A Project Report

On

“ANALYSIS OF MUTUAL FUNDS AND

ROLE OF ASSET MANAGEMENT COMPANY”

at

“Kotak Mahindra Asset Management Company Ltd.”

By

“Minakshi Dinkar Mane”

Under the guidance of

“Prof. Rajesh Kumar Jha”

Submitted to

“University of Pune”
In partial fulfillment of the requirement for the award of the degree of Master of
Business Administration (MBA)

Through

Shri. Khanderai Pratishthan’s

Dnyansagar Institute of Management and Research Pune-45.

 ACKNOWLEDGEMENT

I take immense pleasure in completing this project and submitting the final

project report.

The last two month with KOTAK MAHINDRA ASSET

MANAGEMENT CO. LTD has full of learning and sense of contribution towards

the organization. I would like to thank KOTAK MAHINDRA ASSET

MANAGEMENT CO. giving me this opportunity for learning and contributing. I

take this opportunity to thank all those people who made this experience a

memorable one.

A successful project can never be prepared by the singular effort of the

person to whom project is assigned but, it also demanded the help and guardianship

of some conversant person who undersigned actively or passively in the completion

of a successful project.

In this context as a student of Dnyansagar Institute of Management and

Research, Pune I would like to thank and express my gratitude towards Mr.

Rajesh Kumar (Project Guide) for assigning me such a worthwhile topic “Analysis

of Mutual Funds and Role of Asset Management Company” to work with

KOTAK MAHINDRA AMC.

Minakshi D. Mane
 EXECUTIVE SUMMARY

The Project was carried out for study and analysing the investment in mutual

funds to special reference of KOTAK ASSET MANAGEMENT COMPANY. It was

done to know the satisfaction level of the customer of the bank.

In this Project report I have made an analysis that what is the Investment

Pattern, What is the Prospect and How Mutual funds have emerged a better

Investment option in India Recent Years giving the Investor Higher returns, Liquidity,

Safety against Traditional Investment avenues like Bank-FD, Post office Saving,

Investment in Volatile Stock Market Etc.

With the Growth of The Indian economy Due to various economic Factors

Including Industrialization, Growth of Infrastructure and service industries, increased

Foreign direct investment and foreign Institutional Investment, the Indian Companies

have grown to become Global business Giant.

So, the Market Capitalization of the Indian companies has grown which has

resulting in a building of a strong capital market. People are also now more willing to

invest and are ready to take risk. All this Development has proved to be a good

atmosphere for mutual fund investment in India.

 Now a day’s Investment is saving has assumed great importance. Mutual fund

offers a Wide array of Schemes to suit the Customers Different Investment Objective

as per their Financial Position, Risk Taking Capabilities, Age Etc.

OBJECTIVE OF THE STUDY

 To check the popularity & growth of mutual fund

 To know the functions of Asset Management Company (AMC).

 To examine whether mutual funds are really having a better prospect in India.

 To know the needs and wants of the client.

 To understand what investor want out of their investment in different schemes

of mutual fund, how they compare it with traditional investment instrument,

what is the number of increase in the investor base.

 To know the investment opportunities in Nationalised Banks.

 To do the detail study of Mutual Funds.

SCOPE OF THE STUDY

The scope of the study is to Inform & guide the investor about the various

mutual fund schemes & helps them to select the best scheme as per their requirement.

Investors are the customers of the different mutual fund schemes during my

project with KOTAK MAHINDRA ASSET MANAGEMENT COMPANY.

 HISTORICAL AND ORGANISATION PROFILE

OF

KOTAK MAHINDRA

INTRODUCTION

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management

Finance Limited. Industrialists Harish Mahindra and Anand Mahindra took a stake in

1986, and that's when the company changed its name to Kotak Mahindra Finance

Limited.

Since then it's been a steady and confident journey to growth and success.

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting.

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase
market.

1990 The Auto Finance division is started.

1991 The Investment Banking Division is started, takes over FICOM, one of
India’s largest financial retail marketing networks.
1992 Enrtes the Funds Syndication sector.

1995 Brokerage and Distribution businesses incorporated into a separate

company Kotak

Securities. Investment Banking division incorporated into a separate

company Kotak Mahindra Capital Company.

1996 The Auto Finance Business is hived off into a separate company – Kotak
Mahindra Prime Limited (formerly known as Kotak Mahindra Primus Limited).
Kotak Mahindra

takes a significant stake in Ford Credit Kotak Mahindra Limited, for

financing Ford

vehicles. The launch of Matrix Information Services Limited marks the

Group’s entry

into information distribution.

1998 Enters the mutual fund market with the launch of Kotak Asset Management
Company.

2000 Kotak Mahindra ties up with Old Mutual plc. for the Life Insurance
Buisness.

Kotak Securities launches its on-line broking site

(www.kotaksecurities.com) . Commencement of private equity activity

through setting

up of Kotak Mahindra Venture Capital Fund.

2001 Matrix sold to Friday Corporation

Launches Insurance Services.

2003 Kotak Mahindra Finance Ltd. converts to a commercial bank.- the first
Indian company

to do so.

2004 Launches India Growth Fund, a private equity fund. Kotak Group realigns
joint venture

in Ford Credit; Buys Kotak Mahindra Prime and sells Ford credit Kotak
Mahindra.
 Launches a real estate fund also.

2006 Brought the 25% stake held by Goldmam Sachs in Kotak Mahindra Capital
Company

and Kotak Securities.

Corporate Identity:

Kotak Group Companies :

Kotak Mahindra Bank:

The Kotak Mahindra Group’s flagship company, Kotak Mahindra Finance

Ltd which was established in 1985, was converted into a bank – Kotak Mahindra

Bank Ltd in March 2003 becoming the first Indian company to convert into a Bank.

It’s banking operations offers a central platform for customer relationships across the

group’s various businesses. The bank has a presence in the Commercial Vehicles,
Retail Finance, Corporate Banking, Treasury and Housing Finance.

Kotak Mahindra Capital Company:

Kotak Mahindra Capital Company Limited (KMCC) is India's premier

Investment Bank and a Primary Dealer (PD) approved by the RBI. KMCC's core

business areas include Equity Issuances, Mergers & Acquisitions, Structured Finance

and Advisory Services, Fixed Income Securities and Principal Business.

Kotak Securities:

Kotak Securities Ltd., is one of India's largest brokerage and securities

distribution house in India. Over the years Kotak Securities has been one of the

leading investment broking houses catering to the needs of both institutional and non-

institutional investor categories with presence all over the country through franchisees

and co-ordinators. Kotak Securities Ltd. offers online (through

www.kotaksecurities.com) and offline services based on well-researched expertise

and financial products to the non-institutional investors.

Kotak Mahindra Prime:

Kotak Mahindra Prime Limited(KMP) (formerly known as Kotak Mahindra

Primus Lmited) has been formed with the objective of financing the retail and

wholesale trade of passenger and multi utility vehicles in India. KMP offers

customers retail finance for both new as well as used cars and wholesale finance to
dealers in the automobile trade. KMP continues to be among the leading car finance.

Kotak Mahindra Asset Management Company:

Kotak Mahindra Asset Management Company Limited (KMAMC), an owned

subsidiary of Kotak Mahindra Bank Limited (KMBL). KMAMC started operation in

December 1998 and has over 4 Lac investors in various schemes.

Kotak Mahindra Bank Limited sponsors KMAMC. Which is the one of India’s

fastest growing banks? KMAMC made a beginning in the mutual fund with the

launch of first scheme in December 1998, KMAMC now offer in various products

with many services.

Kotak Mahindra is one of India's leading financial institutions, offering

complete financial solutions that encompass every sphere of life. From commercial

banking, to stock broking, to mutual funds, to life insurance, to investment banking,

the group caters to the financial needs of individuals and corporate.

The group has a net worth of around Rs.3,200 crores and employs around

10,800 employees across its various businesses servicing around 2.6 million customer

accounts through a distribution network of branches, franchisees, representative

offices and satellite offices across 300 cities and towns in India and offices in New

York, London, Dubai, Mauritius and Singapore.

Kotak Mahindra Asset Management Company Limited (KMAMC), a wholly owned

subsidiary of KMBL, is the Asset Manager for Kotak Mahindra Mutual Fund

(KMMF). KMAMC started operations in December 1998 and has over 4 Lac

investors in various schemes. KMMF offers schemes catering to investors with

varying risk - return profiles and was the first fund house in the country to launch a

dedicated gilt scheme investing only in government securities

Management:

The management at Kotak Mahindra Mutual Fund Company Limited. is

committed to good Corporate Governance, which includes transparency and timely

dissemination of information to its investors and unit holders. The Kotak Mahindra

Mutual Fund Company Limited Board is a professional body, including well-

experienced and knowledgeable Independent Directors. Regular Audit Committee

meetings are conducted to review the operations and performance of the company.

Employees:

Kotak Mahindra Mutual Fund Company Limited. has a preset code of

conduct for all its officers. It has a clearly defined prohibition on insider trading

policy and regulations. The management believes in the principles of propriety and

utmost care is taken while handling public money, making proper and adequate

disclosures.

All personnel at KMMFC ltd. are made aware of the dos and don’ts as part of

the Dealing policy laid down by the Securities and Exchange Board of India (SEBI).

They are taken through a well-designed HR program, conducted to impart work

ethics, the Code of Conduct, information security, Internet and e-mail usage and a

host of other issues.

 One of the core objectives of Kotak Mahindra Mutual Fund Company Ltd. is

to identify issues considered sensitive by global corporate standards, and implement

Policies/guidelines in conformity with the best practices as an ongoing process. Kotak

Mahindra Mutual Fund Company Ltd. gives top priority to compliance in true letter

and spirit, fully understanding its fiduciary responsibilities

INTRODUCTION:

We can study the growth of Mutual Fund in broadly Two part’s

1. Global Scenario
2. Indian Scenario

1. Global Scenario

Mutual funds have emerged as relatively new attraction option for the

investment World wide in recent years.

 The traditional investment option like, Bank- FD, Post office saving,

Government bond’s and investment in the share are no longer very attractive, because

Govt. Deposit’s give lesser return and stock market is very much volatile which

makes the investment risky.

So, all this has resulted into the emergence of mutual funds which

gives comparatively higher returns with safety.

Mutual fund now represents the most appropriate investment

opportunity for small investor. As financial market become more sophisticated and

complex, investor needs a financial intermediary who provides the required

knowledge and professional expertise on successful investing.

The popularity of mutual fund can be imagined from the fact the Birth

place of Mutual fund - The U.S.A. The fund industry has already overtaken the

banking industry, with more money under mutual fund management than Deposited

with banks.

INDIAN SCENARIO:

The Mutual fund industry has opened up many exciting opportunities to

Indian investor. A new phenomenon has started under which more saving now being

entrusted to the funds. Despite the expected continuing growth in the industry, Mutual

fund is still a new financial intermediary in India.

Hence, it is important that the investor , the mutual fund agent/ Distributor,

Financial planner, investment advisor and even the fund employee acquire the better

knowledge of what mutual fund are, what they can do for investor and what they
cannot, and how they function Differently from other financial intermediaries such as

Bank’s.

Place of Mutual Fund In Financial Market:

Indian household started allocating more of their saving to the capital

market in 1980’s with investment flowing into Equity and Debt instrument, besides

the conventional mode of bank deposit.

With greater volatility in the stock market’s many investor who brought

highly price share lost money and withdrew from the market together. Even those

investor who continued as direct investor in the stock market realized that the key to

successful.

Besides, selecting the securities with growth and income potential from the

capital market involved careful research and monitoring of the market, which was not

possible for all investor.

CONCEPT OF MUTUAL FUNDS

A Mutual Fund is simply a financial intermediary that allows a group of

investors to pool their money together with a predetermined investment objective. The

mutual fund will have a fund manager who is responsible for investing the pooled

money into specific securities (usually stocks or bonds). When you invest in a mutual

fund, you are buying shares (or portions) of the mutual fund and become a

shareholder of the fund.

 Mutual Funds are one of the best investment ever created because they very

cost efficient and very easy to invest in (you don’t have to figure out which stock or

bonds to buy). 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.

A Mutual Fund is trust that pools the saving of a number of investments who

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

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

though these investment and the capital appreciation realised are shared by its unit

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

the most suitable instrument for the capital man as it offers an opportunity to invest in

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

flow chart below describes broadly the working of a mutual fund.

Mutual Fund Operation Flow Chart

STRUCTURE OF MUTUAL FUND

There are many entities involved and the diagram below illustrates the organisational

set up of a mutual fund:

How is a mutual fund set up?

A mutual fund is set up in the form of trust, which has sponsor, trustee, Asset

management Company and custodian. The trust is established by a sponsor or more

than one sponsor who is like promoter of company. The trustees of mutual fund hold

its property for the benefit of the unit holders. AMC approved by SEBI manages the

funds by making investments in various types of securities. Custodian who is

registered with SEBI holds the securities of various schemes of the fund in its

custody.

A) MUTUAL FUND SPONSERS:

The Mutual fund itself is a trust registered under the Indian Trust Act, and is initiated

by a sponsor. The sponsor is the person who acts alone or with another corporate to

establish a mutual fund. The sponsor then appoints an AMC to manage the

investment, marketing, accounting and other functions pertaining to the fund.

Role of Sponsor:

 Sponsor is a person who sets up a Mutual Fund

 Sponsor settles the Trust and executes Trust Deed

 Sponsor contributes to the initial capital of the Trust

 Sponsor appoints the Board of Trustees

 Sponsor appoints Asset Management Company

 Sponsor contributes minimum 40% of net worth of AMC

Who can be a Sponsor?

  Criteria of a Sponsor are:

 Positive net worth

 Minimum 5 years’ track record

 History of positive After Tax Profit for 3out of 5 years including fifth year

 Net Worth more than Contribution for AMC

 ‘Fit and Proper’ person

B) MUTUAL FUND TRUSTEES:

The trustees are vested with the general power of superintendent and direction over

AMC. They monitor the performance and compliance of SEBI regulations by the

mutual fund. SEBI regulations require that at least two third of the directors of trustee

company or board of trustee must be independent i.e. they should not be associated

with the sponsor. Also, 50 per cent of the directions of AMC must be independent.

Board of Trustees & Role:

 Trustees appointed by the Sponsor with SEBI approval

 At least two third Trustees must be Independent

 The Trustees have a FIDUCIARY responsibility towards unit holders

 Trustees not liable for acts done in good faith and if they have exercised

adequate due diligence

 Trustees oversee the functioning of AMC

 Trustees approve each MF scheme floated by AMC

 The investments in MF’s are held by the Trustees

 Trustees receive fees for their services.

  Obligation to undertake General & specific due diligence.

Who can be a Trustee?

Eligibility Conditions:

 Person of high repute and integrity

 Not guilty of moral turpitude

 Not convicted for economic offence under securities laws

 Not a part of AMC e.g. Director, Employee or Officer of AMC

 One can be Trustee of two MF’s if approved by Board of Trustees of both

the Mutual Funds.

C) MUTIAL FUND CUSTODIAN:

A trust company, bank or similar financial institution responsible for holding

and safeguarding the securities owned within a mutual find. A mutual fund’s

custodian may act as mutual funds transfer agent, maintaining records of shareholders

transactions and balances. Also referred to as “Mutual Fund Corporation”. Since a

mutual fund is essentially a large pool of funds from many different investors, it

requires a third-party custodian to hold and safeguard the securities that are mutually

owned by all the fund’s investors. This structure mitigates the risk of dishonest

activity by separating the fund manager from the physical securities and investor

records.

Custodian / Depository Participant:

 Custodian / DP:

 Appointed by Board of Trustees

 Keep record & account of Securities / Investments

  Collects benefits under Securities, Registered with SEBI

 Sponsor & Custodian / DP cannot be the same entity

Registrar & Transfer Agent:

 Registrar & Transfer Agent:

 Issues, redeems, transfers units of MF schemes

 Keeps Unit Holders A/c’s up to date

 Registered with SEBI

OBJECTIVE OF MUTUAL FUND

 To Mobilise saving from public

 To invest them to earn a good return

 To achieve long term capital appreciation

 To provide investment expertise for the benefits of the investor

 To assist in the process of capital formation and industrial development of the

country.

Where Do Mutual Funds Invest?

 Stock

Stocks represent shares of ownership in a public company. Examples of public

companies include IBM, Microsoft, Ford, Coco-Cola, and General Mills. Stocks are

the most common ownership investment traded on the market.

 Bonds

Bonds are basically a chance for you to lend your money to the government or a

company. You can receive interest and your principle back over predetermined

amount of time. Bonds are the most common lending instrument traded on the market.
There are many other type of investments other than stocks and bonds (including

annuities, real estate, and precious metals), but the majority of mutual funds in stocks

and/or bonds.

MUTUAL FUND ADVANTAGE

1. Get Focused

Investing in individual stock can be fun because each company has a unique

story. However, it is important for people to focus on making money. Investing isn’t a

game. Your financial future depends on where you hard earned dollars and it

shouldn’t be taken lightly.

2. Diversification

Diversification is the idea of spreading out your money across many different

types of instruments. When one investment is down another might be up. Choosing to

diversify your investment holding reduce your risk tremendously.

The most basic level of diversification is to buy multiple stocks rather than

just one stock. Mutual funds are set up to buy many stocks (even hundreds or

thousands). Beyond that, you can diversify even more by purchasing different kinds

of stocks, then adding bonds then international, and so on. It could take you week to

buy all these investments but if you purchased a few mutual funds you could be done

in few hours because mutual funds automatically diversify in a predetermined

category of investments (i.e. –growth companies, low-grade corporate bonds,

international small companies).

3. Professional Management

By purchasing mutual funds, you are essentially hiring a professional manager

at an especially inexpensive price. It would be a bit cocky to think that you know

more than mutual fund manager.

These managers have been around the industry for long time and have the

academic credentials to a back it up. Saying you could outperform a mutual fund

manager is similar to a football fan sitting on their couch saying “I could have made

that catch” –possible, but not likely.

Even if some of us are better at picking stocks than a professional and their

support staff, most of us would not want to spend the amount of time it takes to

watch, research and trade the market on a daily basis.

4. Efficiency

By pooling investor’s monies together, mutual fund companies can take

advantage of economies of scale. With large sums of money to invest, they often trade

commission-free and have personal contacts at the brokerage firms

5. Ease of use
 Can you imagine keeping track of portfolio consisting of hundreds of stocks?

The bookkeeping duties involved with stocks are much more complicated than

owning a mutual fund. If you are doing your own taxes, or are short on time, this can

be a big deal.

6. Liquidity

If you find yourself in need of money in a short amount of time, mutual funds

are highly liquid. Simply put in your order during the day and when the market closes

a check will be sent to you or you can have it wired to a bank account. Stocks can be

much more difficult depending on what kinds of stocks you are investing in. CD’s

offer no liquidity (not without a hefty fee) and bonds can be difficult, too. Some

mutual funds also carry check writing privileges, which means you can actually write

checks from the account, similar to your checking account at the bank.

7. Cost

Mutual funds are excellent for the new investors because you can invest small

amounts of money and you can invest at regular intervals with no trading costs. Stock

investing, however, carries high transaction fees making it difficult for the small

investors to make money. If an investor wanted to put in 1000 a month into stocks and

the broker charged 150 per transaction, their investment is automatically down 15

percent every time they invest. That is not good way to start off!
Wealthy stock investors get special treatment from brokers and wealthy bank account

holders get special treatment from banks, but mutual funds are non-discriminatory. It

doesn’t matter whether you have 50 or 500,000 you are getting the exact same

manager, the same account access and the same investment.

8. Risk

In general, mutual funds carry much lower risk than stocks. This is primarily due to

diversification (as mentioned above). Certain mutual funds can be riskier than

individual stocks, but you have to go out of your way to find them. With stocks, one

worry is that the company you are investing in goes bankrupt. With mutual funds, that

chance is next to nil. Since mutual funds typically hold anywhere from 25-5000

companies, all of the companies that it holds would have to go bankrupt.

I won’t argue that you shouldn’t ever invest in individual stocks, but I hope you see

the advantages of using mutual funds and make the right choice for the money that

you really care about.

DISADVANTAGES

1. Fluctuating Returns

Mutual funds are like many other investments without a guaranteed return: there is

always the possibility that the value of your mutual fund will depreciate. Unlike fixed-

income products, such as bonds and Treasury bills, mutual funds experience price

fluctuations along with the stocks that make up the fund. When deciding on a

particular fund to buy, you need to research the risks involved - just because a

professional manager is looking after the fund, that doesn't mean the performance will
be stellar.

Another important thing to know is that mutual funds are not guaranteed by the U.S.

government, so in the case of dissolution, you won't get anything back. This is

especially important for investors in money market funds. Unlike a bank deposit, a

mutual fund will not be insured by the Federal Deposit Insurance Corporation (FDIC).

(For more on this, read Are My Investments Insured Against Loss?

2. Cash, Cash and More Cash

As you know already, mutual funds pool money from thousands of investors, so

everyday investors are putting money into the fund as well as withdrawing

investments. To maintain liquidity and the capacity to accommodate withdrawals,

funds typically have to keep a large portion of their portfolios as cash. Having ample

cash is great for liquidity, but money sitting around as cash is not working for you and

thus is not very advantageous.

3. Costs
Mutual funds provide investors with professional management, but it comes at a cost.

Funds will typically have a range of different fees that reduce the overall payout. In

mutual funds, the fees are classified into two categories: shareholder fees and annual

operating fees.

The shareholder fees, in the forms of loads and redemption fees are paid directly by

shareholders purchasing or selling the funds. The annual fund operating fees are

charged as an annual percentage - usually ranging from 1-3%. These fees are assessed

to mutual fund investors regardless of the performance of the fund. As you can
imagine, in years when the fund doesn't make money, these fees only magnify losses.

(For more on this topic, read Stop Paying High Fees.)

4. Misleading Advertisements

The misleading advertisements of different funds can guide investors down the wrong

path. Some funds may be incorrectly labelled as growth funds, while others are

classified as small cap or income funds. The Securities and Exchange

Commission (SEC) requires that funds have at least 80% of assets in the particular

type of investment implied in their names. How the remaining assets are invested is

up to the fund manager.

However, the different categories that qualify for the required 80% of the assets may

be vague and wide-ranging. A fund can therefore manipulate prospective investors by

using names that are attractive and misleading. Instead of labelling itself a small cap,

a fund may be sold as a "growth fund". Or, the "Congo High-Tech Fund" could be

sold with the title "International High-Tech Fund".

5. Evaluating Funds

Another disadvantage of mutual funds is the difficulty they pose for investors

interested in researching and evaluating the different funds. Unlike stocks, mutual

funds do not offer investors the opportunity to compare the P/E ratio, sales growth,

earnings per share, etc. A mutual fund's net asset value gives investors the total value

of the fund's portfolio less liabilities, but how do you know if one fund is better than

another?

Furthermore, advertisements, rankings and ratings issued by fund companies only

describe past performance. Always note that mutual fund descriptions/advertisements

always include the tagline "past results are not indicative of future returns". Be sure

not to pick funds only because they have performed well in the past - yesterday's big

winners may be today's big losers

Discover the Origin of Mutual Fund Investing

When three Boston securities executives pooled their money together in 1924 to

create the first mutual fund, they had no idea how popular mutual funds would

become. The idea of pooling money together for investing purpose started in Europe

in the mid-1800s. The first pooled fund in the U.S. was created in 1893 for the faculty

and staff of Harvard University. On March 21st, 1924 the first official mutual fund

was born. It was called the Massachusetts Investors Trust After one year, the

Massachusetts Investors trust grew from $50,000 in asset in 1924 to $392,000 in

assets (with around 200 shareholders).

In contrast, there are over 10,000 mutual funds in the U.S. today totalling around $7

trillion (with approximately 83 million individual investors) according to the

Investment Company Institute.

History of Mutual Fund in India

In India the setting up of Unit Trust of India (UTI) in 1963 marked the advent of

mutual fund industry. Unit Trust of India was set up by an Act of Parliament. The

Purpose of establishing of Unit Trust of India was to give a fillip to the equity market.

However, in the initial years, the emphasis in UTI was on income product. Master

Share launched in 1986 ushered in the equity-oriented schemes in India. Unit Trust of

India launched a variety of innovative products suited to meet diverse need of

investors, virtually the complete life cycle of investors.

Evolution of Mutual Fund in India

First Phase – 1964-87:

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

up by the Reserve Bank of India and functioned under the Regulatory and

administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from

the RBI and the Industrial Development Bank of India (IDBI) took over the

regulatory and administrative control in place of RBI. The first scheme launched by
UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6 700crores 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):

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. 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 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 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.

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

In India the setting up of Unit Trust of India (UTI) in 1963 marked the advent of

mutual fund industry. Unit Trust of India was set up by an Act of Parliament. The

Purpose of establishing of Unit Trust of India was to give a fillip to the equity market.

However, in the initial years, the emphasis in UTI was on income product. Master

Share launched in 1986 ushered in the equity-oriented schemes in India. Unit Trust of

India launched a variety of innovative products suited to meet diverse need of

investors, virtually the complete life cycle of investors.

Phase 5 (1999-2004):

UTI Act 1963 repealed in Feb 2003, UTI Mutual Fund becomes SEBI compliant,

Assured Return Schemes of UTI taken over by a special undertaking administered by

GOI, Emergence of large & uniform industry.

The graph indicates the growth of assets over the years.

GROWTH IN ASSETS UNDER MANAGEMENT

Industry Profile:
 Industry Structure

UTI Public Sector MF’s Private Sector MFs

Indian Private Sector JV with Foreign Funds Foreign MFs

Funds

TYPES OF MUTUAL FUND SCHEMES

Wide varieties of Mutual Fund Schemes exist to cater to the needs such as financial

position, risk tolerance and return expectations etc. The table below gives an overview

into the existing types of schemes in the Industry.

By Structure

 Open- Ended Schemes

 Close-ended Schemes

 Interval Schemes

By- Investment Objective

 Growth Scheme

 Income Scheme

 Balanced Scheme

 Money Market Scheme

Other Scheme

 Tax Saving Scheme

 Special Schemes

1. Index Scheme

2. Sector Special Scheme

1) OPEN ENDED SCHEME:-

Open-ended Schemes do not have a fixed maturity period. Investors can buy or sell

units at NAV-related prices from and to the mutual fund on any business day. These

schemes have unlimited capitalization, open-ended schemes do not have a fixed

maturity; there is no cap on the amount you can buy from the unit capital keep

growing. These funds are not generally listed on any exchange.

These funds are not generally listed on any exchange.

Open ended Schemes are preferred for their liquidity. Such funds can issue and

redeem units any time during the life of schemes. Hence unit capital of open-ended

funds can fluctuate on a daily basis.

The advantages of open ended schemes are:-

1. Any time exit option.

2. Any time enter option.

2) CLOSE ENDED SCHEME:-

Close-ended schemes have fixed maturity periods. Investors can buy into these funds

during the period when these funds are open in the initial issue. After that such
scheme cannot issue new units expect in case of bonus or right issue. However after

the initial issue you can buy or sell units of the schemes on the stock exchange where

they are listed. The market price of the unit could vary from the NAV of the schemes

due to demand and supply factor.

3) AGGRESSIVE GROWTH FUND:-

These funds seek to provide maximum growth of capital with secondary

emphasis on dividend or interest income. They invest in common stock with a high

potential for rapid growth and capital appreciation.

Aggressive growth funds are suitable for those investors who can afford to

assume the risk of potential loss in value of their investment in the hope of achieving

substantial and rapid gains. They are not suitable for investors who must conserve

their principal or who must maximize their current income.

4) GROWTH FUNDS:-

Like aggressive growth fund generally invests in stocks for growth rather than

income. They are considered more conservative in their approach because they

usually invest in established companies to achieve long-term growth. Growth fund

provides low current income but the investor principal is more stable then it would be

in an aggressive growth fund. While the growth potential may be less over the short

term, many growth funds have superior long-term performance records.

 These funds are suitable for growth oriented investors but not investors who are

unable to assume risk or who are dependent on maximizing current income from their

investments.

5) GROWTH AND INCOME FUNDS:-

Growth and income funds seek long-term growth of capital as well as current

income. The investments strategies use to reach these goals vary among funds.

Growth and income funds have low to moderate stability of principal and

moderate potential for current income and growth. They are suitable for investors who

can assume some risk to achieve growth of capital but want to maintain a moderate

level of current income.

6) FIXED INCOME FUNDS:-

The goal of fixed income funds is to provide high current income consistent

with the level of capital. Growth of capital is of secondary importance.

Fixed income funds offer a higher level of current income than money market

funds, but a lower stability of principal. Fixed income funds are suitable for investors

who wants to maximize current income and who can assume a degree of risk in order

to do so.

7) EQUITY FUNDS:-
 Funds that invest in stock represent the largest category of mutual fund.

Generally the investment objective of this class of fund is long-term capital growth

with some income. There are however many type of equity funds.

8) BALANCED FUNDS:-

The Balanced funds aims to provide both growth and income. These funds

invest in both shares and fixed income securities in the proportion indicated in their

offer documents. It is an idea for investors who are looking for the combinations of

income and moderate growth.

9) MONEY MARKET FUNDS/ LIQUID FUNDS:-

For the caution investors these funds provide a very high stability of principal

while seeking a moderate to high current income. They invest in highly liquid;

virtually risk free, short-term debt securities of agencies of the Indian government,

banks and corporation and treasury bills. Because of their short-term investments,

money market mutual funds are able to keep a virtually constant unit price; only the

yield fluctuates.

10) SPECIALITY/SECTRAL FUNDS:-

These funds invest in securities of a specific industry or sector of the economy

such as health care, technology, leisure, utilities or precious metals. The funds enable
investor to diversify holding among many companies within an industry, a more

conservative approach than investing directly in one particular company.

Sector funds offer an opportunity for sharp capital gain in cases where the fund’s

industry is “in favour” but also entail the risk of capital losses when the industry is out

of favour. While sectors funds restrict holdings to a particular industry, other

speciality funds such as index funds gives investors a broadly diversified portfolio and

attempt to mirror the performance of various market averages.

How Long To Keep Investment To Get Maximum Returns:

Technically open-ended funds you can withdraw your investment even within a week,

but to get desired returns positive time frame is required are

Funds Time Period

Equity Funds 3 Years (plus)
Balanced Funds 18 months to 3 Years
MIP’s 1 Year (plus)
Income Funds 6 months to 1 year
Liquid Funds Few days to 6 months

SUGGESTED TIME FRAMES:

Funds Returns
Sector Funds 22% to 25% p.a
Balanced Funds 15% to 18% p.a
MIP’s Pension Plans 12% to 15% p.a
Income Funds 10% to 12% p.a
Liquid Funds 7% to 9% p.a
The above-mentioned returns in the table are indicative and not assured. All

investments in MUTUAL FUNDS are securities and are subject to market risk and the

NAVs of the schemes may go up and down depending upon the factors and forces

affecting the security market including the fluctuations in the internal rates. The past

performance of the MUTUAL FUNDS is not indicative of future performance.

RISK RETURNS GRAPHS FOR VARIOUS FUNDS:-

Sector Funds
R

E
Equity Funds
T

U
Balanced Funds
R

N Income Funds
S

Liquid Funds

RISKS

The above Graph shows the Risk and Returns generated by different Funds. Liquid

Funds are less Risky and also generate less Returns where as Sector Funds are more

Risky but generate more Returns by the example of above two Funds it is clear that

Risk and Returns are directly proportional to each other.

KEY FINANCIAL TERMS

 
As a participant in a mutual fund scheme, we should understand the following

terms:

1) Net asset values

2) Market price, repurchase price and reissue price

3) Discount

4) Rate of return

5) Initial expenses

6) Recurring expenses

1) Net Asset Value

SEBI Regulations permit mutual funds to provide for the price at which the units may

be subscribed or sold to the independent participants, once ‘Initial Public Offer’ is

over, in the scheme and the price at which such units may at any time be repurchased

by the mutual fund. This price may be termed as ‘offer price’ or ‘purchase price’ and

‘bid price’ or ‘sale price’ respectively. To decide these prices NAV is the base. Once

NAV is determined, offer price and bid price are determined by adjusting NAV. 

The net asset value (NAV) is the actual value of shear or unit on any business day. It

is computed as follows:

              Market value of the funds’ investments + Receivables + Accrued

Income - Liabilities - Accrued expenses

NAV = __________________________________________________________

           Number of shares or units outstanding

The calculation of NAV may be illustrated with the help of a simple example, as

follows.

Name of the scheme                                                    :  ABC

Size of the scheme                                                       :  Rs. 100 crore

Face value of the shear                                                :  Rs. 10

Number of outstanding shears                                     :  10 crore

Market value of the funds’ investments               : Rs. 180 crore

Receivables                                                                  : Rs. 1 crore

Accrued income                                                        : Rs. 1 crore

Liabilities                                                                : Rs. 0.5 crore

Accrued expenses                                                        : Rs. 0.5 crore

NAV=   (180+1+1-0.5-0.5)  

                     10 

        = Rs. 18.1

2) Market Price, Repurchase Price, and Reissue Price  

A closed-end scheme has to necessarily listed on a recognized stock exchange to

ensure that its participants enjoy liquidity. Generally, the market price of the closed

end scheme trend to be lower than its NAV. If the market price is lower than the

NAV, the scheme is said to be selling at a discount: if it is higher than scheme is said

to selling at a premium. In additional to listing, the mutual fund may also the offer the

facility of re-purchase. The repurchase price is usually linked to the NAV.

              Unlike a close-end scheme, an open-end scheme is not listed on ordinarily

listed on the stock exchange. Hence, the mutual fund has to stand-ready to repurchase

and reissue of its units or shears on a continuing basis. The repurchase and reissue

prices are, of course, closely linked to the NAV.

3) Discount

Most of the closed-end schemes sell at a discount, which may sometimes be very

steep. According to Benjamin Graham, the reason lies in the structure, not the

performance, of such schemes. They are perhaps not well suited for any important

group of investors. The small and naive investors are allured towards the open-end

schemes as they are sold more aggressively: the large and sophisticated investors may

find mutual funds, in general, not very appealing. The speculators also have little

interest in the ordinary closed-end scheme as it lacks the excitement of specific scrip.

4) Rate of Return

The periodic (the period may be one month, one quarter, one year or any other) rate of

return on a mutual fund scheme is calculated as follows:

 Rate of return for the period =  

NAV at the end of the period + NAV at the beginning of the period – Dividend

paid during the period

NAV at the beginning of the period  

To illustrate the calculation of rate of return, considered the following data:

                            NAV (beginning) = Rs. 16

                            NAV (ending)      = Rs. 17             

                            Dividend paid      = Rs. 1              

Rate of return is = (17 - 16) + 1 / 16 = 12

The compound annual total return (express as percent per annum) on a mutual fund

scheme represents the returns to investors from a scheme, since the date of issue. In

includes investments of dividends and makes adjustment for bonus and rights. It is

calculated on NAV basis or price basis. On NAV basis, it reflects the return generated

by the fund manager on NAV. In these calculations it is assumed that the dividend is

reinvested at the NAV prevailing on the day it is paid. On price basis, it reflects the

return to investors by way of market or repurchase price. In this calculation, it is

assumed that the dividend is reinvested at the prevailing market or repurchase price.

However, in the mutual funds scoreboard prepared by the Economic Times every

Monday, it is assumed that the dividend is reinvested at 12 per cent per annum.

5) Initial Expenses  

When a mutual fund scheme is launched, certain expenses are incurred. These relate

to printing and mailing, advertisements, commissions to agents, brokerage, stamp

duty, marketing, administration, and so on. Known as initial or per-operating

expenses, they are linked to the corpus of the scheme. SEBI has prescribed a ceiling

of 6 per cent on overall initial expenses. The fund has to give a breakup of these

expenses in the prospectus. Typically, the breakup is as follows:

Printing and mailing                            1.0%

Stamp duty and listing                         0.6%

Brokerage and agents                           2.0%

Advertising                                           1.5%

Marketing                                             0.5%

Administrative                                      0.4%

6) Recurring Expenses

Apart from the initial expenses, mutual funds incur recurring expenses every year.

These consist of items like the asset management fees, registrars’ fees, and custodial

fees. According to SEBI guidelines, recurring expenses in a year cannot exceed 3 per

cent of the average net assets in that year.

 Loads on investments

In Indian SEBI, under regulation 46(3) permits wider margins as it states that ‘while

determining the purchase price and sale price of the unit in any scheme, Mutual fund

shall ensure that the difference between these two prices does not exceeds seven per

cent of the sale price’. It gives the range for load which can be charge from those who

purchase scheme after its initial issue. Loads can be of two types.

Back end load: Which refers to redemption fee, which is deducted from the

investment when investor sells his shear such load is small as compared to front-end

load. It is just to discourage exit from the scheme.   

Front end load: also known as sales load, it is the sale charge, which is charged when

units are subsequently sold to public.

These loads are adjusted to NAV to calculate the offer price and bid price. To

calculate these prices there can be many alternatives. One is as following:

Offer price = N.A.V. per unit + Load charges

                               (Front end load)

Bid price    = N.A.V. per unit - Realisation

                               (Back end load)             

W.e.f. 1st August 2009 SEBI has decided that there will be no entry load and

no exit load will charge to the investors. All funds are now treated as no load fund.

 Designing a Scheme     

The most important decision any mutual fund is to make is about the type of scheme

to be floated. Should it be open ended or close ended? Further, should it be growth-

oriented, income-oriented, balanced or industry specific scheme? To decide about all

these, many aspects need to be viewed viz,

1) Investors Preference: Investors not interesting in transacting at stock exchange may

prefer open-ended scheme. Investors preferring liquidity may also prefer open-ended

schemes.

2) Expertise available with AMC: Open-ended scheme require fund managers to

operate in crisis-to-crisis situation.

3) Security market position: If great potential for a particular industry, industry

specific scheme may be launched.

4) Untouched segments of society: Rural investors need a special attention while

launching schemes, which provides returns during slack seasons.

5) Potential expansion of markets related to income, return, investors, tastes, and

preferences, growth of household sector, etc.

6) Assessing strength and weakness of competitors to penetrate their segments.

7) Risk return pattern of existing avenues: Bank deposits are no longer attractive as

the interest rate is on fall.

8) Legal formalities, close -ended schemes are to be listed on stock exchange where

as open-ended are not required to be listed.

              All such factors may be viewed differently buy different mutual funds. that is

why at one time different types of schemes may emerge in the market from different

mutual funds. A complete groundwork need to be done to evolve peculiarities of the

scheme. To evolve of scheme similar to one which exists is simple but adding

innovative feature is the real effort made by visualizing its implications. Innovations

may be as to:

1) Administration of the scheme: Transfer assured within 48 hours.

2) Financial feature: Only index-linked share to constitute the portfolio or arranging to

loans against units issued.

3) Switching over facilities: Launching schemes where investors may have inbuilt

option to move within these schemes.

4) Redemption: Assuring redemption at NAV without any discount or buy back.

5) Age of scheme: For aggressive investors design a short-term scheme like ‘Taurus

Genshare’ is with maturity period of 2 years only launched in contrast to a 15 years

scheme by Morgan Stanley for investors with patience.

 Launching a scheme

              AMC can announce any scheme of mutual fund only after getting a nod from

SEBI to whom the particulars of the scheme, prospectus/letter of offer and material

relevant to scheme are submitted. To avoid unnecessary delay on part of SEBI.

Although no specified format of prospectus or letter of offer is laid down. Yet some of

the main contents of an offer documents are as under:

What is an Offer Document?

 Offer Document of a MF scheme is like a Prospectus issued by AMC inviting

Public to subscribe to units of MF scheme

 Discloses adequate information for investors to take informed investment

decisions

Offer Document & KIM

 Offer Document

 A Legal document

 Issued by AMC on behalf of Trustees

 Offer Document describes the Product/Scheme

 Very important document for prospective investor

 First time investors must read OD before deciding to invest

 For Close Ended Fund issued at the time of launching a scheme

 For Open Ended Fund revised every 2 years

 KIM

 A abridged version of Offer Document

 A part of the Application Form

 To be in the format as prescribed by SEBI

Offer Document

 Offer Document prepared and issued by AMC

 Offer Document to be approved by Trustees

 Offer Document filed with SEBI with fees of Rs. 25000/-

 Modifications if any advised by SEBI within 21 days of its filing

 SEBI neither approves nor disapproves an OD

 Offer Document valid for 6 months for launching of scheme from the date of

receipt of by AMC of SEBI letter containing observations. Thereafter fresh

OD to be filled with SEBI

Contents of Offer Documents of a Mutual Fund Scheme

 Name and addresses of the mutual fund, asset Management Company, lead

managers, registrar and transfer agents, auditors, solicitors and custodian.

 Declaration of associated risk as required by SEBI.

 Investment objectives, policies and limitations.

 Details of management and administration: Sponsor, Board of Trustees, Duties

and power of the board, asset Management Company, custodian, accounting

and administration of the scheme, registrars and transfer agents.

 Target amount, issue price, minimum subscription, marketable lots, date of

opening and closing, basis of allotment, availability of forms and offer

documents, duration of the scheme, listing and transfer of the units, dividend

policies.

 Details about the rates of spread.

 Details of issue expenses and other expenses.

 ASSET MANAGEMENT COMPANY

A firm that invest the pooled funds of retail investors in securities in line with

the stated investment objectives. For a fee, the investment company provides more

diversification, liquidity, and professional service that are normally available to

individual investors.

Asset Management Company is:

 Constituted as a Company under the Indian Companies

Act

 Minimum Net worth of Rs. 10 crores for AMC

 Minimum contribution of sponsor: 40% of share capital

of AMC

 At least 50% of Directors of AMC to be independent

 AMC can do only the following businesses

 Asset Management Services

 Portfolio Management Services

 Portfolio Advisory Services

 AMC can be terminated/changed with the consent of

 Majority of Trustees or

 At least 75% majority of Unit holders

Role of AMC

 AMC is the Fund Manager for managing Mutual Fund Assets

 AMC floats different MF schemes

 AMC accountable to the Trustees

  AMC charges Asset Management Fees subject to ceiling prescribed by SEBI.

 Asset Management Agreement between AMC and Trustee

Obligations of AMC

 Limit of 5% of aggregate purchase and sales of Securities under all its scheme

per broker per quarter

 As far as possible AMC to avoid services of its sponsor.

 All Security transactions with a Sponsor and his associates to be disclosed

 Disclosure of transactions with a company which has invested more than 5%

of NAV in any scheme.

Working of Asset Management Company: 

It is not required that AMC performs all its function of its own. It can hire service of

outside agencies as per its requirements or performs all function of its own.

Registrars and Transfers Agents are assigned the job of receiving and processing the

application forms of investors, issuing units certificate, sending refunds orders,

according all transfers of units and maintaining all such records, repurchasing the

units, redemption of units. Issuing divided or income warrants. For such service they

are entitled to a fee, which is in proportion to numbers of units - holders and numbers

of transaction etc. Tata mutual fund proposes to pay of 0.60 percent of schemes

weekly net assets for this service. Such fee is charged by AMC from the mutual fund

and is paid to the agents. In India almost all AMC engage such agents.
 Asset Management company

Registrar & Transfer Lead Manager Legal Advisors

Agent Advisors

Fund Accounting Investment Fund

Advisors Manager

FUNCTIONS OF ASSET MANAGEMENT COMPANY

There are two main functions of AMC

(a) Investment: -

              The major strength of any AMC lies its investment functions is a specialized

function which, depending on operational strategies, such as under.

 Fund Manager:-

              Asset Management companies manage the investment of fund through a fund

manager. It is desirable to have independent fund manager for each scheme handled

by it and this is the practice in U.S.A. But in India the practice is otherwise. A single

fund manager handles many schemes simultaneously. It is so because size of schemes

is not to big. Each AMC may evolve its own criterion for number of fund managers.

Individual fund manager’s capacity varies between individuals. One’s expertise and

experience in investment handling decided the size of total corpus one can handle. His

basic function is to decide about which, when, how much securities are to be sold or
bought. To a great extent the success of any scheme depends on the calibre of the

fund manager.    

Research and Planning Cell

This department plays a crucial role. It performs a very sensitive and technical

assignment. Depending again on the operational policies, such units can be created by

AMC of its own or research finding can be borrowed. The research can be with

respect of securities as well as positive investment. The fund manager can contribute

to the bottom line of mutual fund by spotting significant changes in securities ahead

of the crowed. In India at present many funds depends on outsiders. Such outsiders

need not be technical analyst. Even brokers provide tips to mutual fund.

Such strategy saves a lot of funds to be invested in small corpus can hardly afford to

have their own database. But there are mutual fund following the philosophy “your

expertise is your original research”. This section also assists planning new schemes

and designing innovations in schemes.

 Dealers:-

To execute the sale and purchase transactions in capital or money market, a separate

section may be created in under the charge of a person called dealer having deep

understanding of a stock market operations. Sometimes this division is under the

charge of marketing division of AMC. Dealers are to comply with all formalities of

sale and purchase through brokers. Such brokers are to be approved by Board Of

Directors of AMC. It is B.O.D., which lays down the guidelines for allocation of

business to different brokers. Many big mutual funds have their own dealing rooms.
For making sales or purchase at different stock exchanges, dealer may have his staff

deputed at such centres.

 Underwriter:-

Mutual fund have been permitted by SEBI to go in for underwriting of public

issues to generate additional income for their schemes, Mutual fund have to make an

application to SEBI for registration under SEBI (underwriters) Rules and Regulations

1993.

              Any underwriting decision by any scheme shall be in conformity with the

provisions of the SEBI of India (mutual fund) Regulation. An underwriting

commitment by the Mutual Fund will be made as if the Mutual Fund is actually

investing the amount under any scheme.              

(b) Marketing:-

              Marketing is a big challenge in business especially for mutual fund. Mutual

funds deals with small investors’ hard earn money, a sensitive commodity and only

service is involved in selling the product. The main challenge of marketing to mutual

fund is that with same product, customers with diversified profile viz. Demographics,

socio-economic background, life style and psychographics are to be served. Since

mutual funds are to interact with lacks of investors who are likely to be associated for

a longer tenure. Post issue services play an important role in customer’s satisfaction.
              It is the marketing division which complies with the formulates to market the

product i.e. a new scheme. It seeks permission from agencies like Ministry Of

Finance, Reserve Bank of India, Securities and Exchange Board of India etc. Gazette

notification of scheme is also its assignment. Marketing division is to pursue the

appointment of Registrar to the issue. Appointment of solicitors, Auditors, custodians

and transfer agents is also looked after by this division. Ones a scheme is approved,

the related printing of application forms, offer documents, banker statement forms,

stationery for unit certificates, commission cheques, refund order etc. This stationery

is to be distributed at appropriate time to the concerned agencies. Marketing people

also evolve a target amount of a scheme. The most crucial “marketing strategy’ is

evolved to the best advantage of the fund Advertisement strategy is also designed by

it.

              Marketing division has to evaluate the market potentials, strength and

weakness. For each scheme, what is its market shear is very crucial question to design

its future strategies. To identify which section of society is under serviced, is another

important assignment of marketing division.                          

Merger of two AMC’s:-

 Merger of 2 AMC’s:

 Approval of Trustees of both AMC’s required

 SEBI approval required

 Approval of High Court also required

 Unit holders are informed and given option to exit without load

Take Over of AMC / Scheme of AMC

  Take over of AMC by new Sponsor

 Trustees approval required

 SEBI clearance required

 Unit holder to be informed

 Merger of two schemes of different AMC’s

 Scheme of one Mutual Fund taken over by another

Mutual Fund

• Trustees approval required

• SEBI’s approval required

• Unit holders to be informed

RESEARCH METHOLOGY

According to Clover and Balsely:

Research is “the process of systematically obtaining

accurate answers to significant and pertinent questions by the use of the

scientific method of gathering and interpreting information.”

The soul of research work is methodology. Research methodology is an

activity that extends, corrects or verifies knowledge

The meaning of research is any systematic activity carried out in the pursuit

of truth. It is a purposive investigation. It is the application of scientific method to add

to the present pool of knowledge. It is an endeavour to arrive at answers to

intellectual and practical problem by the application of scientific method. It is a way

of finding a new way of looking at familiar things in order to explore ways of

changing it. It is an organized inquiry, designed and carried out to provide

information for solving significant and pertinent problems.

Research as a process involves defying and redefining problems, hypothesis

formulation organizing and evaluating data, deriving deductions, inferences and

conclusions after careful testing.

Research methodology is a very organized and systematic way through which

a particular case or problem can be solved efficiently.

It is a step-by-step logical process, which involves:

 Defining a problem

 Laying the objectives of the research

 Sources of data

 Methods of data collection

 Data analysis & processing

 Conclusions & Recommendations

Research inculcates scientific and inductive thinking and it promotes the development

of logical habits of thinking and organization.

Characteristics of Research

1) Research is directly towards the solution of a problem.

2) Research is based upon observable experience or empirical

evidence.

3) Research demands accurate observation and description.

4) Research involves gathering new data from primary or first hand

sources or using existing data for a new purpose.

5) Research requires expertise, i.e. skill necessary to carry out

investigation, search the related literature and to understand

and analyse the data gathered.

6) Research involves the quest for answer to unsolved problem.

7) Research is carefully recorded and reported.

8) Research means a careful inquiry or examination in seeking facts or

principles, diligent investigation in order to ascertain something.

a) It is an inquiry,

b) Careful and critical,

c) Facts or principles. Research is contribution of knowledge.

9) Situation pregnant with problem = Research.

PROCESS AND STEPS OF RESEARCH

SEARCH PROCESS IN FLOW CHART

 FF

Research
Design
Formulate (including Collect data
hypothesis Sample (execution)
Review concepts
and theories Design)
III V

Define research IV
problem
Review previous
Research
I finding
I Analyse data
I II (test hypothesis
I
If any )

VI

Interpret and
report

VII
F

Where, (F) = Feed Back

(FF) = Feed Forward

Need and Purpose

Investing in various assets is an interesting activity. Today investment is the

employment of present value for uncertain future return. Financial investment means

an exchange of financial claims stocks and bonds (collectively termed security), real

estate, Mortgage etc.

As we all know that SBI is the largest bank in termed of products and services

and area of approach. SBI is the only Indian bank which is among the top 200 banks

in the world and top 20 in Asia. Large numbers of people in India saves their money

in State Bank of India because it is the oldest bank and that don’t have any doubt

regarding this bank. Large amount of deposits are collected and utilized. A small part

of deposits are used as an investment and advances.

Research Problem

A research Problem in general, refers to some difficulty which a researcher

experiences in the context of either a theoretical practical situation and wants to

obtain a solution for the same. Thus a research Problem is one which requires

researcher to find out the best solution for the given Problem i.e. to find out by which

course of action the objective can be attained optimally in the context of a given

environment .There are several factors which may result in making the Problem

complicated hence the research problem undertaken for study must be carefully

selected.

Statement of Problem

A research problem, in general, refers to some difficulty which researcher

experiences in the context of either a theoretical or practical situation and wants to

obtain a solution for the same.

The main problem under study is to analytical study of the investment pattern

of SBI.

Data Collection

Once the research problem is formulated the next task is data collection. Data

are facts, figures and other relevant materials, past and present saving as bases for

study and analysis. While deciding about the method of data collection to be used for

the study, the researcher should keep in mind two types of data.

1) Primary data

2) Secondary data
1) Primary data:

The data which is collected first time through questionnaire, observation is the

primary data. The impact of inflation over bank rates fully required secondary data

hence there is no need of primary data.

The analytical study of bank investment fully required secondary data hence

there is no need of primary data.

2) Secondary data:

Secondary data may be defined as data that has been collected earlier for some

purpose other than the purpose of the present study.

In our study data was collected from books, journals, magazines, news papers,

and modern trend of information like internet.

Area of Research

 Kotak Mahindra Asset Management Company Ltd.

 Methodology Used

Descriptive Analytical Research

 Under this type the researcher has to use the facts and information already

available and analyse them to make evaluation of the market.

 In analytical research the researcher has to use the facts already available,

and analyse these to make the critical evaluation data of the material.

 Data has been collected from the Fact sheet of the various mutual fund

schemes and used those data’s for the research. In fact sheet past returns

were given of different funds.

 Data also included value of risk measuring instruments like Standard

Deviation, Beta etc from the secondary data from the websites such as

www.valueresearchonline.com

Major Mutual Fund Companies

1. Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the Joint Venture of “Aditya Birla

Group” and “Sun Life Financial”. Sun Life Financial is a global organization

evolved in 1871 and is being represented in CANADA, US, Philippines, Japan,

Indonesia, and Bermuda Apart from India. Birla Sun Life Mutual Fund follows a

conservative long-term approach to investment.

Recently it crossed Asset Under Management [AUM] of Rs.10, 000 Cores.

2. HDFC Mutual Fund

HDFC Mutual Fund was set up on 30th June 2000 with TWO

Sponsors

Namely‘Housing Development Finance Corporation Limited’ and ‘Standard Life

Investment Limited’. It presently have 1250 investors of Mutual Funds. The total

Asset Under Management of HDFC up to last month is 84,628 Crores.

3. ICICI Prudential Mutual Fund

The Mutual Fund of ICICI is a Joint Venture with Prudential Plc.

Of America, One of the Largest Insurance Company in United State of America.

ICICI Prudential Mutual Fund was set up on 13th October 1993 with Two

Sponsors, Prudential Plc. and ICICI Ltd. The trustee company formed is ICICI

Prudential Trust Ltd. and the AMC is ICICI Prudential Assets Management

Company Limited Incorporated on 22nd June 1993.

It presently have 2200 investors of Mutual Funds. The total Asset Under

Management of ICICI Prudential Mutual Fund is Rs.68,742 Crores.

4. SBI Mutual Fund

 State Bank of India Mutual Fund Is the First bank Sponsored

Mutual fund to Launch Offshore Fund, The Indian Magnum fund with a corpus of

Rs. 225 Cr.

Approximately. Today it is a largest bank Sponsored mutual fund in India. They

have already Launched 35 Schemes Out of which 15 have already yielded

handsome returns to Investor.

State bank of India mutual fund has Rs. 38,782 Crores as AUM. Now it has an

Investor Base of over 8 Lakh Spread over 18 Schemes.

5. Kotak Mahindra Mutual Fund

Kotak Mahindra Assets Management Company is a Subsidiary

of KMBL. It is presently having more than 1, 99,818 Investors in its various

Schemes. KMAMC Started its Operation in December 1998. Kotak Mahindra

Mutual Fund Offers Schemes Catering To Investor with Varying risk-returns

Profile. It was the First Company to launch dedicated gilt Schemes investing only

in Government Securities.

6. UTI Mutual Fund

UTI assets Management Company Private Limited is

established in 14th

January 2003, Managed the UTI Mutual fund with the support of UTI Trustee

Company

Private Limited. UTI Assets Management Company Presently Manage a Corpus of

Over Rs. 20,000 Corer. The Sponsor of UTI Mutual funds are Bank of Baroda
(BOB), Punjab National Bank (PNB), State Bank of India (SBI) and Life Insurance

Corporation of India (LIC). The Schemes of UTI mutual fund are Liquid funds,

Income funds, Assets Management funds, Index Funds, Equity Funds and

Balanced funds.

7. Reliance Mutual Fund

Reliance Mutual Fund (RMF) was Established as trust

under Indian Trust act, 1882. The Sponsor of RMF is Reliance Capital Ltd. and

Reliance Capital Trustee Co. Ltd. It was Registered on 30th June 1995 As Reliance

Capital Mutual Fund which was changed on 11th March 2004. Reliance Mutual

fund was formed for Launching of Various Schemes under which units are issue to

the public With a view to Contribute to the capital market and to provide Investor

the Opportunities to Make Investments in Diversified Securities.

8. LIC Mutual Fund

Life Insurance Corporation of India Set up LIC Mutual

Fund On 19th June 1989. It Contributed Rs. 2 Crores towards the Corpus of Fund.

LIC Mutual Fund Was Constituted as a Trust in Accordance with the provision of

the Indian Trust Act, 1882. The Company Starts its Business on 19th April 1994.

The Trustees of LIC Mutual Fund Have Appointed Jeevan Bema Sahayog Assets

Management Company Ltd. As the Investment Manager for LIC Mutual Fund.

Q1) How old are you?

 65 and over 45 to 64

35 to 44 25 to 34

24 and under

The above analysis was to know the age group of the investor.

Finding:

Age groups Percentage

65 and over 4%
45 to 64 25%
35 to 44 11%
25 to 34 60%
24 and under 0%

70%
60%
60%

50%

40%

30% 25%

20%
11%
10% 4%
0%
0%
65 and over 45 to 64 35 to 44 25 to 34 24 and under

Description:

The above study shows that 60% of the investors are belonging to age group of 25-34

and 25% of the investors are from the age group of 45-64, whereas 11% of the

investors are from the age group of 35-44 and remaining 4% of the investor are from

the age group of 65 and over.

Q.2) What is your primary objective for your investment?

Preservation of principal Growth & Income Current

Income Conservative Growth Aggressive Growth

The above analysis was done to know the basic objective of the investor behind

investing in different mutual Funds schemes.

Finding:

Primary objective Percentage

Preservation of principal 0%
Current Income 9%
Growth & Income 81%
Conservative Growth 6%
Aggressive Growth 4%

90%
81%
80%
70%
60%
50%
40%
30%
20%
9%
10% 6% 4%
0%
0%
Preservation of Current Income Growth & Conservative Aggressive
principal Income Growth Growth

Description:

The above study shows that the primary objective of 81% investors for investment is

Growth & Income, whereas 9% investors have an objective of Current Income, 6%

having Conservative Growth and remaining 4% having an objective of Aggressive

Growth, whereas there is no investor with an objective of Preservation of Principal.

Q.3) How do you expect your current income to change?

Decrease slightly Increase with the pace of inflation

Remain about the same Increase dramatically

The above analysis was done to know the expectation of investors about their current

income to change.

Finding:

Change In Income Percentage

Decrease slightly 0%
Remain same 27%
Increase with pace of inflation 69%
Increase dramatically 4%

80%
69%
70%
60%
50%
40%
30% 27%

20%
10% 4%
0%
0%
Decrease slightly Remain same Increase with pace of Increase dramatically
inflation

Description:
The above study shows that 69% of investors expect their current income will

increase with the pace of inflation and 27% of investors are expect their current

income will remain about the same, whereas 4% of investors expect their income will

increase dramatically and there is no investor who expects his current income will

decrease slightly

Q.4) Are you presently satisfied with your life from a financial point of view?

YES NO

The above analysis was done to know the investor’s satisfaction about his life from a

financial point of view.

Finding:

Financial Satisfaction Percentage

Yes 76%

No 24%
.

80% 76%

70%

60%

50%

40%

30% 24%

20%

10%

0%
Yes No

Description:
The above study shows that 76% of investors are presently satisfied with their life

from financial point of view, whereas 24% of investors are presently not satisfied with

their life from financial point of view.

Q.5) What is your source of information while investing in mutual funds?

Internet Financial Advisor

Magazine Advertisement

Friends

The above analysis was done to know the source of information of investor while

investing in Mutual Funds.

Finding:
Source of Information Percentage
Internet 21%
Magazine 4%
Friends 8%
Financial Advisor 61%
Advertisement 6%
 70%
61%
60%

50%

40%

30%
21%
20%
8% 6%
10% 4%
0%
Internet Magazine Friends Financial Advisor Advertisement

Description:
The above study shows that the source of information of 61% investor is Financial

Advisor and 21% investors are gets information from Internet, whereas 8% investors

are gets information from Friends and 8% get information from Advertisement and

remaining 4% of investors are gets information from Magazine.

Q.6) You are as an investor

Regular New

The above analysis was done to know that whether the investor is regular or new in

Mutual Funds.

Finding:

Investor Percentage

Regular 50%

New 50%
 60%
50% 50%
50%

40%

30%

20%

10%

0%
Regular New

Description:

The above study shows that the 50% of investors are Regular and 50% investors are

New in Mutual Fund Investment.

Q.7) Which type of fund you prefer the most?

Regular Income Diversified

Debt Sector Fund

ELSS [Tax Saving]

The above analysis was done to know type of fund mostly preferred by the investors.

Finding:
Preference To Fund percentage
Regular Income Fund 44%
 Debt Fund 3%
Diversified Fund 21%
Sector Fund 4%
ELSS [Tax Saving] 28%

50%
44%
45%
40%
35%
30% 28%

25% 21%
20%
15%
10%
3% 4%
5%
0%
Regular Income Fund Debt Fund Diversified Fund Sector Fund ELSS [Tax Saving]

Description:
The above study shows that the 44% of the investors are prefer Regular Income Fund

most and 28% of the investors are prefer ELSS [Tax Saving] Fund most, 20% of

investors are prefer Diversified Fund most, whereas both Debt Fund and Sector Fund

are prefer by 4% of investors respectively.

Q.8) What is most important to you in investing your money?

Return Safety

Principal Diversification

Liquidity

The above analysis was done to know that while investing in Mutual Funds, which of

the above feature is more important by the investor’s point of view.

Finding:
 View Important To investor Percentage
Return 44%
Principal 8%
Safety 18%
Diversification 6%
Liquidity 6%

50%
44%
45%
40%
35%
30%
25%
20% 18%
15%
10% 8%
6% 6%
5%
0%
Return Principal Safety Diversification Liquidity

Description:
The above study shows that the 44% of investors thinks that Return is the most
important thing in investing their money in Mutual Funds, 18% of investors thinks
that Safety is the most important thing in investing their money, whereas 6% investors
are think for Diversification and 6% think for Liquidity and remaining 8% of
investors are think that Principal is the most important thing in investing their money
in Mutual Funds.
Q.9) What type of return you expect?
Monthly Half yearly

Quarterly Annually

Finding:

Expected type of return Percentage

Monthly 10%

Quarterly 32%
 Half yearly 18%

Annually 40%

45%
40%
40%
35% 32%
30%
25%
20% 18%

15%
10%
10%
5%
0%
Monthly Quarterly Half yearly Annually

Description:

The above study shows that 40% investors are expect Annually return, 32% investors

expect Quarterly, whereas 18% investors are like to get Half yearly return, also the

10% investors expect Monthly return.

Q.10) What are your return expectations on your investment?

Up to 8%

Between 8 to 18%

Above 18%

Finding
 Return on investment Percentage

up to 8%  0%

Between 8 to 18% 78%

Above18% 22%

90%
78%
80%
70%
60%
50%
40%
30%
22%
20%
10%
0%
0%
up to 8% Between 8 to 18% Above18%

Description:

The above study shows that 78% business man are like to get 8 to 18% return on their

investment, and 22% are like to get above 18% return on their investment.