UNIVERSITY OF MUMBAI

PROJECT ON

COMPARATIVE STUDY OF MUTUAL FUNDS IN INDIA

SUBMITTED In Partial Fulfillment of t e re!uirement" For t e A#ar$ of t e De%ree of Ba& elor of Mana%ement BY ANSARI S'EEMAN A'MED(

PROJECT )UIDE MRS( MINAL )AND'I

BAC'ELOR OF MANA)EMENT STUDIES SEMESTER V *+,,-./,0 V(E(S( COLLE)E OF ARTS1 SCIENCE 2 COMMERCE1 SIND'I SOCIETY1 C'EMBUR1 MUMBAI 3 4,,,5/(
1

DECLARATION
I, ____________________________, the student of Bachelor of Management Studies - Semester V (2009-10) hereby declare that I have completed this project on _________________________________

________.
The information submitted is true & original to the best of my knowledge.

Students Signature ( )

CERTIFICATE
This is to certify that Mr. _______________________________ of Bachelor of Management Studies - Semester V (2009-10) has successfully completed the project on ________________________

_______________________under the guidance of _____________ ___________.

Cour"e Coor$inator Mr"( A( MARTINA

Prin&i6al Dr( *Mr"0 J( 7( P'ADNIS

Pro8e&t )ui$e9 Internal E:aminer Mr"( MINAL )AND'I

E:ternal E:aminer

AC7NO;LED)EMENT
efore we get into thick of things, I would like to add a few words of appreciation for the people who have been a part of this project right from its inception. The writing of this project has been one of the significant academic challenges I have faced and without the support, patience, and guidance of the people involved, this task would not have been completed. It is to them I owe my deepest gratitude. It gives me Immense pleasure in presenting this project report on !"#M$%&%TI'( )T*+, #- M*T*%. -*/+) I/ I/+I%!. It has been my privilege to have a team of project guide who have assisted me from the commencement of this project. The success of this project is a result of sheer hard work, and determination put in by me with the help of my project guide. I hereby take this opportunity to add a special note of thanks for Mrs. MINAL GANDHI, who undertook to act as my mentor despite her many other academic and professional commitments. 0er wisdom, knowledge, and commitment to the highest standards inspired and motivated me. 1ithout her insight, support, and energy, this project wouldn2t have kick3started and neither would have reached fruitfulness. I also feel heartiest sense of obligation to my library staff members & seniors, who helped me in collection of data & resource material & also in its processing as well as in drafting manuscript. The project is dedicated to all those people, who helped me while doing this project.

NEED FOR THE STUDY:

The main purpose of doing this project was to know about mutual fund and its functioning. This helps to know in details about mutual fund industry right from its inception stage, growth and future prospects. It also helps in understanding different schemes of mutual funds. the returns associated with those schemes. The project study was done to ascertain the asset allocation, entry load, e5it load, associated with the mutual funds. *ltimately this would help in understanding the benefits of mutual funds to investors. ecause my study depends upon prominent funds in India and their schemes like e4uity, income, balance as well as

OBJECTIVE:
To give a brief idea about the benefits available from Mutual -und investment. To give an idea of the types of schemes available. To discuss about the market trends of Mutual -und investment. To study some of the mutual fund schemes. To study some mutual fund companies and their funds. #bserve the fund management process of mutual funds. (5plore the recent developments in the mutual funds in India. To give an idea about the regulations of mutual funds.

LIMITATIONS The lack of information sources for the analysis part. Though I tried to collect some primary data but they were too inade4uate for the purposes of the study. Time and money are critical factors limiting this study. The data provided by the prospects may not be 6778 correct as they too have their limitations. The study is limited to selected mutual fund schemes.

EXECUTIVE SUMMERY
% mutual fund is a scheme in which several people invest their money for a common financial cause. The collected money invests in the capital market and the money, which they earned, is divided based on the number of units, which they hold. The mutual fund industry started in India in a small way with the *TI %ct creating what was effectively a small savings division within the & I. #ver a period of 9: years this grew fairly successfully and gave investors a good return, and therefore in 6;<;, as the ne5t logical step, public sector banks and financial institutions were allowed to float mutual funds and their success emboldened the government to allow the private sector to foray into this area. The advantages of mutual fund are professional management, diversification, economies of scale, simplicity, and li4uidity. The disadvantages of mutual fund are high costs, over3diversification, possible ta5 conse4uences, and the inability of management to guarantee a superior return. The biggest problems with mutual funds are their costs and fees it include $urchase fee, &edemption fee, (5change fee, Management fee, %ccount fee & Transaction "osts. There are some loads which add to the cost of mutual fund. .oad is a type of commission depending on the type of funds. Mutual funds are easy to buy and sell. ,ou can either buy them directly from the fund company or through a third party. efore investing in any funds one should consider some factor like objective, risk, -und Manager=s and scheme track record, "ost factor etc. There are many, many types of mutual funds. ,ou can classify funds based )tructure >open3ended & close3ended?, /ature >e4uity, debt, balanced?, Investment objective >growth, income, money market? etc. % code of conduct and registration structure for mutual fund intermediaries, which were subse4uently mandated by )( I. In addition, this year %M-I was involved in a number of developments and enhancements to the regulatory framework.

The most important trend in the mutual fund industry is the aggressive e5pansion of the foreign owned mutual fund companies and the decline of the companies floated by nationali@ed banks and smaller private sector players. &eliance Mutual -und, *TI Mutual -und, I"I"I $rudential Mutual -und, 0+-" Mutual -und and irla )un .ife Mutual -und are the top five mutual fund company in India. &eliance mutual funding is considered to be most reliable mutual funds in India. $eople want to invest in this institution because they know that this institution will never dissatisfy them at any cost. ,ou should always keep this into your mind that if particular mutual funding scheme is on larger scale then ne5t time, you might not get the same results so being a careful investor you should take your major step diligently otherwise you will be unable to obtain the high returns.

INDEX
SRNO. 1. 2. ". #. !. &. TOPICS INTRODUCTION OF MUTUAL FUND WOR ING OF MUTUAL FUND MUTUAL FUND IN INDIA RELIANCE MUTUAL FUND $s. UTI MUTUAL FUND MUTUAL FUND $s. OTHER INVESTMENT FUTURE 'ROS'ECT OF MUTUAL FUNDS IN INDIA MF JARGON CONCLUSION BIBLOGRA'HY PAGE NO 01 2! "" "% &0 &% &( &) %0

Chapter: 1
INTRODUCTION OF MUTUAL FUND

There are a lot of investment avenues available today in the financial market for an investor with an investable surplus. 0e can invest in ank +eposits, "orporate +ebentures, and onds where there is low risk but low return. 0e may invest in )tock of companies where the risk is high and the returns are also proportionately high. The recent trends in the )tock Market have shown that an average retail investor always lost with periodic bearish tends. $eople began opting for portfolio managers with e5pertise in stock markets who would invest on their behalf. Thus we had wealth management services provided by many institutions. 0owever they proved too costly for a small investor. These investors have found a good shelter with the mutual funds.

CONCE'T OF MUTUAL FUND:

% mutual fund is a common pool of money into which investors place their contributions that are to be invested in accordance with a stated objective. The ownership of the fund is thus joint or AmutualBC the fund belongs to all investors. % single investor=s ownership of the fund is in the same proportion as the amount of the contribution made by him or her bears to the total amount of the fund.

Mutual -unds are trusts, which accept savings from investors and invest the same in diversified financial instruments in terms of objectives set out in the trusts deed with the view to reduce the risk and ma5imi@e the income and capital appreciation for distribution for the members. % Mutual -und is a corporation and the fund manager=s interest is to professionally manage the funds provided by the investors and provide a return on them after deducting reasonable management fees. The objective sought to be achieved by Mutual -und is to provide an opportunity for lower income groups to ac4uire without much difficulty financial assets. They cater mainly to the needs of the individual investor whose means are small and to manage investors portfolio in a manner that provides a regular income, growth, safety, li4uidity and diversification opportunities.

DEFINITION:
Mutual funds are collecti e sa ings and in est!ent ehicles where savings of small (or sometimes ig) investors are !ooled together to invest for their mutual enefit and returns distri uted !ro!ortionatel"#$ % mutual fund is an in est!ent that !ools "our mone" with the mone" of an unlimited num er of other investors$ &n return' "ou and the other investors each own shares of the fund$ (he fund)s assets are invested according to an investment o *ective into the fund)s !ortfolio of investments$ %ggressive growth funds see+ long-term ca!ital growth " investing !rimaril" in stoc+s of fast-growing smaller com!anies or mar+et segments$ %ggressive growth funds are also called capital appreciation "unds#.

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W*+ S,-,./ M0/01- F0234

The risk return trade3off indicates that if investor is willing to take higher risk then correspondingly he can e5pect higher returns and vise versa if he pertains to lower risk instruments, which would be satisfied by lower returns. -or e5ample, if an investors opt for bank -+, which provide moderate return with minimal risk. ut as he moves ahead to invest in capital protected funds and the profit3bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion. Thus investors choose mutual funds as their primary means of investing, as Mutual funds provide professional management, diversification, convenience and li4uidity. That doesn=t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can e5pect higher returns. 0edge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. RETURN RIS
'I)'IER RIS7 MODERATE RETURNS

MATRIX
'I)'ER RIS7 'I)'IER RETURNS

Venture Capital

Equit y

Bank FD Postal Savings

LO;ER RIS7 LO;ER RETURNS

Mutual Funds

LO;ER RIS7 'I)IER RETURNS

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HISTORY OF MUTUAL FUNDS IN INDIA:

The mutual fund industry in India started in 6;DE with the formation of *nit Trust of India, at the initiative of the Fovernment of India and &eserve ank. The history of mutual funds in India can be broadly divided into four distinct phases

FIRST 'HASE 5 1)&#6(%:

*nit Trust of India >*TI? was established on 6;DE by an %ct of $arliament. It was set up by the &eserve ank of India and functioned under the &egulatory and administrative control of the &eserve ank of India. In 6;G< *TI was de3linked from the & I and the Industrial +evelopment ank of India >I+ I? took over the regulatory and administrative control in place of & I. The first scheme launched by *TI was *nit )cheme 6;DH. %t the end of 6;<< *TI had &s.D,G77 crores of assets under management.

SECOND 'HASE 5 1)(%61))" 7ENTRY OF 'UBLIC SECTOR FUNDS8:

6;<G marked the entry of non3 *TI, public sector mutual funds set up by public sector banks and .ife Insurance "orporation of India >.I"? and Feneral Insurance "orporation of India >FI"?. ) I Mutual -und was the first non3 *TI Mutual -und established in Iune 6;<G followed by "anbank Mutual -und >+ec <G?, $unjab /ational ank Mutual -und >%ug <;?, Indian ank Mutual -und >/ov <;?, 6;;7. %t the end of 6;;E, the mutual fund industry had assets under management of &s.HG,77H crores. ank of India >Iun ;7?, ank of aroda Mutual -und >#ct ;9?. .I" established its mutual fund in Iune 6;<; while FI" had set up its mutual fund in +ecember

THIRD 'HASE 5 1))"6200" 7ENTRY OF 'RIVATE SECTOR FUNDS8:

1ith the entry of private sector funds in 6;;E, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. %lso, 6;;E was the year in which the first Mutual -und &egulations came into being, under which all mutual funds, e5cept *TI were to be registered and governed. The erstwhile Jothari $ioneer >now merged with -ranklin Templeton? was the first private sector mutual fund registered in Iuly 6;;E.
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The 6;;E )( I >Mutual -und? &egulations were substituted by a more comprehensive and revised Mutual -und &egulations in 6;;D. The industry now functions under the )( I >Mutual -und? &egulations 6;;D. 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 ac4uisitions. %s at the end of Ianuary 977E, there were EE mutual funds with total assets of &s. 6,96,<7: crores. The *nit Trust of India with &s.HH,:H6 crores of assets under management was way ahead of other mutual funds.

FOURTH 'HASE 5 SINCE FEBRUARY 200":

In -ebruary 977E, following the repeal of the *nit Trust of India %ct 6;DE *TI was bifurcated into two separate entities. #ne is the )pecified *ndertaking of the *nit Trust of India with assets under management of &s.9;,<E: crores as at the end of Ianuary 977E, representing broadly, the assets of *) DH scheme, assured return and certain other schemes. The )pecified *ndertaking of *nit Trust of India, functioning under an administrator and under the rules framed by Fovernment of India and does not come under the purview of the Mutual -und &egulations. The second is the *TI Mutual -und .td, sponsored by ) I, $/ , # and .I". It is registered with )( I and functions under the Mutual -und &egulations. 1ith the bifurcation of the erstwhile *TI which had in March 9777 more than &s.GD,777 crores of assets under management and with the setting up of a *TI Mutual -und, conforming to the )( I Mutual -und &egulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. %s at the end of )eptember, 977H, there were 9; funds, which manage assets of &s.6:E67< crores under H96 schemes.

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T*, 9r1:* ;23;.1/,s /*, 9r<=/* <> 1ss,/s 023,r ?1219,?,2/ <$,r /*, +,1rs. GROWTH IN ASSETS UNDER MANAGEMENT

(Source: www.amfiindia.com)

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ADVANTAGES OF MUTUAL FUNDS:

If mutual funds are emerging as the favorite investment vehicle, it is because of the many advantages they have over other forms and the avenues of investing, particularly for the investor who has limited resources available in terms of capital and the ability to carry out detailed research and market monitoring. The following are the major advantages offered by mutual funds to all investorsK

1. '<r/><-;< D;$,rs;>;.1/;<2:
(ach investor in the fund is a part owner of all the fund=s assets, thus enabling him to hold a diversified investment portfolio even with a small amount of investment that would otherwise re4uire big capital.

2. 'r<>,ss;<21- M1219,?,2/:
(ven if an investor has a big amount of capital available to him, he benefits from the professional management skills brought in by the fund in the management of the investor=s portfolio. The investment management skills, along with the needed research into available investment options, ensure a much better return than what an investor can manage on his own. -ew investors have the skill and resources of their own to succeed in today=s fast moving, global and sophisticated markets.

". R,30./;<2@D;$,rs;>;.1/;<2 O> R;sA:

1hen an investor invests directly, all the risk of potential loss is his own, whether he places a deposit with a company or a bank, or he buys a share or debenture on his own or in any other from. 1hile investing in the pool of funds with investors, the potential losses are also shared with other investors. The risk reduction is one of the most important benefits of a collective investment vehicle like the mutual fund.

15

#. R,30./;<2 O> Tr12s1./;<2 C<s/s:

1hat is true of risk as also true of the transaction costs. The investor bears all the costs of investing such as brokerage or custody of securities. 1hen going through a fund, he has the benefit of economies of scaleC the funds pay lesser costs because of larger volumes, a benefit passed on to its investors.

!. L;B0;3;/+:
#ften, investors hold shares or bonds they cannot directly, easily and 4uickly sell. 1hen they invest in the units of a fund, they can generally cash their investments any time, by selling their units to the fund if open3ended, or selling them in the market if the fund is close3end. .i4uidity of investment is clearly a big benefit.

&. C<2$,2;,2., A23 F-,C;D;-;/+:

Mutual fund management companies offer many investor services that a direct market investor cannot get. Investors can easily transfer their holding from one scheme to the otherC get updated market information and so on.
%.

T1C B,2,>;/s:
%ny income distributed after March E6, 9779 will be subject to ta5 in the assessment of

all *nit holders. 0owever, as a measure of concession to *nit holders of open3ended e4uity3 oriented funds, income distributions for the year ending March E6, 977E, will be ta5ed at a concessional rate of 67.:8. In case of Individuals and 0indu *ndivided -amilies a deduction upto &s. ;,777 from the Total Income will be admissible in respect of income from investments specified in )ection <7., including income from *nits of the Mutual -und. *nits of the schemes are not subject to 1ealth3Ta5 and Fift3Ta5.

(. C*<;., <> S.*,?,s:

Mutual -unds offer a family of schemes to suit your varying needs over a lifetime.

16

). W,-- R,90-1/,3:
%ll Mutual -unds are registered with )( I and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual -unds are regularly monitored by )( I. 10. Tr12s:1r,2.+: ,ou get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme, the proportion invested in each class of assets and the fund manager2s investment strategy and outlook.

DISADVANTAGES OF INVESTING THROUGH MUTUAL FUNDS:

1. N< C<2/r<- O$,r C<s/s:
%n investor in a mutual fund has no control of the overall costs of investing. The investor pays investment management fees as long as he remains with the fund, albeit in return for the professional management and research. -ees are payable even if the value of his investments is declining. % mutual fund investor also pays fund distribution costs, which he would not incur in direct investing. 0owever, this shortcoming only means that there is a cost to obtain the mutual fund services.

2. N< T1;-<r6M13, '<r/><-;<:

Investors who invest on their own can build their own portfolios of shares and bonds and other securities. Investing through fund means he delegates this decision to the fund managers. The very3high3net3worth individuals or large corporate investors may find this to be a constraint in achieving their objectives. 0owever, most mutual fund managers help investors overcome this constraint by offering families of funds3 a large number of different schemes3 within their own management company. %n investor can choose from different investment plans and constructs a portfolio to his choice.

17

". M1219;29 A '<r/><-;< O> F023s:

%vailability of a large number of funds can actually mean too much choice for the investor. 0e may again need advice on how to select a fund to achieve his objectives, 4uite similar to the situation when he has individual shares or bonds to select.

#. T*, W;s3<? O> 'r<>,ss;<21- M1219,?,2/:

That2s right, this is not an advantage. The average mutual fund manager is no better at picking stocks than the average nonprofessional, but charges fees.

!. N< C<2/r<-:
*nlike picking your own individual stocks, a mutual fund puts you in the passenger seat of somebody else2s car

&. D;-0/;<2:
Mutual funds generally have such small holdings of so many different stocks that insanely great performance by a fund2s top holdings still doesn2t make much of a difference in a mutual fund2s total performance.

%. B0r;,3 C<s/s:
Many mutual funds speciali@e in burying their costs and in hiring salesmen who do not make those costs clear to their clients.

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TY'ES OF MUTUAL FUNDS SCHEMES IN INDIA

1ide variety of Mutual -und )chemes e5ists to cater to the needs such as financial position, risk tolerance and return e5pectations etc. thus mutual funds has 'ariety of flavors, eing a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.

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A8.

BY STRUCTURE

1. O:,2 6 E23,3 S.*,?,s:

%n open3end fund is one that is available for subscription all through the year. These do not have a fi5ed maturity. Investors can conveniently buy and sell units at /et %sset 'alue >!/%'!? related prices. The key feature of open3end schemes is li4uidity.

2. C-<s, 6 E23,3 S.*,?,s:

% closed3end fund has a stipulated maturity period which generally ranging from E to 6: 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 e5changes where they are listed. In order to provide an e5it route to the investors, some close3ended funds give an option of selling back the units to the Mutual -und through periodic repurchase at /%' related prices. )( I &egulations stipulate that at least one of the two e5it routes is provided to the investor.

". I2/,r$1- S.*,?,s:

Interval )chemes are that scheme, which combines the features of open3ended and close3 ended schemes. The units may be traded on the stock e5change or may be open for sale or redemption during pre3determined intervals at /%' related prices.

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B8.

BY NATURE
These funds invest a ma5imum part of their corpus into e4uities holdings. The structure

1. EB0;/+ F023:
of the fund may vary different for different schemes and the fund manager=s outlook on different stocks. The (4uity -unds are sub3classified depending upon their investment objective, as followsK

+iversified (4uity -unds Mid3"ap -unds )ector )pecific -unds Ta5 )avings -unds >(.))? (4uity investments are meant for a longer time hori@on, thus (4uity funds rank high on

the risk3return matri5.

2. D,D/ F023s:
The objective of these -unds is to invest in debt papers. Fovernment authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. investors. +ebt funds are further classified asK

investing in debt instruments, these funds ensure low risk and provide stable income to the G;-/ F023sK Invest their corpus in securities issued by Fovernment, popularly known as Fovernment of India debt papers. These -unds carry @ero +efault risk but are associated with Interest &ate risk. These schemes are safer as they invest in papers backed by Fovernment.

I2.<?, F023sK Invest a major portion into various debt instruments such as bonds, corporate debentures and Fovernment securities.

MI'sK Invests ma5imum of their total corpus in debt instruments while they take minimum e5posure in e4uities. It gets benefit of both e4uity and debt market. These scheme ranks slightly high on the risk3return matri5 when compared with other debt schemes.

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S*<r/ T,r? '-12s 7ST's8K Meant for investment hori@on for three to si5 months. These funds primarily invest in short term papers like "ertificate of +eposits >"+s? and "ommercial $apers >"$s?. )ome portion of the corpus is also invested in corporate debentures.

L;B0;3 F023sK %lso known as Money Market )chemes, These funds provides easy li4uidity and preservation of capital. These schemes invest in short3term instruments like Treasury ills, inter3bank call money market, "$s and "+s. These funds are meant for short3term cash management of corporate houses and are meant for an investment hori@on of 6day to E months. These schemes rank low on risk3return matri5 and are considered to be the safest amongst all categories of mutual funds.

". B1-12.,3 F023s:

%s the name suggest they, are a mi5 of both e4uity and debt funds. They invest in both e4uities and fi5ed income securities, which are in line with pre3defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. (4uity part provides growth and the debt part provides stability in returns. $urther the !utual "unds can %e %roadl& classi"ied on the %asis o" in est!ent para!eter i'( (ach category of funds is backed by an investment philosophy, which is pre3defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.

22

C8.

BY INVESTMENT OBJECTIVE:
Frowth )chemes are also known as e4uity schemes. The aim of these schemes is to

Gr<=/* S.*,?,s:
provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in e4uities and are willing to bear short3term decline in value for possible future appreciation.

I2.<?, S.*,?,sK
Income )chemes 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 fi5ed income securities such as bonds and corporate debentures. "apital appreciation in such schemes may be limited.

B1-12.,3 S.*,?,s:
alanced )chemes 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 fi5ed income securities, in the proportion indicated in their offer documents >normally :7K:7?.

M<2,+ M1rA,/ S.*,?,sK

Money Market )chemes aim to provide easy li4uidity, preservation of capital and moderate income. These schemes generally invest in safer, short3term instruments, such as treasury bills, certificates of deposit, commercial paper and inter3bank call money. L<13 F023s: % .oad -und is one that charges a commission for entry or e5it. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and e5it loads range from 68 to 98. It could be worth paying the load, if the fund has a good performance history. N<6L<13 F023s: % /o3.oad -und is one that does not charge a commission for entry or e5it. That is, no commission is payable on purchase or sale of units in the fund. The advantage of a no load fund is that the entire corpus is put to work.

23

OTHER SCHEMES T1C S1$;29 S.*,?,s:

Ta53saving schemes offer ta5 rebates to the investors under ta5 laws prescribed from time to time. *nder )ec.<< of the Income Ta5 %ct, contributions made to any (4uity .inked )avings )cheme >(.))? are eligible for rebate.

I23,C S.*,?,s:
Inde5 schemes attempt to replicate the performance of a particular inde5 such as the )( )ense5 or the /)( :7. The portfolio of these schemes will consist of only those stocks that constitute the inde5. The percentage of each stock to the total holding will be identical to the stocks inde5 weightage. %nd hence, the returns from such schemes would be more or less e4uivalent to those of the Inde5.

S,./<r S:,.;>;. S.*,?,s:

These are the fundsLschemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. $harmaceuticals, )oftware, -ast Moving "onsumer Foods >-M"F?, $etroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectorsLindustries. 1hile 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 sectorsLindustries and must e5it at an appropriate time.

24

NET ASSET VALUE 7NAV8:

)ince each owner is a part owner of a mutual fund, it is necessary to establish the value of his part. In other words, each share or unit that an investor holds needs to be assigned a value. )ince the units held by investor evidence the ownership of the fund=s assets, the value of the total assets of the fund when divided by the total number of units issued by the mutual fund gives us the value of one unit. This is generally called the N,/ Ass,/ V1-0, 7NAV8 of one unit or one share. The value of an investor=s part ownership is thus determined by the /%' of the number of units held. C1-.0-1/;<2 <> NAV: .et us see an e5ample. If the value of a fund=s assets stands at &s. 677 and it has 67 investors who have bought 67 units each, the total numbers of units issued are 677, and the value of one unit is &s. 67.77 >6777L677?. If a single investor in fact owns E units, the value of his ownership of the fund will be &s. E7.77>6777L677ME?. /ote that the value of the fund=s investments will keep fluctuating with the market3price movements, causing the /et %sset 'alue also to fluctuate. -or e5ample, if the value of our fund=s asset increased from &s. 6777 to 6977, the value of our investors holding of E units will now be >6977L677ME? &s. ED. The investment value can go up or down, depending on the markets value of the fund=s assets.

25

MUTUAL FUND FEES AND EX'ENSES

Mutual fund fees and e5penses are charges that may be incurred by investors who hold mutual funds. &unning a mutual fund involves costs, including shareholder transaction costs, investment advisory fees, and marketing and distribution e5penses. -unds pass along these costs to investors in a number of ways.

1. TRANSACTION FEES ;8 '0r.*1s, F,,:

It is a type of fee that some funds charge their shareholders when they buy shares. *nlike a front3end sales load, a purchase fee is paid to the fund >not to a broker? and is typically imposed to defray some of the fund2s costs associated with the purchase.

;;8

R,3,?:/;<2 F,,:
It is another type of fee that some funds charge their shareholders when they sell or redeem shares. *nlike a deferred sales load, a redemption fee is paid to the fund >not to a broker? and is typically used to defray fund costs associated with a shareholder2s redemption.

;;;8

EC.*129, F,,:
(5change fee that some funds impose on shareholders if they e5change >transfer? to another fund within the same fund group or !family of funds.!

2. 'ERIODIC FEES ;8 M1219,?,2/ F,,:

Management fees are fees that are paid out of fund assets to the fund2s investment adviser for investment portfolio management, any other management fees payable to the fund2s investment adviser or its affiliates, and administrative fees payable to the investment adviser that are not included in the !#ther (5penses! category. They are also called maintenance fees.

26

;;8

A..<02/ F,,:
%ccount fees are fees that some funds separately impose on investors in connection with the maintenance of their accounts. -or e5ample, some funds impose an account maintenance fee on accounts whose value is less than a certain dollar amount.

". OTHER O'ERATING EX'ENSES Tr12s1./;<2 C<s/s:

These costs are incurred in the trading of the fund2s assets. -unds with a high turnover ratio, or investing in illi4uid or e5otic markets usually face higher transaction costs. *nlike the Total (5pense &atio these costs are usually not reported.

LOADS
D,>;2;/;<2 <> 1 -<13 .oad funds e5hibit a !)ales .oad! with a percentage charge levied on purchase or sale of shares. % load is a type of "ommission >remuneration?. +epending on the type of load a mutual fund e5hibits, charges may be incurred at time of purchase, time of sale, or a mi5 of both. The different types of loads are outlined below.

Fr<2/6,23 -<13:
%lso known as Sales ,harge, this is a fee paid when shares are purchased. %lso known as a !front3end load,! this fee typically goes to the brokers that sell the fund2s shares. -ront3end loads reduce the amount of your investment. -or e5ample, let2s say you have &s.67,777 and want to invest it in a mutual fund with a :8 front3end load. The &s.:77 sales load you must pay comes off the top, and the remaining &s.;:77 will be invested in the fund. %ccording to /%)+ rules, a front3end load cannot be higher than <.:8 of your investment.

27

B1.A6,23 -<13:
%lso known as -eferred Sales ,harge, this is a fee paid when shares are sold. %lso known as a !back3end load,! this fee typically goes to the brokers that sell the fund2s shares. The amount of this type of load will depend on how long the investor holds his or her shares and typically decreases to @ero if the investor holds his or her shares long enough.

L,$,- -<13 @ L<= -<13:

It2s similar to a back3end load in that no sales charges are paid when buying the fund. Instead a back3end load may be charged if the shares purchased are sold within a given time frame. The distinction between level loads and low loads as opposed to back3end loads, is that this time frame where charges are levied is shorter.

N<6-<13 F023:
%s the name implies, this means that the fund does not charge any type of sales load. ut, as outlined above, not every type of shareholder fee is a !sales load.! % no3load fund may charge fees that are not sales loads, such as purchase fees, redemption fees, e5change fees, and account fees.

28

SELECTION 'ARAMETERS FOR MUTUAL FUND

Y<0r <DE,./;$,:
The first point to note before investing in a fund is to find out whether your objective matches with the scheme. It is necessary, as any conflict would directly affect your prospective returns. )imilarly, you should pick schemes that meet your specific needs. (5amplesK pension plans, children=s plans, sector3specific schemes, etc.

Y<0r r;sA .1:1.;/+ 123 .1:1D;-;/+:

This dictates the choice of schemes. Those with no risk tolerance should go for debt schemes, as they are relatively safer. %ggressive investors can go for e4uity investments. Investors that are even more aggressive can try schemes that invest in specific industry or sectors.

F023 M1219,rFs 123 s.*,?, /r1.A r,.<r3:

)ince you are giving your hard earned money to someone to manage it, it is imperative that he manages it well. It is also essential that the fund house you choose has e5cellent track record. It also should be professional and maintain high transparency in operations. .ook at the performance of the scheme against relevant market benchmarks and its competitors. .ook at the performance of a longer period, as it will give you how the scheme fared in different market conditions.

C<s/ >1./<r:
Though the %M" fee is regulated, you should look at the e5pense ratio of the fund before investing. This is because the money is deducted from your investments. % higher entry load or e5it load also will eat into your returns. % higher e5pense ratio can be justified only by superlative returns. It is very crucial in a debt fund, as it will devour a few percentages from your modest returns.

29

%lso, Morningstar rates mutual funds. (ach year end, many financial publications list the year2s best performing mutual funds. /aturally, very eager investors will rush out to purchase shares of last year2s top performers. That2s a big mistake. &emember, changing market conditions make it rare that last year2s top performer repeats that ranking for the current year. Mutual fund investors would be well advised to consider the fund prospectus, the fund manager, and the current market conditions. /ever rely on last year2s top performers.

T+:,s <> R,/0r2s <2 M0/01- F023:

There are three ways, where the total returns provided by mutual funds can be enjoyed by investorsK Income is earned from dividends on stocks and interest on bonds. % fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. If fund holdings increase in price but are not sold by the fund manager, the fund2s shares increase in price. ,ou can then sell your mutual fund shares for a profit. -unds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

30

RIS

FACTORS OF MUTUAL FUNDSK

1. T*, R;sA6R,/0r2 Tr13,6O>>:

The most important relationship to understand is the risk3return trade3off. 0igher the risk greater the returns L loss and lower the risk lesser the returnsLloss. 0ence it is upto you, the investor to decide how much risk you are willing to take. In order to do this you must first be aware of the different types of risks involved with your investment decision.

. M1rA,/ R;sA:
)ometimes prices and yields of all securities rise and fall. road outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid3si@ed companies. This is known as Market &isk. % )ystematic Investment $lan >A)I$B? that works on the concept of &upee "ost %veraging >A&"%B? might help mitigate this risk.

!. Cr,3;/ R;sA:
The debt servicing ability >may it be interest payments or repayment of principal? of a company through its cashflows determines the "redit &isk faced by you. This credit risk is measured by independent rating agencies like "&I)I. who rate companies and their paper. % N%%%= rating is considered the safest whereas a N+= rating is considered poor credit 4uality. % well3diversified portfolio might help mitigate this risk.

". I2>-1/;<2 R;sA:

Things you hear people talk aboutK !&s. 677 today is worth more than &s. 677 tomorrow.! !&emember the time when a bus ride costed :7 paiseO! !Mehangai Ja Iamana 0ai.! The root cause, Inflation. Inflation is the loss of purchasing power over time. % lot of times people make conservative investment decisions to protect their capital but end up with a sum of money that can buy less than what the principal could at the time of the investment. This happens

31

when inflation grows faster than the return on your investment. % well3diversified portfolio with some investment in e4uities might help mitigate this risk.

#. I2/,r,s/ R1/, R;sA:

In a free market economy interest rates are difficult if not impossible to predict. "hanges in interest rates affect the prices of bonds as well as e4uities. If interest rates rise the prices of bonds fall and vice versa. (4uity might be negatively affected as well in a rising interest rate environment. % well3diversified portfolio might help mitigate this risk.

$. '<-;/;.1- @ G<$,r2?,2/ '<-;.+ R;sA:

"hanges in government policy and political decision can change the investment environment. They can create a favorable environment for investment or vice versa.

%. L;B0;3;/+ R;sA:
.i4uidity risk arises when it becomes difficult to sell the securities that one has purchased. .i4uidity &isk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of li4uid securities.

32

Chapter: )
WOR ING OF MUTUAL FUNDS

The mutual fund collects money directly or through brokers from investors. The money is invested in various instruments depending on the objective of the scheme. The income generated by selling securities or capital appreciation of these securities is passed on to the investors in proportion to their investment in the scheme. The investments are divided into units and the value of the units will be reflected in /et %sset 'alue or /%' of the unit. /%' is the market value of the assets of the scheme minus its liabilities. The per unit /%' is the net asset value of the scheme divided by the number of units outstanding on the valuation date. Mutual fund companies provide daily net asset value of their schemes to their investors. /%' is important, as it will determine the price at which you buy or redeem the units of a scheme. +epending on the load structure of the scheme, you have to pay entry or e5it load.

33

STRUCTURE OF A MUTUAL FUND:

India has a legal framework within which Mutual -und have to be constituted. In India open and close3end funds operate under the same regulatory structure i.e. as unit Trusts. % Mutual -und in India is allowed to issue open3end and close3end schemes under a common legal structure. The structure that is re4uired to be followed by any Mutual -und in India is laid down under )( I >Mutual -und? &egulations, 6;;D.

T*, F023 S:<2s<r:

)ponsor is defined under )( I regulations as any person who, acting alone or in combination of another corporate body establishes a Mutual -und. The sponsor of the fund is akin to the promoter of a company as he gets the fund registered with )( I. The sponsor forms a trust and appoints a oard of Trustees. The sponsor also appoints the %sset Management "ompany as fund managers. The sponsor either directly or acting through the trustees will also appoint a custodian to hold funds assets. %ll these are made in accordance with the regulation and guidelines of )( I.

34

%s per the )( I regulations, for the person to 4ualify as a sponsor, he must contribute at least H78 of the net worth of the %sset Management "ompany and possesses a sound financial track record over : years prior to registration.

M0/01- F023s 1s Tr0s/s:

% Mutual -und in India is constituted in the form of $ublic trust %ct, 6<<9. The -und sponsor acts as a settlor of the Trust, contributing to its initial capital and appoints a trustee to hold the assets of the trust for the benefit of the unit3holders, who are the beneficiaries of the trust. The fund then invites investors to contribute their money in common pool, by scribing to AunitsB issued by various schemes established by the Trusts as evidence of their beneficial interest in the fund. It should be understood that the fund should be just a Apass throughB vehicle. *nder the Indian Trusts %ct, the trust of the fund has no independent legal capacity itself, rather it is the Trustee or the Trustees who have the legal capacity and therefore all acts in relation to the trusts are taken on its behalf by the Trustees. In legal parlance the investors or the unit3holders are the beneficial owners of the investment held by the Trusts, even as these investments are held in the name of the Trustees on a day3to3day basis. eing public trusts, Mutual -und can invite any number of investors as beneficial owners in their investment schemes.

Tr0s/,,s:
% Trust is created through a document called the Trust +eed that is e5ecuted by the fund sponsor in favour of the trustees. The Trust3 the Mutual -und P may be managed by a board of trustees3 a body of individuals, or a trust company3 a corporate body. Most of the funds in India are managed by oards of Trustees. 1hile the boards of trustees are governed by the Indian oard or the Trust company as an independent body, acts as a Trusts %ct, where the trusts are a corporate body, it would also re4uire to comply with the "ompanies %ct, 6;:D. The protector of the of the unit3holders interests. The Trustees do not directly manage the portfolio of securities. -or this specialist function, the appoint an %sset Management "ompany. They ensure that the -und is managed by ht %M" as per the defined objectives and in accordance with the trusts deeds and )( I regulations.

35

T*, Ass,/ M1219,?,2/ C<?:12;,s:

The role of an %sset Management "ompany >%M"? is to act as the investment manager of the Trust under the board supervision and the guidance of the Trustees. The %M" is re4uired to be approved and registered with )( I as an %M". The %M" of a Mutual -und must have a net worth of at least &s. 67 "rores at all times. +irectors of the %M", both independent and non3 independent, should have ade4uate professional e5pertise in financial services and should be individuals of high morale standing, a condition also applicable to other key personnel of the %M". The %M" cannot act as a Trustee of any other Mutual -und. esides its role as a fund manager, it may undertake specified activities such as advisory services and financial consulting, provided these activities are run independent of one another and the %M"=s resources >such as personnel, systems etc.? are properly segregated by the activity. The %M" must always act in the interest of the unit3holders and reports to the trustees with respect to its activities.

C0s/<3;12 123 D,:<s;/<r;,s:

Mutual -und is in the business of buying and selling of securities in large volumes. 0andling these securities in terms of physical delivery and eventual safekeeping is a speciali@ed activity. The custodian is appointed by the oard of Trustees for safekeeping of securities or participating in any clearance system through approved depository companies on behalf of the Mutual -und and it must fulfill its responsibilities in accordance with its agreement with the Mutual -und. The custodian should be an entity independent of the sponsors and is re4uired to be registered with )( I. 1ith the introduction of the concept of demateriali@ation of shares the demateriali@ed shares are kept with the +epository participant while the custodian holds the physical securities. Thus, deliveries of a fund=s securities are given or received by a custodian or a depository participant, at the instructions of the %M", although under the overall direction and responsibilities of the Trustees.

B12A,rs:
% -und=s activities involve dealing in money on a continuous basis primarily with respect to buying and selling units, paying for investment made, receiving the proceeds from sale of the investments and discharging its obligations towards operating e5penses. Thus the -und=s banker

36

plays an important role to determine 4uality of service that the fund gives in timely delivery of remittances etc.

Tr12s>,r A9,2/s:
Transfer agents are responsible for issuing and redeeming units of the Mutual -und and provide other related services such as preparation of transfer documents and updating investor records. % fund may choose to carry out its activity in3house and charge the scheme for the service at a competitive market rate. 1here an outside Transfer agent is used, the fund investor will find the agent to be an important interface to deal with, since all of the investor services that a fund provides are going to be dependent on the transfer agent.

REGULATORY STRUCTURE OF MUTUAL FUNDS IN INDIA: The structure of mutual funds in India is guided by the )( I. &egulations, 6;;D.These regulations make it mandatory for mutual fund to have three structures of sponsor trustee and asset Management "ompany. The sponsor of the mutual fund and appoints the trustees. The trustees are responsible to the investors in mutual fund and appoint the %M" for managing the investment portfolio. The %M" is the business face of the mutual fund, as it manages all the affairs of the mutual fund. The %M" and the mutual fund have to be registered with )( I.

37

SEBI REGULATIONSK

%s far as mutual funds are concerned, )( I formulates policies and regulates the mutual funds to protect the interest of the investors.

)( I notified regulations for the mutual funds in 6;;E. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market.

The regulations were fully revised in 6;;D and have been amended thereafter from time to time.

)( I has also issued guidelines to the mutual funds from time to time to protect the interests of investors.

%ll mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of &egulations. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type. There is no distinction in regulatory re4uirements for these mutual funds and all are subject to monitoring and inspections by )( I.

)( I &egulations re4uire that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors.

%lso, :78 of the directors of %M" must be independent. %ll mutual funds are re4uired to be registered with )( I before they launch any scheme.

-urther )( I &egualtions, inter3alia, stipulate that M-s cannot gurarnatee returns in any scheme and that each scheme is subject to 97 K 9: condition QI.e minimum 97 investors per scheme and one investor can hold more than 9:8 stake in the corpus in that one schemeR.

%lso )( I has permitted M-s to launch schemes overseas subject various restrictions and also to launch schemes linked to &eal (state, #ptions and -utures, "ommodities, etc.

38

ASSOCIATION OF MUTUAL FUNDS IN INDIA 7AMFI8:

1ith the increase in mutual fund players in India, a need for mutual fund association in India was generated to function as a non3profit organisation. %ssociation of Mutual -unds in India >%M-I? was incorporated on 99nd %ugust, 6;;:. %M-I is an ape5 body of all %sset Management "ompanies >%M"? which has been registered with )( I. Till date all the %M"s are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its oard of +irectors. %ssociation of Mutual -unds India has brought down the Indian Mutual -und Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders.

T*, ODE,./;$,s <> Ass<.;1/;<2 <> M0/01- F023s ;2 I23;1:

The %ssociation of Mutual -unds of India works with E7 registered %M"s of the country. It has certain defined objectives which ju5taposes the guidelines of its +irectors. The objectives are as followsK

oard of

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 of capital markets and financial services also involved in this code of conduct of the association.

%M-I interacts with )( I and works according to )( Is guidelines in the mutual fund industry. %ssociation of Mutual -und of India do represent the Fovernment of India, the &eserve ank of India and other related bodies on matters relating to the Mutual -und Industry. It develops a team of well 4ualified and trained %gent distributors. It implements a programme of training and certification for all intermediaries and other engaged in the mutual fund industry.

39

%M-I undertakes all India awareness programme for investors in order to promote proper understanding of the concept and working of mutual funds. %t last but not the least association of mutual fund of India also disseminate informations on Mutual -und Industry and undertakes studies and research either directly or in association with other bodies.

AMFI '0D-;.1/;<2s:
%M-I publish mainly two types of bulletin. #ne is on the monthly basis and the other is 4uarterly. These publications are of great support for the investors to get intimation of the knowhow of their parked money.

40

Chapter: *
MUTUAL FUNDS IN INDIA

In 6;DE, the day the concept of Mutual -und took birth in India. *nit Trust of India invited investors or rather to those who believed in savings, to park their money in *TI Mutual -und. -or E7 years it goaled without a single second player. Though the 6;<< year saw some new mutual fund companies, but *TI remained in a monopoly position. The performance of mutual funds in India in the initial phase was not even closer to satisfactory level. $eople rarely understood, and of course investing was out of 4uestion. ut yes, some 9H million shareholders were accustomed with guaranteed high returns by the beginning of liberali@ation of the industry in 6;;9. This good record of *TI became marketing tool for new entrants. The e5pectations of investors touched the sky in profitability factor. 0owever, people were miles away from the preparedness of risks factor after the liberali@ation. The net asset value >/%'? of mutual funds in India declined when stock prices started falling in the year 6;;9. Those days, the market regulations did not allow portfolio shifts into alternative investments. There was rather no choice apart from holding the cash or to further continue investing in shares. #ne more thing to be noted, since only closed3end funds were floated in the market, the investors disinvested by selling at a loss in the secondary market. The performance of mutual funds in India suffered 4ualitatively. The 6;;9 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. $artly owing to a relatively weak stock market performance, mutual funds have not yet recovered, with funds trading at an average discount of 6797 percent of their net asset value. The securities and (5change "ompanies for the first time. The supervisory authority adopted a set of measures to create a transparent and competitive environment in mutual funds. )ome of them were like rela5ing investment oard of India >)( I? came out with comprehensive regulation in 6;;E which defined the structure of Mutual -und and %sset Management

41

restrictions into the market, introduction of open3ended funds, and paving the gateway for mutual funds to launch pension schemes. The measure was taken to make mutual funds the key instrument for long3term saving. The more the variety offered, the 4uantitative will be investors. )everal private sectors Mutual -unds were launched in 6;;E and 6;;H. The share of the private players has risen rapidly since then. "urrently there are EH Mutual -und organi@ations in India managing 6,79,777 crores. %t last to mention, as long as mutual fund companies are performing with lower risks and higher profitability within a short span of time, more and more people will be inclined to invest until and unless they are fully educated with the dos and don=ts of mutual funds. Mutual fund industry has seen a lot of changes in past few years with multinational companies coming into the country, bringing in their professional e5pertise in managing funds worldwide. In the past few months there has been a consolidation phase going on in the mutual fund industry in India. /ow investors have a wide range of )chemes to choose from depending on their individual profiles.

42

MUTUAL FUND COM'ANIES IN INDIA:

The concept of mutual funds in India dates back to the year 6;DE. The era between 6;DE and 6;<G marked the e5istance of only one mutual fund company in India with &s. DGbn assets under management >%*M?, by the end of its monopoly era, the *nit Trust of India >*TI?. y the end of the <7s decade, few other mutual fund companies in India took their position in mutual fund market. The new entries of mutual fund companies in India were ) I Mutual -und, "anbank Mutual -und, $unjab /ational Mutual -und. The succeeding decade showed a new hori@on in Indian mutual fund industry. y the end of 6;;E, the total %*M of the industry was &s. HG7.7H bn. The private sector funds started penetrating the fund families. In the same year the first Mutual -und &egulations came into e5istance with re3registering all mutual funds e5cept *TI. The regulations were further given a revised shape in 6;;D. Jothari $ioneer was the first private sector mutual fund company in India which has now merged with -ranklin Templeton. Iust after ten years with private sector players penetration, the total assets rose up to &s. 696<.7: bn. Today there are EE mutual fund companies in India. M1E<r M0/01- F023 C<?:12;,s ;2 I23;1

ank Mutual -und, Indian

ank Mutual -und,

ank of India

% / %M&# Mutual -und irla )un .ife Mutual -und ank of aroda Mutual -und 0+-" Mutual -und 0) " Mutual -und I/F 'ysya Mutual -und $rudential I"I"I Mutual -und )tate ank of India Mutual -und Tata Mutual -und *nit Trust of India Mutual -und &eliance Mutual -und

)tandard "hartered Mutual -und -ranklin Templeton India Mutual -und Morgan )tanley Mutual -und India (scorts Mutual -und %lliance "apital Mutual -und enchmark Mutual -und "anbank Mutual -und "hola Mutual -und .I" Mutual -und FI" Mutual -und

43

-or the first time in the history of Indian mutual fund industry, *nit Trust of India Mutual -und has slipped from the first slot. (arlier, in May 977D, the $rudential I"I"I Mutual -und was ranked at the number one slot in terms of total assets. In the very ne5t month, the *TIM- had regained its top position as the largest fund house in India. /ow, according to the current pegging order and the data released by %ssociation of Mutual -unds in India >%M-I?, the &eliance Mutual -und, with a Ianuary3end %*M of &s E;,797 crore has become the largest mutual fund in India #n the other hand, *TIM-, with an %*M of &s EG,:E: crore, has gone to secomd position. The $rudential I"I"I M- has slipped to the third position with an %*M of &s EH,GHD crore. It happened for the first time in last one year that a private sector mutual fund house has reached to the top slot in terms of asset under management >%*M?. In the last one year to Ianuary, %*M of the Indian fund industry has risen by DH8 to &s E.E; lakh crore. %ccording to the data released by %ssociation of Mutual -unds in India >%M-I?, the combined average %*M of the E: fund houses in the country increased to &s :,:69.;; billion in %pril compared to &s H,;E9.<D billion in March &eliance M- maintained its top position as the largest fund house in the country with &s GH.9: billion jump in %*M to &s <<E.<G billion at %pril3end. The second3largest fund house 0+-" M- gained &s :;.9H billion in its %*M at &s DE<.<7 billion. I"I"I $rudential and state3run *TI M- added &s HD.6D billion and &s :G.E: billion re respectively to their assets last month. I"I"I $rudentialSs %*M stood at &s :D7.H; billion at the end of %pril, while *TI M- had assets worth &s :HH.<; billion. The other fund houses which saw an increase in their average %*M in %pril include 3"anara &obeco M-, I+-" M-, +)$ M-. lack&ock, +eutsche M-, Jotak Mahindra M- and .I"

44

Chapter: +
RELIANCE MUTUAL FUND Vs UTI MUTUAL FUND

RELIANCE MUTUAL FUND

&eliance Mutual -und >&M-? was established as trust under Indian Trusts %ct, 6<<9. The sponsor of &M- is &eliance "apital .imited and &eliance "apital Trustee "o. .imited is the Trustee. It was registered on Iune E7, 6;;: as &eliance "apital Mutual -und which was changed on March 66, 977H. &eliance Mutual -und was formed for launching of various schemes under which units are issued to the $ublic with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities. &M- is one of India=s leading Mutual -unds, with %verage %ssets *nder Management >%%*M? of &s. <<,E<< crs >%%*M for E7th %pr 7;? and an investor base of over G6.:E .acs. &eliance Mutual -und, a part of the &eliance 3 %nil +hirubhai %mbani Froup, is one of the fastest growing mutual funds in the country. &M- offers investors a well3rounded portfolio of products to meet varying investor re4uirements and has presence in 66< cities across the country. &eliance Mutual -und constantly endeavors to launch innovative products and customer service initiatives to increase value to investors. !&eliance Mutual -und schemes are managed by &eliance "apital %sset Management .imited., a subsidiary of &eliance "apital .imited, which holds ;E.EG8 of the paid3up capital of &"%M, the balance paid up capital being held by minority shareholders.! S:<2s<r : &eliance "apital .imited. Tr0s/,, : &eliance "apital Trustee "o. .imited.

45

I2$,s/?,2/ M1219,r : &eliance "apital %sset Management .imited. The )ponsor, the Trustee and the Investment Manager are incorporated under the "ompanies %ct 6;:D. V;s;<2 S/1/,?,2/ ATo be a globally respected wealth creator with an emphasis on customer care and a culture of good corporate governance.B M;ss;<2 S/1/,?,2/ To create and nurture a world3class, high performance environment aimed at delighting our customers. T*, M1;2 ODE,./;$,s O> T*, Tr0s/: To carry on the activity of a Mutual -und as may be permitted at law and formulate and devise various collective )chemes of savings and investments for people in India and abroad and also ensure li4uidity of investments for the *nit holdersC To deploy -unds thus raised so as to help the *nit holders earn reasonable returns on their savings and To take such steps as may be necessary from time to time to realise the effects without any limitation.

46

SCHEMES
A8. EGUITY@GROWTH SCHEMES:
The aim of growth funds is to provide capital appreciation over the medium to long3 term. )uch schemes normally invest a major part of their corpus in e4uities. )uch funds have comparatively high risks. Frowth schemes are good for investors having a long3term outlook seeking appreciation over a period of time.

1. R,-;12., I2>r1s/r0./0r, F0237O:,26E23,3 EB0;/+8:

The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in e4uity and e4uity related instruments of companies engaged in infrastructure >%irports, "onstruction, Telecommunication, Transportation? and infrastructure related sectors and which are incorporated or have their area of primary activity, in India and the secondary objective is to generate consistent returns by investing in debt and money market securities. I2$,s/?,2/ S/r1/,9+: The investment focus would be guided by the growth potential and other economic factors of the country. The -und aims to ma5imi@e long3term total return by investing in e4uity and e4uity3related securities which have their area of primary activity in India.

2. R,-;12., G012/ '-0s F023@R,-;12., I23,C F023 7O:,26E23,3 EB0;/+8:

The investment objective of the )cheme is to generate capital appreciation through investment in e4uity and e4uity related instruments. The )cheme will seek to generate capital appreciation by investing in an active portfolio of stocks selected from ) & $ "/T /ifty on the basis of a mathematical model. %n investment fund that approach stock selection process based on 4uantitative analysis.

". R,-;12., N1/0r1- R,s<0r.,s F023 7O:,26E23,3 EB0;/+8:

The primary investment objective of the scheme is to seek to generate capital appreciation & provide long3term growth opportunities by investing in companies principally engaged in the discovery, development, production, or distribution of natural resources and
47

the secondary objective is to generate consistent returns by investing in debt and money market securities. /atural resources may include, for e5ample, energy sources, precious and other metals, forest products, food and agriculture, and other basic commodities.

#. R,-;12., EB0;/+ L;2A,3 S1$;29 F023 7A 10 Y,1r C-<s,6E23,3 EB0;/+ 8:

The primary objective of the scheme is to generate long3term capital appreciation from a portfolio that is invested predominantly in e4uities along with income ta5 benefit. The scheme may invest in e4uity shares in foreign companies and instruments convertible into e4uity shares of domestic or foreign companies and in derivatives as may be permissible under the guidelines issued by )( I and & I.

!. R,-;12., EB0;/+ A3$12/19, F023 7O:,26E23,3 D;$,rs;>;,3 EB0;/+8:

The primary investment objective of the scheme is to seek to generate capital appreciation & provide long3term growth opportunities by investing in a portfolio predominantly of e4uity & e4uity related instruments with investments generally in ) & $ "/T /ifty stocks and the secondary objective is to generate consistent returns by investing in debt and money market securities.

&. R,-;12., EB0;/+ F023 7O:,26E23,3 D;$,rs;>;,3 EB0;/+8 :

The primary investment objective of the scheme is to seek to generate capital appreciation & provide long3term growth opportunities by investing in a portfolio constituted of e4uity & e4uity related securities of top 677 companies by market capitali@ation & of companies which are available in the derivatives segment from time to time and the secondary objective is to generate consistent returns by investing in debt and money market securities.

48

%. R,-;12., T1C S1$,r 7ELSS8 F023 7O:,26E23,3 EB0;/+8:

The primary objective of the scheme is to generate long3term capital appreciation from a portfolio that is invested predominantly in e4uity and e4uity related instruments. T1C B,2,>;/s:

Investment upto &s 6 lakh by the eligible investor in this fund would enable you to avail the benefits under )ection <7" >9? of the Income3ta5 %ct, 6;D6. +ividends received will be absolutely T%T -&((. The dividend distribution ta5 >payable by the %M"? for e4uity schemes is also /I.

(. R,-;12., Gr<=/* F023 7O:,26E23,3 EB0;/+8:

The primary investment objective of the )cheme is to achieve long term growth of capital by investment in e4uity and e4uity related securities through a research based investment approach.

). R,-;12., V;s;<2 F023 7O:,26E23,3 EB0;/+8 :

The primary investment objective of the )cheme is to achieve long term growth of capital by investment in e4uity and e4uity related securities through a research based investment approach.

10.R,-;12., EB0;/+ O::<r/02;/;,s F023 7O:,26E23,3 D;$,rs;>;,3 EB0;/+8:

The primary investment objective of the scheme is to seek to generate capital appreciation & provide long3term growth opportunities by investing in a portfolio constituted of e4uity securities & e4uity related securities and the secondary objective is to generate consistent returns by investing in debt and money market securities.

11.R,-;12., NRI EB0;/+ F023 7O:,26E23,3 D;$,rs;>;,3 EB0;/+8:

The $rimary investment objective of the scheme is to generate optimal returns by investing in e4uity or e4uity related instruments primarily drawn from the "ompanies in the )( 977 Inde5.

49

12.R,-;12., L<29 T,r? EB0;/+ F023 7O:,26E23,3 D;$,rs;>;,3 EB0;/+8:

The primary investment objective of the scheme is to seek to generate long term capital appreciation & provide long3term growth opportunities by investing in a portfolio constituted of e4uity & e4uity related securities and +erivatives and the secondary objective is to generate consistent returns by investing in debt and money market securities. It is a ED3month close ended diversified e4uity fund with an automatic conversion into an open ended scheme on e5piry of ED3months from the date of allotment. It aims to ma5imi@e returns by investing G736778 in (4uities focusing in small and mid cap companies.

1".R,-;12., R,90-1r S1$;29s F023 7O:,26E23,3 EB0;/+8:

&eliance &egular )avings -und provides you the choice of investing in +ebt, (4uity or 0ybrid options with a pertinent investment objective and pattern for each option. Invest as little as &s.677L3every month in the &eliance &egular )avings -und. -or the first time in India, your mutual fund offers instant cash withdrawal facility on your investment at any 'I)%3enabled %TM near you. 1ith a choice of three investment options, the fund is truly, the smart new way to invest.

B8. DEBT@INCOME SCHEMES:

The aim of income funds is to provide regular and steady income to investors. )uch schemes generally invest in fi5ed income securities such as bonds, corporate debentures, Fovernment securities and money market instruments. )uch funds are less risky compared to e4uity schemes. These funds are not affected because of fluctuations in e4uity markets. 0owever, opportunities of capital appreciation are also limited in such funds. The /%'s of such funds are affected because of change in interest rates in the country. If the interest rates fall, /%'s of such funds are likely to increase in the short run and vice versa. 0owever, long term investors may not bother about these fluctuations.

50

1. R,-;12., M<2/*-+ I2.<?, '-12 :

>%n #pen (nded -und, Monthly Income is not assured & is subject to the availability of distributable surplus? The $rimary investment objective of the )cheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital.

2. R,-;12., G;-/ S,.0r;/;,s F023 6 S*<r/ T,r? G;-/ '-12 H L<29 T,r? G;-/ '-12 :
>#pen3ended Fovernment )ecurities )cheme? The primary objective of the )cheme is to generate optimal credit risk3free returns by investing in a portfolio of securities issued and guaranteed by the central Fovernment and )tate Fovernment.

". R,-;12., I2.<?, F023 :

>%n #pen3ended Income )cheme? The primary objective of the scheme is to generate optimal returns consistent with moderate levels of risk. This income may be complemented by capital appreciation of the portfolio. %ccordingly, investments shall predominantly be made in +ebt & Money market Instruments.

#. R,-;12., M,3;0? T,r? F023 :

>%n #pen (nd Income )cheme with no assured returns? The primary investment objective of the )cheme is to generate regular income in order to make regular dividend payments to unit holders and the secondary objective is growth of capital

!. R,-;12., S*<r/ T,r? F023 :

>%n #pen (nd Income )cheme? The primary investment objective of the scheme is to generate stable returns for investors with a short investment hori@on by investing in -i5ed Income )ecurities of short term maturity.

&. R,-;12., L;B0;3 F023 :

>#pen3ended .i4uid )cheme? The primary investment objective of the )cheme is to generate optimal returns consistent with moderate levels of risk and high li4uidity.

51

%ccordingly, investments shall predominantly be made in +ebt and Money Market Instruments.

%. R,-;12., F-<1/;29 R1/, F023 :

>%n #pen (nd .i4uid )cheme? The primary objective of the scheme is to generate regular income through investment in a portfolio comprising substantially of -loating &ate +ebt )ecurities >including floating rate securitised debt and Money Market Instruments and -i5ed &ate +ebt Instruments swapped for floating rate returns?. The scheme shall also invest in fi5ed rate debt )ecurities >including fi5ed rate securitised debt, Money Market Instruments and -loating &ate +ebt Instruments swapped for fi5ed returns.

(. R,-;12., NRI I2.<?, F023 :

>%n #pen3ended Income scheme? The primary investment objective of the )cheme is to generate optimal returns consistent with moderate levels of risks. This income may be complimented by capital appreciation of the portfolio. %ccordingly, investments shall predominantly be made in debt Instruments.

). R,-;12., L;B0;3;/+ F023 :

>%n #pen 3 ended .i4uid )cheme? The investment objective of the )cheme is to generate optimal returns consistent with moderate levels of risk and high li4uidity. %ccordingly, investments shall predominantly be made in +ebt and Money Market Instruments.

10.R,-;12., I2/,r$1- F023 :

>% +ebt #riented Interval )cheme? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio

11.R,-;12., L;B0;3 '-0s F023:

>%n #pen3ended Income )cheme? The investment objective of the )cheme is to generate optimal returns consistent with moderate levels of risk and li4uidity by investing in debt securities and money market securities.

52

12.R,-;12., F;C,3 H<r;I<2 F0235I:

>% closed ended )cheme? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

1".R,-;12., F;C,3 H<r;I<2 F023 5II:

>% closed ended )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

1#.R,-;12., F;C,3 H<r;I<2 F023 5III:

>% "lose3ended Income )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

1!.R,-;12., F;C,3 T,2<r F023 :

>% "lose3ended )cheme? The primary investment objective of the $lan is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

1&.R,-;12., F;C,3 H<r;I<2 F023 6'-12 C :

>% closed ended )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

1%.R,-;12., F;C,3 H<r;I<2 F023 6 IV:

>% "lose3ended Income )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio.

53

1(.R,-;12., F;C,3 H<r;I<2 F023 6 V:

>% "lose3ended Income )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio ofK "entral and )tate Fovernment securities and #ther fi5ed incomeL debt securities normally maturing in line with the time profile of the scheme with the objective of limiting interest rate volatility

1).R,-;12., F;C,3 H<r;I<2 F023 5 VI :

>% "lose3ended Income )cheme? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio ofK 3 "entral and )tate Fovernment securities and #ther fi5ed incomeL debt securities normally maturing in line with the time profile of the series with the objective of limiting interest rate volatility

20.R,-;12., F;C,3 H<r;I<2 F023 5 VII :

>% "lose3ended Income )cheme.? The primary investment objective of the scheme is to seek to generate regular returns and growth of capital by investing in a diversified portfolio ofK 3 "entral and )tate Fovernment securities and #ther fi5ed incomeL debt securities normally maturing in line with the time profile of the series with the objective of limiting interest rate volatility.

C8. SECTOR S'ECIFIC SCHEMES:

These are the fundsLschemes which invest in the securities of specified sectors or industries e.g. $harmaceuticals, )oftware, -M"F, $etroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectorsLindustries. 1hile these funds may give higher returns, they are more risky compared to diversified funds.

54

1. R,-;12., B12A;29 F023 K

&eliance Mutual -und has an #pen3(nded e4uity related or fi5ed income securities of banks. anking )ector )cheme which has the primary investment objective to generate continuous returns by actively investing in e4uity L

2. R,-;12., D;$,rs;>;,3 '<=,r S,./<r F023 K

&eliance +iversified $ower )ector )cheme is an #pen3ended $ower )ector )cheme. The primary investment objective of the )cheme is to seek to generate consistent returns by actively investing in e4uity L e4uity related or fi5ed income securities of $ower and other associated companies.

". R,-;12., '*1r?1 F023 K

&eliance $harma -und is an #pen3ended $harma )ector )cheme. The primary investment objective of the )cheme is to generate consistent returns by investing in e4uity L e4uity related or fi5ed income securities of $harma and other associated companies.

#. R,-;12., M,3;1 H E2/,r/1;2?,2/ F023 K

&eliance Media & (ntertainment -und is an #pen3ended Media & (ntertainment sector scheme. The the primary investment objective of the )cheme is to generate consistent returns by investing in e4uity L e4uity related or fi5ed income securities of media & entertainment and other associated companies.

D8. RELIANCE GOLD EXCHANGE TRADED FUND:

>%n open3ended Fold (5change Traded -und? The investment objective is to seek to provide returns that closely correspond to returns provided by price of gold through investment in physical Fold >and Fold related securities as permitted by &egulators from time to time?. 0owever, the performance of the scheme may differ from that of the domestic prices of Fold due to e5penses and or other related factors.

55

UNIT TRUST OF INDIA MUTUAL FUND

2U2;/ Tr0s/ <> I23;1 was created by the *TI %ct passed by the $arliament in 6;DE. -or more than two decades it remained the sole vehicle for investment in the capital market by the Indian citi@ens. In mid3 6;<7s public sector banks were allowed to open mutual funds. The real vibrancy and competition in the M- industry came with the setting up of the &egulator )( I and its laying down the M- &egulations in 6;;E.*TI maintained its pre3eminent place till 9776, when a massive decline in the market indices and negative investor sentiments after Jetan $arekh scam created doubts about the capacity of *TI to meet its obligations to the investors. This was further compounded by two factorsC namely, its flagship and largest scheme *) DH was sold and re3purchased not at intrinsic /%' but at artificial price and its %ssured &eturn )chemes had promised returns as high as 6<8 over a period going up to two decades. In order to distance Fovernment from running a mutual fund the ownership was transferred to four institutionsC namely ) I, .I", # and $/ , each owning 9:8. *TI lost its market dominance rapidly and by end of 977:,when the new share3holders actually paid the consideration money to Fovernment its market share had come down to close to 678. % new board was constituted and a new management inducted. )ystematic study of its problems role and functions was carried out with the help of a reputed international consultant. #nce again *TI has emerged as a serious player in the industry. )ome of the funds have won famous awards, including the est Infra -und globally from .ipper. *TI has been able to benchmark its employee compensation to the best in the market. esides running domestic M- )chemes *TI %M" is also a registered portfolio manager under the )( I >$ortfolio Managers? &egulations.

56

This company runs two successful funds with large international investors being active participants. *TI has also launched a $rivate (4uity Infrastructure -und along with 0)0 /ord ank of Fermany and )hinsei ank of Iapan V;s;<2: To be the most $referred Mutual -und. M;ss;<2: U The most trusted brand, admired by all stakeholders. U The largest and most efficient money manager with global presence U The best in class customer service provider U The most preferred employer U The most innovative and best wealth creator U % socially responsible organisation known for best corporate governance Ass,/s U23,r M1219,?,2/: *TI %sset Management "o. .td S:<2s<r:

)tate ank of India ank of aroda $unjab /ational ank .ife Insurance "orporation of India

Tr0s/,,: *TI Trustee "o. .imited.

R,-;1D;-;/+
*TIM- has consistently reset and upgraded transparency standards. %ll the branches, *-"s and registrar offices are connected on a robust IT network to ensure cost3effective 4uick and efficient service. %ll these have evolved *TIM- to position as a dynamic, responsive, restructured, efficient and transparent entity, fully compliant with )( I regulations.

57

SCHEMES
A8. EGUITY FUND 1. UTI E2,r9+ F023 7O:,2 E23,3 F0238:
Investment will be made in stocks of those companies engaged in the following areK 18 $etro sector 3 oil and gas products & processing D8 %ll types of $ower generation companies. .8 "ompanies related to storage of energy. 38 "ompanies manufacturing energy development e4uipment related > like petro and power ? ,8 "onsultancy & -inance "ompanies

2. UTI Tr12s:<r/1/;<2 A23 L<9;s/;.s F023 7A0/< S,./<r F0238 7O:,2 E23,3 F0238:
Investment #bjective is Acapital appreciationB through investments in stocks of the companies engaged in the transportation and logistics sector. %t least ;78 of the funds will be invested in e4uity and e4uity related instruments. %tleast <78 of the funds will be invested in e4uity and e4uity related instruments of the companies principally engaged in providing transportation services, companies principally engaged in the design, manufacture, distribution, or sale of transportation e4uipment and companies in the logistics sector. *pto 678 of the funds will be invested in cashLmoney market instruments.

". UTI B12A;29 S,./<r F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund with the objective to provide capital appreciation through investments in the stocks of the companiesLinstitutions engaged in the banking and financial services activities.

#. UTI I2>r1s/r0./0r, F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund with the objective to provide "apital appreciation through investing in the stocks of the companies engaged in the sectors like Metals, uilding

58

materials, oil and gas, power, chemicals, engineering etc. The fund will invest in the stocks of the companies which form part of Infrastructure Industries

!. UTI EB0;/+ T1C S1$;29s '-12 7O:,2 E23,3 F0238:

%n open3ended e4uity fund investing a minimum of <78 in e4uity and e4uity related instruments. It aims at enabling members to avail ta5 rebate under )ection <7" of the IT %ct and provide them with the benefits of growth.

&. UTI Gr<=/* S,./<r F023 5 '*1r?1 7O:,2 E23,3 F0238:

%n open3ended fund which e5clusively invests in the e4uities of the $harma & 0ealthcare sector companies. This fund is one of the growth sector funds aiming to invest in companies engaged in business of manufacturing and marketing of bulk drug, formulations and healthcare products and services.

%. UTI Gr<=/* S,./<r F023 5 S,r$;.,s 7O:,2 E23,3 F0238:

%n open3ended fund which invests in the e4uities of the )ervices )ector companies of the country. #ne of the growth sector funds aiming to provide growth of capital over a period of time as well as to make income distribution by investing the funds in stocks of companies engaged in service sector such as banking, finance, insurance, education, training, telecom, travel, entertainment, hotels, etc.

(. UTI Gr<=/* S,./<r F023 5 S<>/=1r, 7O:,2 E23,3 F0238:

%n open3ended fund which invests e5clusively in the e4uities of the )oftware )ector companies. #ne of the growth sectors funds aiming to invest in e4uity shares of companies belonging to information technology sector to provide returns to investors through capital growth as well as through regular income distribution

). UTI M1s/,r EB0;/+ '-12 U2;/ S.*,?, 7C-<s, E23,3 F0238:

The scheme primarily aims at securing for the investors capital appreciation by investing the funds of the scheme in e4uity shares of companies with good growth prospects.

59

10. UTI M1s/,r '-0s U2;/ S.*,?, 7O:,2 E23,3 F0238:

%n open3ended e4uity fund with an objective of long3term capital appreciation through investments in e4uities and e4uity related instruments, convertible debentures, derivatives in India and also in overseas markets.

11. UTI M1s/,r V1-0, F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund investing in stocks which are currently undervalued to their future earning potential and carry medium risk profile to provide 2"apital %ppreciation2.

12. UTI EB0;/+ F023 7O:,2 E23,3 F0238:

*TI (4uity -und is open3ended e4uity scheme with an objective of investing at least <78 of its funds in e4uity and e4uity related instrument with medium to high risk profile and upto 978 in debt and money market instruments with low to medium risk profile.

1". UTI T<: 100 F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund for investment in e4uity shares, convertible & non3 convertible debentures and other capital and money market instruments with a provision to invest upto :78 of its corpus in $)*2s e4uities and e4uity related products. The fund aims to provide unit holders capital appreciation & income distribution.

1#. UTI M1s/,rs*1r, U2;/ S.*,?, 7O:,2 E23,3 F0238:

%n #pen3end e4uity fund aiming to provide benefit of capital appreciation and income distribution through investment in e4uity.

1!. UTI M;3 C1: F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund with the objective to provide 2"apital appreciation2 by investing primarily in mid cap stocks.

60

1&. UTI MNC F023 7O:,2 E23,3 F0238:

%n open3ended e4uity fund with the objective to invest predominantly in the e4uity shares of multinational companies in diverse sectors such as -M"F, $harmaceutical, (ngineering etc.

1%. UTI D;$;3,23 Y;,-3 F023 7O:,2 E23,3 F0238:

It aims to provide medium to long term capital gains andLor dividend distribution by investing predominantly in e4uity and e4uity related instruments which offer high dividend yield.

1(. UTI O::<r/02;/;,s F023 7O:,2 E23,3 F0238:

This scheme seeks to generate capital appreciation andLor income distribution by investing the funds of the scheme in e4uity shares and e4uity3related instruments. The focus of the scheme is to capitalise on opportunities arising in the market by responding to the dynamically changing Indian economy by moving its investments amongst different sectors as prevailing trends change.

1). UTI L,13,rs*;: EB0;/+ F023 7O:,2 E23,3 F0238:

This scheme seeks to generate capital appreciation and L or income distribution by investing the funds in stocks that are !.eaders! in their respective industries L sectors L sub3 sector.

20. UTI C<2/r1 F023 7O:,2 E23,3 F0238:

%n open ended e4uity scheme with the objective to provide long term capital appreciationLdividend distribution through investments in listed e4uities & e4uity related instruments. The fund offers an opportunity to benefit from the impact of non3 rational investors2 behaviour by focussing on stocks that are currently undervalued because of emotional & behavioural patterns present in the stock market.

61

21. UTI S'READ F023 7O:,2 E23,3 F0238:

The investment objective of the scheme is to provide capital appreciation and dividend distribution through arbitrage opportunities arising out of price differences between the cash and derivative market by investing predominantly in e4uity & e4uity related securities, derivatives and the balance portion in debt securities. 0owever, there can be no assurance that the investment objective of the scheme will be realised.

22. UTI W,1-/* B0;-3,r F023 7C-<s, E23,3 F0238:

The objective of the scheme is to achieve long term capital appreciation by investing predominantly in a diversified portfolio of e4uity and e4uity related instruments.

2". UTI L<29 T,r? A3$12/19, F023 6 S,r;,s I 7C-<s, E23,3 F0238:
The investment objective of the scheme is to provide medium to long term capital appreciation along with income ta5 benefit.

2#. UTI I23;1 L;>,s/+-, F023 7C-<s, E23,3 F0238:

The investment objective of the scheme is to provide long term "apital appreciation and L or income distribution from a diversified portfolio of e4uity and e4uity related instruments of companies that are e5pected to benefit from changing Indian demographics, Indian .ifestyle and rising consumption pattern. 0owever, there can be no assurance that the investment objective of the scheme will be achieved.

A8.

INDEX FUND:
*TI MI- is an open3ended passive fund with the primary investment objective to invest

1. UTI M1s/,r I23,C F023 7O:,2 E23,3 F0238:

in securities of companies comprising the companies have in )( sense5 in the same weightage as these

)( sense5. The fund strives to minimise performance difference with

the sense5 by keeping the tracking error to the minimum.

62

2. UTI G<-3 EC.*129, Tr13,3 F023 7O:,2 E23,3 F0238:

To endeavour to provide returns that, before e5penses, closely track the performance and yield of Fold. 0owever the performance of the scheme may differ from that of the underlying asset due to racking error. There can be no assurance or guarantee that the investment objective of *TI3Fold (T- will be achieved.

". UTI S023,r 7O:,2 E23,3 F0238:

To provide investment returns that, before e5penses, closely correspond to the performance and yield of the basket of securities underlying the ) & $ "/T /ifty Inde5.

C8.

ASSETS FUND
*TI 'I)3I.$ is an open ended scheme with the objective of providing the investors with

UTI V1r;1D-, I2$,s/?,2/ S.*,?,:

a product that would enable them to diversify their risks through a suitable allocation between debt and e4uity asset classes and thereby generate superior risk3adjusted returns through a dynamic asset allocation process.

D8.

BALANCED FUND:
To invest in a portfolio of e4uityLe4uity related securities and debt and money market

1. UTI M1*;-1 U2;/ S.*,?, 7O:,2 E23,3 F0238:

instruments with a view to generate reasonable income with moderate capital appreciation. The asset allocation will be +ebt K Minimum G78, Ma5imum 6778 (4uity K Minimum 78, Ma5imum E78.

2. UTI B1-12.,3 F023 7O:,2 E23,3 F0238:

%n open3ended balanced fund investing between H78 to G:8 in e4uity Le4uity related securities and the balance in debt >fi5ed income securities? with a view to generate regular income together with capital appreciation.

63

". UTI R,/;r,?,2/ B,2,>;/ ',2s;<2 F023 7O:,2 E23,3 F0238:

The objective of the scheme is to provide pension to investors particularly self3 employed persons after they attain the age of :< years, in the form of periodical cash flow upto the e5tent of repurchase value of their holding through a systematic withdrawal plan.

#. UTI U2;/ L;2A I2s0r12., '-12 7O:,2 E23,3 F0238:

To provide return through growth in the /%' or through dividend distribution and reinvestment thereof

!. UTI CC' 7C*;-3r,2 C1r,,r '-128 A3$12/19, F023 7O:,2 E23,3 F0238:
%n open ended balanced fund with G736778 investment in (4uity. Investment can be made in the name of the children upto the age of 6: years so as to provide them, after they attain the age of 6< years, a means to receive scholarship to meet the cost of higher education L or help them in setting up a profession, practice or business or enabling them to set up a home or finance, the cost of other social obligations.

&. UTI C*1r;/1D-,J R,-;9;<0s Tr0s/ A23 R,9;s/,r,3 S<.;,/+ 7O:,2 E23,3 F0238:
#pen3ended debt oriented Income scheme with an objective of investing not more than E78 of the funds in e4uity related instruments and the balance in debt and money market instruments with low to medium risk profile. The scheme is catering to the Investment needs of "haritable, &eligious and (ducational Trusts as well as &egistered societies with the goal of providing regular income.

E8.

INCOME FUND 7DEBT FUND8

#pen3end 6778 pure debt fund, which invests in rated corporate debt papers and government securities with relatively low risk and easy li4uidity.

1. UTI B<23 F023 7O:,2 E23,3 F0238:

64

2. UTI F-<1/;29 R1/, F023 ST' 7O:,2 E23,3 F0238:

To generate regular income through investment in a portfolio comprising substantially of floating rate debt L money market instruments and fi5ed rate debt L money market instruments.

". UTI G;-/ A3$12/19, F023 LT'7O:,2 E23,3 F0238:

To generate credit risk3free return through investments in sovereign securities issued the "entral and L or a )tate Fovernment.

#. UTI G;-/ A3$12/19, F023 ST' 7O:,2 E23,3 F0238:

To generate credit risk3free return through investment in sovereign securities issued the "entral and L or a )tate Fovernment.

!. UTI G6SEC ST' 7O:,2 E23,3 F0238:

%n open3end Filt3-und with the objective to invest only in "entral Fovernment securities including call money, treasury bills and repos of varying maturities with a view to generate credit risk free return with a stated objective of maintaining the average maturity of the portfolio at less than E years.

&. UTI G6S,.6I2$,s/?,2/ '-12 7O:,2 E23,3 F0238:

%n open3end Filt3-und with the objective to Invests only in "entral government securities including call money, treasury bills and repos of varying maturities with a view to generatie credit risk free return. 1hile selecting the maturity profile of the investment in government securities the need for ma5imisation of the returns and meeting of the li4uidity re4uirements of the scheme is kept in view.

%. UTI Tr,1s0r+ A3$12/19, F023 7O:,2 E23,3 F0238:

It aims to generate attractive returns consistent with capital preservation and li4uidity

65

(. UTI M<2/*-+ I2.<?, S.*,?, 7O:,2 E23,3 F0238:

This is an open3end debt oriented scheme with no assured returns. The scheme aims at distributing income, if any, periodically.

). UTI M;s A3$12/19, '-12 7O:,2 E23,3 F0238:

(ndeavours to make periodic income distribution to unitholders through investments in fi5ed income securities and e4uity & e4uity related instruments.

10.UTI S*<r/ T,r? I2.<?, F023 7O:,2 E23,3 F0238:

The )cheme seeks to generate steady & reasonable income with low risk & high level of li4uidity from a portfolio of money market securities & high 4uality debt.

11.UTI C1:;/1- 'r</,./;<2 Or;,2/,3 S.*,?, 7O:,2 E23,3 F0238:

The investment objective of the scheme is to endeavour to protect the capital by investing in high 4uality fi5ed income securities as the primary objective and generate capital appreciation by investing in e4uity and e4uity related instruments as secondary objective.

F8.

LIGUID FUND 7DEBT FUND8:

The scheme seeks to generate steady & reasonable income with low risk & high level of li4uidity from a portfolio of money market securities & high 4uality debt.

1. UTI L;B0;3 C1s* '-12 7O:,2 E23,3 F0238:

2. UTI M<2,+ M1rA,/ F023 7O:,2 E23,3 F0238:

%n open3ended pure debt li4uid plan seeking to provide highest possible current income by investing in a diversified portfolio of short3term money market securities.

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RELIANCE MUTUAL FUND

1hen )tartedO (stablished in 6;;:, "urrently, number one company in India. &egistered with )( I as trust under Indian Trusts %ct, 6<<9 &s. :77 EB0;/+ ankK <36:8 )oftwareK <36;8 $etroleum $roductsK H3<8 $harmaceuticalsK D3678 ;2$,s/ ;2 12620 s,./<rs =*;.* ;2.-03,: %uto , %uto %ncillaries, -inance, Industrial "apital Foods, Telecom3 )ervices, $ower, "onstruction $roject, 0otels, &etailing, Media & (ntertainment, Transportation etc *TI +ividend yield -und, *TI #pportunity -und, (4uity -und, +ebt -und, )ector )pecific -und and Fold (5change Traded -und. 67D schemes Is any other ventureO #nline and internet based distribution. &eliance outlets and branches. .ife Insurance Feneral Insurance roking & +istribution "onsumer -inance $rivate (4uity %ssets &econstruction.

UTI MUTUAL FUND

(stablished in 6;DH. -irst mutual fund company in India y the *TI %ct passed by the $arliament in 6;DE. &s.6777 EB0;/+ -inancial )erviceK 6D3998 (nergyK 6936<8 "onsumer goodsK 7<36H8 ;2$,s/ ;2 %61! s,./<rs =*;.* ;2.-03,: IT, Telecom, %utomobile, "ement $roducts, +erivatives, Te5tile, Metals etc

0ow they came into business Minimum investment. Investment.

Main -unds.

Type of fund offered

/umbers of schemes offered +istribution

&eliance +iversified -und, &eliance (4uity #pportunity -und, &eliance &egular )aving -unds (4uity -und, Inde5 -und, %sset -und, alanced -und, +ebt -und >Income, .i4uid? 67G schemes. Tie3up with $ost offices branches. *TI outlets and branches. *TI ank $an card ank &ecruitment *.I$

67

Chapter: ,
MUTUAL FUNDS VS. OTHER INVESTMENTS

Fr<? ;2$,s/<rsF $;,=:<;2/ ?0/01- >023s *1$, s,$,r1- 13$12/19,s s0.* 1s: $rofessional management and research to select 4uality securities. )preading risk over a larger 4uantity of stock whereas the investor has limited to buy only a hand full of stocks. The investor is not putting all his eggs in one basket. %bility to add funds at set amounts and smaller 4uantities such as V677 per month %bility to take advantage of the stock market which has generally outperformed other investment in the long run. -und manager are able to buy securities in large 4uantities thus reducing brokerage fees.

H<=,$,r /*,r, 1r, s<?, 3;s13$12/19,s =;/* ?0/01- >023s s0.* 1s: The investor must rely on the integrity of the professional fund manager. -und management fees may be unreasonable for the services rendered. The fund manager may not pass transaction savings to the investor. The fund manager is not liable for poor judgment when the investor2s fund loses value. There may be too many transactions in the fund resulting in higher feeLcost to the investor 3 This is sometimes call !"hurn and (arn!. $rospectus and %nnual report are hard to understand. Investor may feel a lost of control of his investment dollars.

T*,r, ?1+ D, r,s/r;./;<2s <2 =*,2 123 *<= 12 ;2$,s/<r s,--s@r,3,,?s *;s ?0/01- >023 s*1r,s.

68

C<?:12+ F;C,3 D,:<s;/s $,rs0s M0/01- F023s

-i5ed deposits are unsecured borrowings by the company accepting the deposit. "redit rating of the fi5ed deposit program is an indication of the inherent default risk in the investment. The moneys of investors in a mutual fund scheme are invested by the %M" in specific investments under that scheme. These investments are held and managed in-trust for the benefit of scheme=s investors. #n the other hand, there is no such direct correlation between a company=s fi5ed deposit mobilisation, and the avenues where these resources are deployed. % corollary of such linkage between mobilisation and investment is that the gains and losses from the mutual fund scheme entirely flow through to the investors. Therefore, there can be no certainty of yield, unless a named guarantor assures a return or, to a lesser e5tent, if the investment is in a serial gilt scheme. #n the other hand, the return under a fi5ed deposit is certain, subject only to the default risk of the borrower. B</* >;C,3 3,:<s;/s 123 ?0/01- >023s <>>,r -;B0;3;/+J D0/ s0DE,./ /< s<?, 3;>>,r,2.,s: The provider of li4uidity in the case of fi5ed deposits is the borrowing company. In mutual funds, the li4uidity provider is the scheme itself >for open3end schemes? or the market >in the case of closed3end schemes?. The basic value at which fi5ed deposits are encashed is not subject to a market risk. 0owever, the value at which units of a scheme are redeemed depends on the market. higher than what he anticipated when he invested. ut he could also end up with a loss. (arly encashment of fi5ed deposits is always subject to a penalty charged by the company that accepted the fi5ed deposit. Mutual fund schemes also have the option of charging a penalty on AearlyB redemption of units >through by way of an Ne5it load=,? If the /%' has appreciated ade4uately, then even after the e5it load, the investor could earn a capital gain on his investment. If securities have gained in value during the period, then the investor can even earn a return that is

69

B12A F;C,3 D,:<s;/s $,rs,s M0/01- F023:

ank fi5ed deposits are similar to company fi5ed deposits. The major difference is that banks are generally more stringently regulated than companies. They even operate under stricter re4uirements regarding )tatutory .i4uidity &atio >).&? and "ash &eserve &atio >"&&?. 1hile the above are causes for comfort, bank deposits too are subject to default risk. 0owever, given the political and economic impact of bank defaults, the government as well as &eserve ank of India >& I? try to ensure that banks do not fail. -urther, bank deposits upto &s 677,777 are protected by the +eposit Insurance and "redit Fuarantee "orporation >+I"F"?, so long as the bank has paid the re4uired insurance premium of : paise per annum for every &s 677 of deposits. The monetary ceiling of &s 677,777 is for all the de!osits in all the ranches of a an+' held " the de!ositor in the same ca!acit" and right$

BAN S R,/0r2s A3?;2;s/r1/;$, ,C:. R;sA I2$,s/?,2/ <:/;<2s N,/=<rA L;B0;3;/+ G01-;/+ <> 1ss,/s I2/,r,s/ .1-.0-1/;<2 G01r12/<r A..<02/ .ow 0igh .ow .ess 0igh penetration %t a cost /ot transparent Wuarterly i.e. Erd, Dth, ;th & 69th. Fuarantor is needed. /eeded.

MUTUAL FUNDS etter .ow Moderate More .ow but improving etter Transparent (very Month Fuarantor is not needed. /ot /eeded.

70

B<23s 123 D,D,2/0r,s $,rs0s M0/01- F023s

%s in the case of fi5ed deposits, credit rating of the bond L debenture is an indication of the inherent default risk in the investment. 0owever, unlike -+, bonds and debentures are transferable securities. 1hile an investor may have an early encashment option from the issuer >for instance through a AputB option?, generally li4uidity is through a listing in the market. I?:-;.1/;<2s <> /*;s 1r,:

If the security does not get traded in the market, then the li4uidity remains on paper. In this respect, an open3end scheme offering continuous sale L re3purchase option is superior.

The value that the investor would realise in an early e5it is subject to market risk. The investor could have a capital gain or a capital loss. This aspect is similar to a M- scheme. It is possible for a professional investor to earn attractive returns by directly investing in

the debt market, and actively managing the positions. Fiven the market realities in India, it is difficult for most investors to actively manage their debt portfolio. -urther, at times, it is difficult to e5ecute trades in the debt market even when the transaction si@e is as high as &s 6 crore. In this respect, investment in a debt scheme would be beneficial. +ebt securities could be backed by a hypothecation or mortgage of identified fi5ed and L or current assets >secured bonds L debentures?. In such a case, if there is a default, the identified assets become available for meeting redemption re4uirements. %n unsecured bond L debenture is for all practical purposes like a fi5ed deposit, as far as access to assets is concerned. The investments of a mutual fund scheme are held by a custodian for the benefit of investors in the scheme. Thus, the securities that relate to a scheme are ring3fenced for the benefit of its investors.

71

EB0;/+ $,rs0s M0/01- F023s

Investment in both e4uity and mutual funds are subject to market risk. %n investor holding an e4uity security that is not traded in the market place has a problem in realising value from it. ut investment in an open3end mutual fund eliminates this direct risk of not being able to sell the investment in the market. %n indirect risk remains, because the scheme has to realise its investments to pay investors. The %M" is however in a better position to handle the situation %nother benefit of e4uity mutual fund schemes is that they give investors the benefit of portfolio diversification through a small investment. -or instance, an investor can take an e5posure to the inde5 by investing a mere &s :,777 in an inde5 fund. A3$12/19,s O> M0/01- F023s O$,r S/<.As4 % mutual fund offers a great deal of diversification starting with the very first dollar invested, because a mutual fund may own tens or hundreds of different securities. This diversification helps reduce the risk of loss because even if any one holding tanks, the overall value doesn2t drop by much. If you2re buying individual stocks, you can2t get much diversity unless you have V67J or so. )mall sums of money get you much further in mutual funds than in stocks. -irst, you can set up an automatic investment plan with many fund companies that lets you put in as little as V:7 per month. )econd, the commissions for stock purchases will be higher than the cost of buying no3load fund >#f course, the fund2s various e5penses like commissions are already taken out of the /%'?. )maller si@ed purchases of stocks will have relatively high commissions on a percentage basis, although with the V67 trade becoming common, this is a bit less of a concern than it once was. ,ou can e5it a fund without getting caught on the bidLask spread. -unds provide a cheap and easy method for reinvesting dividends. .ast but most certainly not least, when you buy a fund you2re in essence hiring a professional to manage your money for you. That professional is >presumably? monitoring the economy and the markets to adjust the fund2s holdings appropriately.
72

A3$12/19,s O> S/<.A O$,r M0/01- F023s4 The opposite of the diversification issueK If you own just one stock and it doubles, you are up 6778. If a mutual fund owns :7 stocks and one doubles, it is up 98. #n the other hand, if you own just one stock and it drops in half, you are down :78 but the mutual fund is down 68. "uts both ways. If you hold your stocks several years, you aren2t nicked a 68 or so management fee every year >although some brokerage firms charge if there aren2t enough trades?. ,ou can take your profits when you want to and won2t inadvertently buy a ta5 liability. >This refers to the common practice among funds of distributing capital gains around /ovember or +ecember of each year. )ee the article elsewhere in this -%W for more details.? ,ou can do a covered write option strategy. >)ee the article on options on stocks for more details.? ,ou can structure your portfolio differently from any e5isting mutual fund portfolio. >%lthough with the current universe of funds I2m not certain what could possibly be missing out thereX? ,ou can buy smaller cap stocks which aren2t suitable for mutual funds to invest in. ,ou have a potential profit opportunity by shorting stocks. >,ou cannot, in general, short mutual funds.? The argument is offered that the funds have a !herd! mentality and they all end up owning the same stocks. ,ou may be able to pick stocks better.

73

L;>, I2s0r12., $,rs0s M0/01- F023

.ife insurance is a hedge against risk P and not really an investment option. )o, it would be wrong to compare life insurance against any other financial product. #ccasionally on account of market inefficiencies or mis3pricing of products in India, life insurance products have offered a return that is higher than a comparable AsafeB fi5ed return security P thus, you are effectively paid for getting insuredX sustainable in the long run. )uch opportunities are not

74

FUTURE 'ROS'ECT OF MUTUAL FUNDS IN INDIA

-inancial e5perts believe that the future of Mutual -unds in India will be very bright. It has been estimated that by March3end of 9767, the mutual fund industry of India will reach &s H7,;7,777 crore, taking into account the total assets of the Indian commercial banks. In the coming 67 years the annual composite growth rate is e5pected to go up by 6E.H8.

6778 growth in the last D years. /umber of foreign %M"2s are in the 4ueue to enter the Indian markets like -idelity Investments, *) based, with over *)V6trillion assets under management worldwide. #ur saving rate is over 9E8, highest in the world. #nly channeli@ing these savings in mutual funds sector is re4uired. 1e have appro5imately 9; mutual funds which is much less than *) having more than <77. There is a big scope for e5pansion. 2 2 and 2"2 class cities are growing rapidly. Today most of the mutual funds are concentrating on the 2%2 class cities. )oon they will find scope in the growing cities. Mutual fund can penetrate rurals like the Indian insurance industry with simple and limited products. )( I allowing the M-2s to launch commodity mutual funds. (mphasis on better corporate governance. Trying to curb the late trading practices. Introduction of -inancial $lanners who can provide need based advice. .ooking at the past developments and combining it with the current trends it can be

concluded that the future of Mutual -unds in India has lot of positive things to offer to its investors.

75

MF JARGON
N,/ Ass,/ V1-0, 7NAV8
/et %sset 'alue is the market value of the assets of the scheme minus its liabilities. The per unit /%' is the net asset value of the scheme divided by the number of units outstanding on the 'aluation +ate.

S1-, 'r;.,
)ale price is the price you pay when you invest in a scheme. %lso called #ffer $rice. It may include a sales load.

R,:0r.*1s, 'r;.,
Is the price at which a close3ended scheme repurchases its units and it may include a back3end load. This is also called id $rice.

R,3,?:/;<2 'r;.,
It is the price at which open3ended schemes repurchase their units and close3ended schemes redeem their units on maturity. )uch prices are /%' related.

S1-,s L<13
It is a charge collected by a scheme when it sells the units. %lso called as N-ront3end= load. )chemes that do not charge a load are called N/o .oad= schemes.

R,:0r.*1s, <r KB1.A6,23F L<13

It is a charge collected by a scheme when it buys back the units from the unit holders.

76

CONCLUSION
Mutual -unds now represent perhaps most appropriate investment opportunity for most investors. %s financial markets become more sophisticated and comple5, investors need a financial intermediary who provides the re4uired knowledge and professional e5pertise on successful investing. %s the investor always try to ma5imi@e the returns and minimi@e the risk. Mutual fund satisfies these re4uirements by providing attractive returns with affordable risks. The fund industry has already overtaken the banking industry, more funds being under mutual fund management than deposited with banks. 1ith the emergence of tough competition in this sector mutual funds are launching a variety of schemes which caters to the re4uirement of the particular class of investors. &isk takers for getting capital appreciation should invest in growth, e4uity schemes. Investors who are in need of regular income should invest in income plans. The stock market has been rising for over three years now. This in turn has not only protected the money invested in funds but has also to helped grow these investments. This has also instilled greater confidence among fund investors who are investing more into the market through the M- route than ever before. &eliance India mutual funds provide major benefits to a common man who wants to make his life better than previous. India2s largest mutual fund, *TI, still controls nearly <7 per cent of the market. %lso, the mutual fund industry as a whole gets less than 9 per cent of household savings against the HD per cent that go into bank deposits. )ome fund managers say this only indicates the sector2s potential. !If mutual funds succeed in chipping away at bank deposits, even a triple digit growth is possible over the ne5t few years.

77

BIBLIOGRA'HY
REFERENCE BOO : -I/%/"I%. M%&J(T %/+ )(&'I"() 3Fordon and /atarajan WEBSITE: www.utimf.com www.reliancemutual.com www.amfiindia.com SEARCH ENGINE: www.google.com www.altavista.com www.yahoo.com

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