ACCOMPLISHED UNDERTHEGUIDANCE OFMR. PAWAN KUMAR(ASSISTANT MANAGER, PRUDENT CAS LTD., CHANDIGARH)

MR. JIGNESH BHUVA DIPANVITA YADAV NORTH SALES HEAD ROLLNO. - 18 PRUDENT CAS LTD. MFM- 2nd SEMESTER NEW DELHI FACULTY OF COMMERCE (BANARAS HINDU UNIVERSITY) ACKNOWLEDGEMENTFirstly, I would like to thank my Faculty of Commerce (Banaras Hindu University), where Ive got the platform of summer training so that I can use my theoretical knowledge in practical world. Secondly, I would like to provide my gratitude towards my Dean Dr. A.K.Tripathi and Prof. Dr. O.P.Rai who took their initiative for the development of the students of Faculty of Commerce, BHU and as a result of that they have provided the summer training as one of the part of our course i.e. Master of Financial Management. Thirdly, I would like to thank Mr. Pawan Kumar (Assistant Manager, Prudent CAS Ltd., Chandigarh) who has guided me to understand the working of his company and helped me in the accomplishment of my project report. Fourthly, I would like to thank Miss Neha Jasrotia(Customer Relationship Manager, Prudent CAS Ltd., Chandigarh) and Mr.Vikas O. Rawat (Relationship Manager, Prudent CAS Ltd., Chandigarh) who have also helped me in understanding the working of their company and for providing their support and make me feel like the part of their company and their life. Ive enjoyed their company. Fifthly, I would like to thanks all the advisors of Prudent CAS Ltd.,Chandigarh. Lastly, I would like to provide my gratitude towards Mr.Jignesh Bhuva (North Sales Head, Prudent CAS Ltd, New Delhi) who has given me the opportunity as a trainee in his esteemed company. Without his support Ill never able to be the part of Prudent Cas Ltd. I am greatful, the most, towards my parents and my god, without the support of whom I would never able to have this opportunity.Thanks to all to be with me.

CONTENTS

1. EXECUTIVE SUMMARY.4

2. INTRODUCTION TO THE PROJECT...................8

3. ABOUT PRUDENT CAS LTD...12

4. WHAT IS FINANCIAL PLANNING?................................................................17

5. INTRODUCTION OF MUTUAL FUNDS..36

6. CARRER OPPORTUNITIES IN THE FIELD OF FINANCIAL PLANNING62

7. LIFE INSURANCE AGENT VS. MUTUAL FUND AGENT...74

8. CONCLUSION..................77

EXECUTIVE SUMMARY

The topic of this project report is Career Opportunities in the Field of Financial Planning. What opportunities are available for a person in the field of mutual funds and how he/she can be a good financial planner? The project report is totally based of these two questions.The period after economic reforms has witnessed an increasing contribution of service sector in GDP which has reached to more than 60% with an annualized growth rate of more than 10%. One of the necessary ingredients of inclusive growth is the demographic dividend (i.e. the employability to the young working population between age group of 15-59 years). With these strengths, the service sector is estimated to have the potential for creating 40 million jobs and generating additional $ 200 billion annual income by 2020. Among services, BFSI i.e. banking, financial services and insurance are more crucial because these are the sectors which are directly or indirectly related to the growth of other sectors. Planning the funds so generated requires skilled people in order to advise on more investible avenues and also the appreciation of the same. The importance of financial planning in this context becomes more relevant and hence the profession which in other way is a consultancy or advisory service in itself.Financial Planning is one of the fastest-growing professions across the world and with a huge demand-supply gap in India as the youngsters planning a career in Financial Planning have a bright future and can take advantage of many opportunities coming across in the financial services sector as discussed above.Financial Planners and their RoleAs clear from the name, financial planners are the professionals who plan the funds or money of their clients which is not only a tricky business but also challenging and difficult task. Every individual wants to save and invest the funds for future to fulfill the liabilities and other social commitments be it higher education to children, marriage of children, retirement, house construction, medical and health purpose or any other. Financial planners offer their advice to the persons on their investment and saving options to achieve their social, personal, professional goals and commitments arising in future. Most people need guidance on where to invest, how to save taxes, the best insurance scheme (life as well as medical), which avenue to invest in, which stock to hold and which to sell, how to plan future career of their college going children and their own retirement. For all such services; planners come into picture for rendering expert advice and consultancy to their clients on utilizing the hard earned money and its better use for achieving financial goals. The services provided by financial planners are not restricted to individuals but also the corporate and institutional clients such as mutual funds, merchant banks, retirement funds, insurance companies, portfolio management firms, stock investment companies, banks, financial institutions, tax consultancy and pension managers also require their services. Thus, the financial professionals working as financial planners can be categorized as individual and institutional. The following role and functions are performed by the financial planners:They identify the financial and personal goals of their clients and the time period of investments or savings for planning the funds.Financial planners assess and evaluate the capacity and financial strength of their clients for better utilization of funds with them.They study the market potential, investment avenues, instruments of investment, financial products available and educate, suggest and advice to the clients.They assess the risk-return of the investment options with the help of analytical techniques and in consonance with the risk bearing and risk taking capacity of their clients.Tax consultancy is an area where financial planners are useful because they are in touch with the latest taxation structure by the government and thus they suggest their clients to invest the amount of money in tax-saving instruments for better return and assured appreciation.They are also responsible for guiding and suggesting their clients about the comparative return-risk profile of the invested funds in different instruments.They keep their clients abreast with the updates on financial products having different characteristics to suit their individual requirements.Financial planners also help their clients by advising them about the right time to invest and proper timing to divest or divert their money from one option to the other and for what time period to remain invested in a particular instrument.They help the clients by providing quick and immediate service according to their needs and also process the documents and accomplish paper work formalities required thereby saving their time.Managing the wealth of their client HNIs (High Net worth Individuals) or corporate isone of the functions performed by the financial planners.Financial planners do financial analysis, business analysis, research related to financial and expense performance, rate of return, depreciation, working capital and are also involved in preparation of financial forecasts, budgets and analyze trends in revenue, expense, capital expenditures and other related areas.Retirement and insurance planning is also an area where financial planners have a role to play. They advise their client on various pension schemes and insurance products with risk-return profiling.In addition to the above duties the financial planners frequently make their clients aware about the recent policy changes and economic environment which may affect the investment made by them and accordingly advise, revise or modify their investment strategies.Employment Avenues in Financial PlanningIn view of the duties and responsibilities of financial planners there lies vast scope of employment in the following fields:Initially a financial planner can start his career with a wealth management firms, HNI, tax consultancy, insurance product distributors, pension funds, financial services firm, banks and financial institutions offering financial products at an entry level position i.e. trainee or executive. Later on with the experience he can be absorbed in middle level management on position of sales manager, wealth manager, relationship manager etc. On gaining more expertise and experience in this filed he/she can rise to the position of functional head of the department with increased responsibilities such as regional or area heads of his employer. If you have got the specialization in anyone of the areas of financial investment then salary is no limit. Retirement funds, HNIs and insurance require professionals with specialised experience of these products. New opportunities lie in the field of financial planning of real estate and trusts which is still untapped with lot of potential. In private companies there is always a huge demand for financial planners. Experienced Financial Planners can find satisfying careers in investment banking, financial consulting, and financial analysis and insurance companies.Knowledge Process Outsourcing (KPO) firms provide employment to financial planners as Data Analyst, Market Researcher, Client Development Analyst, Derivatives Analyst, Equity Analyst, Research Associate etc. Similarly financial planners are much sought after in the brokerage houses for positions such as research analysts, business analysts, research associates and technical analysts etc.Banks require qualified and experienced financial planners for managing their investment advisory wing, managers for financial institutional investments and Investment Relationship Manager for their portfolio and merchant banking divisions. For the trade finance divisions relationship managers are required by banks. For retail division and mutual funds wings, the professionals in financial planning are appointed by banks in various capacities. NBFCs (Non-Banking Finance Companies), AMCs (Asset Management Companies) and financial planning companies also recruit financial planning professionals at various positions.Self-employment is also the option for those professionals who want to tap the existing potential in their home towns or cities. A desired qualification with a set of skills is necessary conditions for becoming a successful financial planner. The only thing required is interpersonal relations and skills with fundamental knowledge of investment and financial planning. Financial planning is a fee based service and the fees may be in form of commission from the client or fixed depending upon the nature and type of advice and return on investment.Journalism is an area where financial planners can capitalize their expertise provided they possess writing, analytical and presentation skills with a passion for imparting financial knowledge to the public with convincing ability analytical authenticity. In print media they can be regular columnists on various specialized products or they can act as panel experts on electronic media covering investment and business news.Increasing financial literacy is gaining importance nowadays and laymen who are interested in spreading basic knowledge of financial planning, retirement, wealth creation, asset management and investment can be associated with the authoring of literature and books on the subject.Financial Planners are supposed to possess interpersonal skills can deliver lectures, impart education, organize seminars to literate and convince the people of various social and economic backgrounds. Also there is enough potential in teaching, training and research in the area of Financial Planning. Even financial planning and consultancy can be done on internet using networking sites following professional and ethical code of conduct.Skill Set Required for Financial PlanningAside from a possessing professional qualification and desired certificate/degree/diploma, the various skills and proficiency required to be a financial planner include; interpersonal skills, convincing personality, patience, strong Commitment to client, effective communication, positive attitude, strong analytical ability, problem solving skills, latest information about environment and legislations related to tax, business or profession, initiative, creativity, relationship management, soft skills on computers, logical mindset, presentation and knowledge of local dialect for establishing better connectivity with the clients and time management skills.

INTRODUCTION TO THE PROJECTThe report is totally based on the career of financial planners and their future as a financial planner.A job in financial services is not only dynamic and challenging; it also puts you at the very heart of money management. The financial services sector is home to over half a million jobs and represents over five percent of the countrys GDP.With hundreds of possible career choices within the realms of banking, insurance and investment, financial services offers you the opportunity to create innovative wealth management solutions while helping your organization reach its corporate goals.FINANCIAL PLANNER:Same job, different title:Financial advisor (with certification), financial analyst, financial consultant, financial managerFinancial planners are financial architects. Their goal is to strengthen a clients fiscal foundation by looking at the big picture: evaluating key financial data, finding weaknesses in the structure, and recommending appropriate solutions depending on the specific circumstances of the individual or organization theyre working with.Planners are highly valued for their aptitude in research and critical thinking, and their excellent communication skills come in handy when preparing assessment reports or explaining complex financial ideas to clients.Financial planners are often employed by banks, mutual and pension management companies, insurance companies, andsecurities firms, and many work independently as well. A background in business, accounting, finance, or statistics is ideal for an aspiring financial planner, and those working in the highest corporate levels often obtainMBAs. Additionally, earning a designation, such asCertified Financial Planner (CFP),will allow you to gain credibility and support your knowledge and work experience in the role.The Agent:RELATIONSHIP MANAGER or AGENT/BROKERSame job, different title:Financial advisor (no certification), accounts representativeIf you love meeting people and nurturing strong working relationships, client-facing positions like these are often a good fit. Agents, brokers and relationship managers are the lifeblood of the financial services industry, and their work often determines the longevity and success of the organization they work for.The main goal of financial product agents is to attract new prospects to the company, nurture the interactions it keeps with its current customers and persuade former clients to return. They are instrumental in maintaining a companys good relations and keeping the customers trust in their product or service, which is achieved mainly through sales activities and business processes such as marketing, customer service and technical support. Agents also regularly conduct trend analysis and submit service level reports to gauge their companys performance against industry standards.Keys to succeed in these roles are strong interpersonal skills and an ability to communicate complex financial ideas or products in clear and simple terms. The capacity to work in both leadership and team positions is equally valued, andan engaging personality is an asset to any jobthat requires face-to-face interaction.The Proofreaders:CLAIMS ADJUSTERSame job, different title:Claims analystWhile sales agents are tasked with finding and closing the deals, claims adjusters fulfil the equally important role of ensuring that the clients claims match the companys eligibility standards. This involves evaluating submitted claims for accuracy, collecting any additional relevant material and even personally inspecting the evidence related to the claim. Preparing documentation for denial or approval is also part of the job, as is working with data analyst software to track industry trends.While they are often associated with insurance companies, banks and large retail firms also hire claims analysts to handle their customer complaint and fraud departments. Training usually involves acquiring a certificate or degree in the field they intend to work in, which is supported by credentials in specific office procedures as well as billing and claims processing.An eye for detail, good communication and negotiation skills, multitasking abilities, and an extensive knowledge of the field are assets to this role. Though a degree in business, accounting, math, or statistics may easetransition into the industry, graduates from different academic backgrounds possessing the necessary skills and traits have also experienced success as claims adjusters.The Informant:INVESTMENT BANKING ANALYSTThoughinvestment bankingis notorious for being one of the most difficult industries to break into, it is also one of the most challenging and rewarding jobs a business student could hope to obtain.Investment banking analysts are tasked with producing the information companies need to make investment decisions. This involves many different business functions, chief of which are analyzing financial statements, constructing financial models, preparing reports on prospective investment sectors, researching market trends, managing trades, and assembling presentations or internal meetings for management. Those working in large firms usually specialize in a specific sector, product type or geographic region.Analysts work closely with superiors to support the investment banking team, which is why diligent and self-motivated team players are highly valued in this field. A bachelors degree in finance, accounting, business, or economics is a must, and candidates are expected to possess excellent problem-solving, quantitative and analytical skills, a strong work ethic and the ability to work accurately under pressure.Proficiency in handling spreadsheets is extremely important to an aspiring analyst, as is extensive knowledge about industry news and goings-on. Investment banking analysts are usually encouraged or required to obtain certification asChartered Financial Analyst (CFA), which is a globally-recognized designation.The Team Player:FINANCIAL PROJECT SPECIALISTEver wondered how large institutions manage to juggle all the projects they have going on at the same time? Simple: work in teams.The key members of these project teams are called project specialists, and their main goal is to provide support to management by delivering initiatives within the established budget and time line. Their work spans several business processes: program and project development, dissemination of relevant information, and participation in work groups and committees, as well as implementation and monitoring of the projects results. This includes budget allocation, facilitating meetings with project members and delivering regular presentations or status reports to superiors.Project specialists need to be computer proficient and excellent oral and written communicators, and they must be able tothrive under challenging conditions. Multitasking is a common component of the job, and working knowledge of basic revenue models,profit and lossand cost-to-completion projections will be valuable in managing budgets.A background in finance, accounting, business or economics is expected, and companies value candidates who have specialized or meaningful work experience in information technology management, systems administration, financial management, project management, and business research.

ABOUT

Prudence: The exercise of good judgment, common sense, and caution, especially in the conduct of practical mattersIncorporated in year 2000 with a clear vision of providing financial services to individuals and corporate to help them to achieve their financial goals. It has created a niche segment over a period to time with an excellent quality client base. Over the past few years Prudent Corporate Advisory Services has created in-house capabilities of analyzing funds on various parameters before suggesting them to clients.The team approach worked wonders and in the short-span of just one decade, the Prudent Group has emerged as a well diversified financial services firm offering a wide range of financial products and services such as Mutual Funds, Equities, Commodity & Derivatives, Fixed Income Products, Life/General Insurance and Real Estate through various companies listed below.Prudent Corporate Advisory Services Ltd.As the flagship company, Prudent Corporate Advisory Services remains the primary arm of the Prudent Group. It offers financial services to individuals and corporate to help them achieve their financial goals through Mutual Funds, Debt and Third party products.Besides having a large pool of their own clients, the company also manages its geographically-spread business operations through a unique platform for Channel Partners/Business Associates which helps them to grow and expand their services & support through sales and marketing, technology, operations, back- office support, training & consultation.The journey of Prudent CAS started from Ahmadabad and in a span of 13 years we are present in37 cities in 10 states with 47 branches.Prudent Broking Services Pvt. Ltd.Incorporated in 2004, Prudent Broking Services Pvt. Ltd is a Stock Broking and Depository Participant service provider. Company is a member with Bombay Stock Exchange (BSE) & National Stock exchange (NSE) & Central Depository Services (India) Limited (CDSL). Company is in the process of creating its national presence by opening offices in various parts of the country.Prudent Properties.The Property sector is an important part of the asset class, but the effort and paperwork involved in purchasing the same can be intimidating. Prudent Property provides real estate solutions not only in creating an asset class but is also helping the customers in buying their dream realty, whether it is homes or offices.PRUDENT CAS LTD:-AN OVERVIEWPrudent CAS (Corporate Advisory Services) Ltd, known as Prudent Fund Manager established in 2000 is a registered investment company offering fee-based money management, financial planning, and investment advisory services. It focus on each client, build investment strategies tailored to specific client needs, and regularly review those strategies to increase the likelihood of success. It would like to know the clients goals and aspirations. So that it can determine an investing strategy that helps you achieve your full potential.Prudent believes in understanding the customer needs and offering the product that can match his requirement (marketing) as against just selling what product is already available. Owing to the inherent professional expertise we first study and understand the investment requirements and circumstances. Th experts assess the investors' need and their risk profile. Once the entire comparative analysis is done then the best possible option is advised to the investors. The best possible option provides the proper asset allocation to various asset classes and also the estimated risk involved.This helps us to provide our clients an optional basket of funds rather than selling the typical available funds. This approach lets us set our focus on the quality work rather than the just the quantity.PRUDENT INFRASTRUCTURE AND CLIENTS:-Presently, Prudent operate from four key and 21 other locations of Gujarat.Each of our branches is fully furnished with an excellent infrastructure and latest systems to service the clients independently. We have been successful in making a remarkable presence in all these locations. Team Prudent consists of more than 80 professionals having expertise in the fields like clients servicing, research, sales, technology etc. PRUDENT LAURELS:- Prudent have been accredited many times by various Assets management company (AMCs) for outstanding performance in fund mobilization. Some of the prestigious awards we won are:Won consequently for four years in a row the most prestigious Prudential ICICI Chairman Gold Award in FY 2002, 2003, 2004 and 2005 Rated 9th best independent Financial Advisor in all India by Franklin Templeton for the year 2002.SBI Mutual Fund in FY 2002 selected us as a chairman club member.Selected consequently for 2 years in a row by Standard Chartered AMC for their Hall of Fame in FY 2002 and 2003.Consecutive 5 times winner of CNBC Best Financial Advisor Award2008-09, 2009-10, 2010-11, 2011-2012,2013-2014

HEAD OFFICE:-701, SEARS TOWER, GULABI TEKARA, OFF. C.G ROADAHAMEDABAD- 380006TELEFAX: +91-79-26464627. 26402436EMAIL: info@prudentcorporate.comWebsite: www.prudentcorporate.com www.prudentchannel.com

It caters the market through Direct & Indirect channel. We were recruited at indirect channel headed by Mr. Jignesh Bhuva. Address:-SCO -215-216-217, cabin-3073rd floor, sector-34/A,Chandigarh-160022, Punjab.Contact No: - 0172-4015998Prudent CAS Ltd. is the National distributors and deals in the various Company like Reliance Asset Management Company, ICICI Prudential Asset Management Company, Kotak Life Insurance, Religare Mutual Fund etc. GEOGRAPHICAL AREAS OF OPERATION OF THE COMPANY:Prudent, presently, have over 30 offices in 6 states (Gujarat, Rajasthan, Delhi, Maharashtra, Haryana, Madhya Pradesh) with over Rs 2000 crores plus of asset.

NATURE OF THE ORGANIZATION:-Prudent is a service based distribution company which is in the business of distribution of and marketing research of financial products like (mutual funds, insurance). It mainly operates in functional areas of finance, marketing & sales for financial products.

COMPANYS VISION & MISSION:-Vision: - Providing Professional services in area of Personal and Corporate Investment.Mission: - To help Investor in their Wealth Creation. PRODUCT RANGE OF THE COMPANY:Prudent CAS Ltd plans the financial needs in customised way. It analyses market trend and investment buckets in turn to have maximum returns. Prudent CAS Ltd serves with array of financial planning.Spectrum of Products in which Prudent has an expertise: Mutual Funds. Investment Consultancy. Equity and Derivatives broking. RBI Relief funds and Infrastructure Bonds. Life Insurance. Gold selling SIZE (IN TERMS OF MANPOWER & TURNOVER) OF ORGANIZATION: Prudent, presently has manpower of 400 employees. It has a sales turnover of Rs 600-700 crore out of which profit turnover is around 50 crore.MARKET SHARE AND POSITION OF THE COMPANY IN THE INDUSTRY:The total market shares of industry are 5 Lac Crore and the prudent is capturing 3 Thousand Crore. It captures 60% of the market.ORGANIZATION STRUCTURE OF THE COMPANY:

What is Financial Planning?

Financial planning is the process of developing a personal roadmap for your financial well being. The inputs to the financial planning process are: your finances, i.e., your income, assets, and liabilities, your goals, i.e., your current and future financial needs and Your appetite for risk.The output of the financial planning process is a personal financial plan that tells you how to use your money to achieve your goals, keeping in mind inflation, real returns, and taxes. In short, financial planning is the process of systematically planning your finances towards achieving your short-term and long-term life goals. Most of the people nurture dreams of owning a bigger house or car, exploring the world, giving their children the best possible education, a blissful retirement, etc. Basically, these dreams are life goals. Consider this example:Mr and Mrs Khanna, 35 and 32 respectively, have a three year old son. Both work in private sector companies. Mr Khanna plans to retire when hes 50. From their current one bedroom rented suburban Mumbai apartment, the Khannas hope to move to their own two bedroom apartment costing around Rs 25 lakh within the next five years. They own a small car, for which they have availed of a loan. Mr. Khanna reckons that he will need Rs 15 lakh for his sons higher education 15 years later. He also wants to build a corpus of Rs 75 lakh for his retirement.While distinguishing short term goals from long term goals, you must keep in mind that, as a general rule, any life goal that needs to be met within five years can be considered as short term. Beyond that, any other goal can be classified as long term. By this classification, the Khannas goals can be classified as follows:Using a similar yardstick, you may classify your own life goals. Each of them needs financing. How you plan your finances, to have the right amount at your disposal at the right time, is what financial planning is about. Importance of financial planning: Can you manage without financial planning? Many people do, but they may findoften when its too latethat they dont have the means to achieve their life goals.For example, people today realize the importance of living life to the fullest. Consequently, many opt for early retirement from full time jobs, as compared to a few decades ago, when most people worked until the maximum retirement age of 58-60 years.The average person can, today, expect to live a healthy life well into his or her seventies or eighties, which means that retirement life is almost as long as working life. Financially, it implies that savings (after taking into account inflation) should be enough, not just to maintain the same lifestyle for almost 25-30 years, with no new income, but also to take care of medical expenses, which are usually high the older a person gets. Planning for all this is a tall order for anyone. Thats why its critical for everyone to plan their finances from an early age.So, what do you need to know about yourself when thinking about a Financial Plan? Your financial plan entirely depends upon how much effort you are willing to put in. This means not just having a good handle on the details of your income and expenses, assets and liabilities, but more importantly on the following items:1. Time Horizon and Goals2. Risk Tolerance3. Liquidity Needs4. InflationNeed for Growth or IncomeNo doubt there are other factors that are important as well, but we believe that the above five require a more detailed study on your part.Time Horizon and Goals:It is important to understand what your goals are, and over what time period you want to achieve your goals. Some goals are short term goals those that you want to achieve within the year. For such goals its important to be conservative in ones approach and not take on too much risk. For long term goals, however, one can afford to take on more risk and use time to ones advantage.Risk Tolerance:Every individual should know what their capacity to take risk is. Some investments can be more risky than others. These will not be suitable for someone of a low risk profile, or for goals that require you to be conservative. Crucially, ones risk profile will change across lifes stages. As a young person with no dependants or financial liabilities, one might be able to take on lots of risk. However, if this young person gets married and has a child, he/she will have dependants and higher fiscal responsibilities. His/her approach to risk and finances cannot be the same as it was when he/she was single.Liquidity Needs:When do you need the money to meet your goal and how quickly can you access this money. If you invest in an asset to and expect to sell the asset to supply you funds to meet a goal, understand how easily you can sell the asset. Usually, money market and stock market related assets are easy to liquidate. On the other hand, something like real estate might take you a long time to sell.Inflation:Inflation is a fact of our economic life in India. The bottle of cold drink that you buy today is almost double the price of what you paid for ten years ago. At inflation or slightly above 4% per annum, a packet of biscuits that costs you Rs 20 today will cost you Rs. 30 in ten years time. Just imagine what the cost of buying a car or buying a home might be in ten years time! The purchasing power of your money is going down every year. Therefore, the cost of achieving your goals need to be seen in what the inflated price will be in the future.Need for Growth or Income:As you make investments, think about whether you are looking for capital appreciation or income. Not all investments satisfy both requirements. Many people are buying apartments, but are not renting them out even after they take possession. So, this asset is generating no income for them and they are probably expecting only capital appreciation from this. A young person should usually consider investing for capital appreciation to take advantage of their young age. An older person however might be more interested in generating income for themselves.Benefits of financial planning.Heres a list of the benefits that a well chalked out financial plan can bring about: Helps monitor cash flows and reduces unnecessary expenditure. Enables maintenance of an optimum balance between income and expenses. Helps boost savings and create wealth. Helps reduce tax liability. Maximizes returns from investments. Creates wealth and ensures better wealth management to achieve life goals. Financially secures retirement life. Reviews insurance needs and therefore also ensures that dependents are financially secure in the unfortunate event of death or disability. Lastly, it also ensures that a will is made. Financial planning can help you achieve peace of mind since:The Financial Planning Process

Hopefully, youre now convinced that you definitely need a piece of the action. What next? When you actually get right down to it, financial planning consists of a series of steps. This section examines each of these steps in detail.

Step 1: Identify your current financial situation

Sit down with all the earning members of your family and gather all information about your sources of income, debts, assets, liabilities, etc. This gives you a picture of your current financial situation.

Step 2: Identify your goals

Ask each member to list what they think are current and future family goals. Prioritize each goal by establishing consensus and put a time period against each, i.e., when you will need the finances to achieve that goal. If possible, quantify each goal. This exercise enables recognition of short term and long term goals, and how much money you need for each.

Step 3: Identify financial gaps

Once you know where you stand financially, and where you want to be, i.e., how much you have or can expect regular sources of income to generate, and how much you need to fulfil various goals.

A simple calculation gives you an idea of the shortfall. This is important, because, identifying the right investments to cover the shortfall depends on you quantifying the income from your investments.

Step 4: Prepare your personal financial plan

Now review various investment options such as stocks, mutual funds, debt instruments such as PPF, bonds, fixed deposits, gilt funds, etc. and identify which instrument(s) or a combination thereof best suits your needs. The time frame for your investment must correspond with the time period for your goals.

Step 5: Implement your financial plan

Its now time to put things into action. Gather necessary documents, open necessary bank, demat, trading accounts, liaise with brokers and get started. Most importantly, start investing and stick to your plan.

Step 6: Periodically review your plan

Financial planning is not a one-time activity. A successful plan needs serious commitment and periodical review (once in six months, or at a major event such as birth, death, inheritance). You should be prepared to make minor or major revisions to your current financial situation, goals and investment time frame based on a review of the performance of your investments.

Financially challenged individuals who feel this is just beyond them, can of course always consult professional financial planners, who takes one through the whole process. Being a long term commitment, financial planning goes on until one meets his last goal. It is also a personal decision, which implies that a person must select someone who he is comfortable with, and can build a long term relationship that is mutually beneficial.

Tips for making the most of the financial planning process:

1. Start now. Even if you are in your mid thirties or forties, its better to start now than dawdle for another five years. Every day counts.2. Be honest with yourself. Seek help when needed.3. Set sensible, measurable goals for yourself. Be realistic in your expectations of the results of financial planning.4. Review your plan and financial situation periodically and adjust as needed.5. Always review the performance of your investments; pull out if neded and reinvest the money elsewhere.6. Be hands-on. Its your money and no one else will do your worfor you.

Features of a good financial plan

How do you evaluate the quality and effectiveness of your financial plan? Well, heres a checklist you can use. Does it indicate your current financial situation? Does it list out all your goals in measurable terms? If professional help is sought, your financial planner will ensure that your financial plan also contains the following: List of possible risks and a risk management plan. Expected returns from each investment. A mapping between the investments and goals, i.e., how each investment helps you Details of one time and recurring fees charged by him.

Reviewing your FinancesYou should begin with a review of your current financial position. Start with a top down approach. Do the following to ascertain your position:Total assets + Total savings Total debt = Your positionWork it down further by doing a cash flow analysis Monthly income Monthly expenses = Your cash flow

Where are you spending money? Clothing, entertainment, eating out Identify opportunities to save moneyEg: eating out lesser could save you Rs 1000 per month

Setting Goals:

Buying a new car, buying a house, taking a vacation, educating your children etcUnderstand the tradeoffs: Lesser money in the short term for clothing, entertainment etc Set clear targets and time frames to achieve your goals Saving Rs 2000 per month will help educate your children Saving Rs 1000 per month will help fund your vacation

Creating A Financial Plan

Include a mix of short and long term goals1. Convert your goals into rupee amount and set a deadline to achieve them2. Diversify your investments according to your risk profile3. Look for ways to minimize tax4. Dont forget insurance5. Start retirement planning6. Get professional advice in required7. Dont wait, implement your plan today

Review your plan:

Life is always changing, so it is important to review your plan if any of the following: Your circumstances change Through marriage, new dependants etc Your rules change Through taxation etc Investment climate changes Through market boom and busts

Tips To Stay On Track

1. Stay focused on your lifestyle goals2. Dont be distracted by fear or greed3. Diversify your investments according to your risk profile4. Keep a long term view5. Review your plan regularly6. Get advice from a professionalThe building blocks of financial planning

Just like a building where you start with the foundation and then move upwards towards the first floor, second floor and so on, the financial planning building has five blocks to scale. The first two blocks are the foundations and then the next three levels where you actually experience the benefits of a strong foundation. Let us have a look at these blocks, what they are and how to go about their planning:1. Retirement planning 2. Investmet planning3. Insurance planning 4. Contingency planning

One might be wondering why the reverse order? Just as mentioned we have to build the foundation and then move upwards. The foundation starts with contingency planning and then you gradually move up.

The first two blocks: contingency planning and insurance planning is known as risk management. Also in a layman's term, it is the foundation of a good financial planning. Once this is in place, you are not worried as it takes care of all your emergency situations (contingency planning) as well as your insurance requirements (that is your health insurance, life insurance and other insurance).

Once your risk is managed, you can then safely move on to the higher levels to plan for your goals. The next two levels are investment planning and retirement planning collectively known as goal planning.

Let us start with the foundation and the first of the two levels in risk management.

Contingency planning

Also known as emergency planning. It has been emphasised time and again that a contingency plan or an emergency plan has to be in place before starting to plan for other goals. Why? Emergencies can come anytime or anyplace especially when we least expect it. We cannot predict it or even prevent it but what we can do is buffer ourselves against it so that our life does not go for a toss due to the emergency. It is basically saving for a rainy day. So once that you have planned for any untoward or unpredicted eventualities, you can safely move ahead to the next level of the financial plan.

How to calculate?

All your mandatory monthly expenses which you have to meet by hook or by crook have to be taken into account. A list of all mandatory expenses have been given below:

Fixed mandatory expenses (which are fixed every month) include:

1. Mortgage instalment2. Car loan instalment3. Other loan instalmentsLife insurance premiumHealth insurance premium

And variable mandatory expenses (which are mandatory but vary every month) include:

Food Utilities Grocery Transportation Miscellaneous (unavoidable) expensesThe above expenses have to be calculated on a yearly basis and then divided by 12 months so as to arrive at an average monthly figure.

How much to set aside?

At least three months of your average monthly expenses have to be kept aside in the form of emergency funds since it is generally observed that three months worth of funds are enough to meet most emergencies and come back on track. People nearing retirement should try and keep aside at least five to six months of mandatory monthly expenses as contingency fund.

Let us take an example:Say your yearly mandatory expense is Rs 350,000.00. Hence your monthly average expenses will come to Rs 29,167 (3,50,000/12) (rounded off). You need to keep aside Rs 87,500 (29,167*3) that is your three months' average monthly expenses as contingency funds to meet any eventualities.

It is not necessary to keep the entire amount in cash. You can keep aside Rs 20,000 in cash and the balance you can split between savings account, fixed deposit, or liquid funds. Why? Because all of the above mentioned products have liquidity, their biggest advantage, which is a very important feature in case of any emergencies. Also, remember that in case of usage of these funds always remember to replenish it.

Insurance planning

It is the planning for an adequate amount of insurance. And it definitely does not end with life insurance alone. One needs to also plan for health insurance, disability insurance, and property insurance. These insurances are very important and everyone should try to incorporate them in their insurance planning. First and foremost, it is very important to know one very important fact. Insurance is not investment and vice versa. Never try to mix the two. Insurance is for risk management and investments are for goal achievements. This golden rule should form the crux of your decision-making when buying insurance policies. Never buy insurance just because someone advises you to buy. Try and understand the product, correlate it with your needs and requirements and only then go for it. So how much is adequate? A number of components go into the calculations in finding the adequate amount of insurance.

These are:

Your current age Inflation adjusted returns Number of dependent in the house One time cost (which includes any existing loans that you may have taken, (exclude the home loan which is already insured against declining term insurance) and any other expenses such as last rites expenditure) Your current cost of living (only include the fixed and variable mandatory expenses. Exclude any mandatory expenses related to you since these expenses will cease to exist after your demise) The amount needed to pay off responsibilities like your child's education and marriageExiting investmentsAny existing life insurance

All these factors help in finding the adequate amount of life insurance. Hence if you have any existing insurance then you only need to buy the additional amount. NOTE: If you are no more an earning member of the family, that is, if you have retired, then you should not take any life insurance.

Health insurance

A must again with the increasing amount of stress that the younger generation is facing, we would not be surprised if you have already started running huge amounts of medical bills at a young age. A minimum amount of Rs 2 lakh is a must. If affordable increase the amount. Also, if possible try to take individual policies as against family floater plans.

This is because if you have a floater health policy worth Rs 3 lakh, and you fall sick and use up an amount of say, Rs one lakh worth of health insurance, only Rs 2 lakhs will be available for the rest of the year for you and your entire family.

In fact now individuals have an option to go for a top-up, that is, if you have an existing policy with your employer or you have bought it one then you can top it up to Rs 10 lakh. The premium amount works much cheaper. For example, say you have Rs 5 lakh of health insurance (this is the maximum offered by most health insurers today) and you would like to be insured for more than that then you could buy a top-up plan for another Rs 5 lakh.

So if you have a medical bill of Rs 7 lakh then the first Rs 5 lakh are covered by your existing policy and the balance Rs 2 lakh by the top-up policy. NOTE: It is very important to pay your insurance premium on time and see that it does not lapse especially for individuals who are nearing 60 as after this age very few insurance companies offer health insurance and to get a new one is very difficult. Also, for people who are working and have not taken any other mediclaim policy besides the one their company offers them, remember that once you leave the job and find a new one, you might no longer be covered by that policy.

Disability insurance

Again an important insurance policy, especially, for individuals who travel frequently. Accidents can happen anytime and if it leads to any disability then well let's not even think about it. This policy is not an expensive one though. There is also an option for individuals to take this insurance as a rider along with their life insurance.

Compare the premium amounts of a standalone policy and the premium if it is taken as a rider and then decide which one is better.

Property insurance

Your hard earned money has gone in setting up your house. If something were to happen to it, or maybe something is stolen then it is difficult to replace. So it is always advisable to have your property insured. The premium amount is low and hence this amount will not pinch your pockets.

The only hitch is that in India, property insurance is for the market value and not for the replacement value of the property. But this should not be an excuse for not taking property insurance.

Professional indemnity insurance

This insurance policy is a must for all professionals to protect them from any claim arising during the course of their business.

I know it sounds like too many insurances at one time will leave you with no money for other investment planning but the ones mentioned here are amongst the most commonly needed ones. The most important are the life insurance and health insurance and for individuals who are nearing their retirement age or are retired for them health insurance a must. Once these two are in place you can buy the others eventually. Once we are assured that your risk is managed, we do not have to worry about it anymore. Now we can safely move towards investing and planning to achieve your goals.

Investment planning

Why do we invest?

Of course to save money and earn returns! For what?

Your obvious answer would be: for my and my family's future. If asked to elaborate, I am sure you will find it difficult to list down five things for which you are saving money. But if the investments or the money you are saving is not invested in right investment avenues then in the hour of crisis you either have invested in a locked-in financial product or their value has become half or in a product which rates very low in liquidity (like real estate). So the right type of investment product is very important to help your money grow and in achieving your goals.

So this is where investment planning comes in place. Investments of your hard earned money should always be done considering your goals and the time frame in which you want to achieve your goals. The next question is how to go about it. First you need to start with charting, that is, writing down your goals and the time frame in which you would like to achieve them. This forms the base of your investments. To make the task simpler, you can break down your goals into three different sections:

Responsibilities: Providing for your dependent parents; funding for your children's education and marriage; funding for marriage of your siblings, etcNeeds: Buying a house, saving for retirement, buying office space and any other needs you may haveDreams: Finally, your dreams or your aspirations which can range anywhere from buying a solitaire for your wife to going on a world tour to buying a sports car

We live only once and so no dream is too big or far-fetched. The next step is the time frame in which you would like to achieve it. Let me explain the importance of this via an example.

Let us say you want to save for a down payment for the dream car, which you are planning to buy after a year and a half. You start saving by investing regularly in equity mutual funds. After a year, just nearing the time frame you have set for yourself, you decide to redeem the investment and the market crashes. Forget the profit, your initial investments too has halved in value.

Equities are good investments but only when you have the time frame of more than eight years. Then you can be rest assured that your investments will earn on an average 13 per cent to 15 per cent return.

Moral of the story:

Your investment products should be selected on the basis of the time frame within which you would like to achieve the goal. It may be difficult to list down a time frame but even an approximate figure will do.

Once your goals and time frame is in place you need to put a figure or an amount that you would like to spend for that particular goal at today's value. Say for example, one of your goals is to save for your child's higher education, which is 15 years from now. You are willing to spend Rs 3 lakh in today's value. To this will be added inflation which in layperson's terms means what you will get in today's date for Rs 100, you will have to spend Rs 275 after 15 years taking into consideration an inflation rate of 7 per cent.

We cannot forget inflation as the amount, which we will derive after taking into consideration inflation, is the amount you will have to spend. Also, keeping in mind this amount you need to plan for it. So for the same goal, which will cost you Rs 3 lakh in today's date, you will have to spend Rs 8,27,709 after 15 years taking into consideration 7 per cent inflation rate.

Beware of inflation!

Future value = Present Value * (1 + inflation rate) ^ Number of years left to achieve your goals.

Hence, future value = 3,00,000 * (1 + 7 per cent) ^ 15Therefore, future value = Rs 8,27,709 (approximately).And that is the amount for which you need to plan.

An easy way to do this is to prepare a table, which will help you in listing your goals along with a fixed time frame, priority, value and the future inflation adjusted cost. Have a look at the table above (the table is hypothetical. The values mentioned here may differ from individual to individual).

Note: If you are married, it is important that you involve your spouse when you list down the goals as even your spouse may have her/his own goals, which they would like to achieve. Also it has to be a joint effort so nothing is missed out.

The above process will help you to realise how much you need to save. The different investment avenues available are:

Important investment avenues

Equity:You can safely invest in them (that is, direct equities or equity mutual fund) if your time horizon is for more than 8 years. You can also invest in them if your time horizon is more than 5 years but the exposure should be limited. Remember one thing, though: even in the long term, that is, more than 8 years as you near the realisation of your goal, you must systematically transfer your money from equity to debt. So this way you not only protect your capital but also your profits.

Debt:If your time frame is five years, debt is for you. The return is less but you can be sure that in products like fixed deposits, your capital will be safe.

Gold:At least 5 per cent of your portfolio has to be in gold. Gold is safe haven especially when there is crisis in the world. But be very clear about one thing: jewellery does not account for investments. Investments in gold have to be in the form of gold coins or bars. Gold exchange traded funds (ETF) is also a good form of investments.

Real estate:Property has always been good a form of investment. The only problem is the amount of investment required and the liquidity. Take for example in today's market where real estate prices have gone down, it is a good buyers' market but for sellers in dire need of cash, they will have to break the rates and sell at a discounted price.

A professional advice for selecting the right investment avenue is always advisable.

Retirement Planning :

The longest of journeys start with a single step. We are not sure who said that, but being in the financial planning space, we think it most aptly describes what retirement planning is all about. Planning for retirement is one long journey but a resolute and systematic step-by-step approach makes it a lot less laborious.

Start earlyA well-prepared approach towards any goal is usually the result of an early start. Retirement planning is no different. We hear financial planners say that its never too early to start saving for retirement, they are right. Make no mistake that an early start helps and you will be surprised at just how much it helps. Your friend or colleague who started saving for retirement even five years earlier than you with the same quantum of investments is likely to save twice as much as you at retirement. Even if you dont have the requisite amount of money required to start, the key lies in starting with what you have and making up for the deficit at a later stage. However the opportunity to make an early start should not be compromised with.Seek the assistance of a financial plannerPlanning for retirement can be fairly uncomplicated. You need to have a good idea of where you want to be 30 years from now in financial terms and what kind of a lifestyle you would like to maintain. However, putting the financial plan in place (which has a lot to do with math, an unpopular subject with a lot of us at school) can be quite complicated. This is where an investment advisor steps in. He can give a concrete shape to your retirement plan by coming up with the all-important figure, based on your inputs and chart out a plausible investment strategy for the long term.Implementing the planHaving an investment plan in place sets the ball rolling for you and your investment advisor. He will now implement the plan by making investments in stocks, mutual funds, bonds, small savings schemes and fixed deposits among other investment avenues. Your risk profile is the most important reference point for the investment plan. The objective is to invest in avenues that lower risk and maximise returns and do so in line with your risk profile. Asset allocation i.e. investing across assets in varying degrees will play a vital role over the long run. This is where the investment advisors expert advice will play a crucial role. Typically a retirement portfolio should be well-diversified across pension plans, mutual funds, equities, EPF/PPF and fixed deposits.Tracking/reviewing the planYour investment plan must be monitored regularly to make sure that you are on course to meeting your objectives over different market cycles without compromising on the risk. Again, your investment advisor has an important role to guide you in this regard. For instance, with the robust performance of equity markets over the last couple of years, you are probably over-invested in equities and have therefore taken on more risk than usual. You will have to liquidate some of your equity investments to bring it in line with your risk profile. With passage of time as your risk profile changes, the same will be reflected in your investments as well. The portion of investments in market-linked products like equities and mutual funds is likely to reduce; instead greater allocations could be made in assured return avenues like fixed deposits.Dont dip into your retirement savingsSince retirement money is sacred it is important that you treat it as such. Your carefully drafted investment plan need not go for a toss every time you witness a cash crunch. Avoid dipping into your retirement monies, unless its urgent. A one-time sum of Rs 5,000 invested over 30 years (at 10% compounded growth) will swell to Rs 100,000. That is what long-term investing can do for you, so money needs to go into your retirement savings kitty and not come out of it.

Retirement Planning-Case Study

Before we get on with discussing the case study, it is important to highlight that retirement planning is:

A much personalised process that is unique to every individual.An ongoing process because what we are aiming at is not fixed (our standard of living, which we are aiming to secure will change over time)

Our aim therefore in discussing this case study is to understand how you can get started in planning for your retirement. For you to be able to draw up a personalised retirement plan, you will require the services of a financial planner. In this note, we will discuss the retirement planning process of an individual, say Kunal. Kunal is 30 years of age; he is married and has a two year old child. He is a professional, employed in an IT company. He draws a compensation of Rs 30,000 per month. His wife too is employed, as a teacher. She draws a salary of Rs 15,000 pm. The present household expenditure is Rs 30,000 pm. Kunal is looking to retire at age 58 years.

Since we are focusing on retirement planning for Kunal and his wife, we need to look at the cost they incur in maintaining their present standard of living. Lets assume, Kunal wants to, as of today, maintain the same standard of living post retirement i.e. he will need Rs 30,000 per month (pm), adjusted for inflation, on retirement. Therefore, we have to plan Kunals investments in a manner that they will yield an income of Rs 30,000 pm, 28 years from now. Post retirement, other than regular monthly expenditure Kunal will incur expenditure on travel and healthcare.

Given that health costs are rising fast and we are traveling more for leisure, it is prudent to set aside some money for these purposes. We have assumed Kunal will require Rs 500,000 per annum (pa) post retirement (Rs 125,000 pa in todays Rupee terms after adjusting for inflation). Another head of information that will be required is Kunals present savings and the rate at which they are expected to grow over the years. These savings could include balances with the Employee Provident Fund (EPF), mutual funds, savings-based life insurance policies and fixed deposits among others.

The house that Kunal owns and lives in will not be added to his existing assets for the purpose of retirement planning. This is because he lives in the house and will not be able to generate income by way of rent or sale of property at the time of retirement. Finally, before we get down to the numbers, we will need to make two assumptions :

The average rate of inflation for the next 28 years.The low risk rate of return you can earn 28 years from now; at 58 years of age your risk appetite will be low and therefore a bulk of your investments will be in very low risk securities that yield regular income.

While it is difficult to say with certainty what the actual inflation and rate of interest will be, we nevertheless need to have a starting point. In our view, an average inflation rate of 5% pa is a reasonable estimate. As far as the rate of return is concerned 28 years down the line, we think it will be about 5% pa. It is important to restate at this point that retirement planning is not a one time exercise. As your standard of living changes and the investment environment evolves, you will need to regularly make adjustments to your plan so that you can achieve your objective. Therefore, these assumptions too will change over time and Kunal will need to accordingly make adjustments to his saving and investment pattern. It should be understood that Kunals financial advisor will have an important role to play in the reassessment.

INTRODUCTION OF MUTUAL FUNDS:The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels, and the increasing reach of Asset Management Companies and distributors. However, after several years of relentless growth, the industry witnessed a fall of 8% in the assets under management in the financial year 2008-2009 that has impacted revenues and profitability. Whereas, in 2009-10 the industry is on the road of recovery.History of Mutual FundsThe 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 of India. The history of mutual funds in India can be broadly divided into four distinct phases.First Phase 1964-87Unit 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)1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990.At the end of 1993, the mutual fund industry had assets under management of Rs.47, 004 Crores.Third Phase 1993-2003 (Entry of Private Sector Funds)With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996.The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1, 21,805 Crores. The Unit Trust of India with Rs.44, 541 Crores of assets under management was way ahead of other mutual fundsFourth Phase since February 2003In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29, 835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations.The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the 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.Regulatory FrameworkSecurities and Exchange Board of India (SEBI) The Government of India constituted Securities and Exchange Board of India, by an Act of Parliament in 1992, the apex regulator of all entities that either raise funds in the capital markets or invest in capital market securities such as shares and debentures listed on stock exchanges. Mutual funds have emerged as an important institutional investor in capital market securities. Hence they come under the purview of SEBI. SEBI requires all mutual funds to be registered with them. It issues guidelines for all mutual fund operations including where they can invest, what investment limits and restrictions must be complied with, how they should account for income and expenses, how they should make disclosures of information to the investors and generally act in the interest of investor protection. To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations. SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent.b) Association of Mutual Funds in India (AMFI)With the increase in mutualfund players in India, a need for mutual fund association in India was generated to function as a non-profit organisation. Association of Mutual Funds in India (AMFI) was incorporated on 22nd August, 1995.AMFI is an apex body of allAssetManagement Companies (AMC) which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its member. It functions under the supervision and guidelines of its Board of Directors.Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical line enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

c) The objectives of Association of Mutual Funds in IndiaThe Association of Mutual Funds of India works with 30 registered AMCs of the country. It has certain defined objectives which juxtaposes the guidelines of its Board of Directors. The objectives are as follows:This mutual fund association of India maintains high professional and ethical standards in all areas of operation of the industry.It also recommends and promotes the top class business practices and code of conduct which is followed by members and related people engaged in the activities of mutual fund and asset management. The agencies who are by any means connected or involved in the field ofcapitalmarketsand financial services also involved in this code of conduct of the association.AMFI interacts with SEBI and works according to SEBIs guidelines in the mutual fund industry.Association of Mutual Fund of India do represent the Government of India, the Reserve Bank of India and other related bodies on matters relating to the Mutual Fund Industry.It develops a team of well qualified and trained Agent distributors. It implements a program of training and certification for all intermediaries and other engaged in the mutual fund industry.AMFI undertakes all India awareness program for investors in order to promote proper understanding of the concept and working of mutual funds.At last but not the least association of mutual fund of India also disseminate information on Mutual Fund Industry and undertakes studies and research either directly or in association with other bodies.Concept of Mutual FundA Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes the working of a mutual fund:

Mutual fund operation flow chartMutual funds are considered as one of the best available investments as compare to others. They are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.Organization of a Mutual FundThere are many entities involved and the diagram below illustrates the organizational set up of a mutual fund Organization of Mutual FundTypes of Mutual Fund schemes in INDIA:Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations.

Overview of existing schemes existed in mutual fund category: BY STRUCTUREa) Open - Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.b) Close - Ended Schemes: A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.c) Interval Schemes: Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. Overview of existing schemes existed in mutual fund category: BY NATUREa) Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund managers outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

Diversified Equity Funds 1. Mid-Cap Funds 2. Sector Specific Funds 3. Tax Savings Funds (ELSS) a) Equity Funds: Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.b) Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. c) Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.d) Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.e) Monthly income plans ( MIPs): Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. f) Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.g) Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.h) Balanced funds: They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.Further the mutual funds can be broadly classified on the basis of investment parameter. It means each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and can invest accordingly.By investment objective:a) Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.b) Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.c) Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents.d) Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Other schemesa) Tax Saving Schemes:Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.80C of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.b) Index Schemes:Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the Nifty 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.c) Sector Specific Schemes:These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. Ex- Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.PROCESS OF INVESTING IN MUTUAL FUNDa) 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 and needs, 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.b) 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 Fund Manager.c) Select the Ideal Mix of Schemes:-Investing in just one Mutual Fund scheme may not meet all your investment needs. Your may consider investing in a combination of schemes to achieve your specific goals.d) 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 do investors all over the world follow a disciplined investment strategy. e) 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.f) The Final Step:-All your need to do now is to for online application forms of various mutual fund schemes and start investing. You may reap the rewards in the years to come. INVESTMENT STRATEGIES:-a) Systematic Investment Plan:-Under this a fixed sum is invested each month on a fixed date of a month. Payment is made through post dated cheques or direct debit facilities. The investor gets fewer units when the NAV is high and more units when the NAV is low. This is called as the benefit of Rupee Cost Averaging (RCA)b) Systematic Transfer Plan:-Under this an investor invests in debt oriented fund and gives instructions to transfer a fixed sum, at a fixed interval, to an equity scheme of the same mutual fund.c) Systematic Withdrawal Plan:- If someone wishes to withdraw from a mutual fund then he can withdraw a fixed amount each month.

RISK Vs RETURNMEASURING AND EVALUATING MUTUAL FUND PERFORMANCE:-Every investor investing in the mutual funds is driven by the motto of either wealth creation or wealth increment or both. Therefore its very necessary to continuously evaluate the funds performance with the help of factsheets and newsletters, websites, newspapers and professional Variation in the funds performance advisors like BIRLA mutual fund services. If the investors ignore the evaluation of funds performance then he can lose hold of it any time. In this ever-changing industry, he can face any of the following problems:The funds performance can slip in comparison to similar funds.There may be an increase in the various costs associated with the fund.Beta, a technical measure of the risk associated may also surge.The funds ratings may go down in the various lists published by independent rating agencies.It can merge into another fund or could be acquired by another fund house.Performance measures:-a) Equity funds :-The performance of equity funds can be measured on the basis of: NAV Growth, Total Return; Total Return with Reinvestment at NAV, Annualized Returns and Distributions, Computing Total Return (Per Share Income and Expenses, Per Share Capital Changes, Ratios, Shares Outstanding), the Expense Ratio, Portfolio Turnover Rate, Fund Size, Transaction Costs, Cash Flow, Leverage.b) Debt fund:-Likewise the performance of debt funds can be measured on the basis of: Peer Group Comparisons, The Income Ratio, Industry Exposures and Concentrations, NPAs, besides NAV Growth, Total Return and Expense Ratio.c) Liquid funds:-The performance of the highly volatile liquid funds can be measured on the basis of Fund Yield, besides NAV Growth, Total Return and Expense Ratio. To measure the funds performance, the comparisons are usually done with a market index. Funds from the same peer group.WHY HAS IT BECOME ONE OF THE LARGEST FINANCIAL INSTRUMENTS If we take a look at the recent scenario in the Indian financial market then we can find the market flooded with a variety of investment options which includes mutual funds, equities, fixed income bonds, corporate debentures, company fixed deposits, bank deposits, PPF, life insurance, gold, real estate etc. All these investment options could be judged on the basis of various parameters such as- return, safety convenience, volatility and liquidity. Measuring these investment options on the basis of the mentioned parameters, we get this in a tabular form Fluctuation in investment options:-

ReturnSafetyVolatilityLiquidityConvenience

EquityHighLowHighHighModerate

BondsModerateHighModerateModerateHigh

Co. DebenturesModerateModerateModerateLowLow

Co. FDsModerateLowLowLowModerate

Bank DepositsLowHighLowHighHigh

PPFModerateHighLowModerateHigh

Life InsuranceLowHighLowLowModerate

GoldModerateHighModerateModerateGold

Real EstateHighModerateHighLowLow

MutualFundsHighHighModerateHighHigh

We can very well see that mutual funds outperform every other investment option. On three parameters it scores high whereas its moderate at one. comparing it with the other options, we find that equities gives us high returns with high liquidity but its volatility too is high with low safety which doesnt makes it favourite among persons who have low risk- appetite. Even the convenience involved with investing in equities is just moderate. Now looking at bank deposits, it scores better than equities at all fronts but lags badly in the parameter of utmost important i.e.; it scores low on return , so its not an happening option for person who can afford to take risks for higher return. The other option offering high return is real estate but that even comes with high volatility and moderate safety level, even the liquidity and convenience involved are too low. Gold have always been a favourite among Indians but when we look at it as an investment option then it definitely doesnt gives a very bright picture. Although it ensures high safety but the returns generated and liquidity are moderate. Similarly the other investment options are not at par with mutual funds and serve the needs of only a specific customer group. Straightforward, we can say that mutual fund emerges as a clear winner among all the options available. The reasons for this being:a) Mutual funds combine the advantage of each of the investment products:-Mutual Fund is one such option which can invest in all other investment options. Its principle of diversification allows the investors to taste all the fruits in one plate. Just by investing in it, the investor can enjoy the best investment option as per the investment objective.b) Dispense the shortcomings of the other options:-Every other investment option has more or less some shortcomings. Such as if some are good at return then they are not safe, if some are safe then either they have low liquidity or low safety or both.likewise, there exists no single option which can fit to the need of everybody. But mutual funds have definitely sorted out this problem. Now everybody can choose their fund according to their investment objectives.c) Returns get adjusted for the market movements:-As the mutual funds are managed by experts so they are ready to switch to the profitable option along with the market movement. Suppose they predict that market is going to fall then they can sell some of their shares and book profit and can reinvest the amount again in money market instruments.HOW DO INVESTORS CHOOSE BETWEEN FUNDS?When the market is flooded with mutual funds, its a very tough job for the investors to choose the best fund for them. Whenever an investor thinks of investing in mutual funds, he must look at the investment objective of the fund. Then the investors sort out the funds whose investment objective matches with that of the investors. Now the tough task for investors start, they may carry on the further process themselves or can go for advisors like BIRLA. Of course the investors can save their money by going the direct route i.e. through the AMCs directly but it will only save 1-2.25% (entry load) but could cost the investors in terms of returns if the investor is not an expert. So it is always advisable to go for MF advisors. The mf advisors thoughts go beyond just investment objectives and rate of return. Some of the basic tools which an investor may ignore but an mf advisor will always look for are as follow:a) Rupee Cost Averaging:-The investors going for Systematic Investment Plans (SIP) and Systematic Transfer Plans (STP) may enjoy the benefits of RCA (Rupee Cost Averaging). Rupee cost averaging allows an investor to bring down the average cost of buying a scheme by making a fixed investment periodically, like Rs 5,000 a month and nowadays even as low as Rs. 500 or Rs. 100. In this case, the investor is always a