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A REPORT ON DESCRIPTIVE STUDY OF MUTUAL FUNDS AND STUDY OF INVESTORS PERCEPTION ABOUT INVESTMENT IN MUTUAL FUNDS Undertaken at

ANAND RATHI SECURITIES LTD. JAMMU.

Submitted

By

JIMY GANHAR ROLL NO. 15/MBA/06

Submitted To

Dr. Ravi Kumar Gupta
H.O.D

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STUDENT’S DECLARATION
I, Jimy Ganhar, student of M.B.A , here by declare that project entitled “Descriptive Study of

Mutual Funds and Study of Investors Behaviour of Investment in Mutual Funds “ submitted in the partial fulfillment of the
degree for Master of Business Administration to “VCE,ROHTAK“ is of my own accurate work. I further declare that all the facts and figures furnished in this project report are the outcome of my own intensive research and findings.

Submitted By Jimy Ganhar

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ACKNOWLEDGEMENT

“Expression of feelings by words

makes them less significant when it comes to make statement of gratitude”
It gives me pleasure to express my most profound regards and sense of great indebtedness and sincere gratitude to my Company Guide Mr. Devinder Singh Jamwal (Regional Manager, Anand Rathi Securities ltd. Jammu). I would thank to my project guide Dr. Ravi Kumar Gupta for his guidance in preparing this report. I would also like to thank my co employees who gave guidance and support during the completion of the project. Jimy Ganhar

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CONTENTS
CHAPTER 1 1.0 1.1 Summary Company Profile

CHAPTER 2

2.0 INTRODUCTION 2.1 Overview of Indian Mutual Fund Industry 2.2 About Mutual Funds 2.3 How Mutual Funds is Structured 2.4 Mutual Funds History 2.5 Types of Mutual Funds 2.6 Mutual Funds v/s Banks 2.7 Benefits of Investment in Mutual Funds 2.8 Accounting and Valuation

3.0 MAJOR PLAYERS CHAPTER 3 3.1 About major Mutual Funds Companies 3.2 Competition in Mutual Fund Industry

CHAPTER 4

OBJECTIVES AND METHODOLOGY

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4.1 Significance of the Study 4.2 Managerial Usefulness of the Study 4.3 Objectives 4.4 Scope of the Study 4.5 Methodology CHAPTER 5 5.1 5.2 5.3 DATA ANALYSIS AND INTERPRETATION FINDINGS LIMITATIONS

CHAPTER 6 6.1 Annexure 6.2 Bibliography

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SUMMARY

Indian Stock market has undergone tremendous changes over the years. Investment in Mutual Funds has become a major alternative among Investors. The project has been carried out to have an overview of Mutual Fund Industry and to understand investor’s perception about Mutual Funds in the context of their trading preference, explore investor’s risk perception & find out their preference over Top Mutual funds. The methodology used was data collection using Schedule. Secondary data was collected from Internet and Books . Primary Data was collected through survey among existing clients along with the other investors. The procedure adopted to select sample was simple random sampling

The research design is analytical in nature. A questionnaire was prepared and distributed to Investors. The investor’s profile is based on the results of a questionnaire that the Investors completed. The Sample consists of 100 investors from various broker’s premises. The target customers were Investors who are trading in the stock market. The area of survey was restricted to people residing in JAMMU.

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COMPANY PROFILE

ORGANIZATION HISTORY

• • • •

Company Profile Milestones AR Core Strengths Management Team

About AnandRathi

AnandRathi (AR) is a leading full service securities firm providing the entire gamut of financial services. The firm, founded in 1994 by Mr. AnandRathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealth management, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutual funds and insurance, structured products - all of which are supported by powerful research teams. The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition to clients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firm activities are divided across distinct client groups: Individuals, Private Clients, Corporate and Institutions and was recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich. In year 2007 Citigroup Venture Capital International joined the group as a financial partner.
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Equity & Derivatives Brokerage
AnandRathi provides end-to-end equity solutions to institutional and individual investors. Consistent delivery of high quality advice on individual stocks, sector trends and investment strategy has established us a competent and reliable research unit across the country.

Clients can trade through us online on BSE and NSE for both equities and derivatives. They are supported by dedicated sales & trading teams in our trading desks across the country. Research and investment ideas can be accessed by clients either through their designated dealers, email, web or SMS

Milestones
1994: Started activities in consulting and Institutional equity sales with staff of 15

1995: Set up a research desk and empanelled with major institutional investors

1997: Introduced investment banking businesses Retail brokerage services launched
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1999: Lead managed first IPO and executed first M & A deal

2001: Initiated Wealth Management Services

2002: Retail business expansion recommences with ownership model

2003: Wealth Management assets cross Rs1500 crores Insurance broking launched Launch of Wealth Management services in Dubai Retail Branch network exceeds 50

2004: Commodities brokerage and real estate services introduced Wealth Management assets cross Rs3000crores Institutional equities business re-launched and senior research team put in place
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Retail Branch network expands across 100 locations within India

2005: Real Estate Private Equity Fund Launched Retail Branch network expands across 200 locations within India

2006: AR Middle East, WOS acquires membership of Dubai Gold & Commodity Exchange (DGCX) Ranked amongst South Asia's top 5 wealth managers for the ultra-rich by Asia Money 2006 poll Ranked 6th in FY2006 for All India Broker Performance in equity distribution in the High Net worth Individuals (HNI) Category Ranked 9th in the Retail Category having more than 5% market share Completes its presence in all States across the country with offices at 300+ locations within India

2007:Citigroup Venture Capital International picks up 19.9% equity stake Retail customer base crosses 100 thousand Establishes presence in over 350 locations

AR Core Strengths
Breadth of Services
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In line with its client-centric philosophy, the firm offers to its clients the entire spectrum of financial services ranging from brokerage services in equities and commodities, distribution of mutual funds, IPO’s and insurance products, real estate, investment banking, merger and acquisitions, corporate finance and corporate advisory.

Clients deal with a relationship manager who leverages and brings together the product specialists from across the firm to create an optimum solution to the client needs.

Management Team
AR brings together a highly professional core management team that comprises of individuals with extensive business as well as industry experience.

In-Depth Research

Our research expertise is at the core of the value proposition that we offer to our clients. Research teams across the firm continuously track various markets and products. The aim is however common - to go far deeper than others, to deliver incisive insights and ideas and be accountable for results.

Management Team The senior Management comprises a diverse talent pool that brings together rich experience from across industry as well as financial services.

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Mr. Anand Rathi - Group Chairman Chartered Accountant Past President, BSE Held several Senior Management positions with one of India's largest industrial groups Mr. Pradeep Gupta - Vice Chairman Plus 17 years of experience in Financial Services Mr. Amit Rathi - Managing Director Chartered Accountant & MBA Plus 11 years of experience in Financial Services

ACQUISITION: ANZ Grind lays : $ 1.34 bn from August 2000.

Hong Kong Consumer Bank: $ 1.32 bn Thailand Nakornthan Bank Indonesians Bank Per-Mata Korea First Bank : $ 320 million : $ 366 million from Oct. 2004. : $ 3.3 bn from Apr. 2005.

Standard Chartered PLC is listed on both the London Stock Exchange and the Stock Exchange of Hong Kong and is in the top 25 FTSE-100 companies, by market capitalization. Top 100 companies list, no other bank
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present except Bank of America’s position 69th and position of standard chartered bank is 74th. Offices of ANANDRATHI are in 197 cities across 28 states & it has also branches in Dubai & Bangkok with more than 44000 employees. It has daily turnover in excess of Rs.4bn. It has 1, 00,000+ clients nationwide. It is also leading distributor of IPO’s.

In India where ANANDRATHI is present in 21 STATES: Andhra Pradesh Assam Bihar Chhattisgarh Delhi Goa Gujrat Haryana Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh Maharashtra Orissa Punjab Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal West Bengal

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LIST OF PRODUCTS :

 Demat Accounts  Mutual Funds  Derivatives  Commodities  Bonds  Trading Account  Insurance

MISSION
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To be India's first Multinational providing complete financial services solution across the globe

VISION Providing integrated financial care driven by the relationship of trust and confidence.

INTRODUCTION
Investment in share markets are influenced by the analysis & reasoning which help in predicting the market to some extent. Over the past years a number of technical & theories for analysis have evolved, these combined with modern technology guides the investor. The big players in the
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market, like Foreign Institutional Investors, Mutual Funds, etc. have the expertise for various analytical tools & make use of them. The small investors are not in a position to benefit from the market the way Mutual Funds can do. Generally a small investor’s investments are based on market sentiments, inside information, through grapevine, tips & intuition. The small investors depend on brokers and brokerage house for his investments. They can invest through the Mutual Funds who are more experienced and expert in this field than a small investor himself.

In recent years a large number of players have entered into his market. The project has been carried out to have an overview of Mutual Fund Industry and to understand investor’s perception about Mutual Funds in the context of their trading preference, explore investor’s risk perception & find out their preference over Top Mutual

INDUSTRY PROFILE
Structure of the Indian Mutual Fund industry The largest categories of Mutual Funds are the ones floated by the private sector and by Foreign Asset Management Companies. The largest of these are Prudential ICICI AMC and Birla Sun Life AMC. The aggregate corpus of assets managed by this category of AMCs is in excess of Rs.350 bn.
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Earlier the Indian Mutual Fund industry was dominated by the Unit Trust of India which has a total corpus of Rs.700 bn collected from more than 20 million investors. The UTI has many funds/schemes in all categories i.e. equity, balanced, income etc. with some being open-ended and some being closed-ended. The Unit Scheme 1964 commonly referred to as US 64, which is a balanced fund, is the biggest scheme with a corpus of about Rs.200 bn. UTI was floated by financial institutions and is governed by a special Act of Parliament. Most of its investors believe that the UTI is government owned and controlled, which, while legally incorrect, is true for all practical purposes. The second largest categories of mutual funds are the ones floated by nationalized banks. Canbank Asset Management floated by Canara Bank and SBI Funds Management floated by the State Bank of India are the largest of these. GIC AMC floated by the General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The aggregate corpus of funds managed by this category of AMCs is about Rs.200 bn.

ABOUT MUTUAL FUNDS
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund

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Saving s Unit s

AMC Trus t Return s Investment s

Unit holders

Registrar

SEBI

Trust Custodian AMC

• The structure of Mutual Funds in India is governed by SEBI (Mutual Fund) Regulations, 1996. • It is mandatory to have a three tier structure of Sponsor – Trustee – Asset Management Company. • The trust is established by a Sponsor or more than one sponsor who is like a promoter of a company. He appoints the Trustees who are responsible to the investors of the fund. • The Trustees of the mutual fund hold its property for the benefit of the unit holders. • Asset Management Company (AMC) approved by SEBI is the business face of the mutual fund as it manages all the affairs of the fund by making investments in various types of securities.

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• Custodian, who is registered with SEBI, holds the securities of various schemes of the funds in its custody.

WHY MUTUAL FUNDS An investor normally prioritizes his investment needs before undertaking an investment. So different goals will be allocated different proportions of the total disposable amount. Investments for specific goals normally find their way into the debt market as risk reduction is of prime importance. This is the area for the riskaverse investors and here, mutual funds are generally the best option. The reasons are not difficult to see. One can avail of the benefits of better returns with added benefits of anytime liquidity by investing in open-ended debt funds at lower risk. Many people have burnt their fingers by investing in fixed deposits of companies who were assuring high returns but have gone bust in course of time leading to distraught investors as well as pending cases in the Company Law Board. This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices
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SUMMER INTERNSHIP PROJECT of the securities as a result of interest rate variation and one can benefits from any such price movement. Apart from liquidity, these funds have also provided very good post-tax returns on year to year basis. Even historically, we find that some of the debt funds have generated superior returns at relatively low level of risks. On an average debt funds have posted returns over 10 percent over one-year horizon. The best performing funds have given returns of around 14 percent in the last one-year period. In nutshell we can say that these funds have delivered more than what one expects of debt avenues such as post office schemes or bank fixed deposits. Though they are charged with a dividend distribution tax on dividend payout at 10 percent (plus a surcharge of 10 percent), the net income received is still tax free in the hands of investor and is generally much more than all other avenues, on a post tax basis. Moving up in the risk spectrum, we have people who would like to take some risk and invest in equity funds/capital market. However, since their appetite for risk is also limited, they would rather have some exposure to debt as well. For these investors, balanced funds provide an easy route of investment. Armed with the expertise of investment techniques, they can invest in equity as well as good quality debt thereby reducing risks and providing the investor with better returns than he could otherwise manage. Since they can reshuffle their portfolio as per market conditions, they are likely to generate moderate returns even in pessimistic market conditions.

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SUMMER INTERNSHIP PROJECT This risk of default by any company that one has chosen to invest in, can be minimized by investing in mutual funds as the fund managers analyze the companies’ financials more minutely than an individual can do as they have the expertise to do so. They can manage the maturity of their portfolio by investing in instruments of varied maturity profiles. Since there is no penalty on pre-mature withdrawal, as in the cases of fixed deposits, debt funds provide enough liquidity. Moreover, mutual funds are better placed to absorb the fluctuations in the prices of the securities as a result of interest rate variation and one can benefits from any such price movement. Next come the risk takers. Risk takers by their very nature, would not be averse to investing in high-risk avenues. Capital markets find their fancy more often than not, because they have historically generated better returns than any other avenue, provided, the money was judiciously invested. Though the risk associated is generally on the higher side of the spectrum, the return-potential compensates for the risk attached. Capital markets interest people, albeit not all for there are several problems associated. First issue is that of expertise. While investing directly into capital market one has to be analytical enough to judge the valuation of the stock and understand the complex undertones of the stock. One needs to judge the right valuation for exiting the stock too. It is very difficult for a small investor to keep track of the movements of the market. Entrusting the job to experts, who watch the trends of the market and analyze the valuations of the stocks will solve this problem for an investor. Mutual funds specialize in identification of stocks through
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SUMMER INTERNSHIP PROJECT dedicated experts in the field and this enables them to pick stocks at the right moment. Sector funds provide an edge and generate good returns if the particular sector is doing well. Next problem is that of funds/money. A single person can’t invest in multiple highpriced stocks for the sole reason that his pockets are not likely to be deep enough. This limits him from diversifying his portfolio as well as benefiting from multiple investments. Here again, investing through MF route enables an investor to invest in many good stocks and reap benefits even through a small investment. This not only diversifies the portfolio and helps in generating returns from a number of sectors but reduces the risk as well. Though identification of the right fund might not be an easy task, availability of good investment consultants and counselors will help investors take informed decision.

How are the Mutual Funds Structured?
The Mutual Funds are structured in two forms: Company form and Trust form.
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Company Form: These forms of mutual funds are more popular in US.

Trust Form: In India, mutual funds are organized as Trusts. The Trust is either managed by a Board of Trustees or by a Trustee Company. There must be at least 4 members in the Board of Trustees and at least 2/3 of the members of the board must be independent. Trustee of one mutual fund cannot be a trustee of another mutual fund.

Unit Trusts – Constituents:

A Mutual Fund is set up in the form of a Trust which has the following constituents:1. Fund Sponsor 2. Mutual Fund as Trust 3. Asset Management Company 4. Other Fund Constituents 4.1. 4.2. Custodian and Depositors Brokers
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4.3. 4.4.

Transfer Agent Distributors

FUND SPONSOR
What a promoter is to a company, a sponsor is to a mutual fund. The sponsor initiates the idea to set up a mutual fund. It could be a financial services company, a bank or a financial institution. It could be Indian or foreign. It could do it alone or through a joint venture. In order to run a mutual fund in India, the sponsor has to obtain a license from SEBI. For this, it has to satisfy certain conditions, such as on capital and profits, track record (at least five years in financial services), default-free dealings and a general reputation for fairness. The sponsor must have been profit making in at least 3 years of the above 5 years. The Sponsor appoints the Trustees, Custodian and the AMC with the prior approval of SEBI and in accordance with SEBI Regulations. Like the company promoter, the sponsor takes big-picture decisions related to the mutual fund, leaving money management and other such nitty-gritty to the other constituents, whom it appoints. The sponsor should inspire confidence in you as a money manager and, preferably, be profitable. Financial muscle, so long as it is complemented by good fund management, helps, as money is then not an impediment for the mutual fund- it can hire the best talent, invest in technology and continuously offer high service standards to the investors. In the days of assured return schemes, sponsors also had to fulfill return promises made to the unit holders. This sometimes meant meeting shortfalls from their own pockets, as the government did for UTI. Now that assured return schemes are passed, such bailouts won’t be required. All things
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considered, choose sponsors who are good money managers, who have a reputation for fair business practices and who have deep pockets.

TRUST
The Mutual Fund is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882 by the Sponsor. The trust deed is registered under the Indian Registration Act, 1908. The Trust appoints the Trustees who are responsible to the investors of the fund.

TRUSTEES
Trustees are like internal regulators in a mutual fund, and their job is to protect the interests of the unit holders. Trustees are appointed by the sponsors, and can be either individuals or corporate bodies. In order to ensure they are impartial and fair, SEBI rules mandate that at least two-thirds of the trustees be independent, i.e., not have any association with the sponsor. Trustees appoint the AMC, which subsequently, seeks their approval for the work it does, and reports periodically to them on how the business being run. Trustees float and market schemes, and secure necessary approvals. They check if the AMCs investments are within defined limits and whether the fund’s assets are protected. Trustees can be held accountable for financial irregularities in the mutual fund.

Rights of the Trustees:
 Trustees appoint the AMC in consultation with the sponsor and according to the SEBI Regulations.  All Mutual Fund Schemes floated by the AMC have to be approved by the Trustees.  Trustees can seek information from the AMC regarding the operations and compliance of the mutual fund.
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 Trustees can seek remedial actions from AMC, and in cases can

dismiss the AMC.  Trustees review and ensure that the net worth of the AMC is according to the stipulated norms, every quarter.

Obligations of the Trustees:
 Trustees must ensure that the transactions of the mutual fund are in accordance with the trust deed.  Trustees must ensure that the AMC has systems and procedures in place.  Trustees must ensure due diligence on the part of AMC in the appointment of constituents and business associates.  Trustees must furnish to the SEBI, on half yearly basis a report on the activities of the AMC.  Trustees must ensure compliance with SEBI Regulations.

ASSET MANAGEMENT COMPANY (AMC)
An AMC is the legal entity formed by the sponsor to run a mutual fund. The AMC is usually a private limited company in which the sponsors and their associates or joint venture partners are the shareholders. The trustees sign an investment agreement with the AMC, which spells out the functions of the AMC. It is the AMC that employs fund managers and analysts, and other personnel. It is the AMC that handles all operational matters of a mutual fund – from launching schemes to managing them to interacting with investors.

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The people in the AMC who should matter the most to you are those who take investment decisions. There is the head of the fund house, generally referred to as the Chief Executive Officer (CEO). Under him comes the Chief Investment Officer (CIO), who shapes the fund’s investment philosophy, and fund managers, who manages its schemes. They are assisted by a team of analysts, who track markets, sectors and companies. Although these people are employed by the AMC, its you, the unit holders, who pays their salaries, partly or wholly. Each scheme pays the AMC an annual ‘fund management fee’, which is linked to the scheme size and results in a corresponding drop in your return. If a scheme’s corpus is up to Rs.100 crores it pays 1.25% of its corpus a year; on over Rs.100 crores, the fee is 1% of the corpus. So, if a fund house has two schemes, with a corpus of Rs.100 crores and Rs.200 crores respectively, the AMC will earn Rs.3.25 crore (1.25+2) as fund management fee that year. If an AMCs expenses for the year exceed what it earns as fund management fee from its schemes, the balance has to be met by the sponsor. Again, financial strength comes into play: a cash-rich sponsor can easily pump in money to meet short falls, while a sponsor with less financial clout might force the AMC to trim costs, which could well turn into an exercise in cutting corners.

Regulatory requirements for the AMC:
 Only SEBI registered AMC can be appointed as investment managers of mutual funds.  AMC must have a minimum net worth of Rs.10 crores at all times.  An AMC cannot be an AMC or Trustee of another Mutual Fund.
 AMCs cannot indulge in any other business, other than that of asset

management
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 At least half of the members of the Board of an AMC have to be independent.
 The 4th schedule of SEBI Regulations spells out rights and obligations

of both trustees and AMCs.

Obligations of the AMC:
 Investments have to be according to the investment management agreement and SEBI regulations.  The actions of its employees and associates have to be as mandated by the trustees.  AMCs have to submit detailed quarterly reports on the working and performance of the mutual fund.  AMCs have to make the necessary statutory disclosures on portfolio, NAV and price to the investors.

Restrictions on the AMC:
 AMCs cannot launch a scheme without the prior approval of the trustees.  AMCs have to provide full details of the investments by employees and Board members in all cases where the investment exceeds Rs.1 lakh.  AMCs cannot take up any activity that is in conflict with the activities of the mutual fund.
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Conditions under which two AMCs can be merged:
SEBI Regulations require the following:  SEBI and Trustees of both the funds must approve of the merger.  Unit holders should be notified of the merger, and provided the option to exit at NAV without load.

Conditions under which an AMC can be taken over:
SEBI approval is required for the change of ownership and unit holders have to be informed of the takeover. Scheme take over: If an existing mutual fund scheme is taken over by another AMC, it is called as scheme take over. The two mutual funds continue to exist. Trustee and SEBI approval and notification of the unit holders are required for scheme take over.

CUSTODIAN
A custodian handles the investment back office of a mutual fund. Its responsibilities include receipt and delivery of securities, collection of income, distribution of dividends and segregation of assets between the schemes. It also track corporate actions like bonus issues, right offers, offer for sale, buy back and open offers for acquisition. The sponsor of a mutual fund cannot act as a custodian to the fund. This condition, formulated in the interest of investors, ensures that the assets of a mutual fund are not in the
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hands of its sponsor. For example, Deutsche Bank is a custodian, but it cannot service Deutsche Mutual Fund, its mutual fund arm.

BROKERS Role of Brokers in a Mutual Fund:
 They enable the investment managers to buy and sell securities.  Brokers are the registered members of the stock exchange.  They charge a commission for their services.  In some cases, provide investment managers with research reports.  Act as an important source of market information.

REGISTRAR OR TRANSFER AGENTS
Registrars, also known as the transfer agents, are responsible for the investor servicing functions. This includes issuing and redeeming units, sending fact sheets and annual reports. Some fund houses handle such functions in-house. Others outsource it to the Registrars; Karvy and CAMS are the more popular ones. It doesn’t really matter which model your mutual fund opt for, as long as it is prompt and efficient in servicing you. Most mutual funds, in addition to registrars, also have investor service centers of their own in some cities.
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Some of the investor – related services are: Processing investor applications.  Recording details of the investors.  Sending information to the investors.  Processing dividend payout.  Incorporating changes in the investor information.  Keeping investor information up to date.

DISTRIBUTORS
Role of Selling and Distribution Agents:  Selling agents bring investor’s funds for a commission.

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 Distributors appoint agents and other mechanisms to mobilize funds from the investors.  Banks and post offices also act as distributors.  The commission received by the distributors is split into initial commission which is paid on mobilization of funds and trail commission which is paid depending on the time the investor stays with the fund.

HISTORY OF INDIAN MUTUAL FUNDS INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, at the initiative of the Government of India and Reserve Bank the. The history of mutual funds in India can be broadly divided into four distinct phases.

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First Phase – 1964-87 Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It was set up by the Reserve Bank of India and functioned under the Regulatory and administrative control of the Reserve Bank of India. In 1978 UTI was de-linked from the RBI and the Industrial Development Bank of India (IDBI) took over the regulatory and administrative control in place of RBI. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs.6,700 Crores of assets under management.

Second Phase – 1987-1993 (Entry of Public Sector Funds) 1987 marked the entry of non- UTI, public sector mutual funds set up by public sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). SBI Mutual Fund was the first non- UTI Mutual Fund established in June 1987 followed by Canbank Mutual Fund (Dec 87), Punjab National Bank Mutual Fund (Aug 89), Indian Bank Mutual Fund (Nov 89), Bank of India (Jun 90), Bank of Baroda Mutual Fund (Oct 92). LIC established its mutual fund in June 1989 while GIC had set up its mutual fund in December 1990. At the end of 1993, the mutual fund industry had assets under management of Rs.47,004 Crores.

Third Phase – 1993-2003 (Entry of Private Sector Funds) With the entry of private sector funds in 1993, a new era started in the Indian mutual fund industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year in which the first Mutual Fund Regulations came into being, under which all mutual funds, except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged with Franklin Templeton) was the first private sector mutual fund registered in July 1993.
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The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI (Mutual Fund) Regulations 1996. The number of mutual fund houses went on increasing, with many foreign mutual funds setting up funds in India and also the industry has witnessed several mergers and acquisitions. As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 Crores. The Unit Trust of India with Rs.44,541 Crores of assets under management was way ahead of other mutual funds.

Fourth Phase – since February 2003 In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs.29,835 crores as at the end of January 2003, representing broadly, the assets of US 64 scheme, assured return and certain other schemes. The Specified Undertaking of Unit Trust of India, functioning under an administrator and under the rules framed by Government of India and does not come under the purview of the Mutual Fund Regulations. The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and LIC. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs.76,000 Crores of assets under management and with the setting up of a UTI Mutual Fund, conforming to the SEBI Mutual Fund Regulations, and with recent mergers taking place among different private sector funds, the mutual fund industry has entered its current phase of consolidation and growth. As at the end of September, 2004, there were 29 funds, which manage assets of Rs.153108 Crores under 421 schemes. The graph indicates the growth of assets over the years.
GROWTH IN ASSETS UNDER MANAGEMENT

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Note: While UTI was bifurcated into UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India effective from February 2003. The Assets under management of the Specified Undertaking of the Unit Trust of India has therefore been excluded from the total assets of the industry as a whole from February 2003 onwards.

The Assets Under Management of UTI was Rs. 67bn. by the end of 1987. The performance of mutual funds in India through figures is appreciable. From Rs. 67bn. the Assets Under Management rose to Rs. 470 bn. in March 1993 and the figure had a three times higher performance by April 2004. It rose as high as Rs. 1,540bn. The net asset value (NAV) of mutual funds in India declined when stock prices started falling in the year 1992. Those days, the market
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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. One more thing to be noted, since only closed-end 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 qualitatively. The 1992 stock market scandal, the losses by disinvestments and of course the lack of transparent rules in the whereabouts rocked confidence among the investors. Funds now have shifted their focus to the recession free sectors like pharmaceuticals, FMCG and technology sector. Funds performances are improving. Funds collection, which averaged at less than Rs100bn per annum over five-year period spanning 1993-98 doubled to Rs210bn in 199899. In the 2000 mobilization had exceeded Rs300bn. Total collection for the financial year ending March 2000 reached Rs450bn. India had been at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10% of the bank deposits, but this trend is beginning to change. The figures indicate that in the first quarter of the year 1999-2000 mutual fund assets went up by 115% whereas bank deposits rose by only 17%. (Source: Thinktank, The Financial Express September, 99) This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that Mutual Funds are going to change the way banks do business in the future

TYPES OF MUTUAL FUNDS
Mutual fund schemes may be classified on the basis of its structure and its investment objective.
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By Structure:
Open-ended Funds An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of openend schemes is liquidity. Closed-ended Funds A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor. Interval Funds Interval funds combine the features of open-ended and close-ended schemes. They are open for sale or redemption during pre-determined intervals at NAV related prices.

By Investment Objective:
Growth Funds The aim of growth funds is to provide capital appreciation over the medium to long- term. Such schemes normally invest a majority of their corpus in
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equities. It has been proven that returns from stocks, have outperformed most other kind of investments held over the long term. Growth schemes are ideal for investors having a long-term outlook seeking growth over a period of time.

Income Funds The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures and Government securities. Income Funds are ideal for capital stability and regular income.

Balanced Funds The aim of balanced funds is to provide both growth and regular income. Such schemes periodically distribute a part of their earning and invest both in equities and fixed income securities in the proportion indicated in their offer documents. In a rising stock market, the NAV of these schemes may not normally keep pace, or fall equally when the market falls. These are ideal for investors looking for a combination of income and moderate growth.

Money Market Funds The aim of money market funds is to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer shortterm instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money. Returns on these schemes may fluctuate
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depending upon the interest rates prevailing in the market. These are ideal for Corporate and individual investors as a means to park their surplus funds for short periods. Load Funds A Load Fund is one that charges a commission for entry or exit. That is, each time you buy or sell units in the fund, a commission will be payable. Typically entry and exit loads range from 1% to 2%. It could be worth paying the load, if the fund has a good performance history. No-Load Funds A No-Load Fund is one that does not charge a commission for entry or exit. 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.

Other Schemes:
Tax Saving Schemes These schemes offer tax rebates to the investors under specific provisions of the Indian Income Tax laws as the Government offers tax incentives for investment in specified avenues. Investments made in Equity Linked Savings Schemes (ELSS) and Pension Schemes are allowed as deduction u/s 88 of
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the Income Tax Act, 1961. The Act also provides opportunities to investors to save capital gains u/s 54EA and 54EB by investing in Mutual Funds, provided the capital asset has been sold prior to April 1, 2000 and the amount is invested before September 30, 2000.

Special Schemes
Industry Specific Schemes Industry Specific Schemes invest only in the industries specified in the offer document. The investment of these funds is limited to specific industries like InfoTech, FMCG, and Pharmaceuticals etc.

Index Schemes Index Funds attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. Sectoral Schemes:- Sectoral Funds are those, which invest exclusively in a specified industry or a group of industries or various segments such as 'A' Group shares or initial public offerings.

BANKS V/S MUTUAL FUNDS:
Mutual Funds are now also competing with commercial banks in the race for retail investor’s savings and corporate float money. The power shift towards mutual funds has become obvious. The coming few years will show that the traditional saving avenues are losing out in the current scenario. Many investors are realizing that investments in savings accounts are as good as locking up their deposits in a closet. The fund mobilization trend by mutual funds indicates that money is going to mutual fund in a big way.
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India is at the first stage of a revolution that has already peaked in the U.S. The U.S. boasts of an Asset base that is much higher than its bank deposits. In India, mutual fund assets are not even 10 per cent of the bank deposits, but this trend is beginning to change. This is forcing a large number of banks to adopt the concept of narrow banking wherein the deposits are kept in Gilts and some other assets which improves liquidity and reduces risk. The basic fact lies that banks cannot be ignored and they will not close down completely. Their role as intermediaries cannot be ignored. It is just that mutual funds are going to change the way banks do business in the future. CATEGORY Returns Administrative exp. Risk Investment options Network Liquidity Quality of assets Interest calculation Guarantee BANKS MUTUAL FUNDS High Low Moderate More Low but improving Better Transparent Everyday

Low High Low Less High penetration At a cost Not transparent Minimum balance between 10th & 30th of every month Maximum Rs.1 lakh on None deposits

BENEFITS OF MUTUAL FUND INVESTMENT
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Professional Management
Mutual Funds provide the services of experienced and skilled professionals, backed by a dedicated investment research team that analyses
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the performance and prospects of companies and selects suitable investments to achieve the objectives of the scheme.

Diversification
Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom do all stocks decline at the same time and in the same proportion. You achieve this diversification through a Mutual Fund with far less money than you can do on your own.

Convenient Administration
Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries, delayed payments and follow up with brokers and companies. Mutual Funds save your time and make investing easy and convenient.

Return Potential
Over a medium to long-term, Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securities.

Low Costs
Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage, custodial and other fees translate into lower costs for investors.
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Liquidity
In open-end schemes, the investor gets the money back promptly at net asset value related prices from the Mutual Fund. In closedend schemes, the units can be sold on a stock exchange at the prevailing market price or the investor can avail of the facility of direct repurchase at NAV related prices by the Mutual Fund.

Transparency
You 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 manager's investment strategy and outlook.

Flexibility
Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, you can systematically invest or withdraw funds according to your needs and convenience.

Affordability
Investors individually may lack sufficient funds to invest in high-grade stocks. A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.

Choice of Schemes
Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.
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Well Regulated
All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors. The operations of Mutual Funds are regularly monitored by SEBI.

RISKS ASSOCIATED WITH MUTUAL FUNDS

The most important relationship to understand is the risk-return trade-off. Higher

the risk greater the returns/loss and lower the risk lesser the returns/loss.
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MARKET RISK

Sometimes prices and yields of all securities rise and fall. Broad outside influences affecting the market in general lead to this. This is true, may it be big corporations or smaller mid-sized companies. This is known as Market Risk. A Systematic Investment Plan (“SIP”) that works on the concept of Rupee Cost Averaging (“RCA”) might help mitigate this risk.

CREDIT RISK

The debt servicing ability (may it be interest payments or repayment of principal) of a company through its cashflows determines the Credit Risk faced by you. This credit risk is measured by independent rating agencies like CRISIL who rate companies and their paper. An ‘AAA’ rating is considered the safest whereas a ‘D’ rating is considered poor credit quality. A well-diversified portfolio might help mitigate this risk.

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SUMMER INTERNSHIP PROJECT INFLATION RISK

Things you hear people talk about: “Rs. 100 today is worth more than Rs. 100 tomorrow.” “Remember the time when a bus ride costed 50 paisa?” “Mehangai Ka Jamana Hai.” The root cause , Inflation. Inflation is the loss of purchasing power over time. A 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 when inflation grows faster than the return on your investment. A well-diversified portfolio with some investment in equities might help mitigate this risk.

INTEREST RATE RISK

In a free market economy interest rates are difficult if not impossible to predict. Changes in interest rates affect the prices of bonds as well as equities. If interest rates rise the prices of bonds fall and vice versa. Equity might be negatively affected as well in a rising interest rate environment. A well-diversified portfolio might help mitigate this risk.

POLITICAL RISK

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LIQUIDITY RISK

Liquidity risk arises when it becomes difficult to sell the securities that one has purchased. Liquidity Risk can be partly mitigated by diversification, staggering of maturities as well as internal risk controls that lean towards purchase of liquid securities. You have been reading about diversification above, but what is it? Diversification The nuclear weapon in your arsenal for your fight against Risk. It simply means that you must spread your investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.). This kind of a diversification may add to the stability of your returns,

ACCOUNTING AND VALUATION

Net Asset Value (NAV)
The net asset value of the fund is the cumulative market value of the assets fund net of its liabilities. In other words, if the fund is dissolved or liquidated by selling off all the assets in the fund, this is the amount that the shareholders would collectively own. This gives rise to the concept of net asset value per unit, which is the value represented by the ownership of one
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unit in the fund. It is calculated simply by dividing the net asset value of the fund by the number of units. However, most people refer loosely to the NAV per unit as NAV, ignoring the “per unit”. We also abide by the same convention. Calculation of Net Asset Value The most important part of the calculation is the valuation of the assets owned by the fund. Once it is calculated, the NAV is simply the net value of assets divided by the number of the units outstanding. The detailed methodology for the calculation of the net asset value is given below: NAV = Market value of investments + Current assets and other assets + Accrued income - Current liabilities and other liabilities - Accrued expenses

BETA RATIO
A high beta is good or bad depending on the state of the market. If the market sentiments are bullish, i.e., the market is seeing a rise in general, then a high beta stock is better and if the market sentiment is bearish then low beta is preferred. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 means that the security will be less volatile than the market. A beta greater than 1 indicates that the security's price will be more volatile than the market.

R_SQUARED
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A statistical measure that represents the percentage of security's movements that are explained by movements in index. R-squared values range from 0 to 100. An R-squared that all movements of a security are completely explained by index

a fund's or a benchmark of 100 means movements in

A higher R-squared value will indicate a more useful beta figure.

SHARP RATIO

High returns are generally associated with a high degree of volatility. The Sharpe ratio represents this trade off between risk and returns. At the same time it also factors in the desire to generate returns, which are higher than those from risk free returns. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance is. Sharpe Index = (Ri – Rf) / Si Where, Ri = Return on Fund. Rf = Risk free rate of Return. Si = Standard Deviation of the fund.

EXPENSE RATIO
The percentage of total fund assets that is used to cover expenses associated with the operation of a mutual fund. This amount is taken out of the fund's assets and lowers the return that fund holders achieve. These expenses include management fees and operating expenses
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. So lesser the expense ratio the better it is for the investors

GROWTH IN INDIAN MUTUAL FUND INDUSTRY

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CHAPTER-3 MAJOR PLAYERS IN MUTUAL FUNDS INDUSTRY
ABN AMRO Mutual Fund
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ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company. The AMC, ABN AMRO Asset Management (India) Ltd. was incorporated on November 4, 2003. Deutsche Bank A G is the custodian of ABN AMRO Mutual Fund.

Birla Sun Life Mutual Fund Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial. Sun Life Financial is a global organization evolved in 1871 and is being represented in Canada, the US, the Philippines, Japan, Indonesia and Bermuda apart from India. Birla Sun Life Mutual Fund follows a conservative long-term approach to investment. Recently it crossed AUM of Rs. 10,000 Crores.

Bank of Baroda Mutual Fund (BOB Mutual Fund) Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda. BOB Asset Management Company Limited is the AMC of BOB Mutual Fund and was incorporated on November 5, 1992. Deutsche Bank AG is the custodian.

HDFC Mutual Fund HDFC Mutual Fund was setup on June 30, 2000 with two sponsor namely Housing Development Finance Corporation Limited and Standard Life Investments Limited.

HSBC Mutual Fund HSBC Mutual Fund was setup on May 27, 2002 with HSBC Securities and Capital Markets (India) Private Limited as the sponsor. The Board of
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Trustees, HSBC Mutual Fund acts as the Trustee Company of HSBC Mutual Fund.

ING Vysya Mutual Fund ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company. It is a joint venture of Vysya and ING. The AMC, ING Investment Management (India) Pvt. Ltd. was incorporated on April 6, 1998.

Prudential ICICI Mutual Fund The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993 with two sponsors, Prudential Plc. and ICICI Ltd. The Trustee Company formed is Prudential ICICI Trust Ltd. and the AMC is Prudential ICICI Asset Management Company Limited incorporated on 22nd of June, 1993.

Sahara Mutual Fund Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd. as the sponsor. Sahara Asset Management Company Private Limited incorporated on August 31, 1995 works as the AMC of Sahara Mutual Fund. The paid-up capital of the AMC stands at Rs 25.8 crore. State Bank of India Mutual Fund State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to
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launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr. approximately. Today it is the largest Bank sponsored Mutual Fund in India. They have already launched 35 Schemes out of which 15 have already yielded handsome returns to investors. State Bank of India Mutual Fund has more than Rs. 5,500 Crores as AUM. Now it has an investor base of over 8 Lakhs spread over 18 schemes.

Tata Mutual Fund Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsors for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd. The investment manager is Tata Asset Management Limited and its Tata Trustee Company Pvt. Limited. Tata Asset Management Limited is one of the fastest in the country with more than Rs. 7,703 Crores (as on April 30, 2005) of AUM.

Kotak Mahindra Mutual Fund Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL. It is presently having more than 1,99,818 investors in its various schemes. KMAMC started its operations in December 1998. Kotak Mahindra Mutual Fund offers schemes catering to investors with varying risk - return profiles. It was the first company to launch dedicated gilt scheme investing only in government securities.

Unit Trust of India Mutual Fund UTI Asset Management Company Private Limited, established in Jan 14, 2003, manages the UTI Mutual Fund with the support of UTI Trustee Company Private Limited. UTI Asset Management Company presently manages a corpus of over Rs.20000 Crore. The sponsors of UTI Mutual
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Fund are Bank of Baroda (BOB), Punjab National Bank (PNB), State Bank of India (SBI), and Life Insurance Corporation of India (LIC). The schemes of UTI Mutual Fund are Liquid Funds, Income Funds, Asset Management Funds, Index Funds, Equity Funds and Balance Funds.

Reliance Mutual Fund Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004. Reliance Mutual Fund was formed for launching of various schemes under which units are issued to the Public with a view to contribute to the capital market and to provide investors the opportunities to make investments in diversified securities.

Standard Chartered Mutual Fund Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank. The Trustee is Standard Chartered Trustee Company Pvt. Ltd. Standard Chartered Asset Management Company Pvt. Ltd. is the AMC which was incorporated with SEBI on December 20,1999.

Franklin Templeton India Mutual Fund The group, Franklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world. Investors can buy or
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sell the Mutual Fund through their financial advisor or through mail or through their website. They have Open end Diversified Equity schemes, Open end Sector Equity schemes, Open end Hybrid schemes, Open end Tax Saving schemes, Open end Income and Liquid schemes, Closed end Income schemes and Open end Fund of Funds schemes to offer.

Morgan Stanley Mutual Fund India Morgan Stanley is a worldwide financial services company and its leading in the market in securities, investment management and credit services. Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations. Its services are also extended to high net worth individuals and retail investors. In India it is known as Morgan Stanley Investment Management Private Limited (MSIM India) and its AMC is Morgan Stanley Mutual Fund (MSMF). This is the first close end diversified equity scheme serving the needs of Indian retail investors focusing on a long-term capital appreciation.

Escorts Mutual Fund Escorts Mutual Fund was setup on April 15, 1996 with Escorts Finance Limited as its sponsor. The Trustee Company is Escorts Investment Trust Limited. Its AMC was incorporated on December 1, 1995 with the name Escorts Asset Management Limited.

Alliance Capital Mutual Fund Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsorer. The Trustee is ACAM Trust Company Pvt. Ltd. and AMC, the Alliance Capital
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Asset Management India (Pvt.) Ltd. with the corporate office in Mumbai. Benchmark Mutual Fund Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000 and headquartered in Mumbai, Benchmark Asset Management Company Pvt. Ltd. is the AMC. Canbank Mutual Fund Canbank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor. Canbank Investment Management Services Ltd. incorporated on March 2, 1993 is the AMC. The Corporate Office of the AMC is in Mumbai. Chola Mutual Fund Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997. Cholamandalam Trustee Co. Ltd. is the Trustee Company and AMC is Cholamandalam AMC Limited.

LIC Mutual Fund Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882. . The Company started its business on 29th April 1994. The Trustees of LIC Mutual Fund have appointed Jeevan Bima Sahayog Asset Management Company Ltd as the Investment Managers for LIC Mutual Fund. GIC Mutual Fund GIC Mutual Fund, sponsored by General Insurance Corporation of India
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(GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII) and is constituted as a Trust in accordance with the provisions of the Indian Trusts Act, 1882.

Fidelity Investments Fidelity Investments was founded in 1946. Fidelity Investments is an international provider of financial services and investment resources that help individuals and institutions meet their financial objejectives

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COMPETITION IN MUTUAL FUNDS INDUSTRY

The most important trend in the mutual fund industry is the aggressive expansion of the foreign owned mutual fund companies and the decline of the companies floated by nationalized banks and smaller private sector players. Many nationalized banks got into the mutual fund business in the early nineties and got off to a good start due to the stock market boom prevailing then. These banks did not really understand the mutual fund business and they just viewed it as another kind of banking activity. Few hired specialized staff and generally chose to transfer staff from the parent organizations. The performance of most of the schemes floated by these funds was not good. Some schemes had offered guaranteed returns and their parent organizations had to bail out these AMCs by paying large amounts of money as the difference between the guaranteed and actual returns. The service levels were also very bad. Most of these AMCs have not been able to retain staff, float new schemes etc. and it is doubtful whether, barring a few exceptions, they have serious plans of continuing the activity in a major way. The experience of some of the AMCs floated by private sector Indian companies was also very similar. They quickly realized that the AMC business is a business, which makes money in a long term and requires deep-pocketed support in the intermediate years. Some have sold out to foreign owned companies, some have merged with others and there is general restructuring going on. The foreign owned companies have deep pockets and have come in here with the expectation of a long haul. They can be credited with introducing many new practices such as new product innovation, sharp improvement in service standards and disclosure, usage of technology, broker education and support etc. In fact, they have forced the industry to upgrade itself and service levels of organizations like UTI have improved dramatically in the last few years in response to the competition provided by these.

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CHAPTER 4: OBJECTIVES AND METHODOLOGY

Significance:
Significance of the project is to find out prospect investors of Mutual Funds and also to provide key information about the investor’s perception and preferences by Mutual Fund industry. The study will help in getting information about their performance at distributors as well as at their own investment center or why people go for Mutual Fund for investments. Study will also helps in finding out the problems related to distribution.

Managerial Usefulness of Study:

 The study also provides the problems related to distribution of Mutual Fund so that they can improve the service rendered by them as a distributor.  The study will also give information about prospective investors both individual as well as institutional clients in areas of surrey where they can get lead.  The study provides the complete information about all close competitors in Mutual Fund investment.

 It provides the AMC a feedback from customers regarding their problems and perception about investing in mutual funds so that they can improve their services

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Objectives:
 To study the Mutual funds industry in detail  To study the Investment procedure in Mutual funds  To study the Accounting and Valuation methods of Mutual Funds  To study in brief various Mutual funds promoted by Religare  To study the investors Preference regarding Investment in Mutual Funds

Scope of the Study:
 In current scenario, the bank rates have been cut down rapidly due to

severe competition, so people are not going for contemporary deposits because that cannot provide them the better returns or the desired interest rates. So, they can look for some other investment options like Mutual Funds, which can provide them higher returns in medium to long term and can easily meet their financial goals.  To look out for new prospective customers who are willing to invest in Mutual Funds.

Methodology:
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RESEARCH METHODOLOGY
I decided to do the project in two parts. The first part of the project is comprised of the study of Mutual Funds as a whole and the second part deals with the investors perception regarding their investment preferences about investment in Mutual Funds. The first part of the project i.e. descriptive study is comprising an overall study of Mutual funds as what it is ,why to invest and where to invest,risk factor associated with it ie,an overview of whole Mutual fund industry. The second part of the project that is related to investors perception about investment in Mutual funds available in market. Indian Stock market has undergone tremendous changes over the years. Investment in Mutual Funds has become a major alternative among Investors. The project has been carried out to understand investor’s perception about Mutual Funds in the context of their trading preference and explore investor’s risk perception . The first part of the project relating the study of Mutual funds is collected through secondary data obtained from internet & books whereas the second part relating the Investors perception about investment in Mutual Funds is covered using primary data.
SOURCE OF DATA COLLECTION

Both Primary and Secondary data are required Primary data is the first hand information collected directly from the respondents . The tool used here is questionnaire. Primary Data is collected through survey among existing clients along with the other investors Secondary data is collected through internet , books I had prepared a questionnaire for collecting information about second part of the project.
Top Performers for the Quarter Ended 22nd November 2006

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Category Scheme Open­Ended Equity­Derivative  Equity­Diversified  Equity­ELSS  Equity­Index  FOF  Sectoral­Auto  Sectoral­Bank  Sectoral­Basic  Sectoral­FMCG  Sectoral­Healthcare  Sectoral­Infrastructure  Sectoral­Media and  Entertainment  Sectoral­Pharma  Sectoral­Power  Sectoral­Services  Sectoral­TMT  FOF  Gilt  Income  Liquid  MIP  Balanced  FOF  Equity­Diversified  Equity­ELSS  Income  Liquid  Balanced  FOF  JM Arbitrage Advantage Fund  DBS Chola Opportunities Fund  Birla Sun Life Tax Relief 96  Bank BeES  Kotak Equity FOF  J M Auto Sector Fund  UTI Banking Sector Fund  UTI Petro Fund  Prudential ICICI FMCG Fund  J M Healthcare Sector Fund  Tata Infrastructure Fund  Reliance Media and Entertainment Fund  Reliance Pharma Fund  Reliance Diversified Power Sector Fund  Prudential ICICI Services Industries Fund  DSP Merrill Lynch Technology.com Fund  FT India Life Stage Fund of Funds The 40s Plan  Prudential ICICI Gilt fund Investment Plan ­ PF  Cancigo  J M Short Term Fund ­ Institutional Plan  ABN AMRO Monthly Income Plan  Principal Child Benefits Fund­Career Builder  Birla AAF ­ Moderate Plan  Close­Ended UTI MEP Unit Scheme  Franklin India Taxshield 99  Franklin Templeton Fixed Tenure Fund ­ Series IV  (60 Month Plan)  Prudential ICICI FMP ­ Series 28 ­ 3 Month Plan ­  FII Option  Benchmark Split Capital Fund ­ Preferred Units  (Class A)  Kotak Flexi FOF  20.12  17.43  7.65  1.97  8.98  54.65  48.22  NA  NA  21.96  1.70  31.53  22.43  37.51  15.27  16.96  32.93  7.97  8.94  2.50  23.58  14.05  6.57  25.96  29.47  27.24  5.69  6.22  7.75  1.86  5.99  17.98  11.15  NA  49.34  50.17  46.35  45.81  27.22  39.76  21.43  36.67  14.99  73.52  42.12  29.72  66.96  NA  52.55  17.37  10.76  20.57  6.10  11.39  43.71  28.70  Qrtly Return % Annual Return %

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DEBT FUNDS

EQUITY FUNDS

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INCOME FUNDS

ELSS FUNDS

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DATA ANALYSIS AND INTERPRET ATION
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INVESTMENT IN MUTUAL FUNDS

9% yes 28% 63% no earlier,now stopped

Interpretation:- The major part of the sample taken has invested in the Mutual Funds. The demand for the mutual funds have increased in the past few years with many Foreign players entering in the Indian market, Fidelity, Franklin Templeton, DSP Meryll Lynch to name few. Still there are few who are not investing in MF.

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EXPERIENCE IN THE MARKET

Experience

26% 53% 21%

Less Than a Year 1-4 Years More Than 4 Years

Interpretation:- The experience in the market was the factor which influenced the investments. There are very few who have experience of less than a year. These are those investors who entered into the market after noticing the rise in the market. The achievement of 12,000 mark by SENSEX was motivational force in this. Major part was having vast experience that is of more than 4 years. These are the ones who have been in the market and saw it rising to conquer the 10.000 peak
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Trading Preference of the Investors

Trading Preference

16%

28%

Speculation Investment Both

56%

Interpretation:- The presence in the market is because of two reasons. Either the investors prefer to speculate and benefit out of it or it is simply to have it as one more investment avenue just like the fixed deposits, etc. Main purpose of investment in MF by people was not to speculate. They considered it as a safer avenue for investment rather than going to Share Market which is much risky as compared to MF. Few still prefer to speculate and wait for NAVs to appreciate.
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Average Investment Period of Investors

Average Investment Period

50% 23% 10% 0%

42% 25% S1 Less Than 3-9 Months 9 months - More Than 3 months 2 Year 2 Year Investment Period Less Than 3-9 Months 9 months - More Than

Series1

23%

10%

42%

25%

Interpretation:- The investment period is very important to increase the profits. The timing must be right enough to benefit from fluctuations. The smart investor decides it in advance for how much time he would be keeping his money in the market and when he should leave squaring-up. Many people consider the investment for 9 months – 2 years as a right option. Still some

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want to be invested for over 2 years. The least responded to the 3-9 months period.

Factors Influencing the Investment Decision of Investors

Factors Influencing Investment
40% 30% 20% 10% 0% 10% 6% Self 30% 32% 20% 30%

2% Other 2% 20%

Broke News Magzi Frien 10% 6%

Series1 32%

Interpretation:- There are many factors which influence the investment decision of the investors. It may be the current news (political, technological, financial, etc.), Magazines, friends, etc. in the study it proved that many people trust the brokers most for the investment decisions. These are the ones who have less experience. The “Self-Evaluation” is the next major factor.
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The experienced person trust himself thereafter he/she invests. Magazines and current News also matters. Any bad news can make a person change his/her decision.

RISK TAKING

Moderate

High

Low 0% 20% 40% 60%

Interpretation:- “The higher the Risk, the more the Profits”. The people need to take the risk to enjoy the benefits. Some investors were willing to take lower risk and this was the reason they gave for investing in the MF. Most of the people would like moderate level of risk in there investments.

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Expected Rise in Income
Expected Rise In Income

12%

8% 48% Upto 15% 15-25% 25-35% More than 35%

32%

Interpretation:- The optimism is shown in the attitude of the respondents. The confidence was appreciable with which they are looking forward to a rise in their investments. Major part of the sample feels that the rise would be of around 15%. Only 8% of the respondents were confident enough to expect a rise of upto 35%.

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Preference In Mutual Funds

Preference in Mutual Funds
Equity ELSS Balanced SIP 2% Income Others Money Market

17%

19%

15% 9% 20%

18%

Interpretation:- There are different types of mutual funds available in the market according to the needs of the investors. There are Equity funds, SIP, Income Funds, Balanced Funds, etc. The highest sought after fund is the Income fund which offers a regular income through investments in the Govt. Bonds. The risk is also low in this. It was followed by the Equity Fund which
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offers higher returns but it is riskier also. Some people would like to have Equity Linked Saving Schemes (ELSS). This provides some exemption in the Tax also.

Investor’s willingness to take Loss

Loss Willing To Take
60% 50% 40% Percentage 30% 20% 10% 0% Less than 5% 5-10% Category More Than 10% 12% 35% 53%

Interpretation:- The willingness to bear the loss was not high. Most of the investors were not willing to bear a loss of more than 5%. Very few agreed to

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be able to bear a loss of more than 10%. The desire for having profits is higher but nobody was ready to take loss.

Types of Schemes
Type of Schemes

44% 56%

Closed Ended Funds

Open Ended Funds

Interpretation:- The schemes offered in the market are of two types, closed ended and open ended. The more demand was for the Close ended funds with a locking period of around 2-3 years. The exit load refrain the person from quitting earlier.

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BRAND NAME EFFECTIVENESS

60% 50% 40% 30% 20% 10% 0% 23%

56%

21%

Interpretation:- From the data collected it is clear that most of the

people are not influenced by the company name while investing in a Fund

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INFLUENCE
60% 50% 40% 30% 20% 10% 0% BY NAV RETURNS Both 23% 21% 56%

Interpretation:- From the data collected it is clear that most of people look at the returns that the Mutual funds are providing .They look at the returns not the current NAV However there is some class of people who look at these parameters and their percentage is 23% and some consider both factors while investing in funds and their percentage is 21%.

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FINDINGS
The study done was a tool to analyze the present setup and to know the investors perception regarding investment in Mutual Funds . The study proved fruitful and many facts came to the light. The following were the findings of the study: • People with less experience were inclined towards investment in the Mutual Funds. It attracted as a safer avenue as compared to share market. • 48% respondents reflected confidence and optimism in the context of their investments. • Mutual Funds are more of an investment option than the speculative avenue. People tend to gain through long investments rather than through short term. • Income funds and ELSS are among the few top funds . • People are not willing to take much risk and bear loss. • Broker’s advice matters to as much as 32% of the people. Major part of people preferred self-evaluation as best.

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Most of the people look at the returns that are given by a Funds56% are in this favour and only 23% people are there who consider Fund name and current NAV of the fund before investing into a Mutual Fund Experience was the main factor that made a person invest in mutual funds

LIMITATIONS
There were certain limitations faced during the study.  Some people were not willing to disclose the investment profile
 .The biased ness was being taken care of.

 The area of sample was decided after taking into consideration the major factors like
 Availability of investors  Approachability,  Time available with investor for interaction, etc.

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ANNEXURE – 1 QUESTIONNAIRE

Name: ...…………………….. Phone: ...……………………..
Investment Presently Held:

Occupation: ………………………

Please list the value of the assets in your total investments portfolio :( in Rs.) Stocks: ______ Bonds: ______ Options: ______ Real Estate: ______ Mutual Funds: _______ Bullion: _______ Govt. Securities:_______ Bank Deposits: _______

(1) Over the next 3-5 years, do you expect your annual income to change? Increase Decrease Remain the same

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(2) Do you invest in Mutual Funds? Yes now stopped No Earlier,

(3) What is your Experience in the market? Less than a year 1-4 years 4 years

More than

(4) What is your Trading Preference? Speculation Investment

Both

(5) What is your Average investment period? Less than 3 months. 3 to 9 months.
9 months to 2 year. More than 2 year.

(6) Factors influencing the investment decisions?
Advice from Broker Financial Magazines Evaluation Current news Advice from Friends Others___________ Reviews in Self

(7) How much Risk are you willing to take? High Low Moderate

(8) What is your preference in Mutual Funds? A. Equity. B. Income C. Money Market Funds D. ELSS E. Balanced Funds F. SIP G. Others

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(9) How much Appreciation do you expect from your Investments? up to 15% 15%-25% 25%-35% more than 35%

(10) How much loss are you willing to take? High Moderate Low

(11) Which type of Mutual funds do you prefer? Open Ended Schemes Closed Ended Schemes (12) Do you get influenced by the name of Company promoting Mutual Funds? No Yes (13) Do u get influenced by the returns given by a fund or by the current NAV of a fund? By NAV By Returns Both

(14) Any suggestions: ……………………………………………………………........ …………………………………………………………………

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BIBLIOGRAPHY Sites visited
www.anand rathi .in www.mutualfundsindia.com www.indiainfoline.com www.amfiindia.com www.sebi.gov.in

1. 2. 3. 4. 5.

Books Referred amfi Mutual Fund
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PAR T – B

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ON THE JOB TRAINING

CONTENTS
Title of the On Job Training Objectives Target/ Task Assigned Strategies Applied Achievements Limitations
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Conclusion Corporate learning Recommendations

ON THE JOB TRAINING
Title
To generate leads by telecalling, canopies, presentations at various Banks or corporate offices & also by personal meetings and to close the deal along with the handling of the customer’s queries regarding share trading, account opening and maintenance, software installation and demonstration .

Objectives

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• To create awareness among the people about the different products offered by the company in the market through telecalling, canopies, presentations etc. • To generate leads for endorsement of deals. • To accompany the ‘relationship manager’ on his visits to the prospective clients. • To open demat accounts. • To learn how to work in a team. • To acquaint myself with the work culture.

To understand the operating terminals of both equity & commodity market.

• To learn the trading procedures of equity & commodity market.

Target/Task

Overall Target: To generate business and gain experience in the tenure of two months of summer internship project.

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Strategy
To achieve a goal successfully one needs to sketch a perfect roadmap or strategy to the destination and also need to follow the path strictly. The strategies applied to achieve the above mentioned targets are – 1 Hunt for prospective customers through following Marketing Strategies:Telecalling Arranging Canopy Personal Visits Clients References Promotional Activities  Database provided by the co. or yellow pages.     

Achievements
 Applauded for managing the task of Account Opening efficiently. .
 Opened 10 D-Mat and Trading Accounts which is an achievement.

 Given business of Rs. 4,00,000 through margin money .

 Generated revenues for the organization by performing heavy trading on behalf of the self developed clients. I took an active part in CANOPY ACTIVITY at ANAND RATHI, JAMMU.

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LIMITATION

 Being a service industry, the quality is main concern in differentiation and it is not exactly measurable.

CONCLUSIONS
• In a nutshell, I have learned various practical aspects of trading in the stock market.

I have made about 50-100 calls per day in the initial days of training so as to generate maximum leads.

• In addition, I did personal meetings with clients in order to close the deals. • I handled the queries of both the new & existing clients of the company pertaining to different issues like opening of accounts, trading procedures etc.

I also assisted in executing trades from the existing clients so as to get brokerage for the company. I also took part in canopy activity at ANAND RATHI, JAMMU I also took part in presentations at various banks.

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CORPORATE LEARNINGS

To be a part of Anand Rathi was the best opportunity for me to had:

 A practical exposure of Financial world.

 Independently handling of clients.

 Came to know the practical problems of clients.

 Learnt the technical procedures and analysis of various research

systems, such as marketing research and equity research.

 Learnt corporate culture.

Recommendations
What I recommend firstly there should be

[1] First Aid Kit for New Entrant into Securities Market this will be a new step towards a good service provider in this
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field. After all, this market depends on the after sales service. After seeing such a boost in the share market, not only our Adult generation but also the young generation is also so much excited to enter the share market. Now the actual problem starts specially with the young ones in excitement initially they invests the money & due to lack of experience they loose big block of money in one go & later they blames the company about the loss. So, to make them train in the field we should provide them the initial precautions that they should take while enter into the market. “The More You Care For Your Customer More The Faith Will Get Develop From Customer Side”

[2] Provision for Class Room training for the new investors for the above reason same thing to boost there moral and to give them some thing related to the market will help them. Also some tips can also be given to these investor during the session as a precautions.

[3] Toll Free Number customers generally want to call to the respective branch for asking some problems or give orders, a customer can save the money by dialing on the toll free number. It gives a feeling to the customer that company care for them.

[4] Customer Care for general query handle initially customer want to solve his or her problem at the moment as it arises. Our relationship manager many times don’t have that much time to discuss all that details on phone, they may
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sometime get busy with the meeting with client. So for general query handle we can have a separate section.
(5) More Appointments of Relationship managers There should be more appointments pf RM so that every customer get equalized attention

Note:

The recommendations which I have listed here above are strictly based on the knowledge of the securities market that I have acquired during my training of two months duration. All the recommendations are for the improvement in the functioning of the front end operations of the Anand Rathi securities Ltd. (Jammu Branch). The recommendations are purely based on the problems that I had faced as a Management Trainee.

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