gaywala

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A

PROJECT REPORT

ON

UNDERTAKEN AT:SHAREKHAN LIMITED, BHAVNAGAR

Submitted by:MR. PRADIP ITALIYA

Guided by:MR. DIPAK GAYWALA

MBA(2010-12)

Dr. J. K. PATEL INSTITUTE OF MANAGEMENT

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Dr. J. K. Patel Institute of Management

CERTIFICATE

This is to certify that Mr/Ms____________ & Mr/Ms____________, studentsof Master of Business Administration (Batch 2010-2012) at Dr. J. K. Patel

Institute of Management, Vadodara have undertaken a Project Titled_____________ in partial fulfillment of 2 years full time MBA programmeof Gujarat Technological University, Ahmedabad. The Summer InternshipProject has been undertaken under the guidance of Prof.___________, facultyof Dr. J. K. Patel Institute of Management. This is also to ascertain that this project has been prepared only for the award of Master of Business Administration degree and has not been submitted for anyother purpose.

Prof. Dr.Abhijeet Chatterjee Faculty Guide Director

Date: Place:

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DECLARATION

I here by declare that the summer project report titled mutual fundawareness analysis is an original piece of work done by me for thefulfillment of the award of degree of Master of Business Administration. Andwhatever information has been taken from any sources had been dulyacknowledge.

I further declare that the personal data and information received from anyrespondent during survey has not been shared with any one and is used foracademic purpose only.

PRADIP ITALIYA

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ACKNOWLEDGEMENT

I would like to take this opportunity to thanks my college Dr. J.K.PATEL

INSTITUTE OF MANAGEMENT, vadodara.For giving me this tremendous opportunity to work in the industry for thereal time project I express my sincere thankful to my guide Mr. DipakGaywala for his encouragement & support during my training.

I express my gratitude to Mr. Jignesh Goswami (Branch Head ) for grantingme permission to carry out training in Sharekhan Ltd, Bhavnagar.& givingme opportunity for getting invaluable experience in such reputed industry.I feel privilege in thanking to them who was always there to guide us

through out the development of the project. He is one of the major sourcesbehind the success of the project. I immensely appreciate the tips that hehas constantly given us during the project.Last but definitely not least; I would like to record my thanks to my parents& friend who help me directly or indirectly in preparation of project work.

Pradip italiya

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EXECUTIVE SUMMARY

This Summer project report is prepared at SHAREKHAN LTD.,BHAVNAGAR TO STUDY OF THE MUTUAL FUND TO KNOW ITS AWARENESSAMONGST THE INVESTOR as a part of curriculum of the MBA program.

I have selected this topic to find out the investor awareness about mutualfund, knowledge and perception & also To helping the mutual fundcompanies & SHAREKHAN LTD. Better understand not only existingcustomer but also potential ones.

The main objectives are To know the awareness of mutual fund amongst the investor To know the investors knowledge and perceptions about mutual fund. To know the investor priority level between different criteria of

investment like safety level, returns, liquidity, tax benefits andmaturity etc. of investment.

Find out reason for choice of mutual fund as an investment avenue.

To achieve these objectives, I have done a survey at BHAVNAGAR city.

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Introduction to Sharekhan

We reckon such questions generally come to theuninitiated, and perhaps that's why you're here on thispage in the first place!

To cut a long story short, Sharekhan is an equities focusedorganization tracing its lineage to SSKI , a veteran equities

solutions company with over 8 decades of experience in theIndian stock markets.If you experience our language, presentation style, contentor for that matter, the online trading facility, you'll find acommon thread; one that helps you make informeddecisions and simplifies investing in stocks . Thecommon thread of empowerment is what Sharekhan is allabout!

Sharekhan is also about focus . Sharekhan does not claim expertise in too

many things. Sharekhan's expertise lies in stocks and that's what he talksabout with authority. So when he says that investing in stocks should notbe confused with trading in stocks or a portfolio-based strategy is betterthan betting on a single horse, it is something that is spoken with years of focused learning and experience in the stock markets. And these beliefs arereflected in everything Sharekhan does for you!

To sum up, Sharekhan brings to you a user- friendly online tradingfacility , coupled with a wealth of content that will help you stalk the rightshares.

Those of you who feel comfortable dealing with a human being and wouldrather visit a brick-and-mortar outlet than talk to a PC, you'd be glad toknow that Sharekhan offers you the facility to visit (or talk to) any of ourshare shops across the country. In fact Sharekhan runs India's largestchain of share shops with over hundred outlets in more than 80 cities!What's a share shop? How do you locate a share shop in your city?

To find the answers of these questions, you must visit Sharekhan. In otherwords Sharekhan is a company that provides you an outstanding trading

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facility with a wide variety of products and acts as an investment consultantto manage your portfolio and secure a high rate of return on yourinvestments in the securities market.Basically, the company is a market leader in providing brokering servicesand has a top turnover in trading and the high turnover makes it the no.1in the market. The main difference is the services that they provide to theinvestors who really need it. The services are discussed in more detail in themarketing activities. The clients are managed with a friendly corporateculture to give him more benefited investment ideas and motivate himwhenever he needs. The company is providing as many tips to the clients(pre-market, online and post-market) for more and more trading ideas andthe manager helps each client to concentrate on a few scripts so that he canmanage the profit/loss.

In short, Sharekhan is currently having a good position in the market withthe highest no of transactions and also the highest turnover (buying &selling) in india and a leader in providing better services to the investors.Sharekhan, indias leading stock broker is the retail arm of SSKI , and offers

you depository services and trade execution facilities for equities, derivativesand commodities backed with investment advice tempered by decades of broking experience. A research and analysis team is constantly working totrack performance and trends. Thats why Sharekhan has the tr adingproducts, which are having one of the highest success rates in the industry.Sharekhan is having 240 share shops in 110 cities ; the largest chain of retail share shops in India is of Sharekhan.In future, Sharekhan is planning to enter in Mutual funds, Insurance sectorand banking sector to expand beyond the market currently covered by it.And it has started MF (Mutual Funds) on priority basis but wants to grow init.

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MUTUAL FUND An Overview

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 hasbeen catching on in India. There are various reasons for this. Mutual fundsmake it easy and less costly for investors to satisfy their need for capitalgrowth, income and/or income preservation.And in addition to this a mutual fund brings the benefits of diversificationand money management to the individual investor, providing an opportunityfor financial success that was once available only to a select few.Understanding Mutual funds is easy as it's such a simple concept: a mutualfund is a company that pools the money of many investors -- itsshareholders -- to invest in a variety of different securities. Investments maybe 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 anyprofits when the securities are sold, but subject to any losses in value aswell.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.

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MUTUAL FUND CONCEPT

A Mutual Fund is a trust that pools the savings of a number of investorswho share a common financial goal. The money thus collected is theninvested in capital market instruments such as shares, debentures andother securities. The income earned through these investments and thecapital appreciation realised are shared by its unit holders in proportion tothe number of units owned by them. Thus a Mutual Fund is the mostsuitable investment for the common man as it offers an opportunity to

invest in a diversified, professionally managed basket of securities at arelatively low cost. The flow chart below describes broadly the working of amutual fund:

Definition of Mutual Fund

A mutual fund is a pool of assets invested on behalf of investors. Mutualfunds invest in a diversified portfolio of securities, which can include equitysecurities (such as common and preferred shares), debt securities (such asbonds and debentures) and other financial instruments issued bycorporations and governments, according to the stated investmentobjectives of the funds. Individual investors own a percentage of the value of the fund as represented by the number of units they purchase. A collectionof money invested in a group of assets and managed by an investmentcompany (a mutual fund company or other). The money comes frominvestors who want to buy shares in the fund. The benefits to investors inbuying shares of mutual funds come primarily from diversification,professional money management, and capital gains and dividendreinvestment at relatively low cost . The flow chart below describes broadlythe working of a mutual fund.

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A SHORT HISTORY OF MUTUAL FUNDS

Where did they come from?

Mutual funds are not an American invention. The first was started in theNetherlands in 1822, and the second in Scotland in the 1880's.Originally called investment trusts, the first American one was the New YorkStock Trust, established in 1889. Most that followed were begun in Bostonin the early 1920's, including the State Street Fund, MassachusettsInvestor's Trust (now called MFS), Fidelity, Scudder, Pioneer, and thePutnum Fund. The Wellington Fund, the first balanced fund that includedboth stocks and bonds, was founded in 1928, and today is part of the giantVanguard Funds Group.In the 1960's there was a phenomenal rise in aggressive growth funds (withvery high risk). Sometimes called "go-go" or "hot-shot" funds, they receivedthe majority of the billions of dollars flowing into mutual funds at that time.In 1968 and 1969, over 100 of these new aggressive growth funds wereestablished.

A severe bear market began in the autumn of 1969. People becamedisillusioned with stocks and mutual funds. "The market's toast. Panickedinvestors echoed itll never get back to where it was!.Unemployment grew; inflation went crazy, and investors pulled billions backout of the funds. They should have hung in there! Many funds have risen9,000% since then.

The 1970's saw a new kind of fund innovation: funds with no salescommission called "no load" funds. The largest and most successful no loadfamily 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 the1960's there were 244. Today there are more than 6,500 unique funds andeven 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 needto know about mutual funds, here is something that merits your attention.Since 1940, no mutual fund has gone bankrupt. You sure can't say thatabout banks and savings and loans!

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HISTORY OF MUTUAL FUNDS IN INDIA (1964 - 2000)

The end of millennium marks 36 years of existence of mutual funds in thiscountry. The ride through these 36 years is not been smooth. Investoropinion is still divided. While some are for mutual funds others are againstit.

UTI commenced its operations from July 1964 .The impetus for establishinga formal institution came from the desire to increase the propensity of the

middle and lower groups to save and to invest. UTI came into existenceduring a period marked by great political and economic uncertainty in India.With war on the borders and economic turmoil that depressed the financialmarket, entrepreneurs were hesitant to enter capital market.

The already existing companies found it difficult to raise fresh capital, asinvestors did not respond adequately to new issues. Earnest efforts wererequired to canalize savings of the community into productive uses in orderto speed up the process of industrial growth.

The then Finance Minister, T.T. Krishnamachari set up the idea of a unittrust that would be "open to any person or institution to purchase the unitsoffered by the trust. However, this institution as we see it, is intended tocater to the needs of individual investors, and even among them as far aspossible, to those whose means are small."

His ideas took the form of the Unit Trust of India, an intermediary thatwould help fulfill the twin objectives of mobilizing retail savings andinvesting those savings in the capital market and passing on the benefits so

accrued to the small investors.

UTI commenced its operations from July 1964 "with a view to encouragingsavings and investment and participation in the income, profits and gainsaccruing to the Corporation from the acquisition, holding, management anddisposal of securities." Different provisions of the UTI Act laid down thestructure of management, scope of business, powers and functions of the

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Trust as well as accounting, disclosures and regulatory requirements for the Trust.

One thing is certain the fund industry is here to stay. The industry wasone-entity show till 1986 when the UTI monopoly was broken when SBI andCan bank mutual fund entered the arena. This was followed by the entry of others like BOI, LIC, GIC, etc. sponsored by public sector banks. Startingwith an asset base of Rs0.25bn in 1964 the industry has grown at acompounded average growth rate of 26.34% to its current size of Rs1130bn.

The period 1986-1993 can be termed as the period of public sector mutualfunds (PMFs). From one player in 1985 the number increased to 8 in 1993.

The party did not last long. When the private sector made its debut in 1993-

94, the stock market was booming.

The opening up of the asset management business to private sector in 1993saw international players like Morgan Stanley, Jardine Fleming, JP Morgan,George Soros and Capital International along with the host of domesticplayers joins the party. But for the equity funds, the period of 1994-96 wasone of the worst in the history of Indian Mutual Funds.

1999-2000 Year of the funds

Mutual funds have been around for a long period of time to be precise for 36 yrs but the year 1999 saw immense future potential and developments inthis sector. This year signaled the year of resurgence of mutual funds andthe regaining of investor confidence in these MFs. This time around all theparticipants are involved in the revival of the funds ----- the AMCs, the unitholders, the other related parties. However the sole factor that gave lifr tothe revival of the funds was the Union Budget. The budget brought about alarge number of changes in one stroke. An insight of the Union Budget onmutual funds taxation benefits is provided later.

It provided centre stage to the mutual funds, made them more attractiveand provides acceptability among the investors. The Union Budget exemptedmutual fund dividend given out by equity-oriented schemes from tax, bothat the hands of the investor as well as the mutual fund. No longer were themutual funds interested in selling the concept of mutual funds they wantedto talk business, which would mean to increase asset base, and to get asset

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base, and investor base they had to be fully armed with a whole lot of schemes for every investor .So new sche mes for new IPOs were inevitable.

The quest to attract investors extended beyond just new schemes. The fundsstarted to regulate themselves and were all out on winning the trust andconfidence of the investors under the aegis of the Association of MutualFunds of India (AMFI)

One cam say that the industry is moving from infancy to adolescence, theindustry is maturing and the investors and funds are frankly and openlydiscussing difficulties opportunities and compulsions.

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 ReserveBank the. The history of mutual funds in India can be broadly divided intofour distinct phases.

First Phase 1964-87

An Act of Parliament established Unit Trust of India (UTI) on 1963. It wasset up by the Reserve Bank of India and functioned under the Regulatoryand administrative control of the Reserve Bank of India. In 1978 UTI wasde-linked from the RBI and the Industrial Development Bank of India (IDBI)took over the regulatory and administrative control in place of RBI. The firstscheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTIhad Rs.6,700 crores of assets under management.

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

1987 marked the entry of non- UTI, public sector mutual funds set up by

public sector banks and Life Insurance Corporation of India (LIC) andGeneral Insurance Corporation of India (GIC). SBI Mutual Fund was thefirst non- UTI Mutual Fund established in June 1987 followed by CanbankMutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), IndianBank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda MutualFund (Oct 92). LIC established its mutual fund in June 1989 while GIC hadset up its mutual fund in December 1990.

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At the end of 1993, the mutual fund industry had assets undermanagement of Rs.47,004 crores.

Third Phase 1993-2003 (Entry of Private Sector Funds)

With the entry of private sector funds in 1993, a new era started in theIndian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual FundRegulations came into being, under which all mutual funds, except UTIwere to be registered and governed. The erstwhile Kothari Pioneer (nowmerged with Franklin Templeton) was the first private sector mutual fundregistered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a morecomprehensive and revised Mutual Fund Regulations in 1996. The industry

now functions under the SEBI (Mutual Fund) Regulations 1996 The number of mutual fund houses went on increasing, with many foreignmutual funds setting up funds in India and also the industry has witnessedseveral mergers and acquisitions. As at the end of January 2003, there were33 mutual funds with total assets of Rs. 1,21,805 crores. The Unit Trust of India with Rs.44, 541 crores of assets under management was way ahead of other mutual funds.

Fourth Phase since February 2003

In February 2003, following the repeal of the Unit Trust of India Act 1963

UTI was bifurcated into two separate entities. One is the SpecifiedUndertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, theassets of US 64 scheme, assured return and certain other schemes. TheSpecified Undertaking of Unit Trust of India, functioning under anadministrator and under the rules framed by Government of India and doesnot come under the purview of the Mutual Fund Regulations.

The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB andLIC. It is registered with SEBI and functions under the Mutual FundRegulations. With the bifurcation of the erstwhile UTI which had in March2000 more than Rs.76,000 crores of assets under management and with thesetting up of a UTI Mutual Fund, conforming to the SEBI Mutual FundRegulations, and with recent mergers taking place among different privatesector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29funds, which manage assets of Rs.153108 crores under 421 schemes.

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GROWTH OF MUTUAL FUNDS IN INDIA

1st Phase (1964-87): -Only one player: Unit Trust of India (UTI) with a total asset of Rs. 6700/-

crores at the end of 1988.

Second phase (1987-93): - Total 8 new funds were established in which (6 by banks and one each byLIC and GIC). The total AUM had grown to Rs. 61028/- crores at the end of 1994 and the numbers of schemes were 167.

Third Phase (1993 to current year): -Began with the entry of private and foreign sectors in the Mutual Fundindustry in 1993. Kothari Pioneer Mutual fund was the first fund to beestablished by the private sector in association with a foreign fund.In this third phase 32 new funds have came with NFO of Rs. 1,13,005crores as total Asset Under Management. As on August end 2000, therewere 33 funds with 391 schemes and asset under management with Rs.1,02,849 crores.

The SEBI came out with comprehensive regulation in 1993 which definedthe structure of Mutual Fund and AMC for the first time.Several private sectors Mutual Funds were launched in 1993 and 1994. Theshare of the private players have raised rapidly since then. Currently thereare 38 Mutual Fund organizations in India managing 1,55,845 crores.

Fourth Phase (Since February 2003 )In February 2003, UTI was bifurcated into two separate entities.

One is the specified undertaking of UTI of Rs.29,835 in 65 scheme.Second UTI M.F. sponsored by SBI, PNB, BOB and LIC

GROWTH IN ASSETS UNDER MANAGEMENT

The total assets under management of the mutual fund industry increasesby 7.1% (Jun 13, 2006)

The total assets under management of the mutual fund industry increasedby 7.1% from Rs 258031 crore as on April end to Rs 276342 crore as onMay end. Growth Funds managing corpus of Rs 93748 crore as on May endwitnessed a downfall of 3.98% compared to previous month. The total assetsunder management of Balanced Fund also saw a decrease of 7% from Rs

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7829 crore as on April end to Rs 7279 crore as on May end. Income fundsreported marginal reduction in assets by Rs 110 crore with total assetsunder management at Rs 57436 crore as on May end. However LiquidFunds significantly added assets worth Rs 24583 crore past one month.

This is exactly what the equity funds have experienced over the last one year as they have been robbed of their valuables by the volatile markets. The fall out of the volatile market conditions is reflected in significanterosion of the total assets under management of the equity funds.

As can be seen, in the last one-year, equity fundshave lost almost 18 percent of the wealth they had

started the year with. Yet, surprisingly, they havemanaged to stay above the market that lost almost26 percent in the same duration. So despite the factthat people have lost money in this year at a rategreater than the rate of depreciation of marketcapitalisation of the index, the funds have receivedsome fresh inflows. The industry on the whole saw acumulative inflow of Rs. 5962 crores through newissues and Rs. 81210 crores through existingschemes in the year but also saw redemption of Rs.68514 crores in the same period.

The same trends can be observed if wedissect the industry across differentcategories of fund houses. Assets undermanagement of different categories of

fund houses have moved diversely. Theindustry finished with lower assetsunder management as it lost almost 2percent in the year while

the industry giant UTI lost about 4.5 percent followed by Indian JointVentures at 4.1 percent.

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However, the category to have lost maximum in the year was that of Banksponsored mutual funds that lost almost 56 percent. The poor performancein this category was not just due to the ICE bust as many would like tobelieve but also due to redemption of many schemes in the sector. However,the industry saw shifting patterns in the investors preferences. The privatesector mutual funds and foreign joint ventures struck big time this year andhave emerged as the biggest gainers despite the market crash. Both thecategories gained in excess of 30 percent and defied the general trend in theindustry. This stresses the point that returns as well as quality of servicesmatter to the investor. This had hitherto been not too significant till now buthas become apparent now.

This is indeed reflective of maturing investors, though only just. Investorshave been known to follow the herd mentality and sell off when the principalamount is under pressure. Although people have redeemed money fromtheir investments in equity, by and large, more money has also flown in tothe industry. With the markets looking to revive, the industry can still hopefor better days, as investors seem to be gradually understanding thatdespite the correlation between the market and mutual funds, they arebetter placed with their risks reduced in mutual funds.

GLOBAL SCENARIO

SOME BASIC FACTSIn US, every third household is a mutual fund investor.In US, the MF Industry size is about 67% of the US GDP whereas theIndian 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 isbeing 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 firmsin the U.S. are expected to trade on-line by 2004.On- line trading is a great idea to reduce management expenses from thecurrent 2 % of total assets to about 0.75 % of the total assets and as westart using advanced technology in this industry this cost will further cutdown the administration cost.Internationally, on-line investing continues its meteoric rise. Many havedebated about the success of e- commerce and its breakthroughs, but it istrue that this aspect of technology could and will change the way financial

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sectors function. However, mutual funds cannot be left far behind. Theyhave realized the potential of the Internet and are equipping themselves toperform better.In fact in advanced countries like the U.S.A, mutual funds buy- selltransactions have already begun on the net, while in India the Net is usedas a source of Information and also net is used for transaction purpose is onthe initial stage but is catching up quickly with all dealing in this industryas it helps in reducing administrative cost.Such changes could facilitate easy access, lower intermediation costs andbetter services for all. A research agency that specializes in internettechnology estimates that over the next fouryears Mutual Fund Assetstraded 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 fundsfrom 34% to 40% during the period. Such increases in volumes are expected to bring about large changes in theway Mutual Funds conduct their business.Here are some of the basic changes that have taken place since the adventof the Net.Lower Costs: Distribution of funds will fall in the online trading regime by2003. Mutual funds could bring down their administrative costs to 0.75% if trading is done online. As per SEBI regulations, bond funds can charge amaximum of 2.25% and equity funds can charge 2.5% as administrativefees. Therefore if the administrative costs are low, the benefits are passeddown and hence Mutual Funds are able to attract more investors andincrease their asset base.Better advice: Mutual funds could provide better advice to their investorsthrough the Net rather than through the traditional investment routeswhere there is an additional channel to deal with the Brokers. Direct dealingwith the fund could help the investor with their financial planning.In India, brokers could get more Net savvy than investors and could help theinvestors with the knowledge through get from the Net.

New investors would prefer online: Mutual funds can target investors whoare young individuals and who are Net savvy, since servicing them would beeasier on the Net.India has around 1.6 million net users who are prime target for these fundsand this could just be the beginning. The Internet users are going toincrease dramatically and mutual funds are going to be the best beneficiary.With smaller administrative costs more funds would be mobilized .A fund

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manager must be ready to tackle the volatility and will have to maintainsufficient amount of investments which are high liquidity and low yieldinginvestments to honour redemption.Net based advertisements: There will be more sites involved in ads andpromotion of mutual funds. In the U.S. sites like AOL offer detailed researchand financial details about the functioning of different funds and theirperformance statistics 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 investors shift their assets from banks and othertraditional avenues. Some of the older public and private sector players will

either close shop or be taken over.Out of ten public sector players five will sell out, close down or merge withstronger players in three to four years. In the private sector this trend hasalready started with two mergers and one takeover. Here too some of themwill down their shutters in the near future to come.

But this does not mean there is no room for other players. The market willwitness a flurry of new players entering the arena. There will be a largenumber of offers from various asset management companies in the time tocome. Some big names like Fidelity, Principal, Old Mutual etc. are looking atIndian market seriously. One important reason for it is that most majorplayers already have presence here and hence these big names would hardlylike to get left behind.

In the U.S. most mutual funds concentrate only on financial funds likeequity and debt. Some like real estate funds and commodity funds also takean exposure to physical assets. The latter type of funds are preferred byCorporates who want to hedge their exposure to the commodities they dealwith.

For instance, a cable manufacturer who needs 100 tons of Copper in themonth of January could buy an equivalent amount of copper by investing ina copper fund. For Example, Permanent Portfolio Fund, a conservative U.S.based fund invests a fixed percentage of its corpus in Gold, Silver, Swissfrancs, specific stocks on various bourses around the world, short termand long-term U.S. treasuries etc.

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In U.S.A. apart from bullion funds there are copper funds, precious metalfunds and real estate funds (investing in real estate and other related assetsas well.).In India, the Canada based Dundee mutual fund is planning tolaunch gold and a real estate fund before the year-end.In developed countries like the U.S.A there ar e funds to satisfy everybodysrequirement, but in India only the tip of the iceberg has been explored. Inthe near future India too will concentrate on financial as well as physicalfunds.

The mutual fund industry is awaiting the introduction of DERIVATIVES inthe country as this would enable it to hedge its risk and this in turn wouldbe reflected in its Net Asset Value (NAV).

SEBI is working out the norms for enabling the existing mutual fundschemes to trade in Derivatives. Importantly, many market players havecalled on the Regulator to initiate the process immediately, so that themutual funds can implement the changes that are required to trade inDerivatives.

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CLASSIFICATION OF MUTUAL FUNDS

The Mutual Funds Organization can be classified as below:

BANK SPONSORED BOB Asset Management Co. Ltd. Canbank Investment Management Services Ltd. SBI Funds Management Ltd. UTI Asset Management Company Pvt. Ltd.

INSTITUTIONS GIC Asset Management Co. Ltd 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 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.

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Prudential ICICI Asset Management Co. Ltd. Standard Chartered Asset Mgmt Co. Pvt. Ltd.

Types of Mutual Fund : The objectives of Mutual Funds are to provide continues liquidity and higher yieldswith high degree of safety to investor. Based on these objectives, different types of Mutual Fund schemes have evolved.

Types of Mutual Fund Schemes

Functional Portfolio Geographical OtherOpen-Ended Event

Close-EndedSchemeInterval Scheme

Income Funds

Growth FundsBalancedFunds

Money MarketMutual Funds

Domestic

Off-shore

Sectoral Specific

Tax SavingELSS

Special

Gilt FundsLoad FundsIndex FundsETFsP/E Ratio Fund

FFuu nn cc tt iioo nn aa ll CCllaa ss ss iiffiicc aa tt iioo nn oo ff MMuu ttuu aa ll FFuu nn dd ss

Open-ended

Daily sale/purchase No fixed maturity Fund is secondary market

Sale during IPO Fixed Maturity SE is secondary market

Closed-ended

Periodic sale / purchase No fixed maturity SE is also secondar

Interval

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OPEN-ENDED SCHEMES

Open-ended schemes do not have a fixed maturity period. Investors can buyor sell units at NAV-related prices from and to the mutual fund on anybusiness day. These schemes have unlimited capitalization, open-endedschemes do not have a fixed maturity, there is no cap on the amountinvestors can buy from the fund and the unit capital can keep growing.

These funds are not generally listed on any exchange.Open-ended schemes are preferred for their liquidity. Such funds can issueand redeem units any time during the life of a scheme. Hence, unit capitalof open-ended funds can fluctuate on a daily basis.

The advantages of open-ended funds over close-ended are as follows:Any time exit option, The issuing company directly takes the responsibilityof providing an entry and an exit. This provides ready liquidity to theinvestors and avoids reliance on transfer deeds, signature verifications andbad deliveries. Any time entry option, An open-ended fund allows one toenter the fund at any time and even to invest at regular intervals.

CLOSE-ENDED SCHEMESClose-ended schemes have fixed maturity periods. Investors can buy into

these funds during the period when these funds are open in the initialissue. After that such schemes can not issue new units except in case of bonus or rights issue. However, after the initial issue, investors can buy orsell units of the scheme on the stock exchanges where they are listed. Themarket price of the units could vary from the NAV of the scheme due todemand and supply factor s, investors expectations and other marketfactors.

INTERVAL SCHEME

Interval Scheme combines the features of open-ended and close-endedschemes. They are open for sale or redemption during predeterminedintervals at NAV-related prices.

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PORTFOLIO CLASSIFICATION

INCOME/ DEBT FUNDS These funds are low risk-low return funds, where in the investments aremade in income bearing instruments such as bonds, debentures,government securities, commercial papers etc. The share prices of thesefunds tend to be more stable in value and are best suitable for regularincome investment goals, provided minimum investment period is morethan one year. The leading examples are monthly income funds of UTI,Prudential ICICI Income Plan, JM Income, Alliance Liquid Fund etc.

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 fundskeep fluctuating, but the potential to earn in such funds is higher providedthey are invested with long-term (more than 5 years) financial goals. Theleading examples of such funds are, Kothari Pioneer Prima Fund, PrudentialICICI Equity Fund, Birla Sun Life 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 forcapital appreciation. In all, it is a combination of income and growth funds,more return more risk than income funds and less return less risk thangrowth funds. They are best suited for people looking for a combination forcapital appreciation and regular income and best time span for suchinvestments is more than 3 years. The examples are PRUICICI BalancedFund, IDBI-PRINCIPAL Balanced Fund, and IDBI-PRINCIPAL Child BenefitFund etc.

MONEY MARKET MUTUAL FUNDS These funds invest in highly liquid instruments such as certificate of

deposits and short-term bonds. They have emerged as an alternative forsavings and short-term fixed deposit accounts. They are best suited forcapital preservation investment objectives, where time-span is least.

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GEOGRAPHICAL CLASSIFICATION

DOMESTIC FUNDSFunds which mobilize resources from a particular geographical locality likea country or region are domestic funds. The market is limited and confinedto the boundaries of a nation in which the fund operates. They can investonly in the securities which are issued and traded in the domestic financialmarkets.

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 thesefunds are governed by the rules and procedures laid down for the purpose of approving and monitoring their performance by the department of economicaffairs, Ministry of Finance and the directions of RBI.

OTHER CLASSIFICATION

SECTOR FUNDSSector funds primarily invest in companies of a particular sector/ industrysuch as information technology, pharmaceuticals, FMCGs etc. These typesof funds are subject to more risk as the performance of funds depends onthe performance of the industry as a whole and also because thediversification of risk is reduced. Also with the new rule of government notallowing investing more than 10% in a particular company, is a big problemas the number of 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 highrisk.

TAX SAVING FUNDS (ELSS) These funds offer tax rebate to the investor along wit capital growth andsteady returns. An Equity United Savings Scheme is available whereininvestments are made primarily in stocks. The investment can be made anytime, but it gets lock-in for a period of 3 years and in return tax rebate @ 20% is obtained if investments exceed Rs.1, 00,000. Another such scheme

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

SPECIAL FUNDS

Special purpose funds are those fund that target a specific customersegments, such as children, women, retired people etc. Making their fundoriented towards the need of the group they are targeting.

GILT FUNDS These funds are sort of government funds wherein the investments aremade in debt instruments of the government, which carry no risk of non-payment of interest as the RBI manages the payment of interest andprincipal on the instruments. These funds are best suited to the regular

income and long-term investment objectives. The time-span matters a lot asthere are chances of price volatility, which may lead to possibility of loss of principal invested, if invested for short-term. Examples are PRUICICI GiltFund, IDBI-PRINCIPAL Government Securities Fund etc.

LOAD FUNDSLoad funds are those funds wherein the investor has to incur a one-timecharge at the time of either entry or exit into the fund. The entry charge iscalled 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.

INDEX FUNDSIndex funds invest only in stocks of a particular index such as BSE, S&PCNX 500 etc. The principle is to duplicate performance of these widelyfollowed indexes while keeping trading and other costs to a minimum. Thereturns in case of such funds depend on the indexs performance. It is bestsuited to the investors who are satisfied with the returns of an index.

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RIGHTS AND SERVICES OF UNIT HOLDERS:

Unit holders may have access to Certain Services, Such As AutomaticReinvestment Of Dividends And Systematic Withdrawal And Systematicinvestment plans, inter scheme transfers. This section of the prospectus willdescribe these services and how you can take advantage of them.After reviewing a few prospectuses, youll become accustomed to thelanguage and be able to reduce the time it takes to find the information youneed to make a sound investment decision.You can receive prospectuses free from mutual fund companies, theirinvestor service centers or registrars. Do not hesitate to ask questions onpoints that you do not understand.

Organization Structure of Mutual Funds Industry

Mutual fund is set up in the form of a trust, which has sponsor, trustees,Asset Management Company (AMC) and a custodian. The trust isestablished by a sponsor or more than one sponsor who is like a promoter of a company. The trustees of the mutual fund hold its property for the benefitof the unit-holders. The AMC, approved by SEBI, manages the funds bymaking investments in various types of securities. The custodian, who isregistered with SEBI, holds the securities of various schemes of the fund in

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its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performanceand compliance of SEBI Regulations by the mutual fund.

Sponsor The sponsor is required, under the provisions of the Mutual FundRegulations, to have a sound track record, a reputation of fairness andintegrity in all his business transactions Additionally, the sponsor shouldcontribute at least 40% to the net worth of the AMC. However, if any personholds 40% or more of the net worth of an AMC shall be deemed to be asponsor and will be required to fulfill the eligibility criteria specified in theMutual Fund Regulations. The sponsor or any of its directors or theprincipal officer employed by the mutual fund should not be guilty of fraud,

not be convicted of an offence involving moral turpitude or should have notbeen found guilty of any economic offence.

Mutual Funds as TrustsA mutual fund in India is constituted in the form of a public Trust createdunder the Indian Trusts Act, 1882. The sponsor forms the Trust andregisters it with SEBI. The fund sponsor acts as the settler of the Trust,contributing to its initial capital and appoints a trustee to hold the assets of the Trust for the benefit of the unit holders, who are the beneficiaries of the Trust. The fund then invites investors to contribute their money in thecommon pool, by subscribing to units issued by various schemesestablished by the Trust as evidence of their beneficial interest in the fund.

Thus, a mutual fund is just a pass through vehicle. Most of the funds inIndia are managed by the Board of Trustees, which is an independent bodyand acts as protector of the unit holders interests. At least, 50 per cent of the trustees shall be independent trustees (who are not associated with anassociate, subsidiary, or sponsor in any manner). The trustees shall beaccountable for and be the custodian of funds/property of respectivescheme.

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VALUATION OF UNITS OF MUTUAL FUND:

The units are available continuously for sale on all working days at NAVrelated prices excepting during the period when there is a book closure.

The performance of a particular scheme of a mutual fund is denotedby Net Asset Value (NAV).

Mutual funds invest the money collected from the investors insecurities markets. In simple words, Net Asset Value is the market value of the securities held by the scheme. Since market value of securities changesevery day, NAV of a scheme also varies on day to day basis. The NAV perunit 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 fundscheme 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 by the 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 shownbelow:

Market of Fair Value of Schemes investment (+) Current Assets

NAV (Rs.) = (-) Current Liabilities and Provisions

No. of units outstanding under Scheme

Example: -A scheme with 1,000 units has the following items in its balance

sheet. Unit capital Rs. 10,000/-, Investment at market value Rs.25,000/-, other assets Rs. 35,000/-, other liabilities Rs. 2,000/-, Issue

expenses not written off Rs. 500/- & Reserves Rs. 17,000/-. What wouldbe its NAV?

A good starting point would be to put down the numbers in a tabularfrom to ensure that all items are treated properly: -

Liabilities Rs. Assets Rs.

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Unit Capital 10,000/- Investment M.V.) 25,000/-Reserves 17,000/- Other assets 3,500/-Other Liabilities 2,000/- Issue Exp. Not W/o 500/-Total 29,000/- Total 29,000/-

Total Assets Liabilities other than to unit holdersNAV = -------------------------------------------------------

Number of Units

29000 2000= -------------- = 27

1000

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BENEFITS OF MUTUAL FUND

Affordable Almost everyone can buy mutual funds. Even for a sum of Rs 1,000 aninvestor can invest in a mutual fund.

Professional Management For an average investor, it is a difficult task to decide what securities to buy,how much to buy and when to sell. By buying a mutual fund, you acquire aprofessional fund manager who manages your money. This is the personwho decides what to buy for you, when to buy it and when to sell. The fundmanager takes these decisions after doing adequate research on theeconomy, industries and companies, before buying stocks or bonds. Mostmutual fund companies charge a small fee for providing this service whichis called the management fee.

Diversification According to finance theory, when your investments are spread acrossseveral securities, your risk reduces substantially. A mutual fund is able todiversify more easily than an average investor across several companies,which an ordinary investor may not be able to do. With an investment of Rs5000, you can buy stocks in some of the top Indian companies through amutual fund, which may not be possible to do as an individual investor.

Liquidity Unlike several other forms of savings like the public provident fund or

National Savings Scheme, you can withdraw your money from a mutualfund on immediate basis.

Tax BenefitsMutual funds have historically been more efficient from the tax point of view. A debt fund pays a dividend distribution tax of 12.5 per cent beforedistributing dividend to an individual investor or an HUF, whereas it is 20

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per cent for all other entities. There is no dividend tax on dividends from anequity fund for individual investor.

Saving for the future is good. Investing for it is even better. Mutual fundshave many benefits that make them one of the most efficient, cost effective,and easy investments available. They are also ideal vehicles for individualinvestors who don't have the time, willingness or ability to manage their ownportfolio of bonds or stocks.

Choice of funds and risk level Mutual funds have a broad array of funds for every investing goal and risktolerance. You can choose from money market, fixed-income, growth,balanced, diversified, and sector funds etc. depending on your financial

goals and take on the kinds of risks that you're comfortable with.

Flexible investing/Automatic investment plans: The automatic investment plan or the systematic investment plan offered bymutual funds enables you to invest a pre-set amount of money into the fundof your choice at regular intervals. It could be an amount as low as Rs 500.

This means you agree to invest Rs 500 or more at specified periods duringthe year. The amount and the frequency depend on the options offered bythe mutual fund. Once you have decided, this money will be automaticallywithdrawn from your account on the specified dates.

Low Cost: Mutual Funds are a relatively less expensive way to invest compared todirectly investing in the capital markets because the benefits of scale inbrokerage, custodial and other fees translate into lower costs for investors.

Transparency:You get regular information on the value of your investment in addition todisclosure on the specific investments made by your scheme, the proportion

invested in each class of assets and the fund manager's investment strategyand outlook.

Well Regulated:All Mutual Funds are registered with Securities and Exchange Board of india (SEBI) and they function within the provisions of strict regulations

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designed to protect the interests of investors. The operations of MutualFunds are regularly monitored by SEBI.

LIMITATIONS OF MUTUAL FUND

Entry and exit costsMutual Funds are a victim of their own success. When a large body like afund invests in shares, the concentrated buying or selling often results inadverse price movements i.e. at the time of buying, the fund ends up payinga higher price and while selling it realizes a lower price. For obviousreasons, this problem is even more severe for funds investing in smallcapitalization stocks. However, given the large size of the debt market,excluding UTI, most debt funds do not face this problem.

Waiting time before investmentIt takes time for a Mutual Fund to invest money. Since it is difficult toinvest all funds in one day, there is dome money waiting to be invested.Further, there may be a time lag before investment opportunities areidentified. 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 theintroduction of index futures.

Fund management costs The 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 whilemeasuring performance, while the later is. A standard 2% expense ratiomeans that, everything else being equal, the Fund manager under performsthe benchmark index by an equal amount.

Cost of churning The portfolio of a fund does not remain constant. The extent to which theportfolio changes is a function of the style of the individual fund manager.

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It is also dependent on the volatility of the fund size i.e. whether the fundconstantly receives fresh subscriptions and redemption. Such portfoliochanges have associated costs of brokerage, custody fees, and registrationfees etc. that lowers the portfolio return commensurately.Change of index composition

The indices keep changing over the world to reflect changing marketconditions. There is an inherent survivorship bias in this process, with thebad stocks weeded out and replaced by emerging blue chips. This is asevere problem in India with the Sensex having been changes twice in thelast five years, with each change being quite substantial. Another reasonsfor change index composition is Mergers & Acquisitions. The weight age of the shares of a particular company in the index changes if it acquires alarge company not a part of the index.

ASSET MANAGEMENT COMPANY

The trustees appoint the Asset Management Company (AMC) with the priorapproval of SEBI. The AMC is a company formed and registered under theCompanies Act, 1956, to manage the affairs of the mutual fund and operatethe scheme of such mutual funds. It charges a fee for the services it rendersto the mutual fund trust. It acts as the investment manager to the Trustunder the supervision and direction of the trustees. The AMC, in the nameof the Trust, floats and then manages the different investment schemes asper SEBI regulations and the Trust Deed. The AMC should be registeredwith SEBI. The AMC of a mutual fund must have a net worth of at least Rs.10 crore at all times and this net worth should be in the form of cash. Itcannot act as trustee of any other mutual fund. It is required to disclosethe scheme particulars and base of calculation of NAV. It can undertakespecific activities such as advisory services and financial consultancy. Itmust submit quarterly reports to the mutual fund. The trustees areempowered to terminate the appointment of the AMC and may appoint a

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new AMC with the prior approval of the SEBI and unit holders. At least 50percent of the directors of the board of directors of AMC should not beassociated with the sponsor or its subsidiaries or the trustees .

OBLIGATIONS OF AN AMC

An AMC has to follow a number of obligations. They are : The AMC shall take all the reasonable and exercise due diligence to ensurethat any scheme is not contrary to the Trust deed and provisions of investment of funds pertaining to any scheme is not contrary to theprovisions of the regulations and Trust deed.

The AMC shall exercise due diligence and care in all its investmentdecisions. The AMC shall be responsible for the acts of commission or

commissions by its employers or the persons whose services have beenprocured.

An AMC shall submit to the trustees quarterly reports. The trustees at the request of an AMC can terminate the assignments of theAMC.An AMC shall not deal in securities through any broker associated with asponsor or a firm which is an associate of sponsor beyond 5 per cent of thedaily gross business of the mutual fund.No AMC shall utilize services of the sponsor or any of its associates,employees, or their relatives for the purpose of any securities transactionand distribution and sale of securities, unless disclosure is made to the unit

holders and brokerage/commission paid is disclosed in half yearlyaccounts of the mutual fund.No person, who has been found guilty of any economic offence or involved inviolation of securities law, should be appointed a key personnel.

The AMC shall abide by the code of conduct specified in the fifth schedule. The registrars and share transfer agents to be appointed by AMC are to beregistered with SEBI.

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AMCs with Sharekhan :

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 FundHSBC Mutual Fund

IDBI Principal

IL & FS Mutual Fund

ING Savings Trust

JM Mutual Fund

LIC Mutual Fund

Prudential ICICI Mutual Fund

Reliance Capital

SBI Mutual
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Standard Chartered Mutual Fund

Sun F&C Mutual Fund

Sundaram Mutual Fund Tata Mutual

Unit Trust Of India

Zurich India Mutual Fund

SEBI (MUTUAL FUNDS) REGULATIONS, 1996

The provision of this regulation pertaining to AMC are :All the schemes to be launched by the AMC need to be approved by thetrustees and copies of offer documents of such schemes are to be field withSEBI.

The offer documents shall contain adequate disclosures to enable theinvestors to make informed decisions.Advertisements in respects of schemes should be in conformity with theSEBI prescribed advertisement code, and disclose the method andperiodicity of valuation of investments sales and repurchase in addition tothe investment objectives.

The listing of close ended schemes is mandatory and every close endedscheme should be listed on a recognized stock exchange within six monthsfrom the closure of subscription. However, listing is not mandatory in casethe scheme provides for monthly income or caters to the special classes of persons like senior citizens, women, children, and physically handicapped;

if the scheme discloses details of repurchase in the offer document; if thescheme opens for repurchase within six months of closure of subscription.Units of a close ended scheme can be opened for sale or redemption at apredetermined fixed interval if the minimum and maximum amount of sale,redemption, and periodicity is disclosed in the offer document.
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Units of a close ended scheme also be converted into an open endedscheme with the consent of a majority of the unit holders and disclosure ismade in the offer document and about the option and period of conversion.Units of a close ended scheme may be rolled over by passing a resolutionby a majority of the shareholders.No Scheme other than unit linked scheme can be opened for subscriptionfor more than 45 days.

The AMC must specify in the offer document about the minimumsubscription and the extent of over subscription, which is intended to beretained. In the case of over subscription, all applicants applying upto5,000 units must be given full allotment subject to over subscription.

The AMC must refund the application money if minimum subscription isnot received, and also the excess over subscription within six weeks of

closure of subscription.Guaranteed returns. In such cases, there should be a stated in the offerdocument by the AMC or sponsor. In such cases, there should be astatement indicating the name of the person, and the manner in which theguarantee is to be made must be stated in the offer document.A close ended scheme shall be wound up on redemption date, unless it isrolled over, or if 75 per cent of the unit holders of a scheme pass aresolution for winding up of the scheme; if the trustees on the happening of any event, require the scheme to be wound up; or if SEBI, so directs in theinterest of investors.

SEBI Guidelines (2001 02) Relating to Mutual Funds

A common format is prescribed for all mutual fund schemes to disclose theirentire portfolios on half yearly basis so that the investors can getmeaningful information on the deployment of funds, Mutual funds are alsorequired to disclose the investment in various types of instruments andpercentage of investment in each scrip to the total NAV, illiquid and non performing assets, investment in derivatives and in ADRs and GDRs.

To enable the investors to make informed investment decisions, mutualfunds have been directed to fully revise and update offer document andmemorandum at least once in two years.Mutual funds are also required tobring uniformity in disclosures of various categories of advertisements, witha view to ensuring consistency and comparability across schemes of variousand mutual funds.

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reduce initial offer period from a maximum of 45 days to 30 days.Dispatch statements of account once the minimum subscription amountspecified in the offer document is received even before the closure of theissue.Invest in mortgaged backed securities of investment grade given by creditrating agency.Identify and make provisions for the non performing assets (NPAs)according to criteria for classification of NPAs and treatment of incomeaccrued on NPAs and to disclose NPAs ion half yearly portfolio reports.Disclose information in a revised format on unit capital, reserves,performance in terms of divided and rise / fall in NAV during the half yearperiod, annualized yields over the last 1,3,5, years in addition to percentageof management fees, percentage of recurring expenses to net assets,

investments made in associate companies, payment made to associatecompanies for their services and details of large holdings, since theiroperation.Declare their NAVs and sale / repurchase prices of all schemes updateddialy on regular basis on the AMFI websites by 8.00 p.m. and declare NAVsof their close ended schemes on every Wednesday.

The format for unaudited half yearly results for the mutual funds has beenrevised by SEBI. These results are to b published before the expiry of onemonth from the close of each half year as against two months periodearlier. These results shall also be put in their website by mutual funds.All the schemes by mutual funds shall be launched within six months fromthe date of the letter containing observations from SEBI on the scheme offerdocument. Otherwise, a fresh offer document along with filling fees shall befilled with SEBI.Mutual funds are required to disclose large unit holdings in the scheme,which are over 25 percent of the NAV.

ASSOCIATION OF MUTUAL FUNDS OF INDIA:

The Association of Mutual Funds in India (AMFI) was established in 1993when all the mutual funds, except the UTI, came together realizing the needfor a common forum for addressing the issues that affect the mutual fundindustry as a whole. The AMFI is dedicated to developing the Indian mutualfund industry on professional, health, and ethical lines and to enhance andmaintain standards in all areas with a view to protecting and promoting theinterests of mutual funds and their unit-holders.

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Objectives of AMFI :

To define and maintain high professional and ethical standards in all areasof operation of mutual fund industry.

To recommend and promote best business practices and code of conduct tobe followed by members and others engaged in the activity of mutual fundsand asset management, including agencies connected or involved in the fieldof capital market and financial services.

To interact with the Securities and Exchange Board of India and torepresent SEBI on all matters concerning the mutual fund industry.

To represent to the government, RBI and other bodies on all matters relating

to the mutual fund industry. To develop a cadre of well trained agent distributors and to implement aprogrammed of training and certification for all intermediaries and othersengaged in the industry.

To undertake nationwide investor awareness programmed so as to promoteproper understanding of the concept and working of mutual fund.

To disseminate information on mutual industry and to undertake studiesand research directly and/or in association with other bodies.

COMPARISON OF MUTUAL FUND WITH OTHER INVESTMENTOPTIONS

The mutual fund sector operates under stricter regulations as compared tomost other investment avenues. Apart from offering investors tax efficiencyand legal comfort, how do mutual funds compare with other products?

EQUITY VERSUS MUTUAL FUND

Investment in both equity and mutual funds are subject to market risk. Aninvestor holding an equity security that is not traded in the market placehas a problem in realizing value from it. But investment in an open-endedmutual fund eliminates this direct risk of not being able to sell theinvestment in the market. An indirect risk remains, because the scheme hasto realize its investments to pay investors. The AMC is however in a betterposition to handle the situation. Further, on account of various SEBI

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regulations, such illiquid securities are likely to be only a part of theschemes portfolio. Another benefit of equity mutual fund schemes is that they give investorsthe benefit of portfolio diversification through a small investment. Forinstance, an investor can take an exposure to the index by investing a mereRs. 5,000 in an index fund.

LIFE INSURANCE VERSUS MUTUAL FUND

Life Insurance is a hedge against risk and not really an investment option.So, it would be wrong to compare life insurance against any other financialproduct.

Occasionally on account of market inefficiencies or mis-pricing of productsin India, life insurance products have offered a return that is higher than acomparable safe fixed return security thus, you are effectively paid forgetting insured! Such opportunities are not sustainable in the long run.

Types of Insurance: Property / Casualty insuranceLife InsuranceHealth InsuranceDisability Insurance

COMPANY FIXED DEPOSITS VERSUS MUTUAL FUND

Fixed Deposits are unsecured borrowings by the company accepting thedeposit. Credit Rating of the fixed deposit program is an indication of theinherent default risk in the investment.

The money of investors in a mutual fund schemes are invested by the AMCin specific investment under the scheme. These investment are held andmanaged in- trust for the benefit of the schemes investors. On the otherhand, there is no such direct correlation between companys fixed deposit

mobilization, and the avenues where it deploys these resources.An effect of such linkage between mobilization and investment is that thegains and losses from the mutual fund scheme entirely flow through to theinvestors. Therefore, there can be no certainty of yields unless a namedguarantor assures a return or, to a lesser extent, if the investment is in aserial gilt scheme. On the other hand, the return under a fixes deposit iscertain, subject only to the default risk of the borrower.

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Both fixed deposits and mutual funds offer liquidity, but subject to somedifferences:

The provider of liquidity in the case of fixed deposits is the borrowingcompany. In mutual fund, the liquidity provider is the scheme itself foropen-end schemes, or the market in the case of close-end schemes.

The basic value at which units of a scheme are redeemed entirely dependson the market. If securities have gained in value during the period, then theinvestor can even earn a return that is higher than what she anticipatedwhen she invested. Conversely, she could also end up with a loss.Early encashment of fixed deposits is always subject to a penalty charged bythe company that accepted the fixed deposit. Mutual fund schemes alsohave the option of charging a penalty on early redemption of units (by way of an exit load). If the NAV has appreciated adequately, then despite the

exit load, the investor could earn a capital gain on her investment.

BANK FIXED DEPOSITS VERSUS MUTUAL FUND

Bank fixed deposits are similar to company fixed deposits. The majordifference is that banks are more stringently regulated than are companies.

They even operate under stricter requirements regarding Statutory LiquidityRatio (SLR) and Cash Reserve Ratio (CRR) mandated by RBI.While the above are causes for comfort, bank deposits too are subject todefault risk. However, given the political and economic impact of bankdefaults, the government as well as Reserve Bank of India (RBI) try toensure that banks do not fail.Further, bank deposits up to Rs. 100,000 are protected by the DepositInsurance and Credit Guarantee Coporation (DICGC), so long as the bankhas paid the required insurance premium of 5 paise per annum for everyRs. 100 of deposits. The monetary ceiling of Rs. 100,000 is for all thedeposits in all the branches of a bank, held by the depositor in the samecapacity and right.

BONDS AND DEBENTURES VERSUS MUTUAL FUND

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As in the case of fixed deposits, credit rating of a bond or debenture is anindication of the inherent default risk in the investment. However, unlikefixed deposits, bonds and debentures are transferable securities.While an investor may have an early encashment option from the issuer ( forinstance through a put option), liquidity is generally through a listing alisting in the market. Implications of this are:If the security does not get traded in the market, then the liquidity remainson paper. In this respect, an open-end scheme offering continuous sale / re-purchase option is superior.

The value that the investor would realize in an early exit is subject tomarket risk. The investor could have a capital gain or a capital loss. Theaspect is similar to an mutual fund scheme.

It is possible for an astute investor to earn attractive returns by directlyinvesting in the debt market, and actively managing the positions. Given themarket realities in India, however, it is difficult for most investors to activelymanage their debt portfolio. Further, at times it is difficult to execute tradesin the debt market even when the transaction size is as high as Rs. 1 crore.In this respect, investment in a debt scheme would be beneficial.Debt securities could be backed by a hypothecation or mortgage of identifiedfixed and / or current assets, e. g. secured bonds or debentures. In such acase, if there is a default, the identified assets become available for meetingredemption requirements. An unsecured bonk or debenture is for allpractical purposes like a fixed deposit, as far as access to assets isconcerned.

The investments of a mutual fund scheme are held by a custodian for thebenefit of investors in the scheme. Thus, the securities that relate to ascheme are ring-fenced for the benefit of its investors.

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RESEARCH PROPOSAL

PROBLEM DESCRIPTION:-

The strategy is know the awareness and interest and perception aboutmutual fund as a investment avenue among all investor.

RESEARCH OBJECTIVES:-

PRIMARY OBJECTIVE To know the awareness of mutual fund amongst the investor

SECONDARY OBJECTIVE

To know the investors knowledge and perceptions about mutualfund .To know the investor priority level between different criteria ofinvestment like safety level, returns, liquidity, tax benefits and maturity

etc. of investment.Find out reason for choice of mutual fund as an investment avenue.

RESEARCH DESIGN:-SAMPALING DESIGN:-

SAMPLING METHOD Non probability type of design is used in this project. Which does not affordany basis for estimating the probability that each item in the population hasof being included in the samples?

SAMPLING SIZE

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Survey total sample size is 50.

SAMPLE AREA The survey is to be conducted at Bhavnagar city.

SOURCES OF DATA:- PRIMARY DATA

survey SECONDARY DATA

Internet, magazine, book

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(1) Awareness of investment avenues.

From the above data we can say that the investment avenues such as fixedincome security i.e.bank deposit, post office deposits, company depositsequity shares, bonds and fix income securities ,mutual funds, insuranceprecious objects are very known to investors than other investmentalternatives & remaining avenues, real estate and financial derivatives arenot well aware among people of Bhavnagar.

INVESTMENTAVANUES

KNOW DONT KNOW

Equity shares 45 5fix income

securities37 13

Mutual funds 35 15Insurance 42 8Real estate 30 20Preciousobjects

22 28

Finincialderivatives

8 42

05

101520253035404550

KNOW DONT KNOW

Equity shares

fix income securities

Mutual funds

Insurance

Real estate

Precious objects

Finincial derivatives

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(2) People preference towards the investment

Response No. of respond

Safety 18

earning 32

23

23.5

24

24.5

25

25.5

26

26.5

YES NO

Number of respond

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(3) Knowledge about Mutual Fund

a. Fullb. Averagec. No Knowledge/ Very Less

Table Showing Level of Knowledge About Mutual Fund Among Respondents

ResponseOption

a b c

PercentageResponse

8 33 9

Inference: Response for this question shows lack of proper knowledgeamong respondents. Majority of respondents knew either very little aboutmutual funds and their mechanism or they knew nothing. During interviewsit was found that main reason for lower level of investments in mutual fundwas lower level of awareness regarding mutual funds their investment

16%

66%

17%

a

b

c

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mechanism among respondents. Very few knew about mutual funds andtheir mechanism of investment in different markets.

(4) Interested to know About Mutual Funds

a. Yesb. No

Table Showing Whether Respondents Were Interested To Know AboutMutual Funds

Response Option Yes NoNumber of Response 41 9

Inference: Majority of respondents were keen to know more about conceptof mutual funds and their investment mechanism. This shows potential forgrowth of mutual fund industry in India.

41

9

0

5

10

15

20

25

30

35

40

45

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(5) Interest to invest in mutual fund

Response No. of responds

YES 24

NO 26

Total 50

24

26

23

23.5

24

24.5

25

25.5

26

26.5

YES NO

Number of respond

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(6) Why do you invest in mutual fund?

diversification 11

Return investment 5Low risk 7 Tax benefits 8Liquidity 7professional

management9

Collectiveinvestment

3

11

5

78

7

9

3

0

2

4

6

8

1012

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(7) RESPONDENTS PERCEPTION ABOUT MF PERFORMANCE THANSTOCK MARKET

12%

20%

68%

WORSE

SAMEBETTER

WORSE 6

SAME 10

BETTER 34

Total 50

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(9)PREFERENCE OF SCHEME BASE ON YIELD AND INVESTMENTPATTERN

No. of respondentIncome fundBalance fundMoney market MFGrowth fundSpecialised fund

Taxation fundGold exchange fundOther

Que. 5: - Give priority to your future financial need to fulfill.

Lowpriority

Mediumpriority

Highpriority

Insurance

Retirement planningEstate planningChildren education, marriageOther

(7)CRITERIA CONSIDER TO INVEST IN MF

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ets.

Q. 9

BIBLIOGRAPHY

WEBSITES:

www.sharekhan.com

www.amfi.com

www.valueresearchonline.com

www.mutualfundindia.com

www.moneycontrol.com

www.mutualfunds.about.com
http://www.amfi.com/http://www.valueresearchonline.com/http://www.mutualfundindia.com/http://www.moneycontrol.com/http://www.moneycontrol.com/http://www.mutualfundindia.com/http://www.valueresearchonline.com/http://www.amfi.com/

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QUESTIONNAIRE Que. 1: - Which Investment Avenues are you aware?

A) Non- marketable financial assets: B) Equity Shares C) Bonds or fixed income securities D Money Market Instrument: E Mutual Funds F Insurance G Real estate: H Precious objects: I Financial derivatives:

Que-2: - Which criteria do you take into consideration while investingmoney?

Particulars VeryimportantSomewhatimportant Neutral

Somewhatunimportant

Not at allimportant

Rate of returnRiskMarketability

Tax shelterConvenienceMaturityInterest rate

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(stability)

Que-3: - What are your investment objectives?

Particulars Veryimp.Somewhatimp. Neutral

Somewhatunimp.

Not at allimp.

Capital gainAssured safety of investmentGenerate regularincomeHave a secure futureAvail tax benefits

Que. 4: - Select avenues in which you have invested, and then givepreference to investment avenues (which you would like to keep inyour portfolio). Give Ranking.

Particulars Veryimp

Somewhatimp.

Neutral Somewhatunimportant

Notat allimportant

Mutual fundsBanking productsInsurance productsNon-marketable fin. Pro.Bondsity sharesReal estatePension plansMoney market ins.Financial derivativesCommodity

Que. 5: - Give priority to your future financial need to fulfill.

Lowpriority

Mediumpriority

Highpriority

Insurance

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Retirement planningEstate planningChildren education, marriageOther

Que. 6: - Are you interested to invest in mutual funds ?YesNo

Que. 7: - Which criterias are you considered while investing in MF ?

V.Imp SomeWhatImp

Netural SomeWhatUnimp

Not at allImp

Economioc scenarioAMC imageFund performanceTax incentive

CostLiquidityFinince planner advice

Que. 8: - Why are you investing in MF ?

V.imp Somewhat imp

Netural Some whatunimp

Not atall imp

TrsnspsrencydiversificationReturn potentialLow risk Tax benifitsLiquidityAdvantage of professionalmanagement

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Choice of schemeCollective investment

Que. 9: - Based on yield & investment pattern which fund youprefer ?

V.imp Somewhat imp

Netural Some whatunimp

Not atall imp

Income fundBalance fundMoney market MFGrowth fundSpecialised fundTaxation fund

Gold exchange fundOther

Que. 10: - According to you the performance of MF compare to stockmarket

BetterSamewarse

Que. 11: - Your yearly income in Rs.(Approximetly)Less than 50,00050,001-100,000100,001-200,000200,001-300,000300,001-400,000400,001-500,000More than 5 lakh

Your Name:-.........................................................................................................................Your Gender: - Male FemaleYour Age:-................yearsAddress:-................................................................................................................................

................................................................................................................................

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................................................................................................................................

Contact No: (M).........................................(O).........................................

Qualifications:

UndergraduatesGraduatePostgraduateOthers

Occupation: BusinessmenService

ProfessionalOther

gaywala

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