A Study of Concept on Wealth Management and various Mutual Funds

offered by companies
For

IDBI, Meerut

A Report on Project work

In
MASTER OF BUSINESS ADMINISTRATION (MBA)

Amod Garg
(215112048)

DEPARTMENT OF MANAGEMENT STUDIES

NATIONAL INSTITUTE OF TECHNOLOGY
(DEEMED UNIVERSITY)
TIRUCHIRAPPALLI-620015
Session: 2011-2013

CONTENTS
1. Introduction.... 6
1.1. Objectives.7
1.2. The Research Methodology......7
1.3. Common money mistakes an individual makes...8
1.4. Concept on Wealth Management.....9
1.4.1. Financial planning.....10
1.4.2. Investment management....15
1.4.3. Income tax planning..16
1.4.4. Estate management....18
2. IDBI: An Overview.......19
3. History of Indian Mutual Fund Industry...22
3.1. Concept of mutual funds.........24
3.2. Mutual fund investors and organisation of a mutual
fund.............25
3.3. Structure of mutual fund industry...29
3.4. Investment classification.....31
4. Analysis of the survey.......48
5. Conclusions.......54
6. References.....55
7. Annexure : Survey........56

List of Figures
Figure No

Figure

Page No

Figure 1

Age Group

Figure 2

Awareness of Mutual Funds

Figure 3

Systematic Investment Plan

Figure 4

Investment Options

Figure 5

Liquid Funds

48
48
49
50
51

ACKNOWLEDGEMENT
I take this opportunity to thank IDBI, for giving me an opportunity to do summer Internship
in their esteemed organization.
It is indeed a moment of great pleasure to express my sense of profound gratitude and
indebtedness to all the people who have been instrumental in making my training a rich
experience. I got the opportunity of doing a challenging project at IDBI, Meerut.
I would like to convey my sincere thanks to my project guide and mentor Mr. Asheet Anand
(Branch Manager, IDBI) for extending their support and taking out time for me from their
busy schedule. They have been instrumental in guiding me throughout the project with
suggestions, encouragement and inspiration.
Last but not least, I would like to offer my special thanks to Mr. Pankaj Kumar Jha and all
employees of IDBI for their kind help. It continues to my family members, Well-wishers and
friends who have encouraged me to perceive the work sincerely and
I am also thankful to my respondents who helped me to build up a fruitful database for my
analysis.

EXECUTIVE SUMMARY
IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core Banking
IT platform. The Bank offers personalized banking and financial solutions to its clients in the
retail and corporate banking arena through its large network of Branches and ATMs, spread
across length and breadth of India. As on June 28, 2013, the Bank has a network of 1111
Branches and 1794 ATMs. The Bank's Balance sheet reached Rs.3,22,666 Crore while it
earned a net profit of Rs. 1882 Crore.
IDBI Bank is a pioneer Institution in Nation building. To cater to its ever-expanding needs,
IDBI Bank has formed subsidiaries & joint ventures across diverse areas of Banking &
Financial System. IDBI Asset Management Limited was incorporated on January 25, 2010
and is a subsidiary of IDBI Bank Ltd. IAML is the investment manager of schemes launched
by IDBI Mutual Fund which comprises of three open-ended equity schemes, one closed
ended growth scheme, six debt schemes, two schemes in the Gold category and eight Fixed
Maturity Plans. It also invests the money into mutual funds of many companies life HDFC,
Reliance, UTI, Kotak etc
A survey was conducted to know how much a common man is aware of mutual funds and
what its usual investment avenues are. People were educated on the advantages and
disadvantages of mutual funds and its various types. A variety of instruments in mutual
industry were promoted which are the substitutes of conventional fixed deposits and normal
savings bank account. An analysis was done as to why people invest in gold, real estate,
stocks etc. and its advantages and disadvantages. The survey was conducted on salaried
employees, doctors and self-employed individuals of all age groups.

Chapter 1: INTRODUCTION
When somebody hears the term, Wealth Management, most of the people are put off as
they
simply do not have time to plan. They think of the process as complex, time consuming and
show least interest in managing their own money. Any decision about money impacts ones
1. Start-up Phase (Age 26 35 years)
2. Peak Earning Years (Age 36 55 years)
3. Cooling Off Period (Age 56 till health permits)
In the start-up phase people generally come across some tasks like creating a budget,
deciding on how much to spend on luxurious items and how to avoid spending money on
unnecessary things. At the same time some people have responsibilities like spending
money
on siblings education and wedding and money for parents. Then this is the time when one
usually gets married and starts a family. Towards the end of the start-up phase the
expenses
tend to be on the higher side due to birth of children and initial year expenses. Thus proper

In the next phase a person normally creates wealth for the family. However, in this phase
the
high income can also entail very high lifestyle expenses, which if not managed properly can
spell trouble. One needs to start cutting down unwanted expenses like international
vacations,
up gradation of car and other discretionary expenses. People need to evaluate alternate

The last phase is ideally the best phase of ones life. People tend to work fewer hours so
that
they have more time for family, friends and recreational activities. By this time, children are
independent and one does not have any liability on their shoulders as such and this is the
time
when one can actually look at spend money on oneself. One has to start thinking about this

1.1 Objectives
The purposes of the study for my summer internship project in wealth management in IDBI
have been1. To study about the concept on wealth management and carry out financial planning
for the clients.
2. Carried out a survey regarding the awareness of mutual funds and the various
investing avenues preferred by people use to park their funds.
3. Creating an awareness about liquid funds among people and other substitutes of
conventional investing financial instruments.
4. To increase and strengthen the customer base by targeting potential customers.

1.2 The Research

This report basically focuses on the concept on wealth management and various mutual
fund
products offered by the companies and their corresponding benefits. Normally the money
management of an individual is done by identifying its short term and long term objectives,
its current age, liabilities, its current income, inflation in the country and risk appetite of the
person. IDBI which has a separate group, IDBI Asset Management Limited, not only offers
schemes of mutual funds for the people for investing purpose but through this one can
invest

A survey was designed to collect primary data as to how many people are aware of mutual
funds and how many are actually investing. It also aimed at identifying the knowledge of
common man about the various insurance products available within and outside IDBI. The
survey was also fashioned in a way to find out the awareness of the liquid funds, which is a
new category in mutual funds industry, and advise the people about the advantages of
investing in these funds. The facts and findings of the survey is discussed later in the
report.
Data was collected from around 200 people of varied age groups from salaried employees
to
doctors and entrepreneurs. We will start by history of mutual funds, structure of mutual

1.2 Common Money Mistakes an Individual Makes

1. TOO MANY LOANS
Most people have a home loan, property loan, car loan, education loan and in some
cases loan for expensive equipment for doctors and industrialists. They end up paying
substantial amount of their income towards EMIs. Besides EMIs insurance premiums and
personal expenses eat into earnings quite quickly. There is often a whole lot of spending on
interiors and acquisition of real estate. Since these are big ticket items, servicing debt and
maintaining other expenses result in a liquidity crunch.

Some people also take on loans because their accountants have advised them to do so
from a
tax planning perspective to harness the advantages of depreciation and interest deduction.
However this can pose severe cash problems if liquidity and personal needs are not
2. OVER CONCENTRATION IN REAL ESTATE
Most people in modern times do like to invest in real estate (survey discussed later).
One of the biggest reasons is that people have a lot of income in the form of cash that can
be
easily cushioned in real estate investments. Also they believe that not only is real estate
insulated from market vagaries, but it gives stellar returns along with tax benefits. As a

3. INADEQUATE INSURANCE AGAINST RISKS OF DEATH, DISABILITY,

PROFESSIONAL LIABILITY AND LOSS OF INCOME
Most of the people despite paying high premiums, are under insures when it comes to
life insurance in a big way. There is no assessment of the actual financial risk their family
will face, in case of their premature death, and most liabilities are not covered.
At the same time people have negligible or no professional liability cover, disability cover
and no income protection cover.
4. INVESTMENTS
CONSTRAINTS

DONE

IN

AN

AD-HOC

FASHION,

DUE

TO

TIME

An individuals portfolio should be consisting of equity related instruments, debt

instruments, some percentage invested in gold and some cash at hand for emergencies.
The
percentage diversification depends on the persons age and how much risk he is ready to
take.

5. LACK OF A FINANCIAL PLAN

Most of the people do not understand the concepts of financial goal setting, cash flow
and debt management, insurance planning, asset allocation, maximization of post-tax

retirement and estate planning, for the simple reason that there is no formal education in
personal finance or financial planning.
6. MYOPIC VIEW OF TAX PLANNING
Some people believe that the objective of tax planning is to minimize taxes and often
end doing things that are not in their best interest. They take several loans, buy real estate
and
life insurance in an unplanned fashion, and indulge in tricks to fool the taxmen such as
showing limited income or a weak balance sheet with the objective of paying low or no

1.3 CONCEPT ON WEALTH MANAGEMENT

The term wealth management also nowadays have very importance. The term wealth
management formed with two words wealth & management. Management is nothing but to
forecast and plan, to organize, to command, to co-ordinate and to control. The meaning of
wealth is Funds, Assets, investments and cash. Wealth Management is an all-inclusive set
of strategies that aims to grow, manage, protect and distribute assets in a much planned
systematic and integrated manner.

Wealthmanagement asan investment-advisory disciplineincorporates financial

planning, investment portfolio management and a number of aggregated financial
services. High-net-worth individuals (HNWIs), small-business owners and families who
desire the assistance of a credentialed financial advisory specialist call upon wealth
managers
to coordinate retail banking, estate planning, legal resources, tax professionals and

The starting point for the Wealth Management process begins with a financial plan. This
includes:

Cash flow
Estate planning
Retirement Planning
Tax Planning
Risk Management
Investment Analysis

The financial planning process normally consists of a series of steps taken to help the client,
accomplish their respective goals:
Identify your objectives
Write down the information pertinent to overall financial situation
such as income, expenses, taxes, insurance coverage, retirement
plans, investments, wills and trusts.
Review the current financial situation based upon the above
information

 Invest in mutual funds, real estate, gold and stocks depending

upon your goals and long term and short term objectives.
Carefully review your portfolio on a periodic basis and make
appropriate changes.

Wealth Management is the integration of Financial Planning, Investment Management, Tax

Planning, Estate Planning and Risk Management. The planning provides direction, meaning
and context to the financial goals. With proper planning and solid investment management
one can reach to desired financial goals.

1.3.1 FINANCIAL PLANNING

The principles of personal financial planning are really not too hard to understand and apply
and consist of the following steps -

10

1.

Creating a Personal Balance Sheet

2.
3.

Creating your own Financial Planning Pyramid

Budgeting and Prioritising

Personal Balance Sheet

Robert Kiyosaki, the well-known and renowned author of the best-selling book Rich Dad
Poor Dad, says that creating a personal balance sheet is the first and most basic step of
Personal Financial Planning

A Personal Balance Sheet is nothing but a way of calculating 1. Net Worth, and
2. Monthly cash-flow
Net Worth
The Net Worth is nothing but the Total Assets minus the Total Liabilities. Very simply,
Assets are things that put money in the pocket, and Liabilities are things that take money
out of the pocket.

Logically it follows that the higher the net worth the more secure one is financially.

Cash Flow
The monthly cash-flow is simply the Total Income minus the Total Expenses on a
monthly basis. This also means that the higher the cash-flow, the more disposable income
one

11

The Financial Planning Pyramid

The financial pyramid is the main part of the Financial Planning Process. The planning
process always starts with a base plan which is a written Personal Financial Plan.

The 5 main sections of the pyramid are outlined below:

1.
2.
3.
4.
5.

Protection
Regular Savings
Growth and Diversification
Speculation
Wealth Distribution

The Financial Planning Pyramid

The financial pyramid is the main part of the Financial Planning Process. The planning
process always starts with a base plan which is a written Personal Financial Plan

The 5 main sections of the pyramid are outlined below:

1.
2.

Protection
Regular Savings

3.

Growth and Diversification

4.
5.

Speculation
Wealth
Distribution

12

As one can see from the picture above, the personal financial planning pyramid relies on
having a solid foundation of protection on which the rest of the pyramid is set up.
Income Protection
Protection, or more appropriately Income Protection, revolves around the concept of
replacing income in case of unplanned events happening. So income replacement is
nothing

Medical Insurance
Medical insurance is meant to take care of immediate medical expenses for any medical
condition no matter how big or small. If one doesnt have medical insurance, one can end
up

Critical Illness Insurance

The next step after medical insurance is to take care of income replacement in case of
major
illnesses such as Heart Attacks, Cancer, Brain tumors, Multiple Sclerosis, etc.
Generally, critical illness benefits in most policies pay out a lump sum when any of the

Disability Insurance
As the name suggests, disability insurance replaces the income in case of disability
resulting

Life Insurance
Finally, Life insurance replaces income lost due to the death of the breadWills
Wills protect the income from falling into the wrong hands or not being distributed correctly
in case of ones demise.

Debt Reduction
Debt reduction is the most basic, and most important component of the Financial Planning
Pyramid. If one reduces the debts by planning the spending habits, one is in fact protecting
the income from loss and making it available to achieve the financial goals.
If the spending is out of control, one can start by taking stock where the money is being
spent.

Regular Savings
The next step in the pyramid is putting money aside towards the planned
Emergency Fund
Emergencies can happen at any time. The only way to survive without problems is to be
prepared. In financial terms it means that one needs to put aside at least six months of
income
13

Childrens Education planning

Putting aside money for childs higher education fees is the best gift parents can give their
children. Only proper planning can ensure that their future is secure.

Retirement planning
Financial independence during retirement is very important if one does not want to depend
on
someone else for their expense during the twilight years. Saving money now, to have a

Home ownership planning

Buying own house to live in is every persons dream at some point during their life. Like
other planned goals this goal can also be achieved by regular savings.

Lifetime aspirations
Life time aspirations like traveling across the world, buying the dream car, etc also need
proper planning and regular savings.

Growth and Diversification

This phase of financial planning should only be started once the first two phases have been
taken care of. Investing in stocks, bonds, mutual funds and ETFs require proper research
and
slightly higher understanding of how the markets and different asset classes work.
Proper research and patience is the key to succeeding in this phase. This phase is designed

Speculation
Speculation is not for the weak-hearted and generally also known as the wealthaccumulation
phase of financial planning. Different ways of getting into the speculation phase of investing
are by investing into high-risk asset classes such as Futures, Commodities, Forex and

Distribution
Distribution of the wealth built-up during the lifetime is the final stage of financial planning.
This can be achieved through proper estate planning and succession planning.

Budgeting and Prioritizing

Regardless of the number of goals a person has, it is seldom possible to start trying to
achieve
all of them at the same time.
Sometimes the monthly cash flow acts as a deterrence and sometimes the timing of each
goal

14

Budgeting
Budgeting as the word implies revolves around setting realistic targets or limits on different
categories of expenses that a person incurs in a month. But setting a budget is not as
difficult

Steps to set a Budget

Firstly, start by itemizing all the expenses or rather outlays of money for a month or
two.
Maintain a Microsoft Excel file for this purpose.
Try to establish an optimum amount for each expense based on past data that one
would accumulate in the excel file.
Set realistic expense targets for each month going forward.
Review the expenses every week to see if one is on target.
Make adjustments when necessary.

Prioritizing
This is the holy grail of personal finance. Nevertheless, it needs to be done. It is obvious
that
one cannot save for all goals completely starting today so everybody has to prioritize the

1.3.2 INVESTMENT MANAGEMENT

Many financial advising firms provide clients with ongoing investment management
services
on a fee-only basis. They manage diversified portfolios that are designed to meet clients
risk

A well-thought investment process is a critical element for success. The process

Diversification
By holding assets with different characteristics, a diversified portfolio can be better
positioned to weather market volatility. The more diversified the portfolio, the
greater

Tactical Asset Allocation

A dynamic investment strategy that actively adjusts the individual weightings of
each
asset class held in a portfolio. The goal of this moderately active strategy is to
improve risk-adjusted returns by changing/adjusting the securities held in the

15

Portfolio Rebalancing
Rebalancing involves selling securities that have performed well and moving to
securities that havent done well in other words, buy low and sell high. Proper
monitor of portfolios and make quarterly rebalancing adjustments to keep the
portfolio in line with its target asset allocation. Regularly rebalanced portfolios have
lower risk and similar or slightly higher returns than portfolios that have never been
rebalanced.

1.3.3 INCOME TAX PLANNING

Most of the salaried employees might have received a reminder from the HR for
submission
Broadly, there are three ways to pay optimal tax; Claiming tax free income, incidental
actions
Claiming tax free income:
One needs to submit documents to the HR. The tax outflow will automatically get managed.
These are applicable for salary components that are tax free in nature. Here is the list of
items:

In case one live in a rented apartment and want to make the HRA tax free: Submit 12
months rental receipt from owner
For making medical allowance tax free one has need to submit medical bills for the

year
To make leave travel allowance (LTA) tax free one has to need to submit travel
proofs
For conveyance allowance to be made tax free one need not do anything.

Incidental actions that bring tax benefits

One needs to submit following documents under this category:

Interest payment on the home loan- this qualifies under section 24

Principal re-payment on the home loan- this qualifies under section 80C tax rebate
Insurance premium receipts paid for the year- this qualifies for section 80C tax
rebate

rebate
Ones side contribution to employee provident fund (no proof to be submitted as the
HR already has the records) this qualifies for section 80C tax rebate
Mediclaim premium receipt- this qualifies for section 80D tax rebate

Parents mediclaim premium receipt- this qualifies for section 80D tax rebate

Education loan statement (mentioning the interest component)- this qualifies for
section 80E tax rebate

16

Investing/saving for tax benefits

Here is where one need to plan and act for managing the tax outgo. Broadly here one deals
with the provisions of Sec 80C/Sec 80 CCC, 80G and 80 CCG. Everybody is primarily
expected to invest in any of the products listed in these sections and in return they get the
benefit of paying lesser tax. But there is an upper limit to this. For both section 80C and
section 80CCC the upper limit collectively is Rs 1,00,000.

Section 80C/ 80CCC:

If the total claimed under 80C from the items that are listed in the above incidental
category
amounts to Rs 1,00,000, then one need not do anything. If in case the total amount is
total is

Public provident fund

Bank fixed deposits (the 5 yr thing)
Mutual fund-ELSS
ULIPs
National Savings Certificate (NSC)
Pension Plan

Only growth assets have the power to beat inflation in the long run. Equities, equity mutual
funds, gold and real estate have the power to beat inflation in the long run. Though they
are
riskier by nature, in the long run it delivers the best value. Income assets like fixed

Arranging the section 80C products as per the asset class:

Income assets
Public provident fund
Bank fixed deposits (the 5 yr thing)
National Savings Certificate (NSC)

Growth assets
ULIPs
Pension Plan
Mutual fund-ELSS

Section 80G
If one pays a donation to any recognized charity or relief fund, a part of the donation can
be

17

A few organizations like the Prime Ministers Disaster Fund enjoy 100% deduction which
means the entire donation paid is deductible from the salary. However, most other
donations
including several religious organizations enjoy only a 50% deduction. If anybody pays Rs.

Section 80CCG
This is the newly announced rebate from the government called Rajiv Gandhi Equity
Savings

One can invest a maximum of Rs 50,000

Tax rebate of 50%
Only for individuals whose annual income is less than 10 lacs
Investing in stocks for the first time
Investing in BSE 100, CNX 100, PSUs, certain mutual funds and ETFs (list)
Lock in of 3 year but can trade after 1 year

1.3.4 ESTATE PLANNING

Estate Planning is a process of accumulating and disposing of ones wealth, be it cash,
shares
or property in a systematic and pre-determined manner to a certain
beneficiary/beneficiaries
of ones choice. This process is carried out through the Trust route. The testator sets up a
Trust, which is manned by trustees appointed by him/her. The idea is to appoint third party

The first step to estate planning is making a will. One has the option of transferring ones
assets to its legal heirs either through will or estate planning. If an individual carries out
succession planning through Trusts, in one's life time, then the possibility of loopholes is
minimal. Moreover, an individual is perishable not the entire trust. There are evidences of
deceit by individual lawyers at the time of the execution of Will. So setting up of a Trust will
help especially those individuals who have a high net worth

There are some independent firms that specialise in such services. Recently, banks have
started offering Estate Planning services for their HNI and ultra-HNI clients. They mainly
include individuals, who have bank balances of a few crores of rupees. Banks and firms help
one in a range services. Apart from helping the customers write a Will, they help in
registering and safekeeping the Will.
Banks preserve the Will in physical form as well as in e-form. Banks also help in setting up
of the Trust, its registration, documentation management and execution. Over and above,
such banks take care of legal and regulatory requirements. Further, they also help in filing
tax
returns and settling liabilities of the Trust. Usually, these banks work in conjunction with

18

Chapter 2: IDBI- An Overview

IDBI Bank Ltd. is a Universal Bank with its operations driven by a cutting edge core Banking
IT platform. The Bank offers personalized banking and financial solutions to its clients in the
retail and corporate banking arena through its large network of Branches and ATMs, spread
across length and breadth of India.
As on June 28, 2013, the Bank has a network of 1111 Branches and 1794 ATMs. The Bank's
balance sheet reached Rs.3,22,666 Crore while it earned a net profit of Rs. 1882
Banks Profile
IDBI Bank Ltd. is today one of India's largest commercial Banks. For over 40 years, IDBI
Bank has essayed a key nation-building role, first as the apex Development Financial
Institution (DFI) (July 1, 1964 to September 30, 2004) in the realm of industry and thereafter
as a full-service commercial Bank (October 1, 2004 onwards). As a DFI, the erstwhile IDBI
stretched its canvas beyond mere project financing to cover an array of services that
contributed towards balanced geographical spread of industries, development of identified
backward areas, emergence of a new spirit of enterprise and evolution of a deep and
vibrant
capital market. On October 1, 2004, the erstwhile IDBI Bank converted into a Banking
company (as Industrial Development Bank of India Limited) to undertake the entire gamut
of
Banking activities while continuing to play its secular DFI role. Post the mergers of the
erstwhile IDBI Bank with its parent company (IDBI Ltd.) on April 2, 2005 (appointed date:
October 1, 2004) and the subsequent merger of the erstwhile United Western Bank Ltd.
with

Headquartered in Mumbai, IDBI Bank today rides on the back of a robust business strategy,
a
highly competent and dedicated workforce and a state-of-the-art information technology
platform, to structure and deliver personalised and innovative Banking services and

As on March 31, 2013, IDBI Bank has a balance sheet of Rs. 2.91 lakh crore and business
size (deposits plus advances) of Rs. 3.92 lakh crore. As a Universal Bank, IDBI Bank,
besides its core banking and project finance domain, has an established presence in
associated
financial sector businesses like Capital Market, Investment Banking and Mutual Fund
Business. Going forward, IDBI Bank is strongly committed to work towards emerging as the
'Bank of choice' and 'the most valued financial conglomerate', besides generating wealth

19

IDBI GROUP
IDBI Bank is a pioneer Institution in Nation building. To cater to its ever-expanding needs,
IDBI Bank has formed subsidiaries & joint ventures across diverse areas of Banking &
Financial System.
IDBI Capital Market Services Limited (ICMS)
ICMS, a wholly owned subsidiary of IDBI Bank, started as
a Broking and Distribution company in 1993. Currently its
businesses include Merchant Banking, Stock Broking,
Distribution of Financial Products, Corporate Advisory Services, Debt Arranging &
Undertaking, Portfolio Management of Pension / PF Funds & Research services.

IDBI Intech Limited(IIL)

IIL was incorporated in March 2000, as a wholly owned
subsidiary of IDBI Bank to undertake the IT related
activities of the Bank. The major business activities of the
company are Information Technology Services, Information Security Practices, National
Contact Center and Outbound Sales Team.

IDBI Asset Management Limited (IAML)

IAML was incorporated on January 25, 2010 and is a
subsidiary of IDBI Bank Ltd. IAML is the investment
manager of schemes launched by IDBI Mutual Fund, which
currently comprises of three open-ended equity schemes (IDBI Nifty Index Fund , IDBI Nifty
Junior Index Fund and IDBI India Top 100 Equity Fund), one closed ended growth scheme
(IDBI Rajiv Gandhi Equity Savings Scheme Series I Plan A), six debt schemes (IDBI
Liquid Fund, IDBI Ultra Short Term Fund, IDBI Short Term Bond Fund, IDBI Monthly
Income Plan, IDBI Dynamic Bond Fund and IDBI Gilt Fund) , two schemes in the Gold
category (IDBI Gold Exchange Traded Fund and IDBI Gold Fund) and eight Fixed Maturity
Plans.

IDBI Trusteeship Services Ltd (ITSL)

ITSL was incorporated on March 8, 2001 for carrying out
trusteeship and other related business. Consequent to
acquisition of additional 14.92% shares of ITSL on October
01, 2011, IDBI Banks shareholding in ITSL increased from 39.78% to 54.70% and it has
became a subsidiary of IDBI Bank. The companys present operations include, acting as
trustees to securitization transactions, acting as Bond/Debenture trustee, Security
trusteeship
assignments, Share pledge Trustee, Venture Capital Fund, Safe Keeping, Escrow Agency and

20

IDBI Federal Life Insurance Company Limited (IDBI Federal)

IDBI Federal is a Joint Venture Life Insurance Company of
IDBI Bank Ltd., The Federal Bank Ltd. and Ageas Insurance
International (Ageas). IDBI Federal commenced operations in
March 2008. IDBI Bank holds 48% equity shares in IDBI
Federal whereas Federal Bank Ltd. and Ageas hold 26% equity shares each. The Companys
life insurance business comprises individual life and pension and group life, including nonparticipating, health and linked segments.

IDBI Federal has Bancassurance partnership with IDBI Bank and the Federal Bank and also
distributes its products through its own network. To further diversify its distribution base, it
has set up an Alternate & Direct Distribution channel.

21

Chapter 3: History of Indian Mutual Fund 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 of India. The history of mutual
funds in India can be broadly divided into four distinct phases
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

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

At the end of 1993, the mutual fund industry had assets under management of Rs.47,004
crores.
Third Phase 1993-2003 (Entry of Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian mutual fund
industry, giving the Indian investors a wider choice of fund families. Also, 1993 was the year
in which the first Mutual Fund Regulations came into being, under which all mutual funds,
except UTI were to be registered and governed. The erstwhile Kothari Pioneer (now merged
with Franklin Templeton) was the first private sector mutual fund registered in July 1993.

The 1993 SEBI (Mutual Fund) Regulations were substituted by a more comprehensive and
revised Mutual Fund Regulations in 1996. The industry now functions under the SEBI
(Mutual Fund) Regulations 1996.
The number of mutual fund houses went on increasing, with many foreign mutual funds
setting up funds in India and also the industry has witnessed several mergers and
acquisitions.
As at the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805
crores. The Unit Trust of India with Rs.44,541 crores of assets under management was way

22

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 second is the UTI Mutual Fund, 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 graph indicates the growth of assets over the years.

23

3.1 Concept of 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 realised are shared by its unit holders in proportion to the number
of
units owned by them. A fund is a mutual as all of its returns, minus its expenses are
shared

A mutual fund is a type of professionally managed collective investment vehicle that pools
money from many investors to purchase securities. While there is no legal definition of the
term "mutual fund", it is most commonly applied only to those collective investment
vehicles
that are regulated and sold to the general public. They are sometimes referred to as
"investment companies" or "registered investment companies." Most mutual funds are
"open-

In the India, mutual funds must be registered with the Securities and Exchange Board of
India, overseen by a board of directors (or board of trustees if organized as a trust rather
than
a corporation or partnership) and managed by a registered investment adviser. A mutual
fund
serves as a link between the investor and the securities market by mobilising savings from
the
investors and investing them in the securities market to generate returns. Thus a mutual
fund
is akin to portfolio management services (PMS). Although, both are conceptually same, they

24

Mutual funds have both advantages and disadvantages compared to direct investing in
individual securities. Today they play an important role in household finances, most notably
in retirement planning.

3.2 Mutual Fund Investors and Organisation of a Mutual Fund

Mutual funds in India are open to investment by:
Residents including
Resident Indian individuals, including high net worth individuals and retail or small
investors.
Indian companies
Indian trusts/charitable/institutions
Banks
Non-banking finance companies
Insurance companies
Provident funds
Non-resident, including non-resident Indians
FIIs registered with SEBI. Foreign citizens are however not allowed to invest in
mutual funds in India.

Three key players namely the sponsor, the mutual fund trust, and the asset management
company (AMC) are involved in setting up a mutual fund. They are assisted by either
independent administrative entities like banks, registrars, transfer agents and custodians
(depository participants).

Sponsor
Sponsor means any person who acting alone or with another body corporate establishes a
mutual fund. The sponsor of a fund is similar to the promoter of a company as he gets the
fund registered with the SEBI. SEBI has certain guidelines to fulfil before registering a fund.
The sponsor forms a trust and appoints a board of trustees. He also appoints as AMC as
fund
managers. The sponsor acting directly or through the trustees, also appoints a custodian to
hold the fund assets. The sponsor is required to contribute at least 40% of the minimum net

25

A mutual fund can be sponsored by a bank, financial institutions, or companies whether

foreign or Indian or a joint venture between foreign and Indian entities. Following is the list
of average assets under management for the quarter of January March 2013
Average Assets under Management (AAUM) for the quarter of January - March 2013 (Rs in
Lakhs)
Average AUM
Sr No Mutual Fund Name

ExcludingFundof
Funds - Domestic but Fund Of Funds includingFundof Domestic
Funds Overseas

Axis Mutual Fund

1211433.78

14135.92

Baroda Pioneer Mutual Fund

730311.98

Birla Sun Life Mutual Fund

7704643.21

9785.77

BNP Paribas Mutual Fund

372604.32

BOI AXA Mutual Fund

110398.31

Canara Robeco Mutual Fund

885094.72

9310.53

Daiwa Mutual Fund

26612.79

Deutsche Mutual Fund

1811417.61

DSP BlackRock Mutual Fund

3234232.57

10

Edelweiss Mutual Fund

25870.75

11

Escorts Mutual Fund

25541.25

12

Franklin Templeton Mutual Fund

4156426.37

133227.16

13

Goldman Sachs Mutual Fund

479972.65

14

HDFC Mutual Fund

10172027.59

37553.75

15

HSBC Mutual Fund

522976.63

16

ICICI Prudential Mutual Fund

8783507.47

13292.37

17

IDBI Mutual Fund

624890.09

10115.39

26

18

IDFC Mutual Fund

3288599.23

18237.21

19

IIFL Mutual Fund

20969.89

20

Indiabulls Mutual Fund

263905.08

21

ING Mutual Fund

99258.98

33242.52

22

JM Financial Mutual Fund

741147.09

23

JPMorgan Mutual Fund

1585570.15

24

Kotak Mahindra Mutual Fund

3536135.09

58329.01

25

L&T Mutual Fund

1116937.85

0.00

26

LIC NOMURA Mutual Fund

718472.60

27

Mirae Asset Mutual Fund

53989.69

28

Morgan Stanley Mutual Fund

266036.68

29

Motilal Oswal Mutual Fund

53853.30

30

Peerless Mutual Fund

487452.26

31

PineBridge Mutual Fund

109905.16

32

PPFAS Mutual Fund

N/A

N/A

33

Pramerica Mutual Fund

259228.22

34

PRINCIPAL Mutual Fund

557346.12

35

Quantum Mutual Fund

27976.18

1277.76

36

Reliance Mutual Fund

9458019.07

227071.91

37

Religare Invesco Mutual Fund

1420202.50

2747.09

38

Sahara Mutual Fund

25383.24

39

SBI Mutual Fund

5490544.40

85483.43

40

Sundaram Mutual Fund

1487126.93

41

Tata Mutual Fund

1989709.46

27

42

Taurus Mutual Fund

473149.50

43

Union KBC Mutual Fund

311795.31

44

UTI Mutual Fund

6945039.72

81665715.79

653809.82

Grand Total

Trustees
The mutual fund can be managed by a board of trustees or a trust company. The board of
trustees is governed by the Indian Trust Act whereas a trust company is governed by the
Companies Act, 1956. The trustees act as a protector of unit holders' interests. They do not
directly manage the portfolio of securities and appoint an AMC (with approval of SEBI) for
fund management. If an AMC wishes to float additional or different schemes, it will need to
be approved by the trustees.

Trustees play a critical role in ensuring full compliance with SEBIs requirements.
Asset Management Company:
The AMC is appointed by trustees for managing fund schemes and corpus. An AMC
functions under the supervision of its own board of directors and also under the directions
of
trustees and SEBI. The market regulator has mandated the limit of independent directors to
ensure independence in AMC workings.
The major obligations of AMC include: ensuring investments in accordance with the trust
deed, providing information to unit holders on matters that substantially affect their
interests,
adhering to risk management guidelines as given by the Association of Mutual Funds in

Custodian and depositories:

The fund management includes buying and selling of securities in large volumes.
Therefore,
keeping a track of such transactions is a specialist function. The custodian is appointed by
trustees for safekeeping of physical securities while dematerialised securities holdings are
held in a depository through a depository participant. The custodian and depositories work

Registrar and transfer agents: These are responsible for issuing and redeeming units of the
mutual fund as well as providing other related services, such as preparation of transfer
documents and updating investor records. A fund can carry out these activities in-house or
can outsource them. If it is done internally, the fund may charge the scheme for the service
at

28

3.3 Structure of Mutual Fund Industry

A mutual fund collects savings from small investors that are invested in capital market
instruments such as government and corporate securities. The income earned through
these
investments in the form of interest & dividends along with capital gains realised are shared
by unit holders in proportion to the units owned by them. Any appreciation or depreciation

Before we start discussing about the various types of mutual funds, let us discuss some
frequently used terms in this industry
Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its liabilities. The per
unit NAV is the net asset value of the scheme divided by the number of units outstanding
on
Sale Price
Is the price one pays when one invest in a scheme. Also called Offer Price. It may include a
sales load.
Repurchase Price
Is the price at which units under open-ended schemes are repurchased by the Mutual Fund.
Such prices are NAV related.
Redemption Price
Is the price at which close-ended schemes redeem their units on maturity. Such prices are
NAV related.

29

Sales Load
Is a charge collected by a scheme when it sells the units. Also called, Front-end load.
Schemes that do not charge a load are called No Load schemes.
Repurchase or Back-endLoad
Is a charge collected by a scheme when it buys back the units from the
By Structure
Open-ended Scheme
In case of open-ended schemes, the mutual fund continuously offers to sell and repurchase
its
units at NAV. Unlike close-ended schemes, open-ended schemes do not have to be listed on
the stock exchanges and can also offer repurchase soon after allotment. Investors can enter
and exit the scheme any time during the life of the fund. Open-ended schemes do not have
a

There is no fixed redemption period in the open-ended schemes, which can be terminated
whenever the need arises. The fund offers a redemption price at which the holder can sell
its
units to the fund and exit. Besides an investor can enter the fund again by buying units
from
the fund at its offer price. Such funds announce sale and repurchase prices from time to
time.

Close-ended Scheme
Close-ended schemes have a fixed corpus and a stipulated maturity period ranging from
two
to five years. Investors can invest in the scheme when it is launched. The scheme remains
open for a period not exceeding 45 days. Investors in close ended schemes can buy units
only
from the market, once initial subscriptions are over and thereafter the units are listed on

In order to provide an alternative exit route to the investors, some close-ended schemes
give
an option of selling back the units to the mutual fund through periodic repurchase at NAVrelated prices. The NAV of close-ended schemes are disclosed generally on weekly basis. If
an investor sells units directly to the fund, he cannot enter the fund again, as units bought
back by the fund manager cannot be reissued. Close-ended schemes can be converted into

Interval Scheme
Interval scheme combines the features of open-ended and close-ended schemes. They are
open for sale or redemption during predetermined intervals at NAV related prices.
30

Portfolio Classification
Income Funds
The aim of income funds is to provide safety of investments and regular income to the
investors. It emphasizes current income, either on a monthly or quarterly basis, as opposed
to
capital appreciation. Such funds hold a variety of government, municipal and corporate
debt
Growth Funds
A diversified portfolio of stocks that has capital appreciation as its primary goal, with little
or
no dividend payouts. Portfolio companies would mainly consist of companies with aboveaverage growth in earnings that reinvest their earnings into expansion, acquisitions, and/or
Most growth funds offer higher potential capital appreciation but usually at above-average
risk. Growth funds are more volatile than funds in the value and blend categories. The
companies in a growth fund portfolio are in an expansion phase and they are not expected
to
pay dividends. Investing in growth funds requires a tolerance for risk and a holding period
Balanced Funds
A fund that combines a stock component, a bond component and, sometimes, a money
market component, in a single portfolio. Generally, these hybrid funds stick to a relatively
fixed mix of stocks and bonds that reflects either a moderate (higher equity component) or
conservative (higher fixed-income component) orientation.
A balanced fund is geared toward investors who are looking for a mixture of safety, income
and modest capital appreciation. The amounts that such a mutual fund invests into each
asset

Although they are in the "asset allocation" family, balanced fund portfolios do not materially
change their asset mix. This is unlike life-cycle, target-date and actively managed assetallocation funds, which make changes in response to an investor's changing risk-return
appetite and age, or overall investment market conditions.

3.4 Investment Classification

The funds can also be classified on the basis of asset class (type of securities) in which they
are invested.

31

Equity Funds
A mutual fund that invests principally in stocks is called an equity fund. It can be actively or
passively (index fund) managed. They are also known as a "stock funds". Stock mutual
funds
are principally categorized according to company size, the investment style of the holdings
The size of the fund is determined by company's market capitalization, while the
investment
style, reflected in the fund's stock holdings, is also used to categorize equity mutual funds.
Stock funds are also categorized by whether they are domestic or international. These can
be
broad market, regional or single-country funds. There are so-called specialty stock funds

Some of the popular equity fund categories are

Diversified
Special
Sectoral
Tax saving ELSS
Index
Funds-of funds
Derivatives Arbitrage Funds

Debt Funds
An investment pool, such as a mutual fund or exchange-traded fund, in which core holdings
are fixed income investments are called debt funds. A debt fund may invest in short-term or
long-term bonds, securitized products, money market instruments or floating rate debt. The
fee ratios on debt funds are lower, on average, than equity funds because the overall
management costs are lower.

The main investing objectives of a debt fund will usually be preservation of capital and
generation of income. Performance against a benchmark is considered to be a secondary
consideration to absolute return when investing in a debt fund.
Some of the popular debt fund categories are

Money Market/Liquid
Short term Bond
Long term Bond
Gilt
Floating Rate
Capital protection Schemes

32

Hybrid Funds
A category of mutual fund that is characterized by portfolio that is made up of a mix of
stocks
In the hybrid category, balanced funds tend to stick to a relatively fixed allocation of stocks
and bonds. Actively managed asset allocation funds tend to have portfolios with a mix of
stocks and bonds that responds to market conditions as perceived by the fund manager.
Passively managed asset allocation, life-cycle and target-date funds generally have a stockbond mix that changes over a lifetime, moving progressively from aggressive to more
conservative structures.

Hybrid Funds may be further classified into three types:

Equity-Oriented Funds These are defined as those schemes where the equity
holding
of the fund in domestic companies is around 65 70%.
ICICI Prudential Balanced Fund (G)
Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
66.54
N.A
30.5
N.A
N.A
2.96
N.A

SBI Magnum Balanced Fund (G)

Asset Breakup (May-31-2013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
69.26
0
21.55
N.A
N.A
9.17
N.A

HDFC Balanced Fund (G)

Asset Breakup (May-31-2013)

33

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
70.11
N.A
24.04
N.A
N.A
5.85
N.A

Debt-Oriented Funds These are

defined as those schemes where the investment in debt securities exceeds
Some of the top mutual funds under this category are
HDFC Monthly Income Plan - Short Term Plan (G)

Asset Breakup (May-31-2013)

Class
%
Equity
18.55
Others / Unlisted
N.A
Debt
67.19
Mutual Funds
N.A
Money Market
10.89
Cash / Call
3.37
Net Receivable / Payable
N.A

Reliance Monthly Income Plan (G)

Asset Breakup (May-31-2013)

Class

Equity

19.38

Others / Unlisted

N.A

Debt

78.1

Mutual Funds

N.A

Money Market

0.79

Cash / Call

1.73

Net Receivable / Payable

N.A

34

IDBI Monthly Income Plan (G)

Asset Breakup (May-31-2013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
16.69
N.A
48.06
N.A
N.A
35.26
N.A

Balanced Funds These are those funds

where 50% is invested in equity instruments and 50% debt
instruments.
Classification of Equity Funds
Diversified Equity Funds
These funds invest in equity shares and hold a diversified equity portfolio. These funds are
characterised as high risk investments as their returns are linked to the performance of the
stock market. They do not have any lock in period. They are further divided into three sub
categoriesLarge-cap Funds A term used by the investment community to refer to companies with a
market capitalization value of more than Rs 1000crores. Large cap is an abbreviation of the
term "large market capitalization". Market capitalization is calculated by multiplying the
number of a company's shares outstanding by its stock price per share. Some of the top
mutual funds in this category are

IDBI India Top 100 Equity Fund (G)

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
96.23
N.A
N.A
N.A
N.A
3.79
N.A

35

BNP Paribas Equity Fund (G)

Asset Breakup (May-31-2013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
91.95
N.A
0.07
N.A
9.3
N.A
-1.29

ICICI Prudential Focused Bluechip Equity

Fund (G)

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
95.53
0.39
N.A
N.A
N.A
4.05
N.A

Mid-cap Funds - A company with a market

capitalization between Rs 500crore and Rs
1000crore, which is calculated by multiplying
the number of a company's shares outstanding by its stock price. Mid cap is an abbreviation
for the term "middle capitalization".
Small-cap Funds These funds invest in equity shares of small companies with a market
capitalization of up to Rs 500crore. Some small and upcoming companies have the ability to
grow faster than the large caps and have the potential high returns. But these companies
need

Some of the top performing small and mid-cap

funds are
Birla Sun Life Small and Midcap Fund (G)

Asset Breakup (May31-2013)

Class%

36

Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
NetReceivable
Payable

96.36
2.1
N.A
N.A
N.A`
1.71
/
-0.17

DSP BlackRock Small and Mid Cap Fund (G)

Asset Breakup (May-31-2013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
98.55
0.42
N.A
N.A
N.A
0.71
0.32

Reliance Small Cap Fund (G)

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
93.62
3.83
N.A
N.A
3.42
-0.87
N.A

Sectoral/Thematic Funds
These funds restrict their investments to a particular segment or sector of the economy
such
as infrastructure, banking, technology, energy, real estate, power sector, health care,
FMCG,
Pharmaceutical etc. They are high risk, high returns investments and they generate high

37

Reliance Pharma Fund (G)

Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
97.61
N.A
0.02
N.A
2.67
-0.3
N.A

ICICI Prudential FMCG Fund (G)

Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
95.15
N.A
N.A
N.A
N.A
4.86
N.A

Franklin Infotech Fund (G)

Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
94.68
0.25
N.A
N.A
N.A
5.07
N.A

Index Funds
An index fund is a mutual fund which invests in securities in the index on which it is based.
It
invests only in those shares which comprise the market index and in exactly the same
proportion as the companies/weightage in the index so that the value of such index fund

38

has to merely track the index on which it is based. His portfolio will need an adjustment in
case there is a revision in underlying assets.
HDFC Index Fund - Nifty Plan

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
98.96
N.A
N.A
N.A
N.A
1.04
N.A

Reliance Index Fund - Nifty Plan (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
99.38
N.A
N.A
N.A
0.47
0.15
N.A

IDBI Nifty Index Fund (G)

Asset Breakup (May-31-2013)

Class
%
Equity
99.58
Others / Unlisted
N.A
Debt
N.A
Mutual Funds
N.A
Money Market
N.A
Cash / Call
0.43
Net Receivable / Payable
N.A

39

Tax Saving Schemes

Tax-saving schemes are equity-oriented schemes designed on the basis of tax policy with
special incentives to investors. Mutual funds have introduced a number of tax saving
schemes. These are close-ended schemes and investments are made for ten years,
although
Examples of tax saving schemes are equity-linked savings scheme and pension
Equity-linked Savings Scheme These are diversified schemes investing in shares of blue
chip companies. Returns in these schemes are linked to returns of the stock market. In
order
to encourage investors to invest in stock market, the government has given benefits of tax
concession through special schemes. Investments in these schemes entitle the investor to
claim an income tax rebate, but these schemes have a lock in period of three years before

Tata Tax Saving Fund

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
91.14
3.13
N.A
N.A
N.A
5.72
N.A

Franklin India Tax Shield (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
91.58
0
0.03
N.A
N.A
8.4
N.A

40

BNP Paribas Tax Advantage Plan (ELSS) (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
93.03
N.A
0.04
N.A
4.93
N.A
1.96

Pension Schemes These are balanced schemes which aim to provide regular income to
individuals after their retirement. Pension plans of insurance companies are more popular
as
Derivatives Arbitrage Funds
They are open ended equity schemes aimed to generate low volatility and better returns by
investing in a mix of cash equities, equity derivatives, and debt markets. This fund seeks to
buy stocks in the cash market and sell the corresponding stock futures to lock in the price
difference between the two, i.e., arbitrage spread. Some of the funds in this category are
HDFC Arbitrage Fund - Retail Plan (G)

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
66.51
N.A
20.81
N.A
N.A
12.68
N.A

SBI Arbitrage Opportunities Fund (G)

Asset Breakup (May-31-2013)

Class
%
41

Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

72.63
N.A
N.A
N.A
N.A
27.36
N.A

Kotak Equity Arbitrage Fund (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
67.24
-67.28
16.28
N.A
9.16
11.26
63.34

Classification of Debt Funds

Money Market Mutual Funds/Liquid Funds
They specialise in investing in short term money market instruments like treasury bills,
commercial paper, certificate of deposit and other money market instruments. They do not
carry either interest rate or entry or exit load. The objective of such funds is high liquidity
with low rate of return. Some of the top performing mutual funds in this category areIDBI Liquid Fund (G)

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
N.A
N.A
98.85
1.18
N.A

42

HDFC Cash Management Fund - Saving Plan (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
29.31
N.A
68.78
1.91
N.A

ICICI Prudential Liquid Plan Regular Plan (G)

Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
85.49
N.A
N.A
14.52
N.A

Short term Bond Funds

These are funds that seek to provide a high degree of liquidity, along with generation of
reasonable returns, by investing in a portfolio consisting of short term debt and money
market
instruments which mainly comprise of corporate bonds. Some of the top performing mutual
Birla Sun Life Short Term Fund (G)

Asset Breakup
(May-312013)
Class
%
Equity
N.A
Others / Unlisted
N.A
Debt
74.1
Mutual Funds
N.A

43

Money Market
Cash / Call
Net Receivable / Payable

21.77
4.12
N.A

Reliance Short Term Fund (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
83.24
N.A
15.39
1.37
N.A

IDBI Short Term Bond Fund (G)

Asset Breakup (May-312013)
Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
83.24
N.A
15.39
1.37
N.A

Long term Bond Funds

These funds invest in long term government dated securities and corporate bonds. The
market
price of underlying securities- government securities, bonds, debentures determine the net
asset value (NAV) of these funds. These securities carry high interest rate risk. There is an
inverse relationship between the interest rate risk and NAV of the bond funds. . Some of the

44

IDFC Dynamic Bond Fund - Regular Plan B (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
77.47
N.A
21.93
0.59
N.A

UTI Bond Fund (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
41.41
N.A
53.91
4.68
N.A

IDBI Dynamic Bond Fund (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
82.3
N.A
N.A
17.68
N.A

45

Gilt Fuinds
Mutual funds which invest exclusively in government securities, both central and state
governments are called gilt funds. These are safe as they do not carry credit of default
risk. .
Reliance Gilt Securities Fund - Retail Plan (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
89.47
N.A
13.39
-2.86
N.A

ICICI Prudential Gilt - Investment

Plan (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
97.21
N.A
N.A
2.8
N.A

Floating Rate Funds

These are non-traditional funds which invest in floating rate instruments. A floating rate
instrument is one where the coupon rate is reset periodically to reflect the current interest
assets. The coupon rate is linked to a benchmark rate which may be the overnight call
money
rate or Treasury bill rate. . Some of the mutual funds offered by companies in this category

L&T Floating Rate Fund (G)

Asset Breakup
2013)

(May-31-

46

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
3.46
N.A
80.11
19.66
-3.23

JM Floater Short Term Fund (G)

Asset Breakup (May-312013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
N.A
N.A
N.A
N.A
N.A
100
N.A

Capital Protection Schemes

Investing in equity markets is risky as there is a possibility of losing investments. Risk
averse
investors avoid investing in stocks and prefer low return assured schemes such as NSC,
Post
office monthly income schemes, provident funds and bank deposits etc. Capital Protection
Schemes aim at protecting the initial capital investment of the investor and do not

SBI Capital Protection Oriented Fund - Series

III

Asset Breakup (May-31-2013)

Class
Equity
Others / Unlisted
Debt
Mutual Funds
Money Market
Cash / Call
Net Receivable / Payable

%
11.67
N.A
81.71
N.A
N.A
6.63
N.A

47

Figure 1

Chapter 4: ANALYSIS OF THE

SURVEY
The survey was conducted among the people who
are salaried employees, doctors and self-employed
to get a holistic approach as to what they know
about the mutual funds. The survey is also aimed at
knowing the insurance awareness among the people
and whether people have insurance cover for them
and their family or not. Around 200 people were
surveyed.

Awareness of Mutual Funds

Figure 2

After analysing the primary data from the survey

it is inferred that quite a large percentage of people
are aware of the mutual fund industry. But still
some percentage of society does not know about the
know-how of mutual funds. All the mutual fund
companies should take a lot of effort in imparting
the advantages of investing in mutual funds.
Companies should follow rigorous marketing
strategies to create a sense of awareness about the
following advantages of the mutual funds-

Risk Diversification
Diversification reduces risk contained in a portfolio
by spreading it. It is about not putting all the eggs in one basket. As mutual funds have
huge
corpuses to invest in, one can be part of a large and well-diversified portfolio with very little

Convenience
With features like dematerialized account statements, easy subscription and redemption
processes, availability of NAVs and performance details through journals, newspapers and
updates and lot more; Mutual Funds are sure a convenient way of investing.

Liquidity
One of the greatest advantages of Mutual Fund investment is liquidity. Open-ended funds
provide option to redeem on demand, which is extremely beneficial especially during rising
or falling Markets.

48

 Reduction in Costs
Mutual funds have a pool of money that they have to invest. So they are often involved in
buying and selling of large amounts of securities that will cost much lower than when one
invest on its own
Tax Advantages
Investment in mutual funds also enjoys several tax advantages. Dividends from Mutual
Funds
are tax-free in the hands of the investor and also Capital Gain accrued from Mutual Fund
investment for a period of over one year is treated as long term capital appreciation and is

These are some of the many advantages which mutual funds offer and should be marketed
heavily to attract a lot of investors.
Systematic Investment Plan (SIP)
On the analysis of the data obtained from
survey it is found that a lot of people who
are aware of mutual funds have started
SIPs. But while doing the survey we came
across several bunch of people who have
not started any SIP rather they have
invested in mutual funds as lump some
money like a Fixed Deposit. Below is the
concept of SIP and why it is
advantageous-

A systematic investment plan (SIP) is an

Figure 3
option where one invests a fixed amount in a mutual fundat regular intervals.
It could be monthly or quarterly. The minimum investment amount in most mutual funds is
Rs 1,000 per month. The money may be transferred through ECS with standing instructions
also. Because it's systematic, a SIP helps one plan for the long-term goals along with the
short-term ones.
SIP ensures that cost averaging comes into play and allows one to benefit from volatility.
For
When you buy more units at a lower price (when the market falls) and lesser number
of units at a higher price (when the market goes up), you average out your investment
costs.
Suppose a monthly SIP is for Rs 10,000 and the fund's net asset value (NAV) is Rs 10. This
will result in 1,000 units being credited to you. However, next month, on account of volatile
market conditions, if the fund's NAV falls to Rs 5, you will get 2,000 units. This will lower

49

This concept is called Rupee Cost Averaging

SIP can be most effective when used in buying equity-based funds. The NAVs of these funds
can vary widely. Through rupee cost averaging a SIP can make this volatility work for ones
benefit.

Preferred avenues for people to invest

The following graph shows the preferred areas of investment of the

Figure 4

Gold Almost everybody invests in gold starting from middle class family to the rich class.
People tend to buy more when the gold prices are down. Gold only beats inflation. It fares
poorly when compared to real estate or shares when compared on the basis of real inflation
adjusted returns. But as we have seen recently those gold prices also fluctuate and
sometime
back gold prices suffered steepest fall in 33 years. So it has become a bit risky nowadays to

Real Estate There are varied opinions when comes to investing in real estate. Some
people
in India are convinced that real estate is a great asset. Some believe that is not a guarantee
of
investment and it is hard to be diversified, and illiquidity hampers portfolio
structuring. Consider investing in the best commercial real estate of Bombay -- Nariman
Point -- in 1994. The price was Rs.35,000 per square foot. Today, almost 20 years later, the
price is Rs.25,000 a square foot. Many real estate investments have done very well too and
have outperformed equities. The only point here is one should not mindlessly assume that

50

Stocks - Placing the personal finances in the stock market gives one the opportunity to grow
finances over the long-term. Many well-established companies also pay dividends to
investors, which increases the overall return on investment. But when investing in the stock
market, the higher the return the greater the risk of losing money. Stock market volatility
can
lead to a substantial loss of investment. Investing in the stock market is not like playing the
lottery. One needs to perform research and investment analysis to find potentially profitable
stock. For many individuals, investing in the stock market is a time-consuming, complex
task. Although many investors implement a long-term buy and hold strategy, it is important

Mutual Funds As we have discussed above that there are a lot of advantages in investing
mutual funds, there are some disadvantages also in investing in these funds. Generally,
most
actively managed mutual funds have not beaten their benchmarks over the long-term.
Some
funds have hidden fees like management fees, custodial fees, and transfer fees which
reduce
total amount of return. Moreover, many mutual funds charge loads (sales charges) and 12b1
fees, which also reduce the total amount of return. Mutual funds are subject to both marketrelated risks and asset-related risks, particularly in very concentrated portfolios, which are

Fixed Deposits and Public Provident Funds Almost everyone participated in the survey
has a fixed deposit or had done a fixed deposit in a bank or has a PPF account. These are
the
safest instrument available in Indian financial system. The only disadvantage of fixed
deposit
and PPF is the rate of return. Debt mutual funds are actually a substitute of fixed deposits
and
equally safe as described above, which most of the people are not aware of.

IDFC Dynamic Bond Fund - Regular Plan B (G)

13.0%

SBI Magnum Income Fund (G)

13.4%

So one can consider investing in these debt

funds instead of going for a FD in future.
Liquid Funds
There is very less percentage of people who
know about the liquid funds. These type of
funds are being offered by most of the mutual

51

Figure 5

fund companies. These are a perfect substitute of a savings bank account. Normally a
savings
bank account offers interest rate of about 3.5 4%. A Liquid fund normally offers rate of

Insurance awareness
The statistics obtained about the insurance cover about the people showed that everybody
has
insurance cover for themselves and their families. LIC and other insurance providing
companies have done a good job in creating the awareness about the need of insurance
cover
among general public. Although if the overall population of India is considered, still a lot of
people have not taken any insurance cover. A product called Term Cover also needs to be
marketed as it helps to cover the liabilities in case of any unfortunate death of the earning
member of the family. An individual should have around 50lakhs to 1crore term cover. This

RECOMMENDATIONS
1. One should invest in mutual funds as they offer a wide variety of options. An investor
should assess its long term goals, present income, long term liabilities, short term
liabilities, liquidity requirement, risk assessment and current expenses. After
identifying all the above factors, then invest the money in a mutual fund of
appropriate debt to equity ratio. Check the funds past performance and how the
benchmark has performed and how much the fund has been affected by the market
demand and supply before investing in it.

2. Start investing through Systematic Investment Plan (SIP) if one is new to investing in
mutual funds. It lowers the risk of the investor as it brings the rupee cost averaging
effect in buying the units. One can monitor a funds performance over a year or so
and then can rebalance the portfolio in case the fund has not performed fairly well as
compared to its benchmark.

3. Debt long term funds are a better option than fixed deposits and public provident
funds as they offer higher rate of returns and they are equally safe as the former
Debt long term funds normally offer 8 10% of rate of interest over a year while a
fixed deposit gives a rate of 8.5 8.75% and same with the case of public provident
fund over the same duration.
52

4. Surplus money which is lying in a savings bank account can be parked in a liquid
fund which act as substitutes of the former and are offered by a lot of mutual fund
companies. Money put in a savings bank account normally gives a rate of interest of
around 3.5 4% that too quarterly or half yearly. In a liquid fund, one can get
on a daily basis and there is no exit or entry load in it.

5. Quite a high percentage of people are insured under LIC and different insurance
schemes offered by a lot of other private players. There is a need to market and
a sense of awareness of Term cover among the people as most of the people are not
aware of the benefits of the scheme.

53

Chapter 5: CONCLUSIONS
After the completion of my internship in IDBI, I came to know the concept of wealth
management and what are the different factors on which it is dependent on. As my project
mainly focused on mutual funds, I came to know about the history of mutual funds, how it
started, what is the current scenario of the industry, various types of mutual funds, how the
organisation of mutual fund industry is set up and what are the different advantages and
disadvantages of investing in mutual funds.

While coming across various types of mutual funds, we found that equity related funds are
riskier than the debt or the money market mutual funds. The level of riskiness depends
the amount of exposure of equity stocks in a particular fund. I also came to know the
top funds performing in various categories.

The advantages of SIP were brought about and a lot of substitutes of various conventional
investment instruments were also studied. The various other avenues at which people
normally prefer to invest are touched upon and the risks involved in each are
A survey was also conducted to study the investment awareness among the Indian society
which people from all backgrounds were involved.

Overall it was a very good experience learning all these things and creating awareness
people about the mutual funds and its advantages over other investment

54

REFERENCES
Books:
The Indian Financial System (second edition) by Bharati V. Pathak.

Annexure: Survey

Financial Planning by CNBC TV 18.

Simplifying Financial Jargons TATAThe

Mutual
Funds.
questionnaire
for the survey conducted was as follows:-

INVESTMENT AWARENESS PROGRAM

Websites

www.ibdimutual.com

1. Which age group do you belong to?

www.moneycontrol..com

30-3535-40 40 and 20-30

above
}
}}
}
}}
Yes / No
2. Are you aware of mutual funds?

www.mutualfundsindia.com
www.bseindia.com

3. Have you started any SIP (Systematic Investment

YesPlanning)?
/ No

www.sebi.gov.in

4. Are you satisfied with theYes

services?
/ No
5. Do you know about liquid
Yesfunds?
/ No
6. Is your family well Yes
insured?
/ No
7. Are you aware of the various health insurance
Yes
schemes?
/ No
8. Is your portfolio being managedYes
properly?
/ No
9. Which among the following do you prefer to invest your funds into?
StocksMutual Funds
Real Estate
Gold
}
}
}}
}
}
}Public Provident Fund}
Fixed Deposits
}
}
}
}

55

56