MUTUAL FUNDS

THE CONCEPT OF A MUTUAL

FUND: A SUMMARY
A 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 mutual; the fund belongs to all investors. A single investors ownership
of the fund is in the same proportion as the amount of contribution made by him or her,
bears to the total amount of the fund.
A mutual fund uses the money collected from investors to buy those assets, which are
specifically permitted by its stated investment objective. Thus, an euity fund would buy
euity assets ! ordinary shares, preference shares, warrants, etc. A bond fund would buy
debt instruments such as debentures, bonds or government securities. "t is in these assets,
which are owned by the investors in the same proportion as their contribution bears to the
total contribution of all the investors put together.
1
MUTUAL FUNDS
#hen an investor subscribes to a mutual fund, he or she buys a part of the assets
or the pool of funds, which are outstanding at that time. "t is no different from buying
shares of a joint stoc$ company, in which case the purchase ma$es the investor a part
owner of the company and its assets. "n fact, in %.&.A., a mutual fund is constituted as an
investment company and an investor buys into the fund, means he buys the shares of
the fund. In India, a mutual fund is constituted as a Trust, and the investor subscribes to
the units issued by the fund. "n any case, a mutual fund shareholder or a unit holder is
the part owner of the funds assets. A unit holder in %nit Trust of "ndia %& ! '( &cheme is
the same as the %T" ! )astershare ! holder or an investor in Alliance or *&+ )errill
,ynch or +rudential ! "-"-" or Tata or Templeton or &." or any other fund managers
open ended or closed ended schemes.
&ince each owner is the part owner of a mutual fund, it is necessary to establish the value
of his part. "n other words, each share or unit that an investor holds needs to be assigned a
value. &ince the units held by investor evidence the ownership of the funds assets, the
value of the total assets of the fund when divided by the total number of units issued by
the mutual fund gives us the value of one unit. This is generally called the /et Asset
0alue 1/A02 of one unit or one share. The value of an investors part ownership is thus
determined by the /A0 of the no. of units held.
2
MUTUAL FUNDS
HISTORY OF MUTUAL
FUNDS IN INDIA
The mutual fund industry in "ndia started in 34'5 with the formation of %nit Trust of
"ndia, at the initiative of the 6eserve .an$ and the 7overnment of "ndia. The objective
then was to attract the small investors and introduce them to the mar$et investments.
&ince then, the history of mutual funds in "ndia can be broadly divided into three distinct
phases.
PHASE I: 196 ! 19"# $%&I' '(%S' )* I&+IA,:
This phase spans from 34'( to 3489. "n 34'5, %T" was established by an act of
parliament and given a monopoly. :perationally, %T" was set up by 6eserve .an$ of
"ndia, but was later delin$ed from the 6.". The first, and still one of the largest scheme,
launched by %T" was %nit &cheme 34'(. :ver the years, %& ! '( attracted, ands
probably still has, the largest number of investors in any single investment scheme. "t was
also at least partially the first open ! end scheme in the country.
,ater in 349;s and 348;s, %T" started innovating and offering different schemes
to suit the needs of different class of investors. %nit ,in$ed "nsurance +lan 1%,"+2 was
launched in 3493. &i< new schemes were introduced between 3483 and 348(. *uring
348( ! 89, new schemes li$e -hildrens 7ift 7rowth =und 1348'2 and )aster share
134892 were launched. )aster share could be termed as the first diversified euity
investment scheme in "ndia. The first "ndian offshore fund, "ndia fund, was launched in
August 348'. *uring 344;s, %T" catered to the demands for income>oriented schemes
by launching )onthly "ncome &chemes, a somewhat unusual mutual fund product
offering, assured returns.
The mutual fund industry in "ndia not only started with %T", but still counts as its
largest player with the largest corpus of investible funds among all mutual funds currently
operating in "ndia. %ntil 348;s, %T"s operations in the stoc$ mar$et often determined the
3
MUTUAL FUNDS
direction of mar$et movements. =oreign and other situational players have been brought
in. so direct influence of %T" on the mar$ets may be less than before, though it remains
largest player in industry. "n absolute terms, the investible funds corpus of even %T" was
still relatively small at about 6s.';; crores in 348(.
19"# ! 19""
A):%/T
):.","&?*
16s -rores2
A&&?T& %/*?6
)A/A7?)?/T
16s. -rores2
):.","&AT":/ A& @
:=76:&& *:)?&T"-
&A0"/7&
%T"
A,39B.;; ',9;;.;; 5.3@
')'A- A,39B.;; ',9;;.;; 5.3@
S)%(.E: A/*I 0)(12))1
PHASE II: 19"# ! 1993 $Entry of Pub4ic Sector *unds,:
3489 mar$ed the entry of non ! %T", public sector mutual funds, bringing in
competition. #ith the opening up of the economy, many public sector ban$s and financial
institution were allowed to establish mutual funds. The &tate .an$ of "ndia established
the first non ! %T" mutual fund ! &." )utual =und ! in /ovember 3489. This was
followed by -anban$ )utual =und 1launched *ecember 34892, ,"- )utual =und
1launched in 34842 and "ndian .an$ )utual =und 1launched in 344;2 followed by .an$
of "ndia )utual =und, 7"- )utual =und and +/. )utual =und. These mutual funds
helped enlarge the investor community and the investible funds. =rom 3489 ! 344AC45,
the fund industry e<panded nearly seven times in turns of assets under management.
*uring this period, investors were shifting away from ban$ deposits to mutual funds, as
they started allocating larger part of their financial assets and savings 1B.A@in
344A,5.3@34882 to fund investments. %T" was still the largest segment of the industry,
although with nearly A;@ mar$et share ceded to the public sector mutual funds.
4
MUTUAL FUNDS
1995 ! 1993
A):%/T
):.","&?*
16s. -rores2
A&&?T& %/*?6
)A/A7?)?/T
16s. -rores2
):.","&AT":/ A& @
:=
76:&& *:)?&T"-
&A0"/7&
UTI
33,;B9.;; 58,A(9.;; B.A@
P%2-I.
SE.')(
3,4'(.;; 8,9B9.;; ;.4@
')'A- 35,;A3.;; (9,;;(.;; '.3@
SOURCE: AMFI WORKBOOK
PHASE III: 199361996 $E7er8ence of Private Sector *unds,
A new era in the mutual funds industry began with the permission granted for the
entry of private sector funds in 3445,giving the "ndian investors a broader choice of Dfund
families and increasing competition for the public sector funds. Euite significantly,
foreign fund management companies were also allowed to operate mutual funds, most of
them coming into "ndia through their joint ventures with "ndian promoters. These private
funds have brought in with them the latest product innovations, investment management
techniues and investor servicing technology that ma$es the "ndian mutual fund industry
today a vibrant and growing financial intermediary.
*uring the year3445>4(, five private sector mutual funds launched their schemes
followed by si< others in 344(>4B. "nitially the mobiliFation of funds by the private
mutual funds was slow. .ut this segment of the fund industry now has been witnessing
much greater investor confidence in them. :ne influencing factor has been the
development of a &?." driven regulatory framewor$ for mutual funds. .ut another
important factor has been the steadily improving performance of several funds
themselves. "nvestors in "ndia now clearly see the benefits of investing through mutual
funds and have started becoming selective.
5
MUTUAL FUNDS
The entire mutual fund industry in "ndia, despite initial hiccups, has since scaled
new heights in terms of mobiliFation of funds and number of players. *eregulation and
liberaliFation of the "ndian economy has introduced competition and provided impetus to
the growth of the industry. =inally, most investors> small or large>have started shifting
towards mutual funds as opposed to ban$s or direct mar$et investments.
)ore investor friendly regulatory measures have been ta$en both by &?." to protect the
investor, and by the government to enhance investors returns through ta< benefits. A
comprehensive set of regulations for all mutual funds operating in "ndia has been
accomplished with &?." 1)utual =und2 regulations, 344'. These regulations set uniform
standards for all funds and eventually be applied in full to %nit Trust of "ndia as well,
even though its own %T" Act governs %T". "nfact, %T" has been voluntarily adopting
&?." guidelines for most of its schemes. &imilarly, the 3444 %nion 7overnment .udget
too$ a big step in e<empting all mutual fund dividends from income ta< in the hands of
the investors.
The mutual fund industry in 3444 seems to mar$ the beginning of a new phase in
its history, a phase of significant growth in terms of assets under management.
The siFe of the industry is growing rapidly, as seen by the figure of assets under
management, which have gone from over '8,;;;crores to nearly 89,;;;crores in just one
year. #ithin the growing industry, by march 3444; %T"s share of mobiliFation had
decreased to BB@1from 8B@ in 344A>452, while the share of the private sector stood at
59@. *uring April to :ctober 3444, the sector accounted for B4@ of mobiliFations.
)obiliFations during this period of 9 months in fact e<ceeded the same for the whole of
3448>44.it is also clear that the enhanced share of the private sector is e<plained not only
by the growing appetite for mutual funds, but also by the growing acceptance of the
private sector funds.
199" 6 1999
6
MUTUAL FUNDS
A):%/T
):.","&?*
16s. -rores2
A&&?T& %/*?6
)A/A7?)?/T
16s. -rores2
):.","&AT":/ A& @
:=
76:&& *:)?&T"-
&A0"/7&
UTI
33,'94.;; B5,5A;.;; A.94@
P%2-I.
SE.')(
3,95A.;; 8,A4A.;; ;.;8@
P(I9A'E
SE.')(
9,4''.;; ',8';.;; 3.3(@
TOTAL
A3,599.;; '8,(9A.;; B.3@
SOURCE: AMFI WORKBOOK
Phase I9 : Since *ebruary 5::3
"n =ebruary A;;5, following the repeal of the %nit Trust of "ndia Act 34'5 %T" was
bifurcated into two separate entities. :ne is the &pecified %nderta$ing of the %nit Trust
of "ndia with assets under management of 6s.A4,85B crores as at the end of Ganuary A;;5,
representing broadly, the assets of %& '( scheme, assured return and certain other
schemes. The &pecified %nderta$ing of %nit Trust of "ndia, functioning under an
administrator and under the rules framed by 7overnment of "ndia and does not come
under the purview of the )utual =und 6egulations.
The second is the %T" )utual =und ,td, sponsored by &.", +/., .:. and ,"-. "t is
registered with &?." and functions under the )utual =und 6egulations. #ith the
bifurcation of the erstwhile %T" which had in )arch A;;; more than 6s.9',;;; crores of
assets under management and with the setting up of a %T" )utual =und, conforming to
the &?." )utual =und 6egulations, and with recent mergers ta$ing place among different
private sector funds, the mutual fund industry has entered its current phase of
consolidation and growth. As at the end of &eptember, A;;(, there were A4 funds, which
manage assets of 6s.3B53;8 crores under (A3 schemes.As at the end of )arch A;;9,
there were 5; )utual =unds, which )anaged assets of 6s. 5,A',588 crores under 9B'
schemes.
7
MUTUAL FUNDS
'he 8ra;h indicates the 8ro<th of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT
/oteH
?rstwhile %T" was bifurcated into %T" )utual =und and the &pecified %nderta$ing of
the %nit Trust of "ndia effective from =ebruary A;;5. The Assets under management of
the &pecified %nderta$ing of the %nit Trust of "ndia has therefore been e<cluded from the
total assets of the industry as a whole from =ebruary A;;5 onwards.
8
MUTUAL FUNDS
ADVANTAGES AND DISADVANTAGES OF INVESTING
THROUGH MUTUAL FUNDS
"f mutual funds are emerging as the favorite investment vehicle, it is because of the
many advantages they have over other forms and avenues of investing, particularly for
the investor who has limited resources available in terms of capital and ability to carry
out detailed research and the mar$et monitoring. "n mutual funds individuals can e<pect
higher returns and lower ris$, whereas in other mar$etable instruments ris$ is much
higher as fund is invested only in one sector.

#hile the benefits of investing through mutual funds far outweigh the disadvantages,
an investor and his advisor will do well to be aware of the few shortcomings of using the
mutual funds investment vehicle.
A+9A&'A=ES of investin8 throu8h )* /%'%A- *%&+S
9
MUTUAL FUNDS
*o44o<in8 are the 7a>or advanta8es offered by 7utua4 funds to a44 investors:
Portfo4io +iversification:
?ach investor in the fund is the part owner of all the funds assets, thus enabling him to
hold a diversified investment portfolio even with a small amount of investment that
would otherwise reuire big capital.
Professiona4 /ana8e7ent:
The investment management s$ills, along with the needed research into available
investment options, ensure a much better return than what an investor can manage on his
own.
(eduction ? +iversification of (is@:
#hen an investor invests directly, all the ris$ of potential loss is his own, whether he
places a deposit with a company or a ban$, or buys a share or debenture on his own or in
any other form. #hile investing in the pool of funds with other investors, the potential
losses are also shared with other investors. This ris$ reduction is one of the most
important benefits of a collective investment vehicle li$e the mutual fund.
(eduction of 'ransaction .ost:
#hat is true of ris$ is also true of the transaction costs. The investor bears all the
costs of investing such as bro$erage or custody of securities. #hen going through mutual
fund, he has the benefit of economies of scale; the funds pay lesser costs due to large
volumes; a benefit passed on to its investors.
10
MUTUAL FUNDS
-iAuidity:
:ften, investors hold shares or bonds they cannot directly, easily or uic$ly sell.
#hen they invest in the units of a fund, they can generally cash their investment any
time, by selling their units to the fund if open ! ended, or selling them in the mar$et if the
fund is closed ! ended. ,iuidity on investment is clearly a big benefit.
.onvenience and *4eBibi4ity:
)utual fund management companies offer many investor services that a direct mar$et
investor cannot get. "nvestors can easily transfer their holdings from one scheme to
another, get updated mar$et information, and so on.
11
MUTUAL FUNDS
+ISA+9A&'A=ES )* I&9ES'I&= 'H()%=H /%'%A- *%&+S
'he fo44o<in8 are so7e of the dra<bac@s of /utua4 *unds:
&o .ontro4 over .osts:
An investor in a mutual fund has no control over the overall cost of investing. Ie
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 while the value of his
investments may be declining. A mutual fund investor also pays fund distribution costs,
which he would not incur in direct investment. Iowever, this shortcoming only means
that there s a cost to obtain the benefits of mutual fund services.
&o 'ai4or ! 7ade Portfo4ios:
"nvestors who invest on their own can build their own portfolios of shares and bonds
and other securities. "nvesting through funds means he has delegates this authority to the
fund managers. The very high ! net ! worth individuals or large corporate investors may
find this to be a constraint in achieving their objectives. Iowever most mutual fund
managers help investors overcome this constraint by offering families of funds, a large
no. of different schemes, within their own management company. An investor can choose
from different investment plans and construct a portfolio of his own.
/ana8in8 a Portfo4io of *unds:
Availability of a large no. of funds can actually mean too much choice for an investor. Ie
may again need advice on how to select a fund to achieve his objectives, uite similar to
the situation when he has to select individual shares or bonds to invest in.
12
MUTUAL FUNDS
Structure of mutual funds
&ponsorH
&ponsor as any person who either itself or in association with another body corporate
establishes a mutual fund. &ponsor is that entity that sets up an mutual fund.Ie sets
up a mutual fund to earn money by doing fund management. ,argely, a sponsor can
be compared to a promoter of a company
TrusteesH
Trustees manage the trust. Trustees are responsible to investors in the mutual
funds. Trustees insure that the activities of the mutual fund are in accordance
&?." regulations, 344'. Trustees insure that the A)-s have proper systems and
procedures in place.
A)-H
An asset management company is the company registered under the companies
act, 34B'. &ponsor creates the A)- and this is the entity, which manages the
funds of the mutual fund. The mutual fund pays a small fee to the A)- for
management of its fund. The A)- acts under the provision of trustees and is
subject to the regulation to &?."
13
MUTUAL FUNDS
14
MUTUAL FUNDS
15
MUTUAL FUNDS
TJ+?& := =%/*&
A. By structure
);en ! end *unds:
An open ! end fund is one that has units available for sale and repurchase at all times. An
investor can buy or redeem units from the funds itself at a price based on the /et Asset
0alue 1/A02 per unit. /A0 per unit is the mar$et value of the funds liabilities divided
by the units outstanding. The number of units outstanding goes up or down every time the
fund issues new units or repurchases e<isting units. "n other words, the unit capital of
an open ! end mutual fund is not fi<ed but variable. The fund siFe and its total investment
amount go up if more new subscriptions come in from new investors than redemptions by
e<isting investors; the fund shrin$s when redemptions of units e<ceeds fresh
subscriptions.
An open ! end fund is not obliged to $eep sellingC issuing new units at all times and many
successful funds stop issuing further subscriptions from new investors after they reach a
certain siFe and thin$ they cannot manage a larger fund without adversely affecting
profitability. :n the other hand, an open ! end fund rarely denies to its investors the
facility to redeem e<isting units.
.4ose ! end *unds:
%nli$e an open ! end fund, the Dunit capital of a c4osed ! end fund is fi<ed, as it ma$es a
one>time sale of fi<ed number of units. ,ater on, unli$e open ! end funds, close ! end
funds do not allow investors to buy or redeem units directly from the funds. Iowever, to
provide the much>needed liuidity to investors, many close ! end funds get themselves
listed on stoc$ e<change 1s2. Trading through a stoc$ e<change enables investors to buy
or sell units of a close ! end mutual fund from each other, through a stoc$bro$er in the
16
MUTUAL FUNDS
same fashion as buying or selling shares of a company. The fund units may be traded at a
discount or premium or even at par to the /A0 based on the investors perception about
the funds future performance and other mar$et factors affecting the demand for or supply
of the funds units. The number of outstanding units of a closed end fund does not vary
on account of trading in the funds units at the stoc$ e<change.
-oad and no64oad funds:
)ar$eting of a new mutual fund scheme involves initial e<penses. These may be
recovered from the investors in different ways and different times. Three different ways
in which a funds sales e<penses may be recovered from the investors areH >
At the time of investors entry into the fund, by deducting a specific amount from
his initial contribution, or
.y charging the fund C scheme with a fi<ed amount each year, during the stated
number of years, or
At the time of the investors e<it from the scheme, by deducting a specified
amount from the redemption proceeds payable to the investor.
These charges made by the fund managers to the investors to cover distributionCsales C
mar$eting e<penses are often called loads. The load charged to the investor at the time
of his entry into a scheme is called a front>end or entry load. This is the first case
above. The load amount charged to the scheme over a period of time is called a differed
load. This is the second case above. The load that the investor pays at the time of his e<it
is called a bac$>end or e<it load this is the third case above. &ome funds may also charge
different amounts of loads to the investors. *epending upon how many years the investor
has stayed with the fund; the longer the investor stays with the fund, less the amount of
e<it load he is charged. This is called contingent deferred sales charges.
The front ! end load amount is deducted from the initial contributionC purchase amount
paid by the "ncoming investor, thus reducing his initial investment amount. &imilarly e<it
loads would reduce the redemption proceeds paid out to the outgoing investor. if the sales
charge is made on a differed basis directly to the scheme, the amount of load may not be
17
MUTUAL FUNDS
apparent to the investor, as the schemes /A0 would reflect the net amount after the
deferred load.
=unds that charge front ! end, bac$ ! end or deferred loads are called 4oad funds. =unds
that ma$e no such charges or loads for sales e<penses are called no 6 4oad funds.
An eBa7;4e:
"f an open !end funds /A0 per unit is 6s.33, with a front load of A@, the price at which
an investor can buy a unit is 6s.33.AA. ?<pressed another way, an investment of 6s.3;;
would not buy 3;;C33K4.4units,but only 3;;>AK48C33K8.4units. if the redemption price is
6s.3;.9;,with a bac$ end load of A@,the e<it load charged by the fund amounts to
6e.;.A3; so net sales proceeds will be 3;.9;>;.A3K3;.(4. ?<press another way, sale of
B;units would not fetch B;L3;.9;K6s.B5B, but only B;L3;.(4K6s.BA(.B.
=rom the investors perspective, it is important to note that loads are not charged only by
open ! end funds; even a closed ! end fund can charge a load to cover the initial issue
e<penses. "t is also important to note that there are other e<penses such as the fund
managers fees, which are charged to the investor on an ongoing basis, thus reducing the
/et Asset 0alue of the fund.
&ome funds charge only an entry load, and some only an e<it loads. &uch funds may be
thought of as partial load funds. 6ecently, a fund has started a new scheme with deferred
load over future years. &ome funds in "ndia waive the initial issue e<penses that are borne
by the Asset )anagement -ompany or the sponsors, so the entire amount paid in by the
investor gets invested without entry load deduction. At the same time, some of these no !
front ! load funds may charge e<it loads from time to time. "n other words, from time to
time, a no ! load fund may become a load fund. /ote that a no ! load fund only means
that a fund that does not charge sales e<penses. All funds still charge the schemes for
management fees and other recurring e<penses.
18
MUTUAL FUNDS
'aB ! eBe7;t and &on6'aB ! eBe7;t *unds
#hen a fund invests in ta< ! e<empt securities, it is called a ta< ! e<empt fund. "n "ndia,
the current situation is that all of the dividend income received from any of the mutual
funds is ta< free in the hands of the investor. Iowever some funds have to pay a
distribution ta<, before distributing income to investors. "n other words, after the 3444
%nion 7overnment budget in "ndia, for most investors, most mutual fund schemes are ta<
! e<empt investment avenues, ma$ing the distinction between ta< ! e<empt and ta<able
funds a thin one.
#hile "ndian mutual funds currently offer ta<!free income, any capital gains arising out
of sale of fund units are ta<able. All these ta< considerations are important in the decision
on where to invest as the ta< ! e<emptions or concessions alter the returns obtained from
these investments. Ience classification of funds from the ta<ability perspective has great
significance for investors.
19
MUTUAL FUNDS
MUTUAL FUND TYPES
All mutual funds would either close ! end or open ! end, and either load or no ! load.
These classifications are general. =or e<ample ! all open ! end funds operate the same
way; or in case of a loan ! fund a deduction is made from investors subscription or
redemption and only the net amount used to determine his number of shares purchased or
sold.
:nce the fund classes have been reviewed, let us see the fund type in a more specific
manner. =unds are now to be distinguished from each other on the basis of their
investment objectives and the type of securities they invest in.
The major types of fun a!a"#a$#e uner the %enera# &#ass"'&at"ons as
mae a$o!e are(
.road =und Types by /ature of "nvestments
)utual funds may invest in euities, bonds or other fi<ed income securities, or short>term
money mar$et securities. &o, we have EAuity, 2ond and /oney /ar@et *unds. All of
them invest in financial assets. .ut there are funds that invest in physical assets. "n that
way we have =o4d or other Precious /eta4s *unds, or (ea4 Estate *unds.
Broad Fund Tyes !y In"est#ent O!$ect%"e
"nvestors and the hence the mutual funds pursue different objectives while investing.
Thus, =ro<th *unds invest for medium to long>term capital appreciation. Inco7e
*unds invest to generate regular income, and less for capital appreciation. 9a4ue *unds
invest in euities that are considered under ! valued today, but whose value will be
unloc$ed in the future.
20
MUTUAL FUNDS
Broad Funds Tye !y R%s& 'ro()e
The nature of a funds portfolio and its investment objective imply different levels of
ris$s underta$en. =unds are therefore often grouped in order of ris$. Thus, ?uity =unds
have a greater ris$ of capital loss then a *ebt ! =und that see$s to protect the capital
while loo$ing for income. )oney )ar$et =unds are e<posed to fewer ris$s than even the
.ond =unds, since they invest in short ! term fi<ed income securities, as compared to
longer ! term portfolios of .ond =unds.
By In"est#ent O!$ect%"e
The followings are different mutual funds of different ris$ classificationH
/)&EC /A(1E' *%&+S
:ften considered to be at the lowest rung in the order of ris$ level, money mar$et funds
invest in securities of a short>term nature, which generally means securities of less than
one ! year maturity. The typical, short ! term, interest ! bearing instruments these funds
invest in include treasury bills issued by governments, certificates of deposits issued by
ban$s and commercial paper issued by companies. "n "ndia, money mar$et mutual funds
also invest in the inter ! ban$ call money mar$et.
The major strengths of money mar$et funds are the liuidity and safety of the principle
that the investors can normally e<pect from short ! term investment.
=I-' *%&+S
)"#ts are %o!ernment se&ur"t"es *"th me"um to #on%+term matur"t"es,
typ"&a##y of o!er one year -uner one year "nstruments $e"n% money mar.et
se&ur"t"es/0 In In"a, *e ha!e no* seen the emer%en&e of )o!ernment
1e&ur"t"es or )u"#t 2uns that "n!est "n %o!ernment papers &a##e ate
se&ur"t"es -un#".e treasury $"##s *h"&h e3p"re "n #ess than a year/0 1"n&e the
21
MUTUAL FUNDS
"ssuer "s the %o!ernment4 s of In"a4 states, these funs ha!e #"tt#e r"s. of
efau#t an hen&e o5er $etter prote&t"on of &ap"ta#0 6o*e!er, "n!estors ha!e
to re&o%n"7e the potent"a# &han%es "n the !a#ues of e$t se&ur"t"es he# $y the
funs that are &ause $y &han%es "n the mar.et pr"&e of e$t se&ur"t"es
8uote on the sto&. e3&han%e -just #".e e8u"t"es/0 9e$t se&ur"t"es: pr"&es fa##
*hen "nterest rate #e!e#s "n&rease -an !"&e !ersa/0
DEBT FUNDS or *INCOME FUNDS+
/e<t in the order of ris$ > level, there are the general category +ebt *und. *ebt funds
invest in debt securities issued by not only the government but also the private
companies, ban$s and financial institutions and other entities such as infrastructureC
utilities. .y investing in debt, these funds target low ris$ and stable income for the
investor as their $ey objective. Iowever, as compared to the money mar$et funds, they
do have a higher price fluctuation ris$, since they invest in long>term securities.
&imilarly, as compared to 7uilt =unds, general debt funds do have a higher ris$ of default
by their borrowers.
+ebt *unds are largely considered as "ncome =unds as they do not target capital
appreciation, loo$ for high current income, and therefore distribute a substantial part of
their surplus to investors. "ncome funds that target returns substantially above mar$et
levels can face more ris$s. "ncome funds falls largely in the category of *ebt funds as
they invest primarily in fi<ed income generating debt instruments. Iere again, different
investment objectives set by the fund managers would result in different ris$ profiles. ,et
us now analyFe *ebt funds in this lightH
+iversified +ebt *unds
A debt fund that invests in all available types of debt securities, issued by entities across
all industries and sectors is a properly diversified debt fund. #hile debt funds offer high
income less ris$ than euity funds, investors need to recogniFe that debt securities are
subject to ris$ of default by the issuer on payment of interest or principle. A diversified
22
MUTUAL FUNDS
debt fund has the benefit of ris$ reduction through diversification and sharing of any
default > related losses by a large number of investors. Ience a diversified debt fund is
less ris$y than a narrow > focus fund that invests in debt securities of a ;articu4ar sector
or industry.
*ocused +ebt *unds
&ome debt funds have a narrower focus, with less diversification in its investments.
?<amples include sector, s;ecia4iDed and offshore debt funds. These funds are similar
to the funds described later in the euity category e<cept that debt funds have a
substantial part of the portfolio invested in debt instruments and are therefore more
income oriented and inherently less ris$y than euity funds. Iowever, the "ndian
=inancial )ar$et have demonstrated that debt funds should not be automatically
considered to be less ris$y than euity funds, as there have been relatively large defaults
by issuer of debt and many funds have non > performing assets in their portfolios. "t
should also be noted that mar$et values of debt securities will also fluctuate more as
"ndian debt mar$ets witness more trading and interest rate volatility in the future. The
central point to be noted is that focused debt funds are prone to 8reater ris@ than
diversified debt funds.
:ther e<amples of focused funds include those that invest only in .or;orate
+ebentures and on4y in 'aB *ree Infrastructure or /unici;a4 2onds. #hile these
funds are entirely conceivable now, they may ta$e some time to appear as the real choice
of "ndian investors. :ne category of specialiFed funds that invests in housing sector but
offer greater security and safety than other debt instruments are the /ort8a8e 2ac@ed
2ond *unds, that invests in special securities created after securitisation of and thus
secured by loan receivables of housing finance companies. As the "ndian =inancial
)ar$ets witness the growth of securitisation, such funds may appear on the mutual funds
scene sooner rather than later.
23
MUTUAL FUNDS
Hi8h Cie4d +ebt *unds
%sually, *ebt =unds control the borrower default ris$ by investing in securities issued by
borrowers who are rated by credit rating agencies and are considered to be of investment
grade. There are, however, Hi8h Cie4d +ebt *unds that see$ to obtain higher interest
returns by investing in debt instruments that are considered below investment grade.
-learly, these funds are e<posed to higher ris$. "n the %&A, funds that invest in debt
instruments that are not bac$ed by tangible assets and rated below investment grade
1popularly $nown as jun$ bonds2 are called jun$ bond funds. These funds tend to be more
volatile than other debt funds, although they may earn higher returns as a result of the
higher ris$s ta$en.
Assured (eturn *unds ! An Indian 9ariant.
=undamentally, the mutual funds hold assets in trust for investors. All returns and ris$s
are for account of the investor. The role of the fund manager is to provide the professional
management service and to ensure the highest possible return consistent with the
investment objective of the fund. The fund manager or the trustees or the sponsors do not
give any guarantee on the minimum return to the investor. Iowever in "ndia, historically,
%T" and other funds have offered assured returns schemes to the investors. The most
popular variant of such schemes is the monthly income plans of %T". 6eturns are
indicated in advance for all of the future years of these closed > end schemes. "f there is a
shortfall, it is borne by the sponsors or managers ! %T" in this e<ample. Assured returns a
guaranteed monthly income plans are essentially *ebtC "ncome =unds. To the e<tent that
the guarantor has the reuired financial strength, assured return debt funds certainly
reduce the ris$ level considerably, as compared to all other debt or euity funds. Iowever
the mar$et regulator &?." has been discouraging fund managers from offering assured
returns schemes. "f offered, e<plicit guarantee is reuired form a guarantor whose name is
specified in advance in the offer document of the scheme.
#hile assured 6eturn =unds may certainly be considered to be the lowest ris$ type within
the debt funds category, they are still not entirely ris$ ! free, as the investors have to
24
MUTUAL FUNDS
normally loc$ in their funds for the term of the scheme or at least a specified period such
as three years. *uring this period, the financial mar$ets may have moved and the
investors may have lost the opportunity to obtain higher returns later in other debt or
euity funds. .esides, the investor does carry some credit ris$ on the guarantor who must
remain solvent enough to honor his guarantee during the loc$ ! in period.
E,UIT- FUNDS
As investors move from debt fund category to euity funds they face increased ris$ level.
Iowever, there are a large variety of euity funds and all of them are not eually ris$
prone. "nvestors and their advisors need not to sort out and select the right euity fund
that suits their ris$ appetite. "n the following section, we have presented the euity fund
types, going from the highest ris$ level to the lowest level within this category.
.efore we loo$ at the euity fund types in terms of ris$ level, we must understand where
the ris$s euity funds come from and how they are different from debt funds. ?uity
funds invest a major portion of their corpus in euity shares issued by the companies,
acuired directly in initial public offerings or through the secondary mar$et. ?uity funds
would be e<posed to the euity price fluctuations ris$ at the mar$et level, at the industry
or sector level and at the company>specific level. ?uity funds net asset values fluctuate
with all these price movements. These price movements are caused by all $inds of
e<ternal factors, political and social as well as economic. The issuers of euity shares
offer no guaranteed repayment as in case of debt instruments. Ience euity funds are
generally considered at the higher end of the ris$ spectrum among all funds available in
the mar$et. :n the other hand, unli$e debt instruments that offer fi<ed amounts of
repayments, euities can appreciate in value in line with the issuers earnings potential,
and so offer the greatest potential for growth in capital.
?uity funds adopt different investment strategies resulting in different levels of ris$.
Ience, they are generally separated into different types in terms of their investment
styles. &ome of the major types of euity funds arranged in order of hi8her to 4o<er ris$
levelH
25
MUTUAL FUNDS
A88ressive 8ro<th funds
There are many types of stoc$sCshares available in the mar$et; .lue -hips that are
recogniFed mar$et leaders, less researched stoc$s that are considered to have future
growth potential and even some speculative stoc$s of somewhat un$nown or unproven
issuers. =und managers see$ out ant invest in different types of stoc$s in, line with their
own perception of potential returns and appetite for ris$.
As the name suggests, aggressive growth funds target ma<imum capital appreciation,
invest in less researched or speculative shares and may adopt speculative investment
strategies to attain their objective of high returns for the investor. -onseuently, they tend
to be more volatile and ris$ier than other funds.
=ro<th funds
)ro*th funs "n!est "n &ompan"es *hose earn"n%s are e3pe&te to r"se at
an a$o!e a!era%e rate0 These &ompan"es may $e operat"n% "n se&tors #".e
te&hno#o%y &ons"ere ha!"n% %ro*th potent"a#, $ut not ent"re#y unpro!en an
spe&u#at"!e0 The pr"mary o$je&t"!e of %ro*th funs "s &ap"ta# appre&"at"on
26
MUTUAL FUNDS
o!er a three to '!e year span0 )ro*th funs are therefore #ess !o#at"#e than
funs that tar%et a%%ress"!e %ro*th0
S;ecia4ty funds
These funs ha!e a narro* portfo#"o or"entat"on an "n!est "n on#y
&ompan"es that meet pre+e'ne &r"ter"a0 2or e3amp#e, at the he"%ht of 1outh
Afr"&an aparthe" re%"me, many funs "n the U01 o5ere p#ans that prom"se
not to "n!est "n 1outh Afr"&an &ompan"es0 1ome funs may $u"# portfo#"os
that *"## e3&#ue to$a&&o &ompan"es0 2uns that "n!est "n part"&u#ar re%"ons
su&h as the ;"#e <ast or the A1<A= &ountr"es are a#so an e3amp#e of
spe&"a#ty funs0 >"th"n the spe&"a#ty funs &ate%ory, some funs may $e
$roa+ $ase "n terms of the types of "n!estments "n the portfo#"o0 6o*e!er,
most spe&"a#ty funs ten to $e &on&entrate funs, s"n&e "!ers"'&at"on "s
#"m"te to one type of "n!estment, &#ear#y &on&entrate spe&"a#ty funs ten
to $e more !o#at"#e than "!ers"'e funs0
Sector fundsH
1e&tor funs portfo#"os &ons"st of "n!estments "n on#y one "nustry or
se&tor of the mar.et su&h as "nformat"on te&hno#o%y, pharma&eut"&a#s or fast
mo!"n% &onsumer %oos that ha!e re&ent#y $een #aun&he "n In"a0 1"n&e
se&tor funs o not "!ers"fy "nto mu#t"p#e se&tors, they &arry a h"%her #e!e# of
se&tor an &ompany spe&"'& r"s. than "!ers"'e e8u"ty funs0
)ffshore *unds:
These "n!est "n e8u"t"es "n one or more fore"%n &ountr"es there$y
a&h"e!"n% "!ers"'&at"on a&ross the &ountry:s $orers0 6o*e!er they a#so
ha!e a"t"ona# r"s.s+su&h as the fore"%n e3&han%e rate r"s.+ an the"r
performan&e epens on the e&onom"& &on"t"ons of the &ountr"es they "n!est
"n0 o5shore e8u"ty funs may "n!est "n a s"n%#e &ountry -hen&e r"s."er/ or
many &ountr"es -hen&e more "!ers"'e/0
27
MUTUAL FUNDS
S7a446ca; eAuity fundsH
These funds invest in shares of companies with relatively lower mar$et capitaliFation
than that of big, blue chips companies. They may thus be more volatile than other funds,
as smaller companies shares are not very liuid in the mar$ets. #e can thin$ of these
funds as a segment of specialty funds. "n terms of ris$ characteristics, small company
funds may be aggressive> growth or just growth type. "n terms of investment style, some
of these funds may also be value investors.
);tion inco7e funds:
These funds do not yet e<ist in "ndia, but option income funds write options on a
significant part of their portfolio. #hile options are viewed as ris$y instruments, they
may actually help to control volatility, if properly used. -onservative option funds invest
in large, dividend paying companies, and then sell options against their stoc$ positions.
This ensures a stable income stream in the form of premium income through selling
options and dividends. #hen options no individual shares become available in "ndia,
such funds may be introduced.
+iversified eAuity funds:
A fun that see.s to "n!est on#y "n e8u"t"es, e3&ept for a !ery sma## port"on
"n #"8u" money mar.et se&ur"t"es, $ut "s not fo&use on any one or fe*
se&tors or shares, may $e terme a "!ers"'e e8u"ty fun0 >h"#e e3pose to
a## e8u"ty pr"&e r"s.s, "!ers"'e e8u"ty funs see. to re%u#ate the se&tor or
sto&. spe&"'& r"s.s throu%h "!ers"'&at"on0 They ha!e ma"n#y mar.et r"s.
e3posure0 1u&h %enera# purpose $ut "!ers"'e funs are &#ear#y at the #o*er
r"s. #e!e# than %ro*th funs0
EAuity 4in@ed savin8s sche7e: An Indian variant
In In"a, the "n!estors ha!e $een %"!en ta3 &on&ess"ons to en&oura%e
them to "n!est "n e8u"ty mar.ets throu%h these spe&"a# s&hemes0 In!estment
"n these s&hemes ent"t#es the "n!estor to &#a"m an "n&ome ta3 re$ate, $ut
usua##y has a #o&.+"n per"o $efore the en of *h"&h funs &annot $e
28
MUTUAL FUNDS
*"thra*n0 There are no spe&"'& restr"&t"ons on the "n!estment o$je&t"!es for
the fun mana%ers0 In!estors shou# &#ear#y for *here the fun mana%ement
&ompany proposes to "n!est an a&&or"n%#y ju%e the #e!e# of r"s. "n!o#!e0
)enera##y, su&h funs *ou# $e "n the 9"!ers"'e <8u"ty 2un ?ate%ory0
EAuity indeB funds:
An inde< funds trac$s the performance of a specific stoc$ mar$et inde<. The objective to
match the performance of the stoc$ mar$et by trac$ing an inde< that represents the
overall mar$et. The fund invests in shares that constitute the inde< and in the same
proportion as the inde<. &ince they generally invest in a diversified mar$et inde<
portfolio, these funds ta$e only the overall mar$et ris$, while reducing the sector and
stoc$ specific ris$s through diversification.
9a4ue funds:
The growth funds we reviewed above hold shares of companies with good or improving
profit prospects, and aim primarily at capital appreciation. They concentrate on future
growth prospects, may be willing to pay high priceCearnings multiples for companies
considered to have good potential. "n contrast to the growth investing, other funds follow
0alue "nvesting approach. 0alue funds try to see$ out fundamentally sound companies
whose shares are currently under> priced in the mar$et. 0alue funds will add only those
shares to their portfolios that are selling at low>price earnings ratios, low mar$et to boo$
value ratios and are undervalued by other yardstic$s
0alue funds have the euity mar$et price fluctuation ris$s, but stand often at lower end of
the ris$ spectrum in comparison with the growth funds. 0alue stoc$s may be from a large
number of sectors and therefore diversified. Iowever, value stoc$s often come from
cyclical industries. The only e<ample of a value =und in "ndia is Templeton fund, which
has in its portfolio shares of cementCaluminum and other cyclical industries. +rices of
such shares may fluctuate more than the overall mar$et in both bull and bear mar$ets,
ma$ing such value funds more ris$y than diversified funds in the short term. Iowever
proponents of the value investing recommend it as a long>term approach. "n the long
29
MUTUAL FUNDS
term, 0alue =unds ought to be less ris$y than growth funds or even euity diversified
funds.
EAuity inco7e funds:
%sually income funds are in the debt funds category, as they target fi<ed income
investments. Iowever, they are euity funds that can be designed to give the investor a
high level of current income along with some steady capital appreciation, investing
mainly in shares of companies with high dividend yields. As an e<ample, an euity
income fund would invest largely in powerCutility companies shares of established
companies that pay higher dividends and whose price do not fluctuate as much as other
shares. These euity funds should therefore be less volatile and less ris$y than nearly all
other euity funds.
.-BRID FUNDS / ,uas% E0u%ty 1 ,uas% de!t
In terms of the nature of the 'nan&"a# se&ur"t"es he#, there are three
major mutua# fun types( money mar.et, e$t an e8u"ty0 ;any mutua# funs
m"3 these "5erent types of se&ur"t"es "n the"r portfo#"os0 Thus, most funs,
e8u"ty or e$t a#*ays ha!e some money mar.et se&ur"t"es "n the"r portfo#"os
as these se&ur"t"es o5er the mu&h+neee #"8u""ty0 6o*e!er money mar.et
ho#"n%s *"## &onst"tute a #o*er proport"on "n the o!era## portfo#"os of e$t or
e8u"ty funs0 There are funs that, ho*e!er, see. to ho# a re#at"!e#y
$a#an&e ho#"n% of e$t an e8u"ty se&ur"t"es "n the"r portfo#"os0 1u&h funs
are terme @hy$r" funsA as they ha!e a ua# e8u"ty4$on fo&us0 1ome of
the funs "n th"s &ate%ory are es&r"$e $e#o*(
2a4anced funds:
A balanced fund is one that has a portfolio comprising debt instruments, convertible
securities, and preference and euity shares. Their assets are generally held in more or
less eual proportions between debtCmoney mar$et securities and euities. .y investing
in a mi< of this nature, balanced funds see$ to attain the objectives of income, moderate
30
MUTUAL FUNDS
capital appreciation and preservation of capital, and are ideal for investors with a
conservative and long>term orientation.
The pyramid indicates the percent of money invested in .alanced =und and a lesser
portion in 7rowth =und. This =und holds a lesser ris$ as major portion is with "/-:)?,
):/?J )A6M?T N .A,A/-?* =%/*&.
=ro<th6and6inco7e funds:
%nli$e income focused or growth focused funds we have seen, these funds see$ to stri$e
a balance between capital appreciation and income for the investor. Their portfolios are a
mi<ed between companies with good dividend paying records and those with potential
for capital appreciation. These funds would less ris$y than pure growth funds, though
more ris$y than income funds.
The +yramid gives a clear picture about the "ncome =und. "n this =und major portion of
the =und is invested in income N rest in .A,A/-?*, ):/?J )A6M?T N
76:#TI =%/*&.
31
MUTUAL FUNDS
Asset a44ocation funds
/ormally, an euity fund will have its primary portfolio in euities most of the time.
&imilarly, a debt fund would not have major euity holdings. "n other words, their asset
allocation is predetermined within certain parameters. Iowever, there do e<ist funds that
follow variable asset allocation policies and move in and out of an asset class 1euity,
debt, money mar$et, or even non>financial assets2 depending upon their outloo$ for
specific mar$ets.
"n many ways, these funds have objectives similar to balanced funds and may see$ to
diversified into foreign euities, gold and real estate bac$ed securities in addition to debt
instruments, convertible securities, preference and euity shares. Asset allocation funds
that follow more stable allocation policies 1which hold relatively fi<ed proportion of
specific categories2 are more li$e balanced funds. :n the other hand, funds that follow
more fle<ible allocation policies 1which vary their weightings depending upon the fund
managers outloo$2 are more a$in to aggressive growth or speculative funds. The former
are for investors who low ris$ and stable return. The latter carry higher ris$ and potential
for higher return because of the fle<ibility enjoyed by the fund managers.
32
MUTUAL FUNDS
-:)):*"TJ =%/*&

#hile all the debtCeuityCmoney mar$et funds invest in financial assets, the mutual fund
vehicle is suited for investment in any other> for e<ample>physical assets. -ommodities
funds specialiFe in investing in different commodities directly or through shares of
commodity companies or through commodity futures contracts. &ocialiFed funds may
invest in a single commodity or a common group such as edible oils or grains, while
diversified commodity funds will spread their assets over many commodities.
A most common e<ample of commodity funds is the so>called precious metals funds.
7old funds invest in gold, gold futures or shares of gold mines. :ther precious metals
such as platinum or silver are also available in other countries. They may ta$e e<posure
to more than one metal to get some benefit of diversification. "n "ndia, a gold fund may
hold potential, given large public holding given large public holding and interest in gold.
Iowever commodity funds have not yet developed.
(ea4 estate funds:
&pecialiFed real estate funds would invest in real estate directly, or may fund real estate
developers, or lend to them, or buy shares of housing finance companies or even buy the
securitised assets. -urrently unavailable to "ndian investors, such funds may soon be
offered by leading housing finance companies such as I*=-. The funds may have
growth orientation or see$ to give investors regular income.
&ignificance of various types of funds
"n this section we have developed an understanding of various mutual fund classifications
and types. "t must be appreciated that no specific class or type is universally accepted as
the best option. ?ach type of funds comes with pros and cons and a uniue ris$>return
33
MUTUAL FUNDS
relationship. "t is up to the investor to decide the type that best suits his reuirements and
matches his objectives. This is covered in greater detail in subseuent chapters.
Jou will notice some differences in the fund types and classification among different
boo$s or reading references. "n this section, we have tried to follow one system of
classification that we have considered as the most suitable for "ndian conditions. The
reader should not have too much difficulty in seeing the relatively minor differences in
classification or names of fund types. To help get a better understanding, we have
developed the enclosed chart that lists the mutual fund types in order of ris$ levels.
34
MUTUAL FUNDS
Securities and Exchane !"ard "# India
$Mutua% #unds& Reu%ati"ns' ())*
+Reu%ati"ns (,$--&' -.$(*&' *,$h&/
Code o2 Conduct
3. )utual fund schemes should not be organiFed, operated, managed or the portfolio
of securities selected, in the interest of sponsors, directors of asset management
companies, members of board of trustees or directors of trustee company,
associated persons as Osubstituted for orP in the interest of special class of unit
holders rather than in the interest of all classes of unit holders of the scheme.
A. Trustees and asset management companies must ensure the dissemination to all
unit holders of adeuate, accurate, e<plicit and timely information fairly presented
in a simple language about the investment policies, investment objectives,
financial position and general affairs of the scheme.
5. Trustees and asset management companies should avoid e<cessive concentration
of business with bro$ing firms, affiliates and also e<cessive holding of units in a
scheme among a few investors.
(. Trustees and asset management companies must avoid conflicts of interest in
management the affairs of the scheme and $eep the interest of all unit holders
paramount in all the matters.
B. Trustees and asset management companies must ensure scheme wise segregation
of ban$ accounts 1substituted for cash2 and securities account.
35
MUTUAL FUNDS
'. Trustees and asset )anagement -ompany shall carry out the business and invest
in accordance with the investment objectives stated in the offer document and
ta$e investment decision solely in the interest of unit holders.
9. Trustees and asset management companies must not use any unethical means to
sell, mar$et or induce any investors to buy their schemes.
8. Trustees and asset )anagement -ompany shall maintain high standard of
integrity and fairness in all their dealings and in the conduct of their business.
4. Trustees and the asset management company shall render at all times high
standards of service, e<ercise due diligence, ensure proper care and e<ercise
independent professional judgment.
3;. The asset management company shall not ma$e any e<aggerated statement,
whether oral or written, either about their ualification or capability to render
investment management services or their achievements.
36

MUTUAL FUNDS
SC.EMES 'RO3IDED B-
;r0)"r"sh Ba#ra
=6A/M,"/ T?)+,?T:/ "ndia ,T*.
Fran0%in Te12%et"n India
Vision
To $e the prem"er %#o$a# "n!estment mana%ement or%an"7at"on $y o5er"n%
h"%h 8ua#"ty "n!estment so#ut"ons, pro!""n% outstan"n% ser!"&e an
attra&t"n%, mot"!at"n% an reta"n"n% ta#ente "n"!"ua#s0
INTRODUCTION
2ran.#"n Temp#etonCs asso&"at"on *"th In"a ates $a&. to more than a
e&ae as an "n!estor0 As part of the %roupCs major thrust on "n!est"n% "n
mar.ets aroun the *or#, the In"a oD&e *as set up "n 1996 as Temp#eton
Asset ;ana%ement In"a E!t0 L"m"te0 It Fa%%e o5 the mutua# fun $us"ness
*"th the #aun&h of Temp#eton In"a )ro*th 2un "n 1eptem$er 1996, an
s"n&e then the $us"ness has %ro*n at a steay pa&e0
1"n&e start"n% "ts operat"ons "n In"a, 2ran.#"n Temp#eton has "n!este a
&ons"era$#e amount of t"me, e5ort an resour&es to*ars "n!estor an
"str"$utor eu&at"on, the $e#"ef $e"n% + to $e su&&essfu# "n the #on% term, the
37
MUTUAL FUNDS
funamenta#s nee to $e &orre&te, at *hate!er &ostG Th"s has resu#te "n
!ar"ous a!ert"s"n% &ampa"%ns a"me at eu&at"n% "n!estors, part"&"pat"on "n
sem"nars an "str"$utor tra"n"n% pro%rams0 2ran.#"n Temp#eton has p#aye a
p"!ota# ro#e "n steer"n% the "nustry to "ts &urrent sta%e, an as #on% term
p#ayers, *e &ont"nue to str"!e to a&h"e!e the o$je&t"!e of Cma."n% mutua#
funs an "n!estment of &ho"&eC for $oth "n"!"ua# an "nst"tut"ona# "n!estors0
In Hu#y 2002, 2ran.#"n Temp#eton In"a a&8u"re E"oneer ITI, another #ea"n%
fun house "n In"a to &reate an or%an"7at"on *"th r"&h "n!estment e3per"en&e
o!er mar.et &y&#es, one of the most &omprehens"!e prou&t portfo#"os,
footpr"nt a&ross the &ountry an an "n+house shareho#er ser!"&"n% fun&t"on0
The hu%e syner%"es that e3"ste "n the t*o or%an"7at"ons ha!e he#pe the
$us"ness %ro* at a rap" pa&e, &atapu#t"n% the &ompany to amon% the top
t*o fun houses "n In"a.
FRAN3LIN TEMPLETON IN4ESTMENT SCHEMES
"t is their belief that individuals differ in their investment needs based on personal
financial goals. &o they recommend us that we should, at the very beginning identify our
own financial goals, be it planning for our childrenQs education or a comfortable retired
life. After defining these, one needs to plan for them in an organiFed manner and loo$ at
investments that help achieve these goals. "nvestment e<perts recommend that growth
investments such as euity funds and stoc$s are a good choice for long term needs 1five
years or more2, income funds for medium>term needs and liuid funds for short>term
reuirements.
38
MUTUAL FUNDS
The investment pyramid above illustrates a variety of investment options available.
The investments at the top of the pyramid provide greater opportunity for long>term
capital growth, while the investments at the bottom generally provide greater potential for
current income and preservation of capital. "n addition to providing one with the
fle<ibility to create an investment plan based on individual financial goals, )utual funds
also offer other benefits.
*ran@4in 'e7;4eton offers different representative asset classes to cater to the varied
investment goals of investors through the fo44o<in8 o;en6ended sche7es:
E*ran@4in India 'aBshie4d $*I',
The fund managers operate with an objective to provide medium to long term growth of
capital along with income ta< rebate.
E*ran@4in India 24uechi; *und $*I2.*,
The fund manager see$s steady and consistent growth by focusing on well established,
39
MUTUAL FUNDS
large siFe companies.
E'e7;4eton India =ro<th *und $'I=*,
The fund manager aims to provide long>term capital appreciation from a portfolio
invested predominantly in value>oriented stoc$s.
E*ran@4in India Pri7a P4us$ *IPP,
The fund manager see$s capital appreciation over the long>term by focusing on wealth
creating companies across all sectors.
E*ran@4in India *4eBi .a; *und $*I*.*,
The fund manager will invest in companies based on a research driven, bottom>up stoc$
selection process, irrespective of their mar$et capitaliFation and sectors.
E'e7;4eton India EAuity Inco7e *und $'IEI*,
The fund managers adopt a long term disciplined approach of investing and use the
style of investing along with focus on stoc$s with attractive dividend yields, both in "ndia
and overseas.
E*ran@4in 'e7;4eton India 2a4anced *und $*I2*,
The fund manager see$s to stri$e an optimum balance between growth and stability,
by maintaining diversified portfolio of euities and managing interest rate movements
and credit ris$ on the fi<ed income component.
E'e7;4eton India Pension P4an $'IPP,
'IPP is an open ended ta< saving scheme whose objective is to provide investors regular
income under the *ividend +lan and capital appreciation under the 7rowth +lan.
40
MUTUAL FUNDS
Fran&)%n Ind%a Ta4s5%e)d 6FIT7
*ran@4in India 'aBshie4d $*I', is an open ended ?uity ,in$ed &avings scheme with
an objective to provide medium to long term growth of capital along with income ta<
rebate. The investment ranges areH ?uitiesC?uity related instruments> %pto 3;;@, +&%
.onds C *ebentures> %pto A;@ and )oney )ar$et "nstruments> %pto A;@
Invest7ent *ocus
="T, an open end euity lin$ed savings scheme, is an investment which not only helps you
save on ta<es but also has the potential to give you attractive returns with convenience and
fle<ibility
Invest7ent Sty4e
The fun mana%er see.s steay %ro*th $y ma"nta"n"n% a "!ers"'e
portfo#"o of e8u"t"es a&ross se&tors an mar.et &ap ran%es0
41
MUTUAL FUNDS
Invest7ent )b>ective: Aims to provide medium to long term growth of capital along
with income ta< rebate.
+ate of A44ot7ent 6 April 3;, 3444
*und /ana8er 6 Anand Rad5a&r%s5nan
*und SiDe 6 6s. (9;.83 crores
-oad Structure
Entry -oad > A.AB@
EBit -oad 6 /",
'aB 2enefits
"nvestments will ualify for ta< benefit under the &ection 8;- as per the income ta< act.
42
MUTUAL FUNDS
SECTOR ALLOCATION8TOTAL ASSETS
0000I
5000I
10000I
15000I
20000I
25000I
2
I
=
A
=
?
<
?
O
=
1
T
J
U
?
T
I
O
=
I
=
9
U
1
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L
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)
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9
1
;
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9
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9
U
J
A
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1
?
<
;
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=
T
A
U
T
O
A
;
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I
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1
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6
O
T
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1
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<
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<
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1
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M
I
?
<
1
J
<
1
T
1<?TOJ ALLO?ATIO=+
TOTAL A11<T1
"nvestment of this =und is 43@ with ?uity, from which more amount of =und is
invested in "ndustrial -apital 7oods N lesser with +harmaceuticals.
43
MUTUAL FUNDS
Fran&)%n Ind%a B)uec5% Fund 6FIBCF7
Invest7ent Sty4e
The fund manager see$s steady and consistent growth by focusing on well established,
large siFe companies.
Invest7ent )b>ectiveH Aims to provide medium to long term capital appreciation.
+ate of A44ot7ent H *ecember 3, 3445
*und /ana8er H M./. &ivasubramanian C Anand 6adha$rishnan
*und SiDe H 6s. A'3B.88 crores
-oad Structure
Entry -oad > A.AB@
EBit -oad > /",
44
MUTUAL FUNDS
SECTOR ALLOCATION8TOTAL ASSETS
0000I
2000I
4000I
6000I
8000I
10000I
12000I
14000I
16000I
18000I
I
=
9
U
1
T
J
I
A
L

?
A
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A
L

)
O
O
9
1
L
A
=
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1
T
<
L
<
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O
;

1
<
J
M
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1

1
O
2
T
>
A
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<
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O
L
I
U
;

E
J
O
9
U
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1
?
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=
1
U
;
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J

=
O
=
+
9
U
J
A
L
L
<
1
2
I
=
A
=
?
<
A
U
T
O
?
O
;
<
=
T
T
<
N
T
I
L
<

E
J
O
9
U
?
T
1
J
<
1
T
The ?uity holdings of the fund is 4(@, from which more amount of =und is invested
"ndustrial -apital 7oods and lesser portion in Te<tile +roducts.
45
MUTUAL FUNDS
'e7;4eton India =ro<th *und $'I=*,
Invest7ent Sty4e
Templeton ?uity +ortfolio )anagers adopt a long term disciplined approach
to investing and use the widely $nown philosophy of Dvalue investing.
Invest7ent )b>ective : &ee$s to provide long term capital growth.
+ate of A44ot7ent 6 &eptember 3;, 344'
*und /ana8er 6 *r. G. )ar$ )obius
*und SiDe 6 6s. 555.'3 crores
&A9 Perfor7ance
-oad Structure
Entry -oad 7reater than 6s. B -rs H A.AB@;
,ess than 6s.B -rsH /il
EBit -oad : ,ess than 6s. B -rs H3@ if
6edeemed C switched>out within' months of allotment;
;.B@ if redeemed C switched out after months, but within 3 year of allotment.
)reater than Js05 ?rs ( 1I-"f reeeme 4s*"t&he+out *"th"n 1
year of a##otment/0
46
MUTUAL FUNDS
SECTOR ALLOCATION8TOTAL
ASSETS
0000I
2000I
4000I
6000I
8000I
10000I
12000I
14000I
16000I
18000I
E
<
T
J
O
L
I
U
;

E
J
O
9
U
?
T
1
2
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=
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<
L
<
?
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;

1
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1
2
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1

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T
A
L
1
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;
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=
T
L
A
=
B
1
O
I
L
1
O
2
T
>
A
J
<
=
O
=
+
2
<
J
J
O
U
1

;
<
T
A
L
A
U
T
O

J
<
1
T
1<?TOJ
ALLO?ATIO=+TOTAL
A11<T1
The total ?uity holdings of the fund is 49@, from which more amount of =und is
invested in =inance N +etroleum +roducts sector.
47
MUTUAL FUNDS
Fran&)%n Ind%a 'r%#a ')us6 FI''7
Invest7ent Sty4e
The fund manager see$s capital appreciation over the long>term by focusing on wealth
creating companies 1companies that generate return on capital in e<cess of their cost of
capital2 across all sectors.
Invest7ent ob>ective : Aims to provide growth of capital plus regular dividend.
+ate of A44ot7ent 6 &eptember A4, 344(
*und /ana8er 6 &u$umar 6ajah C Anand 6adha$rishnan
*und SiDe 6 6s. 35'B.98 crores
-oad Structure
Entry -oad ,ess than 6s. B -rs H A.AB@;
7reater than 6s.B -rs H /il
EBit -oad: -ess than (s. F .rs H3@ if
redeemedCswitched>out within ' months of allotment;
-ess than (s. F .rs :;.B@ if redeemedC switched out after ' months, but
within 3 year of allotment.
=reater than (s.F .rs : 31if redeemedCswitched>out within 3 year of
allotment2
48
MUTUAL FUNDS
SECTOR ALLOCATION8TOTAL
ASSETS
0000I
5000I
10000I
15000I
20000I
25000I
L
A
=
B
1
;
<
9
I
A
K
<
=
T
<
J
T
A
I
=
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=
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I
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9
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1
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9
1
2
I
=
A
=
?
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=
1
U
;
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J

=
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=
+
9
U
J
A
L
L
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1
T
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L
<
?
O
;

1
<
J
M
I
?
<
1
E
<
T
J
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L
<
U
;

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J
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9
U
?
T
1
1
O
2
T
>
A
J
<
?
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;
<
=
T
?
O
=
1
T
J
U
?
T
I
O
=
J
<
1
T
1<?TOJ
ALLO?ATIO=+TOTAL
A11<T1
The ?uity holdings is 4A@, from which more amount of =und is invested in ban$ing
sector, whereas in Auto Ancillaries is very minute
49
MUTUAL FUNDS
Te#)eton Ind%a E0u%ty Inco#e Fund 6TIEIF7
Invest7ent Sty4e
Temp#eton <8u"ty Eortfo#"o ;ana%ers aopt a #on% term "s&"p#"ne
approa&h of "n!est"n% an use the !a#ue sty#e of "n!est"n% a#on% *"th fo&us on
sto&.s *"th attra&t"!e "!"en y"e#s, $oth "n In"a an o!erseas0
Invest7ent )b>ective ( &ee$s to provide a combination of regular income and long>term
capital appreciation by investing primarily in stoc$s that have a current or potentially
attractive dividend yield.
+ate of A44ot7ent 6 )ay 38, A;;'
*und /ana8er 6 *r. G. )ar$ )obius Assisted by -hetan &ehgal, 0i$as -hiranwal
*und SiDe 6 6s. 3'89.5B crores
-oad Structure
Entry: -ess than (s. F .rs H A.AB@;
=reater than (s.F .rsH /il
EBit: -ess than (s. F .rs H3@ if redeemedCswitched>out within ' months of allotment;
;.B@ if redeemedCswitched out after' months, but within 3 year of allotment
=reater than (s.F .rs H 3@1if redeemedCswitched>out within 3 year of allotment2
50
MUTUAL FUNDS
SECTOR ALLOCATION8TOTAL
ASSETS
0000I
5000I
10000I
15000I
20000I
25000I
30000I
I
=
9
U
1
T
J
I
A
L

?
A
E
I
T
A
L

)
O
O
9
1
L
A
=
B
1
1
O
2
T
>
A
J
<
T
<
L
<
?
O
;

1
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1
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;
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=
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=
1
U
;
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J

=
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=
+
9
U
J
A
L
L
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1
;
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9
I
A

K

<
=
T
<
J
T
A
I
=
;
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=
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I
=
9
U
1
T
J
I
A
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J
O
9
U
?
T
1
A
U
T
O
?
O
=
1
T
J
U
?
T
I
O
=

J
<
1
T
1<?TOJ ALLO?ATIO=+
TOTAL A11<T1
The investment in ?uity holdings is 4A@, from which major portion is invested in
"ndustrial -apital 7oods in minor in -onstruction.
51
MUTUAL FUNDS
Fran&)%n Te#)eton Ind%a Ba)anced Fund 6FTIBF7
FT Ind%a Ba)anced Fund 6FTIBF7 "s an open ene $a#an&e s&heme
*"th an o$je&t"!e to pro!"e #on% term %ro*th of &ap"ta# an &urrent "n&ome0
Ly "n!est"n% "n e8u"ty, e8u"ty re#ate se&ur"t"es an '3e "n&ome "nstruments0
The "n!estment ran%es are( <8u"t"es4<8u"ty re#ate "nstruments+ 51I to 70I,
2"3e In&ome an ;oney ;ar.et Instruments+ 30I to 20I0 "n&#u"n% h"%h
8ua#"ty se&ur"t"se e$t up to a ma3"mum #"m"t of 10I of the s&heme:s
&orpus0
+ate of A44ot7ent 6 *ecember 3;, 3444
*und /ana8ers 6 Anand 6adha$rishnan&achin +adwal>*esai N/inad *eshpande
*und SiDe 6 6s. A8(.;B crores
Invest7ent )b>ective
=T".= is the right allocation between shares of wealth>creating companies and high uality
debt instruments can give you the perfect balance between growth and stability.
Invest7ent Sty4e
The fun mana%er see.s to str".e an opt"mum $a#an&e $et*een %ro*th
an sta$"#"ty, $y ma"nta"n"n% "!ers"'e portfo#"o of e8u"t"es an mana%"n%
"nterest rate mo!ements an &re"t r"s. on the '3e "n&ome &omponent0
-oad Structure
Entry -oad 6A.AB@
EBit -oad ! /",
52
MUTUAL FUNDS
SECTOR ALLOCATION8E,UIT-
.OLDIN9
0000I
5000I
10000I
15000I
20000I
25000I
I
=
9
U
1
T
J
I
A
L

?
A
E
I
T
A
L

)
O
O
9
1

L
A
=
B
1
1
O
2
T
>
A
J
<
2
I
=
A
=
?
<
T
<
L
<
?
O
;

1
<
J
M
I
?
<
1
?
<
;
<
=
T
E
<
T
J
O
L
<
U
;

E
J
O
9
U
?
O
1
?
O
=
1
U
;
<
J

=
O
=
+
9
U
J
A
L
L
<
1
A
U
T
O
I
=
9
U
1
T
J
I
A
L

E
J
O
9
U
?
T
1
J
<
1
T
1<?TOJ ALLO?ATIO=+
<PUITO 6OL9I=)
The =unds total investment in ?uity is '(@, from which more amount of =und is
invested in .an$s N "ndustrial -apital 7oods, whereas investment in 6etailing N
+harmaceuticals is lesser.
53
MUTUAL FUNDS
Te#)eton Ind%a 'ens%on ')an 6TI''7
In!estment 1ty#e
The fun mana%er see.s steay &ap"ta# appre&"at"on $y ma"nta"n"n%
"!ers"'e portfo#"o of e8u"t"es an see.s to earn re%u#ar "n&ome on the '3e
"n&ome &omponent $y mana%"n% "nterest rate mo!ements an &re"t r"s.0
In!estment O$je&t"!e ( T"++ is an open ended ta< saving scheme whose objective is
to provide investors regular income under the *ividend +lan and capital
appreciation under the 7rowth +lan.
+ate of A44ot7ent 6 )arch 53, 3449.
*und /ana8ers + Anand Rad5a&r%s5nan : N%nadDes5ande ;
Sac5%n 'ad<a)8Desa%.
*und SiDe 6 6s. 3B9.(3 crores.
-oad Structure
Entry -oad 6 A.AB@
EBit -oad 6 5@,if redeemed before the age of B8 years1subject to a 5 year loc$>in
period2/",, if redeemed after the age of B8 years.
'aB 2enefits
In"est#ents <%)) 0ua)%2y 2or ta4 !ene(t under t5e Sect%on =>C
as er t5e %nco#e ta4 act.
54
MUTUAL FUNDS
SECTIOR ALLOCATION8E,UIT-
.OLDIN9
0000I
5000I
10000I
15000I
20000I
25000I
I
=
9
U
1
T
J
I
A
L
?
A
E
I
T
A
L
L
A
=
B
1
1
O
2
T
>
A
J
<

2
I
=
A
=
?
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T
<
L
<
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1
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1
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9
U
?
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1
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=
1
U
;
<
J
=
O
=
+
A
U
T
O
I
=
9
U
1
T
J
I
A
L
E
J
O
9
U
?
T
1
J
<
1
T
1<?TIOJ
ALLO?ATIO=+<PUITO
6OL9I=)
The ?uity holdings is 5B@ from which more amount of =und is invested in .an$s N
"ndustrial -apital 7oods, whereas investment in "ndustrial products is lesser.
55
MUTUAL FUNDS
COM'UTIN9 -OUR MUTUAL FUND RETURNS
6amesh opened the morning papers and straight away went to the mar$ets page, where
he chec$ed out the /A0 of RJS )utual =unds scheme, which he had invested . Ie was
happy to see that the /A0 had moved from 6s. 3( to 6s. 3B. Iis cost per unit was 6s. 3;
1since he had invested in the schemes /=:2. That gave him profit of 6s. B per unit.
Thats a decent B; per cent. .ut 6amesh is wrongT Iis profit is actually much lower
because he has not ta$en into consideration the time period of investment. 6amesh has
stayed invested in this scheme for A years. "f this time period is considered, his
annualiFed return is AB per cent and not B; per cent, as he believes.
-omputing the return on investment on your mutual funds can be done in various ways.
A2S)-%'E (E'%(&S
:ne of the ways is called Dabsolute return. "n this method, one ignores the time
period and simply ta$es the difference between mar$et value and cost as a percentage of
cost. This is the way 6amesh has computed his investment return at B; per cen.
A&&%A-IGE+ (E'%(&S
"n this method, one considers the time period of investment. Iere, one considers
the difference between mar$et value and cost, divides this difference by the cost,
multiplies by 3A monthsC 5'B days and divides by the number of monthsCdays one has
stayed invested. "n 6ameshs case the computation isH BC3; < 3 year C A years. #hen
6amesh applied this method, his returns wor$ed out to AB per cent.
ASSESSI&= PE(*)(/A&.E
/ow, whether one ta$es absolute returns or annualiFed returns, one must not
judge the performance of the mutual fund on a standalone basis one must consider the
performance vis>U>vis the funds competitors and the benchmar$ inde< of the fund. =or
instance, for 6amesh, the benchmar$s inde< of the fund. =or instance, for 6amesh, the
benchmar$ inde< of RJS )utual =und scheme was .&? &ense<, which had given an
absolute return of '; per cent and an annualiFed return of 5; per cent during the same
56
MUTUAL FUNDS
time period that 6amesh had invested in the scheme. -learly, the scheme had under>
performed its benchmar$ inde<.
Another way of assessing performance is by considering the average performance of all
schemes in the category. Again in 6ameshs case, RJS )utual =und scheme was an
euity diversified scheme. The average absolute return offered by all euity diversified
schemes was (B per cent and annualiFed return was AA.B per cent during the same period
as 6amesh was invested in RJS )utual =und scheme. -learly, RJS )utual =unds
scheme had done better than the category average. "nformation about returns of mutual
fund schemes and comparison between their benchmar$ indices and averages of the
categories they fall under are available on the internet in websites such as
mutualfundsindia.com, valueresearchonline.com, myiris.com, etc.
P(ESE&' PE(*)(/A&.E
As on 3A

Guly ;9, average annualiFed returns offered by euity diversified
schemes for 3 year, 5 years and B years are ((.(3 per cent, (9.3( per cent and (;.53 per
cent respectively. *uring the 3>year, 5>year and B>year periods, the .&? &ense< has given
returns of 58.;8 per cent, (B.;' per cent and 5B.(' per cent respectively. -learly, euity
diversified funds have outperformed this inde< throughout these periods.
.)&.-%SI)&
*ont be simplistic while assessing the performance of your mutual fund
investments. %se smart computation strategies to judge the performance of your
investments vis>U>vis benchmar$s and competitors.
(E'%(&S )**E(E+ 2C EH%I'C +I9E(SI*IE+ *%&+S
1 Cear 3 Cear F Cears
Average ((.(3 (9.3( (;.53
.&? &ense< 58.;8 (B.;' 5B.('
As on 3A Guly ;9 6eturns are annualiFed
6eturns considered for the Dgrowth option.
57
MUTUAL FUNDS
3ISIT TO Fran&)%n Te#)eton #utua) 2und
To understand and study the mutual funds concept in detail, " visited the *ran@4in
'e7;4eton Asset /ana8e7ent Pvt.-td. at .andra>Mulra -omple< 1Iead :ffice2on A9
th
August A;;9. " interviewed )r. 7irish Malra 1)ar$eting )anager2 he spared some of his
valuable time to e<plain in brief about the mutual fund system in their organiFation N he
also answered to my uestions.
The following are the uestions as$ed to )r. 7irish MalraH>
Bar"shma -I as.e/ ( >hat "s a ;utua# 2unQ
Mr.9%r%s5 re)%ed: A ;utua# 2un "s an "n!estment too# that a##o*s sma##
"n!estors a&&ess to a *e##+"!ers"'e portfo#"o of e8u"t"es,
$ons an other se&ur"t"es0 The $eauty of mutua# funs "s that
anyone *"th an "n!est"$#e surp#us of a fe* hunre rupees &an
"n!est an reap returns as h"%h as those pro!"e $y the
e8u"ty mar.ets or ha!e a steay an &omparat"!e#y se&ure
"n!estment as o5ere $y e$t "nstruments0
I as.e ( >hat oes a ;utua# 2un o *"th "n!estorCs moneyQ
Mr.9%r%s5 re)%ed: Any$oy *"th an "n!est"$#e surp#us &an "n!est "n mutua# funs0
A ;utua# 2un "n!ests the poo# of money &o##e&te from the
"n!estors "n a ran%e of se&ur"t"es &ompr"s"n% e8u"t"es, e$t, et&0
after &har%"n% for the A;? fees0
I as.e( >hat "s =et Asset Ma#ue -=AM/Q
Mr.9%r%s5 re)%ed: =et asset !a#ue -=AM/ represents the mar.et !a#ue of a## assets
per un"t, he# $y the fun0 2or an "n!estor, "t s"mp#y s"%n"'es the
&urrent !a#ue of h"s or her "n!estment "n the fun0
I as.e ( "s there a guaranteed return on the mutual fundsV
Mr.9%r%s5 re)%ed: =o, *e o not %"!e any %uarantees on the returns on any of our
funs0
58
MUTUAL FUNDS
" as$edH #hat are the types of returns one can e<pect from a )utual =undV
/r.=irish re;4ied: )utual =unds give returns in two ways > -apital Appreciation or *ividend
*istribution. An increase in the value of the units of the fund is $nown as
capital appreciation. The profit earned by the fund is distributed among unit
holders in the form of dividends is called *ividend distribution.
I as.e( Are mutual funds insuredV
Mr.9%r%s5 re)%ed: =o0 ;utua# fun un"ts are not "nsure0 There "s no %uarantee
that *hen you se## your shares, you *"## re&e"!e *hat you pa" for
them0 6o*e!er, $e&ause mutua# fun "n!estments are more r"s.y
than "nsure "n!estments, they %enera##y o5er potent"a# for h"%her
#on%+term returns0
" as$edH #hy one should invest in mutual fundsV
Mr.9%r%s5 re)%ed: ;utua# funs ha!e 8ua#"'e profess"ona#s *ho mana%es
the fun for "n!estors0 ;utua# funs m"n"m"7e r"s. $y &reat"n%
a "!ers"'e portfo#"o *h"#e pro!""n% the ne&essary #"8u""ty0
I as.e( #hy should one invest in =ran$lin Templeton )utual =undsV
Mr.9%r%s5 re)%ed :

In In"a, 2ran.#"n Temp#eton In!estments "s one of the #ar%est
Asset mana%ement &ompan"es *"th o!er Js0 26,469&rores of assets
for o!er 20 #a.h "n!estor a&&ounts0It o5ers 240 prou&ts *or#*"e
an has 60 years of e3per"en&e "n "nternat"ona# "n!estment
mana%ement0
I as.e( TAR implications for the mutual fund
Mr.9%r%s5 re)%ed : Ta4 !ene(t to t5e Fund. Temp#eton ;utua# 2un "s
re%"stere *"th 1<LI an as su&h, the ent"re "n&ome of the 2un "s
e3empt from "n&ome ta3 uner 1e&t"on 10-239/ of the A&t an "s
ent"t#e to re&e"!e "n&ome *"thout any eu&t"on of ta3 at sour&e0

59
MUTUAL FUNDS
SUR3E- RE'ORT
TI? +?6-?/TA7? := +?:+,? #I: A6? A#A6? A.:%T
)%T%A, =%/*&.
98I O2 E<OEL<
AJ< A>AJ< O2
;UTUTAL 2U=91
2I O2 E<OEL<
AJ< =OT A>AJ<
O2 ;UTUAL
2U=91
A):/7 TI? +?:+,? A#A6?, +?6-?/TA7? := +?:+,?
"/0?&T?*.
54IAJ<
I=TM<1T<9
46I AJ< =OT
I=M<1T<9
60
MUTUAL FUNDS
+?:+,? "/T?6?&T?* "/ "/0?&T"/7 "/ )%T%A, =%/*&
68I O2 E<OEL<
I=T<J<1T<9 I=
I=M<1TI=)
32I O2 E<OEL<
=OT I=T<J<1T<9
I= I=M<1TI=)
+?:+,? #I: A6? "/T?6?&T?*,#I"-I )%T%A, =%/* *: TI?J
+6?=?6
0I
10I
20I
30I
40I
50I
60I
70I
2JA=BLI=
T<;EL<TO=
;UTUAL 2U=9
J<LIA=?<
;UTUAL 2U=9
1LI ;UTUAL
2U=9
OT6<J 2U=91
61
MUTUAL FUNDS
+?:+,? +6?=?6 )%T%A, =%/* .?-A%&? := H>
+?:+,? +6?=?6"/7 *"==?6?/T ):*? := +AJ?)?/T
Ana)ys%s(+ 2rom the 1ur!ey "t "s &on&#ue that most of the peop#e are
a*are a$out ;utua# 2uns0 Amon% the peop#e *ho are "ntereste "n "n!est"n%,
are most#y .een to "n!est "n 2ran.#"n ;utua# fun on month#y $as"s p#an0
62
MUTUAL FUNDS
SH(I .HI&AI .)--E=E )* .)//E(.E I E.)&)/I.S
Survey for Pro>ect on /%'%A- *%&+S.
/ameH>
*esignationH>
&ignH>
-ontact /o. H>
32 *o you $now what is )utual =undsV
Jes /o
A2 Iave you invested in )utual =undsV
Jes /o
52 *o you plan to invest in )utual =unds in futureV
Jes /o
(2 #hich )utual =und would you li$e to prefer for investing !
6eliance )utual =und. =ran$lin Tempelton )utual =und.
&." )utual =und. :ther )utual =unds.
B2 #hy would you prefer, )utual =unds, because of !
Iigher 6eturns. ,ow 6is$.
'2 #hat types of schemes would you preferV
&"+1 )onthly "nvestment +lan2 :ne Time "nvestment
-omment
Pro>ect =uide ! Survey .onducted 2y 6
Marishma 7ondalwala
+rof. ,eena /air
T.J.....".
RE4IE5 OF LITERATURE
63
MUTUAL FUNDS

T")?& := "/*"A
?-:/:)"- T")?&

E%:T?& := =6A/M,"/ N T?)+,?T:/
64
MUTUAL FUNDS
=ran$lin
A famous investor once said the $ey to success was simpleH D buy straw hats in the
winter. And thats what we try to do. #e buy things when they are out of favor, believing
we will be rewarded for patience and foresight.
W .ill ,ippman
O+resident of advisory services and portfolio
manager.P

Templeton
"nvestors are the people who buy for fundamental values. &peculators are those who
buy in the hope of selling later to someone else at high prices.
W &ir Gohn Templeton
=ounder and =ormer -hairman
OIe is no longer affiliated with the Templeton
organiFation.P
)utual &eries
#e care about what companies would be worth if they were put up for auction and
sold. And we want to buy it for ';@ of that.
W )ichael +rice
O-hairman of the board of =ran$lin )utual &eries
=und.P
.onc4usion
65
MUTUAL FUNDS
)utual fund is in e<istence since 34'( but as the awareness increased the
demand also increased simultaneously. "t is increasing by 3;times in a span
of Byears $19"#61993,.at rapid increase the future prospects of mutual fund
is tremendously huge. =rom &urvey 6eport it is concluded that 48@ of the
people are aware about )utual =und. And in our busy lifes we dont have
time to manage N ta$e care of our portfolio. )utual =unds are seen to be in
boom N demand is not e<pected to decrease. As our money is safe as our
funds are distributed in different sectors.
BIBLIO9RA'.-
66
MUTUAL FUNDS
2))1S (E*E((E+
o A)=" )utual =und Test ! #or$boo$.
/A=AGI&ES
O :%T,::M ):/?J
O "/0?&T")? 10:,82

&E0SPAPE(S
O ?-:/:)"-& T")?&
O T")?& := "/*"A
o +amphlets and newsletters from =ran$lin Templeton.
)'HE(S
o ,iterature from &toc$ Iolding -orporation of "ndia.
o Mey "nformation )emorandum ! Templeton )utual =und.
o =act sheet of Templeton )utual =und.
0E2 SI'ES:
o #eb site ! www.fran$lintempletonindia.com
o #eb site ! www.templetonindia.com
o #eb site ! www.amfiindia.com
o #eb site ! www.rbi bulletin.com
67
MUTUAL FUNDS

68