companies dematerialized. In this process the investor

opens an account with a Depository Participant (DP) and the number of shares the investor holds

is shown in this account.

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Depository Participant

An authorized body who is involved in dematerialization of shares and maintaining of the

investors accounts.

Discount/Premium to (Net Asset Value) NAV

It is the difference between the unit price and NAV. If the price is higher than the NAV, the units

are trading at premium: if the price is lower, the units are trading at a discount.

Diversification

It is the investment strategy of not putting all one’s eggs in one basket. By diversifying a

portfolio across different industries, overall risk of the portfolio is reduced.

Dollar Cost Averaging

The strategy of dividing the investible amount into a number of equal parts and buying at regular

intervals to take advantage of lower prices. This strategy is more beneficial in a bear phase.

Efficient Portfolio

A portfolio which ensures maximum return for a given level of risk or a minimum level of risk

for an expected return.

Factor Fund

It is a mutual fund that has a core philosophy of investing in a particular factor or style in the

market. They are also referred to as Style Funds. Examples of factor funds are Mid-cap funds,

Low P/E funds, Growth funds etc.

Financial PyramidAn investment plan in the shape of a pyramid structure where the safest investments are at the

base and the riskiest investments at the peak.

Fixed Income Security

A type of security that pays fixed interest at regular intervals. These comprise gilt-edged

securities, bonds (taxable and tax-free), preference shares and debentures. Less risky than equity

shares and have little scope for capital appreciation.

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Front-End Load

An initial amount charged by a fund for its administrative expenses or for paying commissions to

brokers. If the charge is made at the termination or redemption, it becomes a back-end load.

Gilt-edged Security

Government securities and bonds, usually with a low interest rate. Considered safest investments,

as the government security is free from default risk. Originally such certificates were edged with

gold and hence the name.

Gilt fund

Funds that invest predominantly in government securities and treasury bills. It is good for

investors who desire safety of principal and adequate liquidity.

Go-Go Fund

A mutual fund which invests in highly risky but potentially profitable investments. Such a fund

usually has a short life.

Equity/Growth fund

A fund that invest primarily in equities and has capital appreciation as its investment objective

Fund Manager

A professional manager appointed by the Asset Management Company to invest money in

accordance with the objects of the scheme.

Fundamental Analysis

A method of investment analysis based on the fundamentals like turnover, net profit, growth, and

vision of a company. The boom or depression of the stock markets is not considered in this

analysis.

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Income Fund

A fund that usually invests in debentures, bonds, and high dividend shares. Preferred by investors

who wants regular income. It pays dividends to the investors out of its earnings.

Index Fund

A fund whose portfolio is benchmarked against a popular index like the BSE Sensex or the BSE

Natex . Such an investment philosophy reflects the belief that the market is efficient and trying to

beat the market over the long term is futile

Initial Offer Period

The dates on which the initial subscription to the units of the scheme can be made. It is similar to

the IPO of an equity issue. This initial offer period is followed by a continuous offer period.

Interest Rate Risk

The change in the price of a debt security due to changes in the market interest rates is the

interest rate risk. For debt oriented mutual fund schemes, this interest rate risk affects the NAV

of the fund. A rise in the interest rates leads to a fall in the price of a fixed income security.

Interim Dividend

An advance installment of the dividend finally declared. More often one, but sometimes two such

payments are made. The final dividend is often at least equal, and sometimes more. The interim

dividend is a fair indication of a company's profitability, during the working year.

Liquid Fund

A fund that invests its corpus in short term instruments like call markets, treasury bills,

Commercial Paper (CP), Certificate of Deposit (CD).

Liquidity Risk

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It is the risk in a fixed income security as well as in equities that these securities may not be sold

in the market at close to their value. Liquidity risk is characteristic of narrow markets like India.

LoadA charge by the fund when an investor buys (entry load) or sells (exit load) units in the fund.

Market Capitalization

Represents the market value of the company. It is a product of the current market price and the

number of shares outstanding.

Market Instrument

A fully negotiable instrument for short-term debt.

Market Lot

A fixed minimum number of shares, in which or in multiples of which, shares are bought and

sold on the stock exchange. The advent of dematerialization of shares will do away the

significance of market lot.

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Net Asset Value (NAV)

This is calculated as total assets minus all expenses and divided by the number of outstanding

units. This is the main performance indicator for a mutual fund, especially when viewed in terms

of appreciation over time.

No-Load Fund

Shares of an open-ended fund, which can be bought directly from the fund without any sales

charge or brokerage. US-64 is an example of a no-load fund.

Offer Price

The price at which units can be bought from a fund.

Offshore Fund

A fund domiciled outside the country where investments are made. It is often a tax haven, not

subject to the tax laws of the holder's country.

Pari Passu

Ranking equally. After conversion of debentures into shares, the new shares created carry the

same rights as the existing shares of the company to receive dividends, rights and bonus shares,

and to participate in the company's profit and loss.

Passive portfolio management

Exactly the reverse of active portfolio management. The portfolio manager assumes that markets

are efficient and all information is already analyzed and reflected in the prices of shares. This

strategy is based on the premise that it is impossible to consistently beat the market.

Rating

Evaluation of credit risk in fixed income securities. This evaluation is specific to the security

rated and is done in India by Crisil, Icra, Care and Duff & Phelps.

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Record Date

It is the date announced by the company/mutual fund, which is a cut-off date for corporate

benefits like dividends, rights, bonus etc. Only investors whose names appear in the company’s

registers on that date are eligible for the said benefits.

Reinvestment Plan

It is a plan where the earnings of a mutual fund scheme are reinvested back in the fund.

Reinvestment Risk

It is the risk that the interest on fixed income instruments cannot be reinvested at the same rate.

This problem becomes pronounced in a falling interest rate scenario.

Sector fund

Such funds invest only in stocks belonging to a specific industry usually aimed at growth. For

e.g. Kothari Pioneer Infotech Fund. Sector funds are generally considered to be risky in nature.

Securities

Financial documents which give the owner specific rights of ownership; these include: equity

and preference shares, debentures, treasury bills, government bonds, units of mutual fund, and

any other marketable documents.

Sinking Fund

Money regularly set aside in a separate fund and invested by a company for the repayment of

debt instruments (fixed deposits, debentures, other loans) or the redemption of preference shares,

or for replacement of assets.

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Sponsor

Sponsor is the parent organization that contributes the initial capital of the asset management

company (AMC). e.g. Kotak Mahindra Finance is the sponsor for Kotak Mahindra Mutual Fund.

Switching

Transferring from one scheme to another in a group of schemes operated by a Mutual Fund,

where the rules so permit. A switching fee may or may not be charged.

SWOT Analysis

A type of fundamental analysis of the health of a company by examining its strengths(S),

weakness (W), business opportunity (O), and any threat (T) or dangers it might be exposed to.

Systematic Risk

This is the market risk that a security faces and is essentially non-diversifiable in nature. This

risk is caused by macro level factors like changes in inflation, interest rates, budget

announcements etc.

Tax saving fund

Such funds allow the income tax payees to claim a rebate under the Income Tax Act.

Technical Analysis

A method of prediction of share price movements based on a study of price graphs or charts on

the assumption that share price trends are repetitive. Since investor psychology follows a certain

pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not

concerned with the fundamental strength or weakness of a company or an industry; he only

studies price and volume behavior.

Transfer Agents

Professional firms, now mostly computerized, which maintain the records of shareholders of

their client companies.

Treasury Bills

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These are bills of exchange, i.e., IOUs, issued by the Reserve Bank of India for short-term loans,

91 days to 364 days.

TrusteeThe trustee is the legal owner of the mutual fund. The trustee takes into custody or under its

control all the capital and property of every scheme of the mutual fund and hold it in trust for the

unitholders of the scheme.

Unsystematic Risk

This is the proportion of risk that is specific to a particular company. This diversifiable risk could

arise due to company specific factors like operational factors, financial factors, labor unrest etc.

Value Investment

Investment in shares whose intrinsic value is above their market price. Fundamental analysts

often make recommendations of value investment, as they can spot undervalued shares.

Vulture Fund

It is a fund that takes over the non-performing assets of bank or financial institution at a discount

and issues pass-through units to the investors.

Venture Capital Fund

A limited company formed to provide venture or risk capital to new industries.

Zero Coupon Bond

business opportunities in mutual fund in india”

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